Tricia Meyers - IR Mark Millett - President & CEO Theresa Wagler - EVP & CFO Russ Rinn - EVP, Metals Recycling Operations Glenn Pushis - SVP, Steel Operations, Long Private Steel Group.

Brett Levy - Seelaus Capital Curt Woodworth - Credit Suisse Novid Rassouli - Cowen & Company Seth Rosenfeld - Jefferies Timna Tanners - Bank of America Merrill Lynch Phil Gibbs - KeyBanc Capital Markets Charles Bradford - Bradford Research Sean Wondrack - Deutsche Bank.

Good day and welcome to the Steel Dynamics Fourth Quarter and Annual 2017 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 23, 2018 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, Brenda. Good morning, everyone and welcome to Steel Dynamics fourth quarter and full year 2017 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 Private Steel Group; and Barry Schneider, Senior Vice President, Flat Roll Steel Group.

Some of today's statements which speak only as of this date, may be forward-looking and predictive, typically preceded by believe, expect, anticipate or words of similar meaning; they are intended to be protected by the Private Securities Litigation Reform Act of 1995 should actual results turn out differently.

Such statements involve risks and uncertainties relating to our steel, metals recycling and fabrication businesses, as well as the 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 on any later SEC Form 10-Q.

You will also find any reference to 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 2017 Results. And now, I'm pleased to turn the call over to Mark..

Thank you, Tricia. Good morning and happy 2018. Welcome to our fourth quarter and full year 2017 earnings conference call. We appreciate you sharing your time with us this morning. I'd like to thank the entire SDI team for the dedication and exceptional performance last year.

Along with the support of our customers, vendors and shareholders, we collectively achieved best-in-class results. Most importantly, we did safely; safely than ever before.

On many measures 2017 was a record year both operationally and financially; record steel and fabrication shipments, record operating income of $1.1 billion, record EBITDA at $1.4 billion, and the momentum continues. The underlying positive market fundamentals coupled with our own growth initiatives, I was really excited for the coming year.

With the beginning this morning, I'll ask Theresa to comment on our results..

Thank you, Mark. Good morning, everyone and I want to share my [ph], congratulations to the entire SDI family. It really was a tremendous year on many fronts and numerous milestones as Mark mentioned were achieved.

Record sales of $9.5 billion with increased price gain over all our platforms and record steel and fabrication volume, record pretax earnings of $935 million and EBITDA of $1.4 billion. And as Mark said, most importantly, we accomplished all of this with record safety performance.

To recognize into our appreciation for the tremendous performance of the team in December we paid well-deserved $1,000 cash performance over to each non-executive eligible employee totaling just over $7 million. Full year 2017 net income was $813 million or $3.36 per diluted share which included the following items.

Third and fourth quarter debt refinancing charges totaling $15 million and a onetime tax benefit of $181 million resulting from the revaluation of our deferred tax assets liabilities in connection with the recently enacted U.S. federal tax cuts [ph].

Our current estimate for our 2018 effective tax rate, federal and state combined, was between 24% and 25% which is meaningfully free from our recent history where we were close to 35%. Excluding these items we still achieved record annual net income of $641 million or $2.55 per diluted share.

For the fourth quarter our net income of $305 million or $1.28 per diluted share. Excluding the onetime tax benefit of $0.76 that was unknown and specifically excluded at the time of our guidance and the fourth quarter refinancing cost of $0.02 per diluted share our fourth quarter 2017 adjusted net income was $0.54 per diluted share.

Consolidated fourth quarter 2017 revenues were $2.3 million, 4% lower than the sequential quarter while operating income was $196 million representing a 28% sequential decline; both declines were result of lower shipments and metal spread in our field operations.

Specifically for the fourth quarter field shipments decreased 4% sequentially across both in flat roll and rolling bar divisions to 2.4 million tons. Steel metal spread also compressed as our average quarterly sales price declined $17 per ton in the fourth quarter and our average scrap costs consumed only $305.

Off note though, of the $17 decline in average pricing, $9 per ton was actually associated with mixed shift and most of that was in the flat roll.

Our Columbus and Butler flat roll divisions also successfully completed planned improvement averages which resulted in less shipments and increased cost in October reducing fourth quarter earnings by approximately $27 million.

As a result, the fourth quarter operating income of $207 million from our steel operations, about 26% less than prior to our third quarter. For the full year our steel operations achieved numerous performance milestones resulting in record volume of 9.7 million tons and operating income of $1.1 billion.

Annual metal spread also improved as average sales price increased more than our average scrap costs.

For our metals recycling platform; ferrous metal spread stayed steady in the fourth quarter to slight lower average quarterly scrap price; conversely non-ferrous shipments and metal spreads improved resulting in fourth quarter 2017 operating income of $22 million.

The teams did a great job optimizing cost throughout the business, they achieved full year operating income of $85 million, this is more than double last year's recycling performance. We are effectively levering the strength of our vertically integrated model which benefits both the steel mills and the scrap operations.

