Tricia Meyers - IR Mark Millett - President & CEO Theresa Wagler - EVP & CFO Russ Rinn - EVP, Metals Recycling Operations Chris Graham - VP, Steel Fabrication Operations, Downstream Manufacturing Group Glenn Pushis - SVP, Steel Operations, Long Private Steel Group Barry Schneider - SVP, Flat Roll Steel Group.

Novid Rassouli - Cowen Matthew Korn - Goldman Sachs Chris Terry - Deutsche Bank Brett Levy - Seelaus & Company Seth Rosenfeld - Jefferies David Gagliano - BMO Timna Tanners - Bank of America Merrill Lynch Phil Gibbs - KeyBanc Capital Markets Chris Olin - Longbow Andreas Bokkenheuser - UBS John Tumazos - Very Independent Research Charles Bradford - Bradford Research.

Good day and welcome to the Steel Dynamics First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's remarks, we will conduct a question-and-answer session and instructions will follow at that time.

Please be advised this call is being recorded today, April 19, 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, Christine. Good morning everyone and welcome to Steel Dynamics first quarter and full year 2018 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 First Quarter 2018 Results. And now, I'm pleased to turn the call over to Mark..

Thank you, Theresa. Good morning everybody. Welcome to our first quarter 2018 earnings call. As always, we truly appreciate your time this morning and look forward to sharing our great start to the year. The entire SDI team drove an exceptional safety and operational performance. And event at 25 years, our innovative spirit prevails.

Butler, our very first steel facility is still achieving a new record or new record production levels as are the Columbus, Structural and Rail and Engineered Bar divisions.

We also received recognition from the Steel Manufacturers Association for last year's safety performance at our Columbus, Structural and Rail, Roanoke Bar and Techs Steel divisions, so congratulations to all the folks. But to begin this morning, Theresa will comment in more detail about our first quarter results..

Thank you, Mark. Good morning everyone. Thank you for your time today. I also want to thank the team for safe and incredible first quarter performance. Our first quarter 2018 net income was $228 million or $0.96 per diluted share.

This compares to net income of $201 million or $0.82 per diluted share in the first quarter of 2017 and $305 million or $1.28 per diluted share in sequential fourth quarter. Excluding the one-time tax benefit in the fourth quarter and refinancing cost, the fourth quarter adjusted earnings were $0.54.

Our results were above guidance of between $0.88 to $0.92 per share due-to-higher than expectation March flat roll production and shipment. The Butler and Columbus team truly executed at exceptionally high level, each exceeding monthly production records in March.

We achieved record revenues of $2.6 million in the first quarter driven by our steel operations. Operating income increased 65% to $323 million compared to the fourth quarter, a solid performance by everyone, although the steel platform drove the increase.

For the first quarter 2017, steel shipments increased 7% sequentially to a record 2.5 million tons with growth achieved at each division across the platform. Steel metal spreads expanded meaningfully as our average quarterly sales price increased $61 to $822 per ton and our average scrap cost consumed only increased $21 to $321 per ton.

The result was first quarter steel operating income of $338 million, a sequential 65% improvement. For our metals recycling platform, ferrous metal spread improved in the first quarter with a 7% increased in shipments related to higher domestic steel mill utilization, resulting in operating income of $28 million, a 24% improvement sequentially.

We are effectively levering the strength of our vertically integrated model, which benefits both the steel mills and the scrap operations. The metals recycling group shipped 65% of their ferrous scrap to our own steel mills, increasing scrap quality, mill efficiency and reducing working capital requirement.

First quarter 2018 operating income for our fabrication operations decreased slightly to $20 million as improved average selling value were more than offset by seasonally lower shipments. The March order backlog is strong and higher than it was at this time last year.

This coupled with customer optimism supports our belief in continued demand strength in 2018. However, higher raw material field costs are likely to significantly compress margins in the second quarter of this year. During the first quarter 2018, we generated cash flow from operations of $178 million.

Operational working capital grew 199 million, based on overall market improvement resulting in higher customer account and inventory values.

Additionally, there are several annual payments made in the first quarter of each year such as company-wide profit sharing and annual performance-based incentive compensation which this year required cash payment of over $130 million in the quarter. First quarter capital investments were $51 million.

We currently estimate full year 2018 capital investments to be in the range of $250 million. We increased cash dividends by 21% in the first quarter. This follows increases of 11%, 2% and 20% in '17, '16 and '15 respectively, demonstrating our confidence in the strength of our through-cycle cash generation.

