Tricia Meyers - Investor Relations Manager Mark Millett - President and Chief Executive Officer Theresa Wagler - Executive Vice President and Chief Financial Officer Chris Graham - Senior Vice President, Downstream Manufacturing Group Glenn Pushis - Senior Vice President, Long Steel Group Russ Rinn - Executive Vice President of Metals Recycling, President and Chief Operating Officer of OmniSource.

Matthew Korn - Goldman Sachs Chris Terry - Deutsche Bank David Gagliano - BMO Capital Markets Curt Woodworth - Credit Suisse Timna Tanners - Bank of America Merrill Lynch Seth Rosenfeld - Jefferies and Company Phil Gibbs - KeyBanc Capital Markets Andreas Bokkenheuser - UBS Securities Derek Hernandez - Seaport Global Sean Wondrack - Deutsche Bank Brian Lalli - Barclays Matthew Fields - Bank of America Merrill Lynch.

Good day and welcome to the Steel Dynamics Third 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, October 18, 2018.

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, Terry. Good morning everyone and welcome to Steel Dynamics third 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 Products 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 third quarter 2018 financial results. And now, I’m pleased to turn the call over to Mark..

Thank you, Theresa. And good morning everyone. Welcome to our third quarter 2018 earnings call and we certainly value and appreciate your time and interest in our Company. We are excited to share that the Steel Dynamics team delivered another tremendous record performance this quarter.

Our underlying growth to market positioning during the last four to five years is showing its power and the strong demand environment. I think the terms are perspective that SDI is a very different Company today relative to the last market peak.

And I’d like to take a moment to specifically thank the leadership here today and along with the respected teams for an absolutely extraordinary job. Not just their execution this past quarter, but over the last several years as we intentionally position the Company for the long-term prosperity and superior shareholder return.

Our growth expanded product diversification and market positioning will continue to achieve higher highs and shift us infirmly higher loads driving a considerably higher through cycle cash flow generation capability. So team hats-off to you, you are the best team on the planet.

But to begin this morning, Theresa would you provide some clarity into our financial results..

Yes. Obviously. Good morning everyone and thanks everybody here today.

Our third quarter 2018 net income was a record $398 million or $1.69 per diluted share which includes fair value purchase accounting adjustments of approximately $30 million or $0.04 per diluted share associated with the recent Heartland acquisition and all of those additional charges are actually in our cost of goods sold line in the income statement and it also included a discrete tax benefit of $10 million or $0.04 per diluted share related to a change in tax accounting methodology which is a onetime pick up.

Excluding these two items, our adjusted results remain unchanged at $1.69 per share and we are above our guidance of $1.64 to a $1.68 as steel results came in above expectations.

For the third consecutive quarter, we have achieved the record revenue to $3.2 billion in the third quarter higher sales reflected improved average realized product pricing across the steel platform.

We achieved record quarterly operating income of $532 million and adjusted EBITDA of $626 million, a continued tremendous performance by average loan with our steel operations leading the improvement. As a reminder, we acquired Heartland, a Flat Roll steel processing company on June 29th of this year.

Therefore this quarter represents the first impact from an earnings perspective. Integration is going well and the teams are executing.

The plan remains to maximize galvanized steel sales of approximately 360,000 tons while building cold rolls and P&O sales during the next six to nine months to reaching average annualize total run-rate of around 800,000 tons by midyear 2019.

On our last call, we noted that we believe that through cycle EBITDA estimate for Heartland is between $50 million and $60 million per year run-rate. Given the geographic location and optionality of production in Heartland brings to our Midwest flat roll group, we believe there are also additional benefits to be derived.

Our early estimates for those group synergies are in the range of $10 million to $15 million per year at run-rate. Regarding our steel results for the third quarter 2018, steel shipments improved slightly to a record 2.8 million tons.

For the third consecutive quarter, steel metal price expanded meaningfully across the platform as our average quarter realized sales price increased $56 per ton and $988 in the third quarter and our average scrap cost consumed only increased $4 per ton to $352.

The result was record operating income of $577 million or 7% sequential improvement for steel. For our metals recycling platform third quarter operating income was $18 million an $8 million decline from last quarter.

Nonferrous shipments and metals spreads were negatively impacted from declining nonferrous commodity prices as well as the actions from China to ban certain recycled material imports through their Green Sword policy.

We continue to effectively lever the strength of our vertically connected operating 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 companywide working capital requirement.

Exceeding record high shipments in the third quarter, our fabrication operations continued to see strong demand in customer optimism moving into 2019. Other activity has been strong and our fabrication backlog was a near record high moving into October.

