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.

Chris Terry - Deutsche Bank Matthew Korn - Goldman Sachs Timna Tanners - Bank of America Merrill Lynch Seth Rosenfeld - Jefferies Cleveland Rueckert - UBS Piyush Sood - Morgan Stanley Michael Gambardella - JPMorgan Phil Gibbs - KeyBanc Capital Markets John Tumazos - John Tumazos Very Independent Research.

Good day and welcome to the Steel Dynamics Second 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, July 24, 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, Melissa. Good morning everyone and welcome to Steel Dynamics second quarter 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 record second quarter 2018 results. And now, I'm pleased to turn the call over to Mark..

Fantastic. Thanks Theresa. Good morning everyone. Welcome to our second quarter 2018 earnings call. We value your time and interest. The entire SDI team delivered I think a phenomenal operational and financial performance this quarter.

The market has certainly helped, but one should not overlook the underlying growth and market positioning the team has achieved in recent years to take advantage of such a market. Through innovation and team work, we're still breaking records and think to continue to do so with our second quarter earnings at a record high.

I'd like to offer a heartfelt welcome to our new Heartland family, they are a great cultural and business fit and we're excited to drive to new heights with them as well. We'll share more specific plans for Heartland after Theresa provides insight into our second quarter results.

Theresa?.

Thank you. Good morning, everyone. Our second quarter 2018 net income was a record $362 million or $1.53 per diluted share. This compares to income of $154 million or $0.63 per diluted share in the second quarter of 2017, and $228 million or $0.96 per diluted share in the sequential first quarter.

Our results were above guidance between $1.46 and $1.50 per share due to higher than anticipated average flat roll pricing. The Butler and Columbus teams continue to execute exceptionally high levels, continuing to exceed numerous milestones.

We achieved record revenues of $3.1 billion in the second quarter, 19% higher than our previous record reached in the first quarter. Higher sales reflected improved price in volume across the steel platform.

Operating income increased 55% to a record $502 million compared to first quarter, a tremendous performance by everyone with steel platform driving the improvement. To note, on June 29, 2018, we completed the acquisition of Heartland, a Flat Roll steel processing company for $400 million, inclusive of $60 million of normal edge working capital.

We funded the transaction with available cash. The final cash settlement is subject to customary working capital adjustments which will take place over the next several months. A preliminary allocation of purchase price has been completed which resulted in a preliminary step up of inventory in fixed asset value.

The associated $12 million to $15 million negative impact to earnings will be reflected as an increase to cost of goods sold in our third quarter 2018 financial results.

The current plan is to maximize galvanized steel sales of approximately 360,000 tons annually while building cold rolls and P&O sales during the next 6 to 9 months, reaching an average annualized total run rate of 800,000 to 900,000 tons by mid-year 2019.

The through-cycle EBITDA estimate of $50 million to $60 million has been continued sourcing of substrate from third-party from much of the volume. We are very excited with the addition of Heartland to our Midwest flat roll location. In a few moments Mark will share the numerous synergies and optionality that the assets bring to us.

Back to our result for the second quarter of 2018 steel shipments increased 8% sequentially to a record 2.7 million tons. Even though flat roll volumes continue to improve, long product shipments experienced the most widespread increase especially in our structural rail division and wide plans being sale.

Steel metal spread also expanded meaningfully across the platform as the average quarterly sales price increased $110 per ton to $932 in the second quarter and our average scrap cost consumed only increased $27 per ton.

The result was record operating income from our steel operations at $537 million in the second quarter, a 59% sequential improvement. For our metals recycling platform improved domestic steel early utilization resulted in a 7% increase in ferrous shipment. The team also continued to manage operating cost very well.

However based on higher unprocessed scrap procurement costs, the second quarter operating income decreased slightly to $26 million compared to $28 million achieved in the first quarter. We continue to effectively lever the strength of our vertically connected operating model which benefited first 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 companywide working capital requirement.