The mills recycling group shipped 53% of their fair scrap to our own steel mill increasing scrap quality, efficiency and reducing working capital. In fabrication our 2017 operating income was $22 million, for the full year the team achieved getting another year record shipments and order backlog remains very healthy.

2017 fabrication operating income was also strong annually but it declined slightly to $88 million based on higher priced steel input. We generated strong cash flow from operations in 2017 at $740 million and free cash flow after success of investment of $575 million.

Operational working capital also grew at $251 million during the year based on the overall market improvement resulting in higher customer accounts and inventory value. Full year capital investments totaled $165 million. We maintained our fourth quarter cash dividend at $0.155 per common share after increasing at 11% in the first quarter of 2017.

We repurchased $252 million of our common stock in the year and have $173 million still available pursuing to the $450 million board authorized program which was initiated in October 2016. We believe these actions reflect the strength of our capital structure and liquidity profile and the continued optimism and confidence of our future.

Based on our strong cash flow generation we maintain liquidity at $2.2 billion with $1 billion in cash and $1.2 billion of available funding our revolving credit facility.

The strength of our through cycle cash generation coupled with strong credit and capital structure profile provides great opportunity for continued organic and transactional growth. We're squarely focused at one-track for the continuation of sustainable optimized value creation. Thank you, Mark..

Super, Theresa. For concerning safety, the team did a phenomenal job last year achieving the seventh consecutive year of improved safety performance. Each of the platforms sent me records; we reduced our total recordable injury rate by a further 18% while two-thirds of our locations were incident free.

Clearly, the safety conversations [ph], actions and programs that had taken place throughout the company are having an impact. The safety and welfare of our employees will remain our number one priority for all time.

My sincere thanks go to the entire SDI family for an outstanding job but as always, I challenge each of us to remain focused and to strive toward our ultimate goal, a zero incident environment everywhere we work. As Theresa outlined, the steel platform continue to perform at the top of the industry in 2017.

Our production utilization rate was 92% for the full year and 89% from the fourth quarter; once again, markedly better than the domestic industry rate of approximately 74%. This is due in large part to our having one of the most diversified and value added product portfolios in the industry.

With over 11 million tons of annual shipping capability, we still have well over 1 million tons of latent availability as the markets continue to strengthen. Demand from the construction and energy sectors continues to improve. We're also seeing better demand for our heavy and off-road equipment and more general industrial manufacturing accounts.

Demand from the automotive sector is still strong, although lot has peaked from a historical perspective it is expected to be incrementally higher than last year. Fortunately, we continue to gain market share, especially at the Columbus flat roll division with our focus on automotive direct sales.

We also benefit there from a cost effective access into Mexico where forecasts continue to show increasing automotive great steel demand. Domestic steel consumption improved by 5% or 6% for the year and we believe it will grow further in 2018.

But steel imports also rose in '17 by over 15% representing over 30% of domestic consumption; this just really hasn't changed. We're considered one of the lowest cost steel producers in the industry.

We are ready to compete and we want to compete but we must have a level playing field, we can't compete with unfair trade practices such as those occurring today.

While I'm pleased with the recent decline in out roll imports related to the successful past trade cases and the DOC affirmative decision on Chinese circumvention through Vietnam, the tremendous that Chinese subsidized over capacity remains a problem.

In particular, there are still massive imports of structural and fabricated structures [ph] coming in from China and historically high imports of coded flat roll along with [indiscernible] from Asian countries using Chinese steel.

I believe that after an affirmative National Security finding under 232 by the DOC the President will be provided possible ways to reset the game to enforce the rules. President Trump needs to provide a meaningful remedy that helps maintain and revitalize the U.S. steel industry while the Chinese overcapacity issue is being addressed.

But as usual, we remained focused on things we can control. For example; we continue to position Steel Dynamics for the future through new investment in our existing operations. A few that occurred during 2017 include the $16 million investment to the added galvanizing capacity at our steel of West Virginia plant.

This value-added service is ramping up well beyond expectations and is expected to provide less than a two-year payback. $15 million investment that upgraded our Butler flat roll divisions galvanizing line also adding an additional 180,000 tons of value added coding capacity; this project will have less than a one-year payback.

Our $100 million investment and a new paint line at the Columbus flat roll division began operating in the first quarter of 2017. The new line provides 250,000 tons of annual coding capability and further diversification into some of our highest margin products.

Complementing the two existing paint lines in Indiana, this new line is a state-of-the-art facility producing high quality HVAC appliance products and double-wide steel. As geographic location also facilitates economic access to the Southern U.S. and Mexican markets; it is on-track to be running close to full capacity by mid-year 2018 this year.

Columbus continues to be a significant earnings catalyst. The changes the team has already made are transformational and there are still more to come including production gains, value added product mix shifts and additional costs savings.

The successful market and product diversification achieved over the last three years is one of the key differentiators for our improved through cycle profitability and will continue to benefit the coming years as well. Despite an improving non-residential construction trend, non-product capacity utilization remained challenged at 75%.

Much of the increased demand over the last three years has been absorbed by imports of standard beams and shapes along with a considerable volume of prefabricated structural steel.