We also repurchased $69 million of our common stock during the first quarter and have $103 still available pursuant to the $450 million board authorized program, which we initiated in October 2016. We believe these actions reflect the strength of our capital structure and liquidity profile and the continued optimism and confidence in our future.

We maintain liquidity as $2.2 billion of March 31, 2018 with $1 billion in cash and short-term investments and $1.2 million is available funding under our revolving credit facility.

The strength of our through-cycle cash generation coupled with the strong credit and capital structure profile provides meaningful opportunity for continued organic and transactional growth. We are squarely positioned for the continuation of sustainable optimized value creation.

And for those of you that track our flat roll shipments by type, in the first quarter, we had shipments for hot-rolled and P&O of 875,000 tons. We had cold-rolled shipments of 134,000 tons and we had coated which includes both galvanized, Galvalume, and painted products of 734,000 tons.

Thank you, Mark?.

Superb. Thank you, Theresa. Well safety is and always will be in the fabric of our company our number one priority. During the quarter, we've reduced the total recordable injury rate a further 14% as compared before the year 2017 with the 84% of our locations achieving zero recordable injuries.

The team really is doing a great job and you have my sincere appreciation. But as I do every day, I challenge all of us to remain focused and to keep moving towards our ultimate goal of zero injuries everywhere. The steel platform executed extremely well, achieving record quarterly shipment.

As mentioned, several divisions attained record production and shipping records. We also continue to develop new product capabilities adding to one of the most diversified and value-added product portfolios in the industry.

As a result, we operated at the utilization rate of 94% during the first quarter, once again markedly better than the domestic industry rate of 76%. With 11.4 million of annual shipping capability, we still have 1.2 million tons of annual latent capacity to sell as the markets continue to strengthen.

Domestic still consumption remains strong in the automotive and construction sectors, while energy and general industrial demand continue to grow. The automotive sector is not turned over as some expected with the current 2018 growth expectations for both the U.S. and Mexico, more than offsetting any possible contraction in Canada.

We continue to gain automotive market share at the Columbus Flat Roll division, driven by a focus on automotive direct sales and leveraging our cost advantage related to free costs into Mexico.

As mentioned on the January call, increased demand for special bar quality steel also continues, which supports our belief in the broader industrial sector momentum. In fact, our Engineered Bar Products Division achieved record quarterly shipment level, and we have some 200,000 of additional capacity yet to leverage as demand grows.

We continue to position Steel Dynamics for the future through the new investment and our existing operations, a few notable investments occurred in 2017 which will continue to show incremental benefits in the coming year.

An $18 million investment to add bit galvanizing capacity in our Steel of West Virginia plant started up in September as this value-added service is ramping up very, very well, a $15 million investment that upgraded our Butler Flat Roll Division's galvanizing line while also adding 180,000 of value-added coating capacity.

The $100 million investment in the new paint line at our Columbus Flat Roll division began operating in the first quarter of 2017. The line provides 250,000 tons of annual coating capability and diversification into some of our highest margin products.

Complementing our two existing paint lines in Indiana, this line is state-of-the-art facility producing high-quality HVAC, appliance and double-wide steel. This location facilitates lower costs logistics for the Southern U.S. and Mexico markets.

Columbus ship 36,000 tons of painted products in the first quarter of 2018 and the team is on track to be running at 90% capacity by mid-year 2018. Columbus continues to be significant earnings catalyst and I believe the changes have been transformation and there is still more to come.

We would expect production gains, continued value-add product mixed shifts and additional cost savings. The successful market and product diversification achieved over the last three years is one the key differentiators for our improved through cycle profitability.

Relative to long products, the improving construction and industrial markets coupled with our organic initiatives resulted in increased capacity utilization of our long product steel mills to 80% for the quarter. We have three specific organic initiatives to increase the through-cycle utilization at our Structural and Rail Division.

First, we are growing the production of SBQ quality blooms to send to our Engineered Bar division, which currently is still short and needs blooms to fully utilize its rolling capability. This will improve through-cycle utilization of both facilities.

During the first quarter, the team shipped over 36,000 tons, an annual run rate of 144,000 tons for year, which is well on our way to the anticipated transfer of over 200,000 tons in our recently strong SBQ market environment. Second this year, we further diversified the product offerings to include large equal and unequal length angles.

We plan to eventually sell 100,000 tons annually, but we’re just entering these markets. Third, we are investing $75 million to utilize existing access melting and casting capability there.

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

Our intended business model should substantially enhance the current supply chain, providing meaningful logistic yield and working capital benefits to the customer. In addition, we will be the largest independent rebar supplier to the Midwest region. We’re on schedule to begin operations there in the first quarter 2019.