As we suggested on our first quarter call, our fabrication operations experienced slight compression during the quarter decreasing our operating income $6 million to $14 million as a benefit of higher average selling value and near record shipments were more than offset by increased steel cost.

However the June order backlog remains strong and is higher than it was this time last year. This coupled with customer optimism supports our belief in continued demand strength through second half of 2018. During the second quarter the company generated strong cash flow from operations of $326 million.

During the first half of 2018 we generated our second highest first half cash flow from operation of $504 million. Operational networking capital grew $354 million due to overall market improvement which resulted in higher customer account balances and inventory value. First half 2018 capital investments were $106 million.

We currently estimate second half 2018 capital expenditures to be in the range of $150 million to $160 million. We also expect to fund our recently announced $140 million galvanizing expansion with free cash flow as follows. In the second half of 2018 we’re likely to fund about 25 million additional dollars.

In fiscal year 2019 we’ll spend approximately 95 million and then the remainder about 20 million will be spend in early 2020. We maintained our cash dividend for the second quarter at $0.1875 per common share.

We also repurchased $180 million of our common stock during the first half of the year and at the end of the quarter we had $54 million still available pursuant to the $450 million board authorized program.

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 at $2 billion at June 30, with $810 million in cash and short-term investment and $1.2 billion of available funding under our new revolving credit facility.

During the quarter we renewed our $1.2 billion credit facility and extended the maturity date and additional five years to June 28, 2023. Subject to certain conditions, we have the ability to increase the facility by a minimum of an additional $750 million which further supports our growth initiative.

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

Mark?.

Superb, thanks Theresa. Well as we often say safety is and will always be our number one priority at STI because nothing surpasses the importance of creating and maintaining a safe work environment. And certainly our performance remains well better than industry averages and its better than especially all the industry.

And yes our 65% of our locations achieve zero recordable injury so far this year. But in aggregate, we saw an uptick in injury rates this quarter. They were minor yet but very, very avoidable and a message to our team to say this simply unacceptable. We must continue to be aware to think and to help each other remain safe at all times.

It's an absolute imperative, and it's something - we should not be celebrating our operational financial records if we're not able to do it safely. That being said, steel platform continues to execute exceedingly well. We achieved record quarterly steel earnings in shipments and hit numerous production milestones.

Underlying domestic steel demand is strong. Virtually every domestic steel consuming sector is either already good or strengthening. Our special-bar quality division, which we believe is our bellwether to the broader steel market, achieved another shipment record further supporting our belief in broader industrial sector momentum.

We continue to position steel dynamics for the future through new investment in our existing operations. We recently announced the new $140 million galvanizing line at our Columbus Flat Roll division. This investment is another step of further diversification into higher margin products.

In recent years, Columbus has transformed its product offerings through the addition of painting and galvanizing coating capability, and through the introduction of more complex grades of flat roll steel, some of which are of the automotive sector.

The diversion of product to these value-added assets has reduced the amount of volume available to our existing galvanized customer base. So, the addition of two galvanizing facility will allow Columbus to serve these existing customers along with new customers in the region.

This expansion will also reduce Columbus's exposure to the more cyclical hot-roll market, which will result in higher and less volatile through-cycle earnings. Construction of the line as planned will take place during the next 24 months with operations beginning mid-year 2020.

Additionally, during the next 2 years, we plan to make additional investments at Columbus to upgrade certain mines and hot strip mill capability to further enhance and stabilize profitability with continued product diversification and process efficiency gains.

Investments will increase Columbus's range of complex grade capabilities and will improve the process control needed to produce the best high strength steel grades used in the automotive industry and elsewhere. These new investments extend Columbus's strategies to diversify its value added capabilities.

A recent 2017 paint line addition provides 250,000 tons of annual coating capability and diversification to some of our highest margin products. Complementing our two existing paint lines in Indiana, this line is the state-of-the-art facility producing high quality HVAC, appliance, and double-wide steel.

This location also facilitates lower cost logistics for the Southern U.S. and Mexican markets. The Columbus paint line has been ramping up nicely, and had 90% run rate this past quarter.