Improved fabricated steel imports have increased over 80% in the last five years alone; nonetheless, the team did a good job and our long product shipments improved 9% year-over-year. But to ensure higher future through cycle utilizations, we're investing in our long product steel mills.

We have three specific initiatives to increase the utilization of our structural rail division which has been running at an average of 75%. First, we're growing the production of SBQ quality blooms [ph] to send to our engineered bar divisions as that division now has excess rolling capacity.

This should improve through cycle utilization at both facilities. Over the next 18 months, we plan to increase this volume to an annualized rate of close to or above 150,000 tons. And we're well on our way that with 29,000 tons transferred just this past quarter.

Second, we further diversified the mills product offerings and recently began the production of large unequal leg angles and heavy clamps which is entering the market and we plan to sell as much as 100,000 tons annually. Third, we're investing $75 million to utilize existing access melting and casting capability there.

This expansion will further diversify our product portfolio and market sector exposure through the annual production of 240,000 tons of reinforcing bar including spooled, custom, cut-to-length and bar.

Our intended business model should substantially enhance the current supply chain providing meaningful logistic yield and working capital benefits for the customer. In addition, we will be the large independent rebar supplier in the Midwest region, and we plan to begin operations of that facility by the end of 2018.

In aggregate, these initiatives provide for over 500,000 tons or over 25% of potential additional annual utilization of our structural and rail division over the next 18 months. We believe this can provide a material improvement in future through cycle utilization and profitability.

We're also investing $28 million to utilize excess melting and casting capability at our rolling and bar division. We are adding equipment that will allow for multi-strand slitting and rebar finishing of 200,000 tons per year.

Similar to our Midwest investment, we expect to have strong market penetration as we will be the one of the largest independent producers of reinforcing bar in the Virginia area as well. Equivalent commissioning which has started and the team plans to begin selling the product at the end of the first quarter of 2018.

Our metals recycling platform recorded a tremendous performance in 2017. Despite selling a few non-core locations during the year the team is able to maintain volume while increasing metal spread and reducing cost throughout the year; the result and the earnings more than doubled. Trans scrap flow has been steady and we expect it to stay that way.

The weather did slow the flow of obsolete scrap in December and a gain in January; this coupled with an uptick and export activity has timed the market a little low but we expect flows to pick up and the pricing environment to stabilize as the year progresses.

Fabrication platform also delivered an incredibly strong performance with another year of record shipments and strong earnings. Our order backlog remains strong; the ongoing strength for this business and continued customer optimism is a solid indicator that the non-residential construction market is continuing to grow.

As an added benefit, our fabrication platform purchased over 330,000 tons of steel from SDI steel mills in 2017. The power of this pull-through volume and we saw steel internally from our own mills is a significant catalyst for higher steel utilization rates. This pull-through strategy remains one of our focuses for ongoing growth.

We remain confident that the markets conditions are in place to benefit steel consumption in 2018. Domestic steel inventory levels have moderated, world steel demand and pricing has structurally improved. Domestic steel demand remains healthy and we believe consumption will grow in 2018.

Our business model and the execution of our long-term strategy continue to strengthen our financial position through strong cash flow generation demonstrating our sustainability and differentiating us from our competition.

Customer focus coupled with market diversification and low cost operating platforms supports our ability to maintain our best-in-class financial performance and differentiation. The Company and the team are poised for continued organic and transactional growth.

Our phenomenal team provides the foundation for our success and I thank each and every one of them for their hard work and commitment and remind them safety is always our 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 all of us in the years ahead. So again, thank you for your time today and Brenda, we'll take questions now..

[Operator Instructions] Our first question comes from the line of Brett Levy with Seelaus Capital. Please go ahead with your question..

Can you just give a little bit of an update on the Section 232 Case?.

Well, I think anything we give might be a speculation. I think we're probably as close as anyone to it but I wouldn't put money on the table other than I think it's going to be positive.

Just generally in trade, we're very happy and as we anticipate in our last call, the anti-circumvention ruling against Vietnam was very, very positive and I think that's going to end up flowing into other countries as well and Vietnam itself imported about 450,000 tons of coated product in last year.

So that's generally positive, more specifically, the past trade cases have eroded in volumes in certain areas such as [indiscernible].

But volumes in general remain incredibly high as the Chinese subsidized overcapacity just remains in place and I think it's in several areas that is a problem that is honestly in cover sheet and galvanized on a flat roll side, those are at record import levels last year.

And also in structural, we're still seeing about 1 million tons of straight beams coming in along with about 1.2 million tons of fabricated or pre-fabricated structures; so you have about 2.2 million tons of structural imports against 5 million or 6 million ton market, so that is a major issue along with [indiscernible] imports from Korea.

And that's where I think Section 232 can have the greatest impact, I do believe there will be a positive remedy; if you just look at yesterday's announcement about washing machines and solar panels, I think it just gives you insight as per the climate and the thinking of the administration and I'm very, very confident that the administration will give a positive room for us..