In aggregate, these three initiatives provide over 500,000 tons of additional annual shipping capability at the Structural and Rail Division. It will provide a material improvement in future through-cycle utilization and profitability. We’ve also investing $38 million to utilize excess melting and casting capability at our Roanoke Bar Division.

We’ve added equipment to allow multi-stand slitting and rebar finishing of 200,000 annual tons. Similar to our Mid-West investment, we expect to have strong market penetration as we will be one of the largest independent producers of rebar in the mid-Atlantic region.

But atypically, the project was delayed by several months due to some design and equipment issues. However, equipment commission is now in process and the team plans to begin selling products in June. Our metals recycling platform also had a strong quarter.

Higher domestic steel mill utilization supported improved ferrous shipments and metal spread expansion. Prime scrap flows has been steady. And with a solid automotive build, we don’t expect that to change. With better weather, we also expect obsolete scrap flows to improve.

Good supply, coupled with a weak export environment, should sustain stable pricing as the year progresses and we believe there is more than adequate scrap supply to address the higher domestic steel mill utilization rates.

The fabrication platform also delivered a solid performance, although profitability marginally decreased from seasonally lower shipments. Our order backlog remained strong heading into the summer construction season.

The ongoing strength for this business and continues customer optimism is a solid indicator that the non-residential construction market is continuing to grow.

Our fabrication operations continue to purchase steel from our own steel mills and the power of pull-through volume when we source steel internally from our own mills as a significant catalyst for a higher through-cycle steel utilization rates. This pull-through strategy remains one of our focuses for ongoing growth.

We remain confident that market conditions were in place to benefit domestic steel consumption throughout the year. Domestic steel inventory levels remain reasonably balances, where steel demand and pricing have improved.

Based on strong domestic steel demand fundamentals and customer optimism, we believe improving steel consumption will continue during the year.

We also believe recent trade actions will result and reduced imports later coming months despite the first quarter uptick driven by temporarily exempted countries pushing in material prior to the May 1st deadline. Additionally, we believe tax reform will provide a stimulus for addition success at investment and growth.

In combination with our expansion initiatives, we believe these are firm drivers for our growth in 2018. Our business model and execution of our long term strategy continues to strength our financial position through a 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 differentiation and has provided an enviable balance sheet. The Company and the team are poised for continued organic and transactional growth.

It is the team, our team that provides the foundation for our success and I thank each 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 customers for our company, employees and shareholders are like and look forward to creating new opportunities for us all in the years ahead. So again, thank you for your time today. And Christine, please open the call for questions..

Thank you. [Operator Instructions] Thank you. Our first comes from the line of Novid Rassouli with Cowen. Please proceed with your questions..

I first wanted to touch on Section 232 on imports. So given that all -- to my understanding, given that all exemptions with respect to 232 expire on May 1st, I guess excluding South Korea given the new agreement there, the market could extremely tight in the near term.

Can you give us a sense of how this is impacting your customers, order book or the conversation that you're having with customers on this topic?.

Novid, I think there is a sense of surprising comments right at the second. I would suggest, the order book obviously and the order input rate is strong, but no one is really panic of it.

I do believe that you're correct, that there will be some tightness both from restraints on the flat rolled side and also the restraints on the imported pipe and tube, which will certainly tighten the hot-rolled coil market substantially..

And then just to follow up. On Engineered Bar, we saw nice uplift, up 12% quarter-over-quarter and year-over-year. You mentioned in your prepared remarks, it was a record quarter there.

Can you speak to the drivers of that move and maybe the diameters where you're seeing the strength, utilization rates and your outlook for that business for the remainder of 2018?.

Glenn, can give you the details on the product ranges and those sorts of things. I would say, just hopefully the marketplace there is very, very strong in all segments, agriculture, perhaps not so much. But in manufacturing, general industrial consumption, off-road equipment is strong, tractor, trailer build is strong.

Energy obviously has returned with surprising speed and continues to strengthen there. So I think, generally, all the market sectors are showing great promise continued both strength and you’ve seen uptick in pricing here recently.

And so, it’s for us to me it’s kind of a bellwether of the steel consuming environment, and it’s a very healthy one right now.

So Glenn, on sizes and things?.

Mark, I think that’s well put. We’re driving more into the automotive, which is the new mill that Barry and his team installed years ago. We’re adding some capacity to our bar finishing and inspection arena and that bodes well for automotive. And we’re seeing those mostly in the smaller sizes 2 5/8 smaller, which is driven by the automotive.