We're also investing in our long product steel operations, improving construction in industrial markets, coupled with the execution of some of these initiatives resulted in increased capacity utilization of our long product steel nodes in the second quarter to just over 90%.

As a reminder, we have three specific organic initiatives to increase the utilization of our Structural Rail Division. First, we are growing the production of SBQ quality blooms to send to our Engineer Bar division, which needs blooms to fully utilize its rolling capability. This improves through-cycle utilization at both facilities.

With over 43,000 tons of blooms shipped in the second quarter, we are well on our way to the anticipated annual transfer of over 200,000 tons. Secondly, this year, we further diversified our Structural Divisions product offerings to include large angles. The team is just beginning sales with a plan to eventually sell 100,000 tons annually.

Lastly our $75 million investment to utilize excess melting and casting capability there is on schedule from first quarter of 2019. Expansion will further diversify our product portfolio and market sector exposure through the annual production of 240,000 of reinforcing bar, which will include spooled, custom, cut-to-length and smooth bar.

Ancillary bar business model just substantially enhanced the current supply chain, providing meaningful logistic yield and working capital benefits for the customer. In addition, we will do the large independent rebar supplier in the Midwest region.

In aggregate, these three initiatives provide a material improvement in future through-cycle utilization and profitability at this facility. We also recently invested $38 million at our Roanoke Bar Division to utilize the excess melting and casting capabilities.

We've added equipment to allow the multi-stand slitting and rebar finishing of 200,000 tons per year. Similar to our Midwest investment, we expect a strong market penetration as we will be one of the largest independent producers of rebar in the middle Atlantic region.

Commission of this equipment is underway, the plan is to increase rebar sales through second half of 2018 to 80% to 90% run rate. Steel platform teams are doing a great job and with the completion of the half than the acquisition a few weeks ago, we now have well over $12 million tons of annual shipping capability.

We believe this acquisition will result in numerous future and benefits with the Heartland's current operations and to our broader Midwest flat roll group. Heartland is acquitted with a continuous pick line, a cold mill and a galvanizing line. Equivalent is fully upgraded and is in excellent operating condition.

Historically, Heartland was operated at low utilization rates, focusing on galvanized steel. We plan to focus on a full breath of products including very light gauge sheet, our operating expertise, product market familiarity and a geographic proximity of our existing Midwest flat roll operations allows for meaningful value creation.

Consistent with our strategy to differentiate ourselves and grow through product diversification, Heartland provides wider and lighter gauge product capability, diversifying our Midwest products in end markets. We are familiar with the market and customer base.

Due to continued addition of value added capabilities at our Butler Flat Roll division, we’ve displaced some of our customers that can now be supplied by Heartland. Heartland also provide pull-through volume.

We plan to supply some of Heartland's required steel substrate from our Butler Flat Roll division, increasing through-cycle profitability at both locations. Heartland also improved Butler's cold mill productivity. We plan to have our lighter gauge flat roll that is made at Heartland, which will increase Butler's cold mill productivity.

Lighter gauge products require more time to run and Heartland is better equipped to make these gauges. In whole, Heartland provides the unique margin enhancing opportunities to Steel Dynamics, based on our value added focus Midwest Flat Roll locations.

We're excited to begin the immigration and value creation and once again welcome the Heartland family to the SDI family, so we’ll have a great time. Our metals recycling platform, also delivered a solid performance, higher domestic steel mill utilization supported improved ferrous shipments. Prime scrap flows has been steady.

And we don't expect that to change. Export of obsolete scrap should remain moderate, and as we also expect obsolete scrap flows to continue to improve, resulting in stable scrap prices for the remainder of the year. We believe there is more than adequate scrap supply to address higher domestic steel mill utilization rates.

The fabrication platform also delivered a solid performance with second quarter shipments at near record levels. However high steel import cost more than offset the improved average sales price in higher shipments. Our overall backlog will remain 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. We remain confident, the market conditions are in place to benefit domestic steel consumption throughout the rest of this year.