And you addressed most of this but I mean I'm just going to ask for a little more granularity; if you look across your product mix, what are the products that are most likely to be as your best guess against the type of investigation and commentary that you've heard from the government on 232? What are the product areas that most likely to benefit? And what are the products areas that are least likely to benefit?.

I think I've already enumerated the three principal areas Brett; coded I think will be a big benefit for us particularly in let's just say -- building products, it can come around at a higher rate.

Type 2 [ph], although we don't produce it directly obviously the energy market is a huge -- the largest consumer, at least historically of hot roll coil, and if that tightens up, hot roll coil which is already tight today is going to be a very desired commodity.

And I think just a structural -- the pre-fabricated structure would be huge for us along with which is a straight structure.

When you have 2.2 million tons of that product coming in, and literally it's 5 million ton market, I think that would have tremendous impact because obviously structural products much in mill and also Columbus City is running at low utilization -- relatively low utilization as compared to [indiscernible]..

Our next question comes from the line of Curt Woodworth with Credit Suisse. Please go ahead with your question..

So first question is on capital allocation; it's from the balance sheet and clearly free cash flow capability they share with lower tax rate would suggest that in addition to acquisitions, you have pretty substantial wherewithal to return cash back to the shareholder either through central dividend or increasing and enhancing the share buyback.

And so outside of the acquisition opportunities, can you comment on the potential return capital back to shareholders this year?.

I think our general strategy is going to be no different this year than the past years. Our absolute focus and priority is organic growth because there we have the most effective capital sort of efficiency and return on our money.

Secondly, transactional growth, we continue to see opportunities, we've been disciplined and careful but we see good opportunity there for great returns.

And secondly or thirdly, we continue our sort of positive dividend profile; we'll remain conservative there, we recognize as we send them past dividends or private [ph], it's an absolute number, we don't necessarily yield the absolute number which is today but on $45 million but I would expect to see a continued positive profile there as our through cycle cash generation profile continues to improve.

And we will continue to complete the shareholder -- the share repurchase plan we have..

Okay. And then with respect to the acquisition opportunities, can you comment on preference for either growing upstream or downstream and then there has been obviously more development of HBI capability in the U.S.

and discussion of more merchant pig iron development; are those -- would be coming backward integrated than raw materials be something that you would entertain or look to partner into?.

We've had a lot of experience in that field and I would suggest we don't see a good use of our cash in the HBI arena or in the merchant pig iron facilities at least as we see it today.

Our focus remains in three essential areas; one, steel, obviously, we first and foremost sort of low cost efficient steel producers, so wherever we can infuse our culture and our experience, the turnaround in existing operations, strengthen the market that will be a major continued focus.

Our folks are extremely good, obviously advanced stream sort of processing and so that is a focus. And thirdly, pull-through opportunities at least utilize their own steel and pull-through the supply chain to increase our through cycle utilization is a focus..

Our next question is coming from the line of Novid Rassouli with Cowen. Please go ahead with your question..

You had relatively upbeat comments regarding the automotive market, both this morning as well as last and in the release.

I was just wondering if you can provide some detail regarding some of the commentary and the release last night; you mentioned gaining momentum in the automotive sector? And then any comments on development or progress on the Columbus automotive direct sales initiative?.

Specific to auto, I think we gained incredible traction. I think a day before that [ph] put sort of direct auto team together and restricted our focus not away from but parallel to our primary or original sort of supply chain through processes.

But that direct approach has been very, very positive for us; we -- I think shipped about 220,000 tons of automotive from Columbus just last year which is a massive increase and we're on platforms to increase that to about 400,000 tons over the next 18 months as new platforms come into play.

So it's firstly the capability of the mill down there and we have a great team, I think is building confidence in the auto producers and they are also very, very confident about our balance sheet and partnering with us and our partnership is going to last 5, 10, 15 or 20 years; I think that strengthened our position..

I think some of the European automotive production really appreciate our sustainability model as well and if that pull cycle or pull-through sustainability of our older cycle; so I think that [indiscernible] in a relationship perspective..

And the auto-mix is still around 15%; is that about right?.

Yes, that's about right, that's correct..

And the ultimate target; you guys have a target in mind for the percentage of mix of auto-shipments?.

I think we're pretty well there at Butler, I know that 30% of our output is going into automotive, again principally through processors. And I'd like to see automotive at Columbus at round about 420,000 tons and capital [ph]..

If you guys could just help out how you're thinking about metal margins into 1Q and throughout 2018; it looks like we should see a decent uptick in 1Q but any thoughts around metal margin would be helpful. Thanks..

Again, looking long-term, the scrap environment comment more but we look at a relatively steady scrap environment through the year going forward. Obviously, a little tight on the [indiscernible] this past month as the weather impacted flow and Turkey [ph] came in the market.

But absent any massive impact from Turkey [ph], I think we're looking at scrap kind of sideways through the year and I believe that on the product side things are going to get tighter than they are today, it's incredibly good -- sort of macro environment.

You've got generally a global environment that's been more positive than we've seen in many years and you've got stronger demand within China, their pricing continues to go up, the Asian arbitrage is not attractive currently. European pricing is probably higher than on a diluted basis today than their domestic pricing.