However all these steel input costs continue to rise and outpaced improved selling values, resulting in a slight decline in third quarter earnings. Operating income from our steel fabrication platform was $13 million in the quarter. During the third quarter of 2018 we generated record cash flow from operations of $420 million.

Operational networking capital grew 53 million in the third quarter due to the overall market improvement which resulted in higher customer account balances and inventory value. So far this year we have generated cash flow from operations of $924 million and now they are record results. Year-to-date capital investment was $176 million.

We currently estimate fourth quarter capital expenditures to be in the range of $50 million to $75 million.

An early estimate for 2019 capital investment is approximately $350 million, we may update that or generally we will update that or in the fourth quarter conference call, but right now I'm looking at sustaining capital which includes environmental and safety initiatives of about $150 million for next year.

We have some spending on the Columbus's nonsmoker to reserve galvanizing line that is about $100 million spend next year and then the remaining $100 million will be other expansionary and efficiency growth process.

Regarding shareholder distributions, after our 20% increase in fourth quarter of this year, we maintained our cash dividend at 0.1875 per common share and we also repurchased a 193 million of our common stock during the first nine months of 2018.

Completing our $450 million program authorized in October of 2016 and initiating a new $750 million program in August. Our liquidity increased to $2.2 billion at September 30, representing $999 million in cash in short-term investments and $1.2 billion of available funding under our revolving credit facilities.

The strength of our recycle cash generation coupled with a strong credit and capital structure profile provides meaningful opportunities for continued growth and continued shareholder distributions through our positive dividend profile and our share repurchase program.

We have squarely positioned from the continuation of sustainable optimized value creation. And finally for those that requests more detail concerning our flat roll shipment, we had hot rolls and pickle and oil shipments of 901,000 tons in the quarter. We had closed roll shipments of 138,000 tons and coded shipments of 819,000 tons.

And then I would also note that in our sacramental financial data, this quarter given the increase in the amount of, what I will call process tons with the addition of Heartland, we actually broke up Flat Roll shipment so that you can see Heartland in the effect combine. And then you can see Butler and Columbus combine.

Mark?.

Super. Thanks Theresa. Well safety is an all and is will be number one priority unfortunately we have reversed the updates in recordable incidence we experienced in the second quarter, but unfortunately year-to-date I will recall instant rate still lagging last year’s result.

But I think commendably our loss time rates still continues its year-over-year downward trend and is significantly better than industry average.

Nothing surpass the influence of creating and maintaining a safe and work environment and while performance remains significantly better than the industry averages, it’s certainly not enough, we must continually be aware of our environment and of those around us.

I challenge all of us to be focus and to keep moving towards our ultimate goal of zero incidence. The Steel platform continues to perform exceedingly well, we achieved record quarterly steel earnings and continue to reach numerous production milestones.

The addition of Heartland this quarter, we also have record high steel shipments as the volume offset lower shipments from our Butler Flat Roll division. Underlying demand remains strong, the customers took a temporary purchasing hiatus in anticipation of lower transaction prices as scrap pricing dipped a little and imports moderated some.

It is important to remember domestic steel inventory levels appeared to be balanced and virtually every domestic steel consuming sector is already in good shape or continues to improve. We believe domestic steel consumption as the reason for growth in 2019.

We continue to position Steel Dynamics for the future to new investment and our existing operations. In June, we announced a new $140 million galvanizing line at our Columbus Flat Roll division. This investment is yet another step of further diversification into higher margin products. The 400,000 ton line is expected to begin operating midyear 2020.

In recent years, Columbus has transformed it’s product offering through the addition of painting and galvalume coating capability and through the introduction of more complex grades of Flat Roll steel some of which serve the automotive sector.

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

This expansion will also reduce Columbus’ exposure to a more cyclical Heartland market which will results in a higher and less volatile through cycle earnings.

Additionally, during the next two years, we plan to make additional investments at Columbus to upgrade certain processing lines in hot strip mode capability to further enhance and stabilize profitability to further product diversification and process efficiency gains.

The investments will increase Columbus’ range of complex grade capabilities and will improve the process control needed to reduce advanced high strength steel grades used in the automotive industry and also in the energy market. These investments extend Columbus’ strategy to diversify into downstream value added capability.

We also investing in our long product steel operations, this projects coupled with the improvement construction and industrial markets have already resulted in increased capacity utilization.

As an example, we have two primary organic initiatives to increase the utilization of our structural and rail division which operated at 75% of its capacity in 2017, and in contrast is been operating in over 90% of its capacity this year. First we've grown the production of SBQ quality blooms for internal supply to our engineered bar division.

They need blooms to fully utilize their rolling capability. This improves through cycle utilization at both facilities. Those of 27,000 tons of blooms shipped in the third quarter, we are achieving our anticipated annual run rate of transferring over 200,000 tons from Columbus to Pittsboro.