Domestic steel inventory levels remain reasonably balanced and imports will be under control. Based on strong domestic steel demand fundamentals and customer optimism, we believe steel consumption will continue to be strong throughout the year providing higher levels of metal utilization and extended lead times.

In combination with our expansion initiatives, we believe there are firm drivers for our continued growth through 2018 into 2019. I'd like to also comment on the actions the U.S. Federal Government has recently made to restore financial health for the domestic steel industry, thereby providing a sustainable long term support to the U.S.

manufacturing base. We support their attempt to create a more leveled playing field for the domestic steel producers and we have seen positive change. The industry continues to invest and create new jobs. We believe there has also been a market increase in the utilization of existing steel facilities. In particular, utilization of U.S.

Flat Roll facilities has risen to [80%] to 85%. Steel companies are increasing jobs and weigh this across the country. Specific to SDI, our business model and execution of our long term strategy continues to strengthen our financial position to a strong cash flow generation, demonstrating our sustainability and differentiating us from our competition.

Customer's focus coupled with market diversification and low cost operating platforms supports our ability to maintain our best-in-class financial performance in differentiation. The Company and team always will continue organic transactional growth.

Our team provides the foundation for our success and I thank each and every one of them for their hard work and their commitment and remind them again safety is our first priority. We continue to focus on providing superior value for our Company, our customers, our employees, and our 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 Melissa, we'd love to open the call up for questions..

[Operator Instructions] Our first question comes from the line of Chris Terry with Deutsche Bank. Please proceed with your question..

Couple from me on Heartland and then one on just capital management as well.

Specifically on Heartland, the $50 million to $60 million EBITDA guidance, does that include the synergies of the logistical savings in the pull-through volumes that you've talked about?.

No. I believe that will be the kind of the earnings rate of the facility onto itself. Time will tell, I think the number of synergies is quite extensive. As we looked at the investment premise for Heartland, they're modest facilitated synergies and strength.

Obviously we're adding that volume and earnings without adding domestic capacity of 350,000 tons of coded capability there. The nameplate for the cold mill is around about 1 million tons. We're anticipating somewhere around 800,000 tons though as again as we said in the prepared notes our focus is on the lighter gauge products through the node.

So, I think we'll be ramping up to 800,000 tons of all through 2019 into midyear. So I think it’s great additional volume. It’s diversifying our product mix. It’s a 72-inch wide facility. It’s capable of loader gate substrates.

We’ll be able through purchase of substrate from other producers, get into different grades and to keep going grades for the other market for instance. There were meaningful operational benefits. It gives us great sort of flexibility and optionality as we integrated with couple of flat roll facility.

And it will give us a substantial pull through volume. Our intent is to be drawing about 300,000 tons thereabouts from Butler into the facility.

And processing the remaining substrate from others and that will actually gives us sort of leverage on our steel facility we’re going to be fine when you consider New Millennium side of business and attacks where we’ll find somewhere between 1.5 and 2 million tons of substrate there. I don’t think you can overlook the exact pull through volume.

The through-cycle earnings generation will be a huge kind for us..

Just one other one on Heartland, seems to have plans to double the galvanizing capacity for about 80 million.

Given your Columbus galvanizing line, where is that fit or do you still have plans down the track or is that something you’ll just evaluate with time?.

As Theresa suggested we only closed on June 29, the day after my birthday incidentally. But again we’re still absorbing a solid integration of that facility. I think we look at Heartland as certainly being a growth platform either downstream or back to the hot side or both with time..

And then just a final one just on the capital management, you got about 50 million less to the 450 million buyback program, any more guidance on capital allocation or how are you looking at M&A and just the use of cash flow at this point?.

While as it relates to buyback program Chris, it's really been a valuable tool for us and so as we get to the point where we extinguish the remainder of that program, we’ll take a look at where we stand on both from a transactional perspective and organic perspective and add that back to the toolbox if it makes sense to utilize that and so we’ll be addressing our consignment surely in the coming third quarter..