So the global environment is very positive; you've got positive demand trends domestically, silver center inventories are relatively low. OM [ph] is surprisingly buoyant along with coking coal, so the raw material push for the integrated increased the global cost of coke and I believe influence are going to continue to moderate.

So from a pricing perspective, I see pricing that continued an upward trend. So spreads in general, longer term, they are going to be positive..

Our next question is coming from the line of Messy [ph] with Goldman Sachs. Please go ahead with your question..

Now let me ask this on recycling; we've been hearing a lot about issues with transportation, the effects there in the scrap market is straightway popping, driver something for better pay, and if you have the weather in the east and the southeast, apparently we can have with some equipment in New Year.

I guess first; what's been the effect in your own recycling ops on these transportation stresses, if any? And then second, how was truck availability, your steep changes in freight or both, how is that effective deliveries are caused and the other frictions among the rest of your system whether internally or among customers?.

Certainly we've experienced the same issues that you talked about.

Yet again, although it extends back to the change in the rail systems and in different functions the major rail rigs are taking the major rail where they serve us is actually pushing the smoother trait [ph] on the trucks which is making it a little bit more demand and has increased the bubble of the cost and the availability.

I think long-term we do operate some of our own fleet, we do also operate some of our own rail cars, I think we want to position to be able to take -- to maximize our efforts in it but I think it is going to be a problem, we are going to see -- continue to see issues with primetime and retain drivers, both internal and also I think the trucking companies fall in line as well.

So I think it's going to be an industry-wide issue that we all have to face which is higher rate cost more importantly..

Now let me switch over and ask a little bit of fabrication; you've talked about solid backlog, encouraging customer engagement, etcetera. If all your volume is up impressively 25% year-over-year, clearly pricing hasn't been able to keep up though with the benchmarks in steel and so you're down year-over-year in dollar terms on operating margin.

Can you help me square the health of the market with that profitability crunch? I mean are your customers undercutting you with cheaper sourced pre-fab steel? Are you being more aggressive on price to take the share -- what's the situation that's unfolding?.

We have the flexibility in the raw material we use, and there are times which are advantageous for us to use more collateral versus merchant. And as the spread has increased between merchant and flat roll, some of our advantages has deteriorated at that.

The market is healthy, the demand is strong, it's literally just a matter of merchant not keeping pace with flat roll, we leverage flat roll more with our competitors, so our competitors have tended to hanging down the amount of merchant number and not necessarily allowing us to use much -- increase price as much with the care thing [ph]..

Matt, I would just add; if you think about it from the fabrication, from order or kind of from bidding to work to deliveries, it probably about 8 to 12 weeks in that timeframe until with that the steel prices add their marking up consistently which flat roll has really done pretty much this year; it's hard to catch up but then once you're not in stability, not where the team and the fabrication side really has the opportunity to pass that through..

Do you think that type of stability both in raw material costs and then, also I guess what pricing you're able to push through as you expect that to show up as you move over the next couple of quarters?.

Obviously..

I think to highlight that business, the team has done a phenomenal job leveraging our national footprint there. And yes, we don't have record possibility, we have record shipments, the team continues to gain market share and I think 2018 is going to be a very good one for us.

I think again, it's also a lot of optimism for us because inside into the non-residential construction arena that continues in online to be incredibly strong and growing..

Our perspective there has probably never been as obvious as we enter '18. Our backlogs in the east are -- initially out of the country are flat to slightly down while our backlogs in the west are starting to be well over 30% higher than they started last year. So we're better positioned to follow up wherever they maybe than ever before..

Our next question comes from the line of David [ph] with BMO. Please go ahead with your question..

Obviously, you know, forward-looking expectations imply a big rebound in results which makes sense given everything going on, given your comments on this call but just to try and make sure we have the timing and the trajectory of that.

Recovery reasonably calibrated, I have four questions; first, given the insights you have on order books, product mix, can you give us more color on the magnitude of the expected volume recovery in 1Q '18 versus 4Q '17? Second -- I'm just going to rattle these off and then you can just answer them.

Second, I think the steel operation segment EBITDA per ton in the first quarter of '17 was $106.

Given the current environment, given the shifts in your product mix; should we expect 1Q '18 EBITDA per ton to be higher than that 176 figure from the prior year? Third question, can you just remind us again, how much of your volume has some pricing lags; I think there are some with two to three month lags? And then the fourth, what's the total expected capital spending for 2018?.

I'll try to shape-in but I'm afraid we're not going to help build the monologue with detail but -- I'll start with the order book and the magnitude has changed from a volume perspective.

We don't give specific guidance related to that and I think that helps to understand that but what I would say is that we are expecting volume improvement in the first quarter versus the fourth quarter; one, because the seasonality in the fourth quarter and the second is because we had probably at least 500,000 tons of less flat roll shipments because of the plant outages which -- actually we're very successfully completed I think sometime in your writing mention that we longer than anticipated, it wasn't, they were just longer outages because there were some additional work to be done.