But you’re exactly correct heavy truck and trailer, mining, construction they’re all strong right now..

As a reminder to everyone, we obviously put in an expansion about two years ago now on the smaller diameter bar stock of about 250,000 tons to take that facility up to 950,000 tons of annual capability. So the present sort of marketing environment is now allowing us to fully capitalize on that.

As I said earlier, we have 200,000 tons of available shipping capacity there, that’s being aided by a great job at the Structural mill and improving and getting their blooms into SBQ Engineered Bar quality status. And that will increase up to, as we say about 200,000 tons of annualize rate here in the coming months..

Yes, just for clarification, the total capacity of the facility is 950,000 tons per year..

Our next question comes from the line of Matthew Korn with Goldman Sachs. Please proceed with your question..

Looking back over your historicals, 2011, 2016, you all averaged EBITDA margin, I think, it was just over 9%. I think that’s my calculations. The last couple of years, you reached 14%, 15%. Last 12 months shade under 14%.

And I think we all, here, expect your profitability to widen nicely as you harvest the price over these next couple of quarters and then you’re also getting all the investments we’ve talked about, the new capabilities you’re making.

So Mark, what would make you happy as to, what type of margin level you think you could achieve over time once you’re in place, once the expansions capability and capacity there.

And barring that, like what metric would you look at? Is the per ton operating income? Where would you be happy that you’ve achieved what you think the potential of the complex is?.

Well, as the team sitting around the table would suggest, I’m never happy so probably at any level. But at one time when we were just a company of steel mills in a very strong market, our margins were mid to upper-20s, and I think to get back there would be a good step..

Alright, fair enough, maybe then the question for Russ. Russ, are you surprised at all that scrap hasn't moved higher than it has given the pricing trends? Look now in hot-rolled and in shredded, I think from 450 a short ton, and you look at recent history of that around 300-325.

What's the limiting factor than the upside? Why wouldn't the strong tags been more of an upward pull? Is that export weakness or something else going on?.

No, Matt. Yes, I think you get it from ahead. I think predominantly the export market has waned here this fall or the starting last fall and continuing on in this spring. That's been the one driver here. There is certainly there is enough scrap in the U.S.

to support the higher levels of production, but again without the export draw, it's kind of kept a cap on it..

Our next question comes from the line of Chris Terry with Deutsche Bank. Please proceed with your questions..

Just interested in how customers are looking at the pricing dynamics as the prices have moved up.

Are you seeing any reluctant on the buying? Are they waiting at all for potential corrections? Or are they just accepting at the price at this point based on the order book that you're seeing?.

No, as I said, I think generally there really is a calmness and a balance out there. And there certainly is an acceptance at this moment of time. As we mentioned coming May 1st or there about if the market would to turn dramatically that could change.

And I think through the year with the demand growth that we're seeing and the just the fundamentals in the marketplace and with the expectation the imports that we'll receive in the summer months, I think there is a longevity for sure at the pricing levels that we see today.

And I think more importantly it's just not a matter of prices as you recognized where our margin business. And I think with that pricing resilience on the sell-side and to the Russ's point, we see stability in the raw material side and the scrap market side. So, I think the earnings profile is going to be attractive for the rest of the year..

On the last quarterly call, you spoke quite a lot about potential M&A opportunities.

Can you just go through the last three months and how that's changed? And how you're looking at the world from here?.

I don't think anything has changed. I think the pipeline of opportunities is still there. There are opportunities that the team is working diligently on. As we said in the past, we are taking a great disciplined approach. We're not going to be impatient or impulsive in anyway just because we had a very strong balance sheet.

But the expectation will be that we will have transactional growth to complement the organic growth that we've already stated..

Our next question comes from the line of Brett Levy with Seelaus & Company. Please proceed with your questions..

You're gaining market share in automotive. Clearly, this Cliffs' plant coming up in Toledo, which is right on the Indiana border.

Can you kind of talk about the opportunities as you see it and kind of what the discussion level has been between you and obviously, this new plant that is coming up to improve potentially your feedstock in terms of like market opportunities for Steel Dynamics?.

Again, our position there, Brett, has not changed. We’re very, very comfortable with the raw material supply profile we have in place today. OmniSource has approximately 6 million to 7 million tons of sort of collection processing distribution market and capability. And that is a reasonable, more than reasonable support for our mill needs.

I think last quarter, we were around about 60%, 63% of our scrap needs were met by OmniSource. The rest obviously is coming from other parties in the marketplace. So, strategically, we don’t necessary see an urgent need to get into any alternative. And I think we look at those as a pure, purely investment return opportunity.