Second we are investing over $80 million utilize excess melting and casting capability at the structural rail division through expansion and product diversification for the addition of an annual production capability of 240,000 tons of rebar including spooled, custom cut to length and smooth bar.

Our unique rebar supply chain model is expected to substantially enhance customer optionality and flexibility, providing meaningful logistic yield and working capital benefits. In addition, we will be the largest independent rebar supplier in the mid rest fleet.

We strongly believe that these innovative, cost-effective products can provide a material improvement in future through cycle utilization and profitability at this facility. The expansion also compliments the recent growth at our Roanoke Bar Division, we invested approximately $38 million to also utilize the excess melting and casting capability.

Planning for about 200,000 tons of rebar volume manually, we started operations a few months ago and commission is ongoing. I think the steel seems to stand pro and with the addition of the Heartland acquisition, we now have almost 12.5 million tons of annual shipping capability.

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

Consistent with our strategy to differentiate and grow through product diversification, Heartland provides wider and lighter gauge product capability. We are familiar with their market and customer base.

Due to the continued addition of value added capabilities at our Butler’s Flat Roll division, we have displaced some of our customers that manages steel by Heartland.

Heartland will also provide pull-through volume, we plan to supply at least 300,000 tons of steel substrate from above the flat roll division, thereby increasing through cycle profitability at both locations. Holland should also improved Butler's cold mill productivity.

We plan to reduce lighter gauge flat roll load at Heartland which should increased Butlers Cold Mill productivity. Lighter gauge products require more time to run, so to speak and Heartland is better equipped to make these gauges.

We believe the Heartland acquisition will result in numerous future running synergies both the Heartland’s current operations and to our broader Midwest flat roll group. As Theresa explained, we believe annual synergies to be in the range of $10 million to $15 million.

Heartland provides the unique margin enhancing opportunities for Steel Dynamics and we are excited to continue the integration and realize the value creation. While metals recycling earnings decreased sequentially the platform delivered a solid performance on a complicated freight environment.

Non ferrous shipments and metal spread decreased due to declining commodity prices and the changing export market environment, given China's recent ban on certain recycle materials. Also the ferrous scraps picked up a little more than expected last month and the market recovered some of the drop manifest in August and September.

We expect seasonal pattern to keep the market firm through the rest of the year. Long-term, we are committed to the premise that scrap supply will outgrow anticipated demand, even the expectations of higher steel mill utilization rates and associated scrap needs.

The steel fabrication team achieved record shipments in the quarter and I would like to congratulate them for an incredible job. Our order backlog remains strong. Similarly, our customer backlogs are extremely strong with someone having to turn business away.

The ongoing strengths of the business and customer optimism is a solid indicator that nonresidential sector strength will continue well into next year.

Based on strong underlying domestic steel demand fundamentals and customer optimisms throughout all market sectors we believe steel consumption will continue to be seasonally strong and grow into 2019. In combination with our expansion initiatives, we believe there are firm drivers for our continued growth. Furthermore, the actions the U.S.

Federal Government has recently made to develop a healthy domestic steel industry should provide sustainable long-term support for the U.S. manufacturing base and continued erode import running. We also believe that USMCA negotiations will result in a constructive outcome for our industry.

Specific to Steel Dynamics our unique culture and execution of the long-term strategy continues to strengthen our competitive position through strong cash flow generation and long-term value creation, and it clearly demonstrates our sustainability and differentiates us from our competition.

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

Our team provides the foundation for our success and I thank each and every one of them for their hard work and commitment to excellence in all they do and remind them safety is the first priority.

We are committed to providing exemplary long-term values to our employees to our communities, customers and shareholders as alike and look forward to creating new opportunities for all of us in the years ahead. So once again, thank you for your time and interest in our Company, and Terry we would like to open the call up for questions now. Thank you..

[Operator Instructions] Our first question is from Matthew Korn with Goldman Sachs. Please proceed with your question..

Hi good morning everyone, thanks for taking my questions. So I had a couple of questions. One is short-term, the other one is long-term. First, you have highlighted this temporary backing off of orders that you saw on your buyers as the imports of hot-rolled coil goes.

I want to ask was this hesitancy in orders was that really centric to hot-rolled coil? Or did you see any similar behavior across the longs? And then second as its normalized since then are you seeing it tick backup or would you expect with the season and as you are seeing prices to somewhat stabilize here in the mid 800 or so? Thanks..

I think certainly the hiatus was reversed itself in the last couple of weeks and we have seen on the flat rolled side very, very strong order intake and I think on the long product side, it wasn’t quite as pronounced. I think the order rate just continued at a recently strong pace through that period..

