Good day and welcome to the Steel Dynamics' Third Quarter 2022 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 20th, 2022, 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 David Lipschitz, Director, Investor Relations. Please go ahead..

Thank you, Ali. Good morning and welcome to Steel Dynamics' third quarter 2022 earnings conference call. As a reminder, today's call is being recorded and will be available on our website for replay later today.

Leading today's call are Mark Millett, Chairman, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer. The other members of our senior leadership team are joining us on the call individually.

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 to turn out differently.

Such statements involve risks and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions in connection with anticipated project returns and our steel, metals recycling and fabrication businesses, as well as to general business and economic conditions.

Examples of these are described in the related press release as well as 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 if applicable, in any later SEC Form 10-Q.

You'll also find any referenced non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled, Steel Dynamics Reports Third Quarter 2022 results. And now I'm pleased to turn the call over to Mark..

Thank you, David. I forgot to turn the microphone on there as always. But thank you, everyone, for being with us on our third quarter earnings call. It certainly was an exciting quarter with great performance by the team and growth on many fronts. Firstly, a great welcome to the ROCA team, Senate in Monterrey.

In combination with the former Zimmer Group, OmniSource Mexico now is a significant recycling presence within Mexico that will support their existing Mexican customer base, while providing strategic sourcing opportunities for our Sinton and Columbus steel mills and soon to be aluminum mill.

Sinton has turned the corner and is showing significant improvement. The team is also making great progress on our aluminum flat rolled strategy, which I will share later on the call.

Operationally, our third quarter was a great quarter, achieving several new benchmarks, including record steel and steel fabrication shipments and record cash flow from operations, all supporting our cash allocation strategy and commitment to further expansion of shareholder value. I continue to be incredibly proud of our teams.

They are on our foundation and the catalyst of our current and future success. It's their culture of excellence and the strategic positioning executed over the last number of years that allows us to maximize opportunities, resulting in higher lows and higher highs through the cycle.

So a great quarter, yet none of this matters without keeping our teams safe. Often employees are described as a company's most important resource. For us, they are more than that. They are family and the SDI family now is 26,000 strong. We are focused to provide the very best for their health, safety and welfare.

We're actively engaged in safety at all times at every level of our organization, came in top of mind and an active conversation throughout the company. We will not rest until we consistently achieve our goal of zero incidents.

But before I continue, Theresa, would you like to give us some details?.

Thanks, Mark. Good morning, everyone. I add my sincere appreciation and personal congratulations to the team on another strong operational and financial performance.

Our third quarter 2022 net income was $914 million or $5.03 per diluted share, inclusive of costs of $111 million or $0.43 per diluted share associated with the continued start-up of our Sinton, Texas flat-rolled steel mill. Excluding these costs, third quarter 2022 adjusted net income was $992 million or $5.46 per diluted share.

Third quarter revenues of $5.7 billion declined 9% sequentially based on lower flat-rolled steel and scrap pricing. Our third quarter 2022 operating income was $1.2 billion lower than sequential results due to lower pricing and resulting metal spread compression in our flat-rolled steel operations.

Our steel operations generated solid operating income of $658 million in the third quarter, with record shipments, as Mark mentioned, the 3.2 million tons, of which Sinton contributed 268,000 tons. Sequential earnings were significantly lower due to the previously mentioned metal spread compression within our flat-rolled steel businesses.

In contrast, our long product steel operations experienced metal spread expansion as average scrap cost declined more than product pricing in the quarter. In fact, our Structural and Rail and Roanoke Bar divisions each achieved record earnings. Congratulations to those teams.

Third quarter operating income for our mills recycling operations declined to $10 million as ferrous pricing declined month-over-month through the quarter, resulting in significant metal margin compression but the team continues to effectively lever the strength of our circular manufacturing operating model, benefiting both our steel and metals recycling operations by providing higher quality scrap to our steel mills, which improves furnace efficiency and by reducing company-wide working capital requirements.

I also give my welcome to the Roanoke team. A huge congratulations once again to our steel fabrication team. They achieved record third quarter operating income of $677 million. These earnings were driven by record average pricing, record shipments and lower steel input costs.

Steel joist and deck demand remained solid as evidenced by our continued strong order backlog, which extends well through the first half of 2023. We generated record cash flow from operations of $1.5 billion in the third quarter as strong results and release of working capital benefited cash flow.

Year-to-date 2022, we've generated a record $3.3 billion. Our cash generation is consistently strong based on our differentiated circular business model and highly low-cost variable cost structure.

At the end of September, we had record liquidity of $3.2 billion comprised of cash and short-term investments of $2 billion and an undrawn unsecured revolver of $1.2 billion. Year-to-date 2022, we funded $565 million in capital investments.

For the fourth quarter of 2022, we estimate capital investments will be close to $400 million, of which about $200 million is related to our recently announced aluminum flat-rolled investments, with much of the remaining capital related to our four new flat-rolled coating lines that will be located in Sinton and Heartland.