And our belief is that through the cycle unless you own the iron units all the way back to the mine, that the return profile is not attractive for us. If that were to change then we would think differently..

And then the second question is obviously you got a plan to grow, right now you’re running at 12 plus times interest coverage.

At some point, is there like an optimal timing to post-232 or something along those lines? Is there an optimal time, as you guys see it to go after, what you really want to go after I assume it’s downstream?.

We have three main areas of focus. One, being sort of steel itself, steel production whether that'd be greenfield or whether that'd be opportunities, acquisitions, whereby we can turn around underperforming asset. So steel is one focus, downstream processing is another.

Our team seemed to have a sort of natural ability there whether that'd be on the sheet side, coating, painting those sorts of things. And even in the bar side, as Glenn mentioned earlier sort of value-add or inspection, turning, those sorts of things. So downstream is important to us.

And then thirdly, opportunities where you have sort of intermediate processing type manufacturing that can provide pull-through volume to our steel mills because we’re very cognizant of through-cycle profitability and cash generation, not just looking for stronger peaks, but also stronger troughs..

Our next question comes from the line of Seth Rosenfeld with Jefferies. Please proceed with your question..

Just start on the long product side of the things, please. Obviously, you've seen an impressive pick up in utilization rates over the past two quarters. And we saw from one of your peer says well, very strong growth in their domestic supply of long products.

Can you just give us a better sense of what your outlook is on the margin side for long steel, which in general has lagged what was seen on the flat side to-date? Do you envision environment in which you could see long product margins playing catch up with flats in the months ahead? Or do you think that we're going to see those two kind of moving in lockstep looking forward?.

I know Theresa may have a more detailed color. I would suggest we're at a little bit of an inflection point there. The last three years what we've seen kind of an erosion of that spread pretty consistently sort of gradual consistent erosion.

And I think with slightly high utilization rates going forward with the strong order book, this was also momentum. We've seen I think on first increases across the spectrum of long products over the last few weeks. I think that will likely continue..

The only thing I would add, Seth, is that as you remember they're very different markets, not just between flat and long, but also within the long products themselves if you look at SBQ versus merchants and structural and then on then on long side as well.

So I agree, I think we are expecting margin expansion throughout the year in the long products, but I'm not sure we try to correlate those with flat. I would just say that we are expecting pricing to be able to outpace any changes in scrap..

And the second question, if I may on the fabrication side.

Can you just give us a bit of sense in terms of demand and order trends? Following tax reform, are you already seeing a real tangible improvement in the orders? And where are you seeing that perhaps from a product perspective?.

Chris?.

Yes, we continue to see expansion in the construction where all of our indices we follow continue to indicate such. I would say that for what it's worth the Western markets have come to life in the last six months. Midwest, Upper Midwest has been strong not that anybody else has been weak, but those have been areas of the bigger market change.

We just maintain a positive outlook on non-res. It's a healthy mix of institutional, commercial and big box continues. So, we steady as she goes..

Our next question comes from the line of David Gagliano with BMO. Please proceed with your questions..

Theresa, I just wanted to clarify in your opening remarks. I saw you mentioned upfront that you expect higher raw material costs translate to significant margin compression in 2Q versus 1Q.

Did I hear that correctly?.

That wasn't in specifically fabrication, Dave. It's just as -- if you think fabrication uses steel, right, and as we have an increasing steel cost, there is probably an 8 to 12 week lag. And so, you're going to start to see higher prices because they benefit from having lower prices well at the steel they purchased kind of late fourth quarter.

Now, they're going to have first quarter prices hitting the second quarter and that we likely think will cause some margin compression in fabrication but only that segment..

Completely understood, okay, thanks for clarifying. Now back to the steel operation segment. Obviously a lot of moving parts on prices mix, scrap, things like that. I know you’re hesitant to, typically to provide much sort of short-term specific commentary. But given the magnitude, the changes we’ve seen.

Can you just give us a bit of a sense as to the margin expansion magnitude in metal margin expansion that we should be expecting in 2Q with the order books and the lags, I mean the effectively, the order books that you have in place at this point?.

We’re not going to give specifics, Dave, but I appreciate the question. We do expect it to be meaningful and we expect it to be kind of across the steel ops. But more importantly, you’re going to see, I think more of -- well, you’re going to see expansion of flat-rolled side as well.

And I think you can probably get to some of that on your own because scrap is a one month lag as you know, and you know that we primarily use busheling or prime scrap in the flat roll operations.