Okay. So really focused in that particular product. Let me ask a longer-term one, a little bit in more demotic, there has been a lot of announced steel expansion projects year-to-date, your own, your established competitors, new entrants.

So even if you handicap the normal discount that is been announced versus what gets executed, it seems like a lot of metal coming in, especially we are going to keep aiming for this 80% capacity utilization.

Does this concern you, but do you feel comfortable that all this new supply could be absorbed out much disruption and if so why?.

Well, I think the, firstly the market remains incredibly strong as I said in every market sector and we continue to see and believe strongly that that is going to into 2019 and so demand will be strong and increase - maybe incremental, but it will continue to increase.

At the same time, imports are going to dissipate, I think the actions that the government owners have made are starting to take place with the slight refraction in market pricing of the highest we sold a couple of months ago, all the thrash import pricing is dissipated to some degree.

And I think imports are going to erode further and if you look at the imports return to just a regular normal historical rate. I think this kind of demand to the absorb increased supply..

And the only other things I would add Matthew is that if you look at the Greenfield capacity expansions that have potentially been announced, those wouldn’t come into market for probably two to three years earlier. So, there is that part of the equation as well..

Got it. So, between timing import reduction and continued strengthen demand you feel pretty confident..

Yes..

Thanks very much folks, good luck..

Thank you..

Our next question is from Chris Terry with Deutsche Bank. Please proceed with your question..

Hi Mark and team. I just had a question on the fabrication margins, based on the order of backlogs, do you think that margins have broadened and should we see recovery going forward or is it still a couple of point is that given the seasonality..

I think you made a good point. This is Chris, we think that seasonality will higher match a little bit, but we do think that we will continue to - we will begin to start seeing spread..

Okay. Okay. Thanks. And just maybe one for Mark on the M&A top line.

Is it changed at all over the last few months? Are you still looking for sort of smaller scale? And how you think about the size and the opportunities that it seems since we had to recall last time?.

My preference is still enough small scale, as you appreciate and we certainly appreciate, it seems to take just much time and effort and distraction of small deals and there is a big deal.

But we certainly have a pipeline that is still very accurate and active across the breadth of scales and I think perhaps on the downstream pull through volume type opportunities. They are smaller-scale but the purchase we made some time ago, but there are other larger opportunities as well.

We remain I would say disciplined obviously given the market before the valuations are pretty strong and we're working through those issues in sort of negotiations to discussions..

Okay. Thanks a lot..

Our next question is from David Gagliano with BMO Capital Markets. Please proceed with your question..

I’m just going to ask just one near-term. Based on your visibility of the order books what is a reasonable range of assumptions for changes in your operations volumes quarter-over-quarter and in the fourth quarter my first question..

As you know Dave, based on seasonality and the holiday and the customers base looking to realign inventories at the end of the year, this deal shipments are always lower in the fourth quarter and that goes back to as long as I have been doing this for last 20 years.

So that would be our expectations as well, but I don’t think it’s been [indiscernible] anything that is unique to this market environment, it’s just normal seasonality..

Okay that is helpful. And then just on strategic question, just kind of in generic terms. When you prove the landscape of acquisition opportunities that you are seeing out there right now.

How does the valuation that you see compared to the other options in terms of for example getting even more aggressive on buying back more of your own stock that kind of thing..

I think I guess just on a broader prospective, this is all cash allocations strategy in general. Obviously we evaluate I wouldn’t say daily, but frequently the best use for our cash and we have always I think at least in the past use you are seeing use all the tools in our tool box there.

We have the financial strength and basis to be able to not have to directed to one or another. So I believe the positive dividend stream profile will continue as our through cycling cash generation profile continues to increase as well. You are seeing the initial share repurchase program and we have got another in place the $750 million.

And I think we believe prudently even more strongly today that our shares are - our market cap is undervalued and there is great value there. So I think you will as aggressively peruse that program. As we continue to evaluate further organic growth and transactional opportunities.

So I think we look at all those mechanisms, there we believe opportunities for good value on transactional side yet and certainly obviously our organic and internal projects are absolutely the best place to spend on them..

Okay. That is helpful, that sounds somewhat of our previous comments.

But what I’m kind of trying to get to is right now in the current market place, you are stock where it is, opportunities out there right now, what do you think are better opportunity for you? Is it buying back the stock? Or is it - are there good size of all acquisition opportunities available?.

I think there is the opportunity to do both..

If you look the profile that we have and I mean you know [indiscernible] if you look at the cash and the balance sheet and the generation pace that we are adding in, we definitely have the capability to both maximize the repurchase program as well as look at the deals that we are looking at and it wouldn’t jeopardize our credit profile nor our ability grow, hopefully in the next downturn as well which is always something that we like to do is find great value in doing that..

Okay. Thanks very much..