So all in all, the flat roll will expect higher volumes, we think the market is strong and we're expecting to see the higher volumes of fabrication are exceeded along product side as well, the magnitude of which we all provided on the call.

From an EBITDA per term perspective, again, we try to give directional guidance and so we believe that there is definitely a pricing momentum on the flat roll side which helps to beat some of the long product side as well and SBQ is doing really, really well; we're seeing a lot of strides in that market.

And so with that we would expect to see -- it would be anticipatedly higher average pricing again with lateral coming back as well.

And on the scrap side, the scrap is high right now so we can see scrap -- these -- at least higher prices for a bit but then we see it moderate throughout the rest of the year; so I would like you all decide what you think will happen the first quarter.

Related to the lag in orders for flat roll are probably closer [ph], 50% now of the volume that is lagging to CRU index; so that really lags initially about two to three months. So that's the lag on the flat roll side now and on SBQ, it's still very small, maybe 15% tied to some sort of tightening.

So otherwise, we're definitely still in the spot -- spot market company.

And then as a release to 2018 capital expenditures, we would expect to be somewhere around $250 million for the year and that includes about $80 million to $85 million remaining from both the round of rebar investment and then the structural rebar investment as well; and we tend to have about $100 million to $120 million that we would call not sustaining and the rest of that are efficiency project.

So looking at the steel notes, we have some in fabrication as well. That could change during the year as the team continues to develop projects but right now that would be our best estimate..

That's helpful, thank you. I'm not trying to ask you to build the model out, just trying to avoid the risk of irrational exuberance; so any color is helpful. I appreciate it, thank you..

Our next question is coming from the line of Seth Rosenfeld with Jefferies. Please go ahead with your question..

So the question on your outlook for electrode cost please; I know you commented on the last quarterly call as well but can you give us a bit more color on where your 2018 contract settled and both when and by what scale you expected to hit your P&L? Just thinking back, over the last quarter we saw spot prices for electrodes pull back quite meaningfully in late autumn and then rally once again, did that ultimately change your pricing expectations versus when we last spoke? Thank you..

I think we're still in line with what we said on the last call. And fortunately our long standing relationships with the current electrode produces positive for us and we have committed supply for the year. About roughly half of our supply is sort of contracted on a fixed price for the year while the other half is still on a quarter-by-quarter basis.

The impact to us is probably in the region of about $8 per steel ton year-over-year '18 versus the last year; so it's still well less than 1% of our conversion rate..

And just a separate question, going back to the flat steel division; I know for a while -- now you've been talking about that business basically operating at max utilization; we continue to see volumes kind of surprise in upside.

I'm wondering if you can comment on what sort of incremental volume growth is realistic in flat or on the other side of the coin, with the mix improvement at both Butler and Columbus, might that actually lead to lower yield looking forward? Thank you..

Well, the team always surprises for the positive. The Butler facility -- again, record production last year, right after 20-plus years of operation and every year they improve and improve and improve. So Butler, I wouldn't say standout, it's still going to ease out a little bit but it's getting there.

On the Columbus side, our focus for the past couple of years has been more product development, product diversification, getting into new markets and we're there today, and also -- more on our cost structure; the shift there will be in productivity across all the different lines and there are round about 3.1 million tons last year or so.

Typically, we've been able to get 10% more out of our assets. All right, Barry [ph] is smiling at me across the table here but again, that's -- it's a phenomenal facility and I'm sure we can stretch that one, yes..

I would just kind of summarize; that we actually have over three -- probably close to 350,000 tons of extra capacities and today on the flat roll side and that's improved in value added mix as we start to ramp up the paint line which is still not being utilized fully, we don't get there by the middle of next 2018 results volume and upgrade at margins capability but we also have off our 300,000 tons of SBQ which is our second highest margin product, that's available based on 2017 shipments.

And you have about 700,000 tons in the [indiscernible] between structural and rebar [ph]. So we've got close to 1.4 million tons of additional latent capacity network fall of it that's still available to us and that's without additional projects that tend to come about from time to time..

Our next question comes from the line of Chris [ph] with Deutsche Bank. Please proceed with your question..

A quick question just on the tax rate changes; so you guided to 24% to 25% going forward.

So for the books rate, in terms of the CapEx changes on the 100% CapEx expensing and the rate measurement you've done now on deferred tax assets and liabilities; what -- how do we think about the cash tax rate going forward? Is that going to be pretty close to the book rate or is there some deviation over 2018?.

It could be slightly less than 2018 with the expensing of the fixed asset but not appreciably though I would still stay in that range. From a modeling perspective, I think you will be closer but there could be some reduction and again, just depends on the CapEx spend.

So right now you know how they ignore that and I would say we're somewhere around 24.5%..

Just in terms of the talk of NAFTA and I noticed you chatting earlier about the plans with the ode of exposure at the Columbus mill; how do you think about any potential renegotiations and how that might end up?.

Again, being a little speculative but I believe the negotiations are -- kind of ongoing. I think they meet in (Montreal yesterday or today) I do believe.