And interestingly enough because of the dynamic with 323, we actually have -- our contracts are such that there's a minimum quality customers have to take and then there is a maximum available.

And because of the tightness in the flat-rolled market, the customers have been taking the maximum available, which is meant that our contractual business is really closer to 55% of our total mix right now in flat roll.

So you’re going to see that lagging CRU price move into the second quarter, they’re going to get benefit from that as well as we think will be moderated scrap platform. So, I think that there's positive drivers in the flat roll side and then we just spoke to long product side where we see drivers as well. Sorry, we’re not comfortable these specifics..

No, that's helpful. I appreciate it.

Just a last related question, basically, you just said is it reasonable to expect product mix to be more a little bit heavier on the flat roll than the long product side sequentially?.

Well, we would expect that we’re going to see incremental flat roll shipments, but the Butler and Columbus had record production already in the first quarter. So, we think there is an incremental availability.

But as you think about all the additional capacity that we have most of that in long products, so as we see improvements in mix, I’m not sure that you’re going to see it substantially one way or another, but there is more opportunity for volume uplift on the long product side market independent..

Our next question comes from the line of Timna Tanners with Bank of America Merrill Lynch. Please proceed with your question..

Just taking a step back philosophically in light of the very strong market conditions we’ve been talking about and watching this year.

What does Steel Dynamics need in order to think about more substantial capacity additions and what you’ve been planning prior to the big move in prices this year? What conditions, what visibility? Can you just give us a sense of how you’re looking at those, the decision on that end?.

Well, Timna, and honestly, I don’t believe it has changed. We wouldn’t necessary change our strategy on the Section 232 alone or tax reform whatever. We take a very long term view. We look at sort of through cycle metrics.

So that the immediate, incredible optimism out there, it doesn’t mean to say that we’re going to be shifted in a different -- I think we've demonstrated now the business model that we've set since the very beginning of our company.

And certainly with the position that we've made over the last seven, eight, nine years has put us in a good shape sort to leverage the current marketplace, and also even in better shape to whether any trough going forward. So, I think it's kind of steady as she goes. We're not changing our strategy materially.

And anticipation is to put the balance sheet to work continue to even the most efficient the lowest cost steel producer right there and not just steel producer but fabricator and metal sheet cycler and drive superior financial metrics..

Also you mentioned that May 1 of course, deadline for some of the temporary exemptions.

Do you have any further thoughts on how that can play out because it's also seems that there are some negotiations of other countries that could receive the exemptions like Japan, and some that may see their exemptions change in the quotas? In your discussions with the extent that you have them at the White House, do you have any sense of how those might play out?.

Well, it's a certainly a changing environment out there. But I think what we -- we're appreciative and we both appreciative and applaud the practice stance of the Commerce Department and the Administration for sure.

Despite the recent spike in imports obviously there are whole bunch of countries that just took advantage of those exemptions and trust and push material onto our shores. But that will recede in the coming months, I think it's helpful that maybe step back a little bit and understand what we will looking for as an industry.

And but we weren't looking for the elimination of imports, but play sort of fair playing field, whereby imports would return to a more normalized level 20% 23% of demand and get away from the 33% of demand that crushed our marketplace.

And in doing so which is allowed for a more healthy domestic mill utilization rate that would in turn, allow the entire industry to have a better profitability profile and exceed their cost of capital so we can reinvest develop new products and be a better provider for the customer base.

And to be honest when the first announcement came at, we were a little alarmed to the 25% blanket tariff. We actually along with others supported one of the other options that Secretary Ross presented and that was to the punitive on the culprits so to speak and levy a more normalized quarter on the rest of the world.

But I think as time goes on, prudence is prevailing. And I do believe, even though you talk with the negotiations and press a more compromised position I think that's where we should be. A 28% a straight tariff across the industry, I believe would have really tighten the industry and perhaps even created a steel shortage.

And again that's not what we want. We need a balanced approach so we can have reasonable pricing, reasonable spreads, reasonable profitability yet steel have a good supply for the manufacturing base in the U.S..

Our next question comes from the line of Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question..

Mark, you had mentioned that you had shipped 36,000 tons off the paint line at Columbus in the first quarter, and you think, you’re going to be on track to do 90% by mid-year.

Question is, do you this visibility in your backlog? Is this business that you want or you think, you can go out and win just some clarity on that would be helpful?.

We currently are doing lots of trials that, believe it or not with the paint, there’s many parameters are go into it. So, we’re securing approvals for various pieces of business that we see ramp up schedules coming through especially through July, through the end of second through third quarter.