Thank you..

Our next question is with Curt Woodworth with Credit Suisse. Please proceed with your question..

Thanks. Good morning Mark, Theresa. Two questions. The first is just looking at your cost structure in the third quarter it seems like conversion costs increased pretty significantly year-on-year. I know there is a lot of sort of moving pieces within that between variable labor, power maintenance, maybe some Heartland inventory impact.

But can you just comment on that because it looks like it was close to $500 million annualized this quarter versus last quarter in the mill segment?.

Curt, I'll take that, I saw your note last night, so I want to give more comment on based you are asking the questions.

Actually if you look I'm going to address quarter-over-quarter before year-over-year, but if you look quarter-over-quarter our conversion costs are actually lower if you backed out number I particularly mentioned that $13 million is going to the cost and goods sold lines at Heartland, but more impact fully is the fact that now if you look at Heartland in the tax and its reason we are breaking out their volume they make up about 11% of our total steel shipments and you have to look at conversion on total steel shipments or you missed the cost impression, you can't look at it based on external.

So because it’s now at about 11% of our volume versus we know it’s just a tax it was somewhere between call it 5% to 7%, there is a bigger impact because you can't get as much. There is a higher conversion cost that it looks like it’s having because we are buying our substrate outside of this company and so that steel cost input is getting mixed up.

If you just look at straight conversion cost to steel operations in the sequential quarters they actually decreased. If you look at it year-over-year there has been an increase but not as sizable as you have mentioned.

The increase is closer to $10 to $15 and that is really if you elect those refractory our operations they are in still performance stage from an incentive perspective, there is higher bonuses as well because the possibility is higher. So there is nothing that is significant for us to point out on and I'm happy to walk you through it later as well..

Okay.

So that reported figure this quarter that is a reasonable baseline to use going forward then?.

As we look at your model, I would encourage you to try to separate the tax in the Heartland volume from the other steel mill volume and there is going to be an impact. So as you look at it the only thing I would tell you is you do need to change as your denominator, it's going to be an actual shipment, there will need to be total shipments..

Yes, we are running it off total shipments. So, we can catch up online. I don’t know if the arithmetic would necessarily change, but that is fine. Okay. Second question is just around maybe for you Mark just kind of communication with commerce or sort of trade -- people you speak to in Washington.

Do you feel that there is that article in AMM about -- I think, the AISI presidents have potential resolution of Canada in November on tariffs.

Do you have sense of sort of what that negotiation looks like, has the steel management has kind of communicated what they would like to see happen with respect to Canada?.

Well, I think the negotiations are playing out recently well for us generally in the steel industry. Again I’m very glad that the administration has been able to find common brand with kind of the Mexico this game, as a block we need to be working together and another game goes out.

But, trade in general the silly program I think is worth and incredibly well is created a much level of playing field and has given release to the industry and is going to support, I think pricing in the market into next year. And I think as I said earlier imports generally are going to continue to roll I believe.

Relative to Mexico and to the Canada and the so forth USMCA I guess we're going to be going in the future [indiscernible] nonetheless. It’s a going to be benefit to us primarily it’s a sales of auto and auto parts which now will have a minimum content requirement and minimum wage component fair range, more U.S.

thought production and more North American steel inputs. And we have seen actually just recently since the announce of research and order in clarity from Mexico there was a lot of uncertainty there for a while when no one knew exactly what was going to pan out. But as clarity has come to the forefront, again our customer base in Mexico is strong.

But generally I think no one knows and one can only speculate as for the final details, but prudence will rule the day and its going to be a benefit for us..

Great. Really appreciate it..

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

Hi. Good morning guys..

Good morning..

Good morning..

I was wondering if you could talk us through Q4 pricing your current market conditions, just because it’s always helpful to get a reminder about how much of your business operates on a CRU kind of lag and how much would be expose to the spot price.

And I know you are not the spot rolled, but if you could just remind us like what percentages would be expose to spot and what percentages might see a lag and help us think about again to considering current conditions?.

Timna, the only real significant contract business that we have to-date within the Flat Roll and generally about 50% of it is contractual where you are going to get a lag, that is based on the CRU index and that lag generally is probably about two months.

And so you are going to have 50% that will be subject to spot and the other 50% subject to that contract. On the loan product side, generally there is no contractual business, there is a very small amount in the SBQ side of the business, but not enough for you to try to model..

Okay. I appreciate that. And then I was wondering separately if you could talk about the rebar expansion and the Columbus plant in a little bit more detail.

So Columbus is already really strong asset, really strong profitability and so I’m curious like what further if you could detail a little further what you can do to enhance that, is it more product, it is cost or both.