I think obviously we’re blessed with an incredibly strong balance sheet and our through-cycle cash generation profile I think will remain incredibly strong. It allows us kind of having a very balanced cash allocation approach. So we will review that at the end of that program.

We obviously will continue to evaluate our dividend profile against the through cycle cash generation and would hope that we’ll continue the positive profile that we demonstrated in the past then to return some value to the shareholder.

We're still squarely focused on growth both organically I think we outlined a lot of the opportunities that are in progress today and will give us significant value going forward. And the team has demonstrated for the last 25 years and we’ll continue to demonstrate our ability to sweep a lot more ahead of the existing assets.

But then also from a transactional side its quite plus it’s just a crazy world but the pipeline is full. There are more opportunities and probably we can handle currently, so it’s a good issue to have. And I think those opportunities have significant potential strategic fit and also the significant size opportunities..

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

Congratulations on the several records over the quarter. I saw a really strong pop and long products in the Structural and Rail and Mark you talked about a little bit. But are you ahead of schedule with some of those capacity utilization issues there? I would like to apply similar questions over an Engineered Bar Roanoke given the volume performance.

What I am getting at is, are those sustainable totals plus or minus in seasonality provided the underlying markets continues as they are?.

I believe so, you certainly have increased market demand. You had year-over-year I think structural imports were down 20%, 22% or thereabouts recognizing a lot of that is rebar which obviously plays well into our strategy to get into that marketplace.

The team though has done I think a magnificent job diversifying the product mix, getting into new market niche opportunities. If you look at - I know it’s small but the galvanizing line is installed at steel West Virginia.

I think it's maxed - its wide open and it gives that mill sort of diversification and the ability to run at high rates even in this market today. I do believe it’s sustainable. Those environments continue to grow from a demand perspective. We’re seeing huge growth at the SBQ mill in Pittsboro.

As a reminder, we installed additional capability back three years five years from that. Yes, but it never had a steel consuming market to really exploit or leverage that additional capacity. And the team is literally out there and is gaining market share and doing a great job. So I think long products is in great shape.

It continue to grow and additional not only volumes are increasing but if look at the spreads in long products particularly structural for the last three or four years it’s been a year-over-year contraction, that’s reversed it’s a positive market environment. The spreads are expanding so we’ll get in the advantage of both volume and spread..

And I think it’s important to add to that you mentioned the project. The project actually aren’t ahead of schedule and the ones that we're expecting to be initiated including the rebar project at Roanoke has started.

But the one real significant project which help increase the volume at the structural and rail division even more is the additional rebar project which we’ve talked about not coming online and beginning of 2019. And so you still have a volume impact that's coming as well, not just market related but actual volume and diversification..

So this is really a matter of capacity utilization as opposed to anything added to the denominator?.

At this point, yes..

So let me flip that over – it's very helpful, thank you. Let me put this over in the flat side because we’ve seen spreads over hot-rolled coil for value added flats compressive substantially in recent months as hot-rolled coil availability is tightened. And Mark you pointed out the cyclicality there.

So what’s your assumption for a long-term price differential among the value added cheap products there. Whether those the ones you are embedding in your Heartland numbers or when you’re doing your projected return for is the new gal line. What’s there do you think through cycle..

So we’ll get into the details but what I will tell you is that we’re not using the records first as we seen in the last call it 2016, 2017, 2018 we’re using a longer term average for that spread..

Got it. I appreciate it..

But from a market perspective I think we suggested several calls when the spreads between hot-rolled cold and coated and coated sheet went up to 200 I think - 220 that we felt that it was a case of hot rolled coil lagging. It wasn’t the case of coated being excessive.

Obviously with the trade constraints, important constraints hot rolled coil is come up to the coated and surpassed really the historical levels. We would imagine that over time with again with some control in imports that historical spread would be restored..