So we have a confidence that the products we’re making are being accepted by or customer base. And we're using this time with the, to develop some longer term relationships with products that new line allows us to make that we don’t make another plan. So, we're little more judicious with what we’re making there, but the pipeline looks good.

And the quality that the team is producing is really going well. So, we’re trying to have a managed entrance to the marketplace..

Second question I have is just on the raw materials situation right now and input cost environment.

Mark, if you could maybe give us a little bit of an update on the cadence of consumable costs increases being the electrode and refractory situation, whether or not you’re seeing that now or whether or not you expect to be staged in through the course of the year? And then also, is there any potential risk on pig iron imports from Russia right now given the geopolitical environment? Thank you..

Well, on the consumables, I think as we reported in past calls, Phil. On the electrode side, we picked up a couple of bucks a ton. I think in the first quarter and maybe we bought another $1 or $2 coming on through the second quarter -- four, sorry..

Yes, I know, it's okay. Actually, it's about -- well, between electrodes and refractories, we were up about $2 per ton in the first quarter sequentially. Any expectation if you remember, we still had some old supply versus the new contracts. So as we run into more of the new contracts for the divisions in the second quarter.

We expect that to increase and then another incremental, probably $4 and then be very stable through the rest of the year..

But you’re saying that’s electrode and refractory..

That’s electrode and refractory..

I was taking them one at a time, but yes..

And then also on that other sub-part to that question. Do you think, there is any risk on pig iron imports into the U.S.

from Russia gave any geopolitical environment, we’re seeing right now?.

I think certainly there is some risk there. I think it looks like Brazil is ramping up some. What we’re hearing that some of the producers had been sitting idly or actually talking about coming backup. So I think there is a slight risk on the geopolitical side with Russia.

But again, you’ve got the Ukrainians and the Brazilians, I think, that will fill in part of that deal, it could result in some price pressure. But again, that just remains to be seen..

Our next question comes from the line of Chris Olin with Longbow. Please proceed with your question..

Mark, I just wanted to make sure I understand the dynamics of global supply and the exemptions. It sounds like you do not expect imports to pick up months, over the summer months. But I guess, I'm curious the countries that are currently exempted. Are the mills in those regions not offering a very low price product right now? And then second to that.

How do you think about where potentially the price floor is for maybe something like hot-rolled steel going forward?.

The exempted countries if you take them off, you're not count Mexico, our NAFTA trading partners, they I think are balanced and its business is usual. We're not seeing any disruptions from a pricing perspective a materials flowing either way.

Europe the landed price until recently has been sort of at par, if not higher than the State and that's probably changed the last month or two. But nonetheless, no real message impact from Europe. Australia, I think the exemption there was principally due to BlueScope's mills on the West Coast. So, we're not getting impacted there dramatically.

But now, I strongly believe in the coming months through the summer you'll see imports receive for short..

And then just second to that, can you talk a little bit about trucking availability as capacity constraints or freight cost change the outlook for perhaps the raw materials or maybe steel product segments?.

I think this continue pressure there is not inhibiting us from the business, right..

I think certain freight areas, freight lanes and it will be real strong. But really requires us like we always have to work closely with the truck and rail service providers. And they did just regulations became into effect are being adjusted at the system.

And the more, the better we are our place for the trucks to do business, the better we get service. So right now, it's daily work, I'm not going to say daily, but we're doing good, we're not having the shutouts or too many miss trucks at least for the flat side.

Glenn?.

On the long product line, it's challenging. Mark, I mean, both rail, our availability in trucking lane. To various points, some of the lanes are very open and can get some good rates too. Other lands are little more challenged. It's a daily fight, daily struggle, but we're working with our customers and working with the transportation companies.

And we're continuing to fight through it..

Can I just ask how much of the volume goes through rail right now?.

Well, across the Company, it used to be more than 50% by rail.

It's probably closer to 50-50 right?.

If I were to guess right now, it's probably close to 50-50 across all our steel sectors..

On the operating side?.

On the operating side, right..

Our next question comes from the line of Cleveland Rueckert with UBS. Please proceed with your questions..

It's actually Andreas Bokkenheuser from UBS.

Can you hear me okay?.

Yes..

Just a question on growth. You were obviously talking about capturing market share early in the call.

Do you have a sense of the overall consolidated volume growth at the moment? How much of that is inorganic growth by via market share gains? And how much is affected with the end market growing? And maybe also give us a sense of where do you see the volume growth potential throughout the rest of this year.