I think if you look at the trade balance and the importance of Canada, maximum to the U.S., it is an extreme issue for that agreement to be council, I'm sure it's going to be negotiated, I'm sure it's going to be modified to some degree, it's 25 years old, so it probably needs some tweaking.

But we're quite confident that [indiscernible] Mexico is going to continue to strike..

Our next question is coming from the line of Timna Tanners with Bank of America. Please go ahead with your question..

I just want to follow up on the capital allocation question to the extent that you can provide any color there I know.

On the last call I had in my notes, you were talking about aggressive buybacks while you were waiting to deploy cash and this quarter seemed to slow down so maybe I misinterpreted but I just want to ask about that and then see if I can get a little bit more color from you on the types of opportunities you would consider?.

From aggressive buyback perspective, Timna, we do have opportunistically and systematically really had to do more with the program that we had in place and so I would more efficiently -- we plan to finish the current authorization of $173 million and we re-evaluate from that point forward depending on where we are.

We feel this is same as we did back in three or four calls, so I wouldn't read anything into that, so that's the only one existing way back in the fourth quarter.

Mark?.

And from a standpoint of transaction, again, I'm not going to elaborate anymore other than the focus is steel. It is sort of value added processing and pull through sort of volume type opportunities..

And note, there are opportunities that are sizeable, so that's….

And you had said in the past that you could look at several deals adding up to a value that resumes kind of the leverage that you've had in the past with your recent debt metrics kind of it -- what we calculated to be 11-year lows; is that still the case?.

I don't know, I haven't calculated in 11-years, this is our 25th year anniversary.

So I would say that Tenor [ph] is a completely different company, both in size and capability and so it's natural that our credit metrics have improved because in the past we've not let dilute shareholders, by issuing equity we really prefer to use that market to -- we're very thankful and very supportive with it.

So I do believe that there are deals that will put additional leverage on the company but at a very appropriate position..

Next question comes from the line of Michael [ph] with JP Morgan. Please go ahead with your question..

I have a question on one of your competitors with those announced acquisitions [indiscernible]. I'm just wondering, how do you view the implications with Steel Dynamics not just on the fabrication….

Michael, I'm sorry you are cutting out. Can you -- we only heard -- I think if you want to ask the question about the CMC acquisition but we couldn't hear anything after that..

Yes, on the CMC acquisition I was just wondering the implications that you see if any on your scrap business, rebar business and the fabrication business going forward?.

On the scrap business Michael, there is no real overlap of influence.

Russ?.

I think from our perspective I don't think it changes the landscape to a great degree. I think to begin they are not necessarily in our footprint, those acquisitions and I think again, as all opportunities in scrap, if we've got it available at the right price they will buy from us, if we don't they won't..

And I think on the product side Michael, the supply and demand balances are changing just as the nameplate on the company so to speak. It is positive that CMC has started to get into a little more -- sort of coil remodel and again, that actually helps us as customers do like optionality and I think it's going to improve our profile there..

And on the fabrication?.

The fabrication is a different type of fabrication Michael. So what we do in choice with that arena is that what CMC does with their fabrication, so I think there will be no impact..

Yes, as we enter our push is to supply to independent sort of third-party fabricators, we're not coupling our output of rebar to actual fabrication itself. So it really sets us aside from our new core and CMC competitors in rebar..

Just going back to the 232 Mark, what would you think is the best outcome in terms of the format for 232?.

I've had a conversation with some folks in the industry and they put a matrix together and I think there were a dozen of different speculative outcomes and as I suggested the group, I think it's a [indiscernible] because who the hell knows what is going to be presented.

I do believe it's a combination or individually but tariffs and/or quotes [ph] -- but again, it's speculative for us to comment..

Based on historical patterns, it's kind of one of the few ways if not the only way to get around the circumvention issue if you include the existing tariffs that are out there -- basically everybody is the only way to address this circumvention which I think is the heart of the issue?.

I would agree.

We were very excited that the circumvention case got traction like it did, our ultimate further case is to help that but in a sense it's much like we mentioned in the past, it's [indiscernible] that you got to go and file these cases, it takes a lot of time and money to research every one of these; so 232 would be a broader and swifter action if they were in fact to cover some of these things but we're going to diligently pursue the remedies we're on and things that we can control in the meantime hoping to see what resolution is brought forth by the administration..

Our next question comes from the line of Phil Gibbs with KeyBanc. Please go ahead with your question..

Mark, I had a general question on the energy markets in terms of what your customers are telling you there and any color you can provide on the SBQ feel backlog momentum in that light?.

The momentum is -- I would say is almost incredible. Across all spheres, all segments with the exception of agriculture. I think energy is surprising us and we're getting some customers back today, particularly in the heavier diameters with 3-inch to 6-inch which has gone into the seamless pipe; so that is a good sort of tailwind for us.

Afterload equipment our customer base is indicating some pretty massive growth, like 20% plus this year as is the truck industry.

So I think generally and we've always said in the past that energy rebar tends to be for us sort of a bad weather indicator to the steel consumer and economy as a whole; and when that kicks in, it brings me a lot of confidence, a lot of optimism going forward..