We maintained our cash dividend at $0.34 per common share after increasing at 31% in the first quarter. We also repurchased $482 million of our common stock in the third quarter, representing over 3% of our outstanding shares.

Year-to-date, we paid cash dividends of $177 million and repurchased $1.4 billion or 10% of our outstanding shares, representing a 48% net income distribution ratio. At the end of the third quarter, $245 million remained available under our current share repurchase authorization.

These actions reflect the strength of our capital foundation and consistently strong cash flow generation capability throughout all market cycles and the continued optimism and confidence in our future.

Our capital allocation strategy prioritizes strategic growth with shareholder distributions comprised of a base positive dividend profile that's complemented with a variable share repurchase program, while remaining dedicated to preserving our investment-grade credit designation.

Our recently announced aluminum investment is consistent with our unchanged capital allocation philosophy. We have strategically placed ourselves in a position to have a sustainable capital foundation that provides the opportunity for strategic growth; strong shareholder returns and maintain investment-grade metrics.

Our cash flow profile has fundamentally changed over the last five years. We will readily fund our flat-rolled aluminum investments with available cash and cash flow from operations. We also plan to continue strong shareholder distributions as we clearly demonstrated in the third quarter.

We're squarely positioned for the continuation of sustainable optimized long-term value creation. Sustainability is also a significant part of our long-term value creation strategy, and we are dedicated to our people, our communities and our environment. We're committed to operating our business with the highest integrity.

In that regard, we're excited about our newly formed joint venture with Aymium, a leading producer of renewable biocarbon products. We believe our first joint venture facility will decrease our steel Scope 1 and 2 greenhouse gas emissions by as much as 25%.

We have an actionable path to our carbon neutrality as more manageable, and we believe considerably less expensive than may lie ahead for many of our industry peers. Our sustainability and carbon reduction strategy is an ongoing journey, and we are moving forward with the intention to make a positive difference.

We plan to continue to address these matters and to play a leadership role moving forward. In conclusion, I know some of you track the details behind our flat-rolled shipments. And so for the quarter, we shipped hot-rolled and P&O of 951,000 tons; cold rolled of 139,000 tons; and finally, coated flat rolled products of 1,102,000 tons.

For a total of 2,192,000 tons of flat rolled shipments.

Mark?.

Super. Thank you, Teresa. And certainly, incredible results from the steel fabrication platform, a product that is obviously a market tailwind, but our strategic positioning over the years. We had record operating income of $677 million in the quarter, with the record shipments of 218,000 tons.

Nonresidential construction markets remain strong, as would be suggested by the macro indicators. They all remain positive. ABI index of fitting a little over 53. ABI reports, business conditions remain generally strong, and Dodge Momentum Index improved 6% in September. Nonresidential starts and build rates are forecast to remain good into 2023.

More importantly, our customers tell us demand remains solid in spite of economic uncertainty. Order activity is better paced versus the frenetic pace of the recent past and remains higher than historical norms.

Our order backlog is well into the first half of 2023 with strong pricing dynamics and we expect to see continued strong volume for fabrication in the fourth quarter and for 2023 in general. Aside from the significant advantage of pull-through volume for our sheet mills, New Millennium provides a perfect hedge to our steel operations.

Although SDI mills saw steady utilization throughout the third quarter, lower domestic steel industry utilization in general reduced the demand for scrap in the quarter. First, scrap prices have declined month-over-month beginning in May through October, prime dropping from some $735 a ton to more recently around about $380 per gross ton.

Omni's earnings suffered as a result of this progression in market pricing and weaker industry demand. The Omni platform is continuing to work with our steel mill teams to expand our shred separation opportunities to provide even higher volumes of low residual scrap.

The impact of our efforts, along with others in the industry, has amply demonstrated our view that innovation will solve any perceived fears of prime scrap shortage in the years ahead. With additional producers coming to the market, pig iron availability is normalized and pricing has moderated significantly to a little over $500 per ton.

We have sufficient pig iron sourced well into next year. Supply is not an issue for our flat rolled operations. And again, we're excited for the addition of Roka to our OmniSource Mexico portfolio, which now will grow to some 2.5 million tons of ferrous and non-ferrous annual capability.

It was another historically strong quarter for the steel platform. We had record shipments of 3.2 million tons and operating income of $658 million. Our third quarter production utilization rate was around 93%, which was incrementally lower than the second quarter that was 95%, yet significantly above the industry average of 78%.

High utilization rates are clearly demonstrated through time. Value-added diversified product offerings, differentiated supply chain solutions all support and the support of internal pull-through volume all support that utilization -- higher utilization rate compared to our peers.

And in turn, it supports our strong and growing through-cycle cash the industry capability and best-in-class financial metrics. Looking forward, customer order entry is good and backlogs are solid and that's supported by our diversified portfolio of value-added products, which comprised now of around 70% of steel sales.