And now on the rebar side, your new entrance into that market somewhat right, I know you doubled than in the past I believe, but how are there customers receiving your product, how are you finding that market acceptance so far. Thanks..

Timna on the Columbus plant, bringing the new galvanize line allows us to make galvanize products for general consumption. So as we grow our automotive business from that plant as well as our paid business, it really put pressure on regular galvanized customers.

So additional galvanize allow us to put more of our product mix in our value added products that also allows us to fully ahead expand to base line down there and as well as sort of the core demand in products and the automotive side that we have taken. So some of those that much more difficult process parameters to control.

So this allows us to grow our business in keep in following in line for our customers base. So we are really forward to get this line and continue to take care of the customers we have as well as grow the business..

That line is the 400,000 ton line and it’s expected to be sometime in the first half of 2020. And so if you think about it also substantially reduces the amount of exposure that Columbus has of just straight hot roll which should be increased by much higher margin..

Glenn Pushis here, on the rebar project at Columbia city, we plan to starting that project up here, commissioning it’s at the end of fourth quarter this year and you asked about reception in the marketplace, obviously we have not made anything yet, but the reception that we are hearing from our potential customers and independent fabricators are very strong, lot of interest in that facility with the spooled coils and the custom cut-to-length that Mark said earlier..

Okay, so I was referring to the operation that you said you just started up and growing and as also on the Columbus I was referring to Marks comments about over the next several years, even further expansion, so I wasn’t clear on that..

No problem, oak we have started the rebar bundling area and that is where in much better than it did six months ago as we first started that with process. We had some equivalent problems from our supplier there.

We are through those and that facility is up in running in much better norm we anticipate that being in full operation, full 2000 ton, pretty year level by the end of this year..

Timna Columbus, a couple of things of it. Obviously as mentioned the $140 million galvanizing line is going to be growth and that comes online in 2020.

We are spending about $90 million to $100 million on I would say a enhancements at Columbus, it’s going to give us further product diversification, it allows us to get higher strength to all the grades, it allows us to get the higher strength, heavier-gauge energy pipe and tube grades.

And then thirdly you have the paint line and although that is been running for some time and it’s well utilized, obviously they are going through product evaluation and the product although the margin will be enhanced as we get into more HVAC and appliance-type applications..

Thank you very much..

Our next question is from Seth Rosenfeld with Jefferies and Company. Please proceed you are your question..

Good morning, thanks for taking my question. Just to begin little bit more for Kentucky Electric Steel.

Can you just give us a bit more color on the plant to ramp up trajectory that facility which are the mills we should expect leading to sub straight? And when you think about this asset and the product mix how to consider the margin contribution compared to the base load across division? Thank you..

Glenn?.

Its Glenn Pushis here. The Kentucky Electric Steel asset that we just purchased when we starting that facility up in two to three weeks. We have got employees hired and we have first order, bill is showing up. We have the materials to run.

We have got about 4000 or 5000 ton backlog right now it’s about 12000 tons total that we got here market to start the facility up. Really the play there is we get supplier own ballots.

Three of our facilities will supply those steel in less Virginia was supplying Kentucky electric some of the sizes, Roanoke electric steel, and Roanoke Virginia will be supplying some and then some of the Pittsboro facility. So really those are three facilities.

We will be feeding that new rolling mill asset, and that will supplement Steel of West Virginia..

So is that from a high level there will be some margin contribution from the asset itself, but the strong advantage is that pull through volume through cycles from those other divisions to low to high utilization rate there..

Great. Thank you very much..

Our next question is from Phil Gibbs with KeyBanc Capital Markets. Please proceed with your question..

Hi team good morning.

I had a question Mark just on the automotive strategy and if you could update us on that in terms of where we are this year, perhaps in terms of volume and where you expect to be in the next couple of years as some of your platforms take off?.

We remain through the studies it's around by 30% or so of the 32% of its output is going to almost principally through processes. Columbus, where we pull this more on direct sales to the automotive clients particularly in Mexico they are continuing to gain market share. We are on platforms to take that up to 450,000 tons or so by the end of 2019.

So I think it’s going very, very well..

And just to frame where do you see Columbus now and how much of your engineer bar business should we think about being automotive as well?.

Columbus is -- finished this year [indiscernible] or thereabouts and And SBQ is around about 15%..

Yes, 20% right now Mark, and that is growing because of starting up our new inspection in the bar turning line.

A lot of that automotive SPQ still needs to be inspected so we had another kind of bottleneck right in that finishing area so with this expansion project that we are putting in right now starting up that helps us to dwell more and grow that from 15% to 20% now let's say to 25% to 30% in the future..

Okay. That is helpful. And then I just have one more Glenn on the engineer bar business if I could. What are you seeing on the energy side, it certainly looks like there has been a mix shift in the markets and more seamless product away from well led, given some of the demands for the EMPs.