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

I just want to follow up on the discussion of the new galvanizing capacity, cold rolling capacity, that you're adding that others have been adding, also that OCTG restrictions and even some of the dumping cases irrespective of Section 232 are kind of tightening the hot roll market.

What you think it takes for you to decide to add any flat roll capacity and what kind of conditions would you need to see for that investment decision?.

I think obviously, you're right, Timna. The market is very positive, such huge momentum.

Hot roll coil sector is very tight and will continue to be for some time and I believe that you're going to have some new hot roll capacity coming out little bit of this mingle junction capacities are going to bring some more capacity on, but that's going to be more than absorbed by this continued growth in demand and the notion of imports.

I think from the standpoint of greenfield investment, our preference obviously is to grow through existing capacity and not add capacity to the marketplace, first and foremost. That being said, I think it's only prudent for us as we evaluate opportunities, transact more opportunities.

We do so out of diligence, calibrate that against greenfield and the respectful return that one may get from that..

I wanted to separately ask a little bit about cost pressures, and although obviously a really strong quarter, just curious about what was embedded in that just for go-forward regarding specific cost pressures? I think from electrodes, freight and labor would be maybe the key incremental cost, if you don't mind, can you tell me little bit more what you saw there?.

Timna, with respect to electrodes, I think we mentioned on the last quarter's call that we expected electrodes to be up in the second quarter, an additional $4 per ton, and that would be I think a good range to assume. On the labor, a reminder is that we're very much variable as the Company extends compensation.

And so labor impact on a percentage increase basis and isn't anything that it really as no at this point in time.

And as always to freight, a lot of our freight is a pass-through and actually the freight on a per ton basis I can't tell you if it's meaningfully higher or not, I don't know if Barry, Glenn, or Chris, may have a different perspective?.

Well, we're definitely seeing higher freight cost that are dashing through the system. It's in the view related to various quarter as we ship but is definitely pressure across the industry to move things back and forth. We're seeing all the way from scrap to finished good shipments. This point is concerning but it's manageable to supply..

And really the freight impact versus only on the raw material input size, the consuming base takes up the train on the cold shipping..

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

Just looking at your fabrication business, obviously your business came under good margin pressure in the course of Q2 given the rise in input costs.

Could you just comment on the outlook for continued strong demand in order intake? How long should it take for you to be able to better pass on these raw materials costs to customers and where margins recover? And then on top that, if you can talk a little about the order backlog, how has that progressed over recent months, and are you seeing an acceleration or deceleration of demand trends going into H2? Thank you..

Yes, we do see that we are - the team is making strides against raw material increases. We are closing the gap, the width to your point with that.

Unable to garner everything that we've been exposed to, particularly since November to January time period where prices went up literally $200 a ton, and some of our products we make with both merchant and flat roll and some of the merchant and flat roll relationships had swung on that magnitude of $350 a ton over the last 6 months.

But the team is - we do have evidence that the team is able to get some pricing.

We expect that if we get out of our facility of the first half of the year on steel pricing, we see any kind of settling, 3 to 6 months we were able to start recruiting that, the demand is such that we do believe we'll be able to get the kind of pricing we need to eventually catch up and it still weighs out for us.

Theresa, is that first statement?.

Yes, no, it's very well said. We've got increased pricing even in the second quarter on adjacent backside. We don't expect demand to support backfilling into third quarter as well. So much of it, if you remember Seth they have 8 to 12 weeks from the time they close to the time they ship.

That takes some time, so I would expect some of the compression in the third quarter as well..

As far as demands at, we continue to see elevated levels of quarter activities that support further growth. Warehouse and industrial sectors remain in a big growth mode and make up the lion's share of the industry shipments these days.

Resale construction continues to lag the other sectors with the exception of the discount retailer and dollar stores, they're still in a good growth mode. Again, quarter activity remains robust. The industry is off pace to talk about that, the industry is on pace to book around 1.2 million tons this year in the joint industry.

That would represent the highest annual bookings since 2008. So, I think the team is positioned well there executing in a fairly tough environment from a cost standpoint and as they make headway against that, we'll see continued improved results..