Is this mainly in construction? I think, you mentioned construction earlier or do you see potential better growth elsewhere?.

The specific market share growth that we referenced is in automotive at Columbus. We’ve gone from next to nothing to about 220,000 tons last year. And the team is on I think qualified for platforms over the next 18 months to take that up to about 400,000 tons a year.

That will likely the, kind of where we’d like to see it going forward 400,000 maybe 500,000 tons from that facility. And that will be sufficient market exposure from my perspective on automotive. On the long product side, I think most of the volume expansion is increased overall demand as opposed to very specific -- we are….

Across all sectors, yes..

We are picking up market share in certain specific pockets. But generally, it’s volume, general volume increase..

Our next question comes from the line of John Tumazos with John Tumazos Very Independent Research. Please proceed with your question..

Is that reasonable to expect steel productivity in the mills, the output to rise about 1% per year due to innovation and productivity? And do you have any specific capital projects that might increase output in any of the product lines significantly more than a trend productivity rate?.

Well, John, good morning. Well, I’m not so sure we’ve analyzed it as a percentage growth per year. As you know, our team seems to continue to be innovative as part of our culture. And year-over-year as you suggest, we do outperform. Butler amazingly, after 23 years continues to do that. But I think further output there, growth is incremental.

At Columbus, we have, I think a material opportunity. Our focus for the team has been market diversification and product development, those arenas, and we haven’t necessarily pushed that facility real, real hard. And it’s around about nameplate capacity today. And so, it's the truth form that mill should be capable of a lot more.

The major growth is necessary incremental of any existing line or mill, but the organic opportunities we outlined already. And the most specific being the rebar projects that should add about 450,000 tons of shipping capability to our portfolio..

Just as a quick reminder, we took Butler from 3 million to 3.2 million tons at the beginning for this year. And for Roanoke Bar, we actually moved from 600,000 tons to 720,000 tons. All related to some incremental initiatives.

And with the truck and rail division, beginning 2019, they're likely to be closer to 2 million ton a year capacity versus a 1.8. So there are specific projects as Mark said, that's driving that. Right now, our total capability is 11.4 million ton but that's likely to be over 11.5 come 2019..

Our next question comes from the line of Charles Bradford with Bradford Research. Please proceed with your questions..

I haven't heard most recently about any problems with any cost.

Are you seeing anything there and also how about for alloys?.

No real concern relative to energy cost either power or natural gas for that matter. So everything is stable. On the alloy front, we are seeing an appreciation there. So again, I don't believe its material..

On the SBQ side, we pass it along with a surcharge mechanism, so we don't see on that. But we are seeing it as an [ADM] a little bit in the structural side, sure...

Yes, Chuck. Most of the alloyed increase, we haven't seen a sequentially because alloys were higher kind of throughout 2017 beginning in the second and third quarter. If you look at year-over-year it's pretty substantive, but we really kind of already observed the higher alloy cost in the second half of '17..

Our next question is a follow-up question from Phil Gibbs with Keybanc. Please proceed with your questions..

Mark, I just had a question on the rebar investment at Roanoke and I know you have touched upon it earlier.

But can you just remind us what that changed on that investment are relative your initial timeline? And maybe a little bit more color on why?.

Glen?.

Yes, sure. This is Glenn. We've working with our supplier with that equipment. We have some engineering issues and some delivery issues on the equipment. So that push the project back four to five months a year. We've got the rebar outlet now that has been commissioned and we can successfully run rebar through that.

But you really get the gain in the production with the larger reheat furnace. We're starting to make that furnace in here in the next few weeks, and we anticipate changing over to that furnace in the month of May, which will then give us reading capability of a higher tonnage per hour which will allow us to run the rebar there.

Now in the past, we've run 50,000 60,000 tons a year of rebar of that facility. We'll be able to push like Tricia and Mark has said up to 200,000 tons at that facility of rebar per year. And at the same time get some incremental gains on some of our other merchant products because of the larger heating furnace..

And so we're not expecting that same performance at the structural, right?.

No structural mill is actually a different supplier. And right now that project seems to be going very smoothly and it's on schedule..

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

Well, again, I appreciate your time today, appreciate your support. I think we are well positioned to take advantage of the growing marketplace in all sectors. I think someone said, we’re about to hit all cylinders and it’s going to be a very good 2018 and 2019 for us. For the customers on the line, I certainly appreciate your support.

And for our employees, guys and girls, you’re doing a phenomenal job. Just keep safe, each and every day Thanks to everyone. Bye-bye..

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