And has there been any positive stress or strain on your business to supply that more or so for today and greater needs in the future some of the imports restrictions play out?.

I think from that market right now we are seeing order in three years historical highs both in the third quarter and fourth quarter. And we anticipate that that is going to be continue into 2019. .

You are saying broadly or for the energy piece?.

Well broadly I would say the energy piece are certain. .

Yes. As we said in the past, our engineer bar is kind of bell weather to the general steel consuming industry or market. And it is literally across the board incredibly strong.

It’s for have a highest factor volume as I have for the fourth quarter and literally we will as Theresa pointed out we will see a little seasonal impact on difference in the fourth quarter. We expect things to really, really open up in the first quarter next year..

Perfect. And to reside we appreciate the color you provided on the mix straight away.

And it’s Heartland about 50/50 as well in terms of contract in spot?.

Yes..

Yes..

Thanks everyone..

Our next question is from Andreas Bokkenheuser with UBS Securities. Please proceed with your question..

Yes, thank you very much. And good morning. Just a quick question on the tariffs, you always mentioned that you think the tariffs are working quite well and we are seeing that in the prices as well.

Do you have a preference for tariffs over closer or the other way around? Obviously there has been a little bit of talk about replacing some of the tariffs with closers on Mexico and so and so forth. What in your view is maybe thinking about a framework of the quarters there are in place right now for South Korea.

Do you have a preference of what is healthier for the industry, what gives you the more pricing power, a tariff versus a closer going forward?.

Well, I think long-term quarter is a probably preference from our perspective because it is allow support of the manufacturing base.

Long-term - section two tariffs I do believe is a good stop back but one has to recognize this, and we are going to continue to have a little bit of capacity for some of time to come of that virtually every economy that is mature and or emerge since world war two are all based on excellence, their expert earnings.

So there has to be some long-term sort of moderator or moderation of the flow imports on shorts. As a country, we are still short and one of the few countries that is, so we need to imports our manufacturing base needs that product. And I think closers tends to be the better way of controlling that..

That is very clear. Thank you very much..

Our next question is from Derek Hernandez with Seaport Global. Please proceed with your question. .

Hello. Good morning and thanks for taking my question. I just want to touch on additional growth opportunities that you had mentioned beyond ongoing growth projects which sort of product lines do you see opportunities, and at this time..

Well we have sort of three growth areas of focus. One is just continue to look at steel assets under performing steel assets that we can improve our culture in our business model to some around. Secondly, our team has developed an expertise in processing, main stream processing lines whether they be coded, whether they be painted.

So with those opportunities I think are for that.

On the fabrication side we have continued growth in debt offerings and then lastly full stream opportunities the big deal aim was to add and improve our margin profile, but more importantly or as importantly would allow a higher through cycle utilization rate and not be redundant, but we really are focused long-term but focused on making sure that our future high are much, much higher than they are today.

But as importantly our future levels. We think pull-through volume allows us to achieve that..

That is very good. Thank you for the color. And my second question being where do you see potential for cost savings given the current environment is a bit lean towards a bit of inflation there where might you targets opportunities to keep margins strong despite this..

Well I guess, I will kick off first, but I think if you actually look at the most of our operating lines or processes, over time conversion costs remarkably stays somewhat stable and it’s because the team had the continually innovative and creative to become more efficient and more importantly they seem to have an incredible aptitude to push more tons through.

And still the increased effectiveness of our operations seems to offset any sort of inflation we cost of materials or commodities..

Thank you very much. I appreciate the time..

Our next question is from Sean Wondrack with Deutsche Bank. Please proceed with your question..

Hi apologies if you touched on this, but can you talk about your seeing in the scrap market and kind of what your expectations are moving in the year end..

Sean this is Russ, as we look at the scrap market, I think we are seeing a relatively firm market through the year end probably end of the first month or two next year. Again seasonal factors as whether it comes in, but again my opinion is agree with firm this is going to be long what happens on the coast and exports.

As exports pick up through a higher level it will become permanently if they remain at the level they are at right now, it will be steady increase but not dramatic one..

Okay that is helpful, thank you. And then just more kind of big picture.

Can you talk about a little with the impact of tax reform has been on your customers? Do you find some of this optimism is related to that? Or do you think mostly that is worked its way through the system if you could touch on that I would appreciate it?.

I would not say that its worked its way through the system because the impact of the tax reform obviously the biggest impact was noted in the fourth quarter of this year however to say that that is going to - the systems to have addition projects additional fixed asset investments apparently the higher steel consumption I think that would be always incorrect - hasn’t been sufficient time.