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

I just wanted to follow up on the long volumes as mentioned they were very sharply quarter, that roughly is 30% year-over-year increase.

Do you have those bridge how much came from the end market growth, how much M&A and then how much from market share gain?.

So, from a long side perspective, we didn't have year-over-year, we haven't had any significant M&A. All we did was add maybe 80,000 tons of capability annual rate on the finishing side of SBQ. We didn't see really anything from a transactional perspective.

From the perspective of organic growth project, again, as I mentioned them, the rebar project, we all know is actually just getting started now. So that year-over-year change also is not really related to any organic type of expansion.

It really is mostly market driven and from the perspective of whether that share or not, one can jump in, I would suggest that. There is market share gains on the beam side and on the SBQ side. I'm not sure about any other specific pull out..

Of all those including Rails were strong this year also. So, we're getting more Rail trades per month off of roll mine. So, also Structural SBQ and Rail have been stronger this year and showing some market demand..

So, we're feeling pretty optimistic, how we make the second half of the year related to construction demands both from the perspective of what we're seeing on the long product side as well as Chris's commentary on fabrication..

I guess and just maybe to clarify, you did mention that structural imports are down by 20% to 22%.

So, do you have any idea how much the market is up versus the share gains you're achieving from lower imports?.

Just for clarity, the 22% year-over-year down is not just structural, it's long product, its general..

Most of that is rebar..

Most of that is rebar, yes..

I guess my question is, how much is the end market growth versus how much are you taking share of import?.

Cleave, I’m not sure that we're able to answer that question specifically right at the moment, but it's our gut and we know lot of the momentum is really happening within the end markets itself, although imports have obviously been impactful..

And the confusion there really is mostly in fabricated steel versus what's coming in from structural. Structural, we see coming out of the country is down but we're looking at the fabricated structural is increasing or steady last year is slightly increasing. So it’s hard to get a handle on both those props..

Have confidence that the end market is growing which has been like you’re getting a double benefit..

Yes absolutely and it’s been growing for the last few years..

Our next question comes from the line of Piyush Sood with Morgan Stanley. Please proceed with your question..

Just a quick one from me. There were major reports that you’d agree to acquire Kentucky Electric Steel.

Just wanted to check if they are accurate and if so better understand the rationality opportunity and the timeline for the restart over there?.

I would put it in the classification of plan, acquisition right now we haven’t closed on it although it’s looking favorable. It’s not a mass entity relative to - more global scope. We will have a 200,000 tons of rolling capability principally flat and the flat bars that so it gives us some solid diversification.

Our intent is not currently to start-up the half side it just to better utilize our steel West Virginia and our Roanoke billet capacity. So the good thing its one of the improved - again improve the through-cycle utilization and earnings profile of those two facilities down there..

Our next question comes from the line of Michael Gambardella with JPMorgan. Please proceed with your question..

Just want to ask you a theoretical question. If you would give us a rough ballpark answer to this one.

If you look at the current today’s spot steel prices and scrap prices and there were no lags and they were fully realized in the second quarter results how much higher is your profits have been in the second quarter?.

Well they would have been meaningfully higher and the reason that would be is because if you look at the spot differential it had currently it would be higher than our average unless specific they are flat roll they had nothing to do long product.

So it would be higher than the average and we have 6% of our book today at Butler and Columbus we’re basically hired the contract. And so that lagging in every two or three months.

And that will have an impacted the second quarter regardless of volume and mix and so you’ll see some of what would be current force, so we have been made you into light spot spreads hitting the third quarter this year as we move forward 50% of that. So there is an impact but I can what will I guess I should say quantify that..

And then second question, you're expanding into rebar presence particularly in the Midwest and Mid Atlantic before the tariffs went into effect I believe Turkey had about 12% market share in the U.S. rebar business.

And what are you seeing from Turkey now that the tariffs are in existence?.