And any color on the SBQ backlog Mark relative to maybe last quarter?.

Backlogs are up.

Glenn?.

Yes, they are slightly up, it's robust. So spend good past six months for sure..

And Theresa, any color you can provide on the flat roll mix in Q4?.

No, I apologize. So for the fourth quarter, we had rolled anti-no [ph] shipment for 869,000 tons, so for the total year it was 3,530,000 tons. For cold roll it was 112,000 tons in the quarter, where a total of 527,000 tons for the year. And for coated [ph], it was 678,000 tons or a total of 2,880,000 tons for the year..

Next question comes from the line of Charles Bradford with Bradford Research. Please go ahead with your question..

Question about the expansion rebar project at Columbus city; the capital cost -- I think you mentioned $80 million more to go but what's the total cost for that capacity?.

I'll check and start, [indiscernible] has confused everyone. There is two rebar project; the one at Rono [ph] which will be starting here at the first quarter, that will be $28 million; and the one [indiscernible] in total, that will be $5 million.

So it's a total of about $107 million for those three of our projects and there are some carryover into next year for that capital but the total for Columbus city is $75 million..

But given some of your competitors adding new rebar capacity, it stands still higher capital cost than what you seem to have.

What kind of operating cost advantage do you expect?.

Significant. I think you hit the nail on the head and that's why organic opportunities for us are so effective.

And one has to recognize not only is the installation or the overhead cost low for the installed tons but the added utilization, you know, you add 250,000 tons to a mill that's doing 1.3 million last year, the overhead across all tons comes down dramatically. So the return is incredibly attractive..

Yes, for the structural mill there is the 500,000 tons of additional full capacity with the three initiatives that Mark mentioned earlier and one pending the growth to the rebar division, the second is the [indiscernible], and the third component of the most significant in volume is this rebar project which to come online into this year.

If we increased capacity at the structural division better than in ton, that's about $20 to $25 per ton benefit in cost conversion across all the volumes; so it is really meaningful to have these initiatives in place..

Do you have a figure for what your total shipments to what AISI [ph] called military and other ordinance might have amounted to last year?.

Chuck, I'm sorry. If it was informed me, I would have no idea, I would have no way of guessing..

On an area that maybe a little bit more significant; your focus on the automotive, do you have any information on what the difference might be between the steel content of an electric vehicle made by someone like General Motors versus a more standard vehicle maybe in percentage terms or whatever measure you might have?.

I'm looking around the room, we're all shaking our heads to be specific and not give you a number..

It depends on the type of automobile but also the types of seals, so while flat roll may decrease slightly, we may see an increase of SBQ in those cars but the transmissions in the drive trains; as far as the flat roll; still we do anticipate some material changes.

So the net effect will be a smaller content with steel in most cases but it does change because without the big engine and there are some structural members of the car they are added; so we're more interested in what the net changes and the type of parts and where our seals can find happy homes in these cars in the future.

So while the content may shrink a little bit, we look at opportunities growing both of SBQ and flat roll to fill these new needs..

Our next question comes from the line of Sean Wondrack with Deutsche Bank. Please go ahead with your question..

When we think about moving forward into the next few months with scrap looking to be sort of sideways as you explained and your lag to basically realizing the higher sales prices; should we expect kind of that dynamic to move in the right direction where you should have steel prices moving a little higher but scrap being kind of move sideways?.

I think we expect that over the longer term through these, yes..

And then just quickly -- somebody mentioned it earlier but your debt metrics are really strong at this point; I mean they are one turn net leverage, you generated a ton of free cash flow even after share buybacks, have you got in discussing with the rating agencies, you're right on the cusp of lessoning grade [ph].

Is there anything we should expect there or have you been speaking with them? Could you give us anymore color there please?.

Yes, we had an active dialogue with the agencies, we have to really track their relationship with them, and so we're now -- I agree with you, our credit metrics are partly strong and definitely I would say they are investment grade today and frankly, when you look at our issuances on the debt market and the capital market, we're getting very good pricing there as well.

But the idea that we're really are traditional right now is transactional growth and transactional growth that we think could be meaningful.

We really do want to use our balance sheet versus our equity or [indiscernible]; and so I think right now it's more of a unique timeframe where we're positioned from going over thinking there is growth opportunity that we just kind of --we're having conversations with them that we feel pretty good at where we are at the moment..

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

Thank you, Brenda. And thank you for those that may still be on the call. I think I will look our position as a company is phenomenal as we move into and through 2018.

We have a general upward momentum for the markets in general, SDI has been outlined, we have a considerable number of sort of internal catalysts, earnings catalysts that differentiate us from our peer group I do believe. And then any two sections to clear two action, our infrastructure bill is just going to compound that and be cream on the top.

So we're looking for a phenomenal year and we want to share that with you all and any customers and employees, any community members on the call too; thank you for your support, we can't do this without you all and we were just recently by Fortune Magazine what everyone wants, worlds most admired, or one of the most admired companies; again, we have almost 8,000 employees driving -- drive us towards that and thank you all.

Have a good day, be safe..

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