In addition to that with the repatriation of volumes coming into U.S. global company that as well just wouldn’t have had time to translate from brining the money in to building new factories to having additional investments in the U.S. in totality.

So my expectation is that tax reform actually gives way to what some think is in economy that is already been on the up for a few long, they try to measure in the years and I don’t think that is probably appropriate for this time because I think with tax reform it allows us to have more ways and to last even further.

So my personal view - our view is that now that there is still more to come..

Theresa in support of that the fabrication group would note that code activity in retail and hotels is now just starting to increase. And to your point that will take some time to get through the system, but we do assume that some of that might be from the affect of lower taxes on consumer incentive..

Excellent, thanks Chris..

Thank you. And then just one last one. You obviously had a large revolve outstanding and I apologize.

Could you remind me, if you were to get upgraded would that go unsecured? Or have you had any thought about enter the year moving to an unsecured revolver there?.

So the treasury team did an excellent job and the revolver has a provision, now it’s our choice to execute. Now if we were to get upgrade in any one of the agencies we would have the ability to actually bring into an automatic unsecured revolver which then could allow the other agencies to update as well.

So it’s at our election but yes, it’s already there so we don’t have to make a change in the revolver shot for today..

Okay, great. Well congratulations on a great quarter and good luck for 4Q..

Thank you..

Our next question is from Brian Lalli with Barclays. Please proceed with your question..

Maybe it’s a follow up on actually couple of Sean's questions maybe first on just the investment grade side.

Theresa do you have any additional thoughts? Are we kind of in that same place of the positive outlook at both and if you get there great but you are obviously clear on your goals in terms of shareholder returns and M&A?.

I would say that our goals are still the same on shareholder distributions, on winning it both transactional and organically. That being said just to strength in order we believe the steel markets are going and despite that we think we have different levers to be pulled as Mark’s point both in the high markets and in the low markets.

I think we are probably heading toward that IG rating more quickly than what we may have anticipated and we may start talking a little bit more about it kind of in the coming months..

Got it. Okay. That seems like a little bit of a change that is good to hear. And then I guess the second question I have relates to, it relates to the scrap side of things, but we are starting to hear more and obviously clips for instance talking about building HBI facility.

I guess where do you see kind of your iron content and I know this is a longer-term question, but is this something where that you want to compete more at the blast furnace producers you see that there is a greater need for higher iron content. I guess where do you see that in your mix right now that would be helpful. Thank you..

I don’t believe we see a near-term need to increase iron content from a quality standpoint necessarily. We certainly obviously are very aware of the cost, the best mix that get the most economic cost of almost fields into the furnace and at the same time maintain iron that look volatility.

So you will see that in Columbus would probably 25%, Barry or thereabout big iron and in Butler we are around about 15% and that is purely an economic decision that we can get pig iron into the Columbus mill at a lower rate of [indiscernible].

Obviously we are creating this project and I think other project and new project that the more iron units coming into the marketplace were better off we and everyone in the electric are going to see there is going to be..

Got it. Really helpful, Mark. Thanks so much..

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

Hi, everyone. Thanks for all the color and appreciate the updated thoughts IGE outlook. Sort of the bigger picture question, we have kind of seen some small M&A transaction with Heartland and some other ones. Just wondering why we haven’t seen bigger large scale M&A transactions and more consolidation in the steel sector.

Is there evaluation gap between buyers and sellers, is there kind of an expectation 800, 900 hot roll is kind of the future forever from a sellers point of view, but the buyers are kind of hold it seller sorry buyers are kind of hold inline?.

Well, I would say that folks have a pretty fair to the assets right now. So, yes that valuation is generally are as you would expect through the world of the high, sort of the high end.

If you actually reflects, as we reflect on the deals that we have done even going back to the Columbus deal, there has always been other factors in the, in our successful transactions whether it be folks wanting their employees to be in the SDI family, whether they want sort of clarity and some speed of transaction, there are other things that can perhaps play a role and get you an asset not top valuation.

But it certainly that is the case..

Do you see anything changing with that, do you see that pace of consolidation picking up or kind of is this what is it from your outlook.

And I obviously appreciate you can’t predict the future?.

Well certainly I can’t predict it. I can only say and I can’t speculate is for the outcome. All I can say is that the pipeline is very reactive, there are a lot of assets at some point in time they are likely the I guess being transacted, but it’s a slow process where to say..

Okay. That is it for me. Thanks very much..

Thank you..

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

Alright again thank you for taking time to listen to us today, listen to our story. We are pretty happy with the performance, like I said at the very beginning, I can’t be proud of the team in this room and the other 7700 employees that we have across the nation and Mexico. So from us we want to keep doing what we do best.

Provide the greatest shareholders value in our space. So have a great day and be safe. Bye, bye..

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