It’s a marginal or negligible I would suggest. So it’s quite timely that we’re bringing the Roanoke facility on. I wish Columbus city will be come along tomorrow as well but that’s not the case..

So were most of the Turkish imports penetrating on the Mid-Atlantic and spreading out to the Midwest or where do you see a lot of the presence in the Turkish?.

You’re exactly right, Mid Atlantic is going two points higher than the Midwest..

If we haven’t been in the rebar market in the sort of solid Midwest to really get a feel, our small amount of rebar production has been at Roanoke and that’s Mid Atlantic and that’s where we've seen the pressure..

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

Theresa do you have the sheet mix for the quarter handy?.

I do Phil, I am sorry, I made you ask. I didn’t flip that page. Hot rolled and P&O for the second quarter the shipments were 915,000 tons for cold roll and it was 135,000 tons and for coated it was 774,000 tons..

And any signs so just we can understand where the paint line ramp is within that coated mix how much of that was paint any color you all can provide there?.

Yes, so the Indiana lines have been running pretty full and that’s not the differential but I think we are speaking about is the ramp at the Columbus paint line and it’s actually ramped up quite well. So shipments in the second quarter were around 90% to 95% of their shipping capacity on painted..

So you all are pretty much at your painted capacity at this point?.

For the second quarter yes..

And just second question from me is just on SBQ. Certainly very strong quarter-over-quarter growth in volume.

Just trying to understand how much of that is called as finished hot rolled bar versus billet trying to see most billet substrates just trying to understand how much greater participation the domestics you might be having in that supply chain right now given all the trade for dynamics and the strength in the energy markets?.

Clearly the billets - because this one portion is billets have been stable through the year so that where we didn’t grow much. Our growth is in the smaller diameter bars and the cold finished market and hence our expansion into our all finishing facility and we’re penetrating automotive with some of the smaller sizes and the billets.

The supply of that are coming from Columbia City plant, which helped the utilization of the mills out there..

Glenn are you seeing generally increased market penetration for SBQ within automotive in general not just the production rates but is there more content growth over time?.

Yes, that’s what we are seeing. Automotive appears to be strong again next year with 17 million bill rate being projected. Class A trucks are heavy, heavy, heavy right now wide open. So we’re penetrating those markets very successfully..

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

As you increased the volume, will you continue to source the steel from third-party mills or from your own mills. I guess there is wild demand for steel and as a core we’re at, would Heartland be a base load for another steel dynamics flat rolled mill. One company is talking about Brownfield Texas and another one about gas strip on the West Coast.

Or is it just for two addition convenient the Granite City is reopening to blast furnaces and the old wheeling Pittsburgh, Steubenville has 40,000 tons of scrap already to go?.

Well the substrate supply John to Heartland from Butler and it principally be for Butler is planned to be somewhere around 300,000 tons. That will expand and contract depending on strength of the market and elsewhere. So we will be continuing relationships with third-parties.

As I said earlier we’re already buying early in 1.2 million, 1.3 million tons so that would take our procurement up to almost 2 million tons. So that’s not something new for us and hopefully will give us a little bit of leverage in the marketplace but we’ll still continue to maintain those good relationships we’ve had.

Relative to hot production again as I said Heartland in our mind provides a growth opportunity whether that will be downstream or upstream and there is ability to install hot capacity there if we deem that to be a good investment..

If I could ask a follow-up, was the 2 million tons of purchases would that make you something like the 8th largest steel buyer in the United States?.

I don’t know where it puts us but it’s a significant player on the procurement side yes..

Thank you. And 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 would like to thank you for your time and your support of our company. I think our future is incredibly rosy. It’s good to be in the steel business today as even better to be in the steel business as STI.

I think the demand profile the market profile and momentum is going to continue through the rest of this year into 2019 and I think we’re going to have fun. So thank you all. So our employees, thanks for all you do. And remember be safe each and every day. Thank you all. Bye, bye..

Thanks everyone..

Thank you. This concludes today teleconference. You may disconnect your lines at this time. Thank you for your participation..