We focus on value-creating supply chains to mitigate the impact of price volatility and all this just maintains a higher through-cycle utilization rate. Relative to the markets, we see automotive steady at current rates and we expect that to improve off low 2022 production based on the extremely low dealer inventories and pent-up vehicle demand.

The 2022 build rate is going to be some 14.5 million units, and we would expect 2023 to grow to 15.5 units or so, and 2024 to 16-plus units -- million units. Non-residential construction remains solid as evidenced by fabrication backlog and long product steel volumes.

Long product steel backlogs are good and several of our divisions, Summa City and Roanoke in particular, achieved strong volumes and record earnings in the third quarter, demonstrating our market depth. Infrastructure spending should also provide further meaningful support in the coming years.

New residential construction has softened a little, impacting HVAC and appliance and other housing-related products. Fortunately, our portfolio is biased to replacement, and we won't get a ton of a ton impact. Oil and gas activity is driving improved orders for OCTG and line pipe, and solar renewable expansion continues to grow. Turning to Sinton.

Both coating lines are running extremely well, and ramp-up continues on the hot side in the tandem cold mill. I believe the hot mill has certainly turned the corner, becoming more consistently running at a 60%, 65% month-to-date with days exceeding well over 80%. Surface quality is excellent.

Reported coil shape from processing customers is also excellent. And our hot strip mill design has allowed for thermal mechanical rolling, allowing higher strength grades with lower alloy content and associated costs.

And we've already been approved and shipped some API grades, which is quite remarkable given the mill has only been up and running for what, nine months. So the team has done a phenomenal job. And I think it certainly affirms our technical and process choices and it is indeed a next-generation mill.

Our exceptional through cycle operating and financial performance continues to support our cash allocation strategies and growth.

The four value-add flat-rolled steel coating lines are going well and are targeted for the second half of 2023 for startup, two for Sinton and two for Heartland, and we're already seeing customer interest for that new volume. We're the largest domestic non-automotive coater of flat-rolled steel with an annual coating capacity over 6 million tons.

These four new lines will increase that capacity by an additional 1.1 million tons. We have created unique supply chain solutions for our customers, which allow our downstream lines to remain always full with our highest margin products.

Relative to the lunar dynamics, the market response from both current and new customers across all market sectors has been absolutely incredible. And so to recap that project, it's a 650,000 metric ton a year aluminum flat roll facility, which will be located in the Southeastern US, and we expect to announce that site location in the next few weeks.

On-site mill and cash slab capacity will consist of 450,000 metric tons, and that will be supported by two satellite recycled aluminum slab casting centers, one in the Southwest US and one in the South. We'll have two cash lines, coating line and downstream processing and packaging lines.

So we'll be able to furnish all products to the beverage -- food packaging arena, automotive and industrial. The mill is planned to start up in mid-2025, the Mexico Slab Center in 2024 and the Southwest Slab Center in the first quarter of 2025. The financial impact will be around $2.2 billion CapEx over four years.

It's going to be funded 100% with available cash and cash flow from operations with no additional debt needed. We expect to add about $650 million to $700 million of through cycle annual EBITDA once it's up and running.

So in closing, we're excited and passion by our future growth opportunities as they will continue the high returning growth momentum we have demonstrated over the last 15 years. Our teams are our foundation. I thank each of them for their passion and their dedication and their desire to excel. We are committed to the health and safety.

And I remind those listening today that safety for yourselves and each other is our highest priority. Our culture and business model continues to positively differentiate our performance from others.

We're competitively positioned and continue to focus on providing superior value for our company, our customers, team members and shareholders, and we look forward to creating new opportunities for everyone today and in the years ahead. So with that said, we would love to answer any questions you might have..

Thank you [Operator Instructions] Thank you. Our first question is coming from Emily Chieng with Goldman Sachs..

Good morning, Mark and Theresa. Thank you for the time this morning. My question is just around the fabrication business, and we've certainly seen realized pricing trend higher on a sequential basis.

But perhaps could you share some color on where new contract awards are getting priced? And how should we be thinking about the sustainability of your margins in this segment in the near-term and perhaps call it on a normalized basis?.

Certainly, Emily. Well, again, that business is incredibly robust. Our backlogs are so from a volume standpoint and pricing standpoint at historic highs. And we see that backlog well into 2023, probably about eight months from there, and it remains solid. Spreads are at very high numbers, as you can see from our most recent results.

And we see that volume being sustained. Our Q3 volume into Q4. And our earnings should certainly parallel that as relative to the third quarter. I do believe. So very, very strong. As you may recognize, that industry over the years is sort of rationalized and consolidated. And no longer fragmented as it once was.

And we see higher pricing and higher spreads being sustained through the cycle going forward..

Thank you..

Thank you. Our next question is coming from Carlos De Alba with Morgan Stanley..

Thank you very much. Good morning. So the question is based on the comments for end markets, it seems that long products should be doing better than the flat end markets on the lending products. But in the reported volumes, we saw your long steel volumes falling a little bit quarter-on-quarter, while flat improved.

So I just wonder if you can give us a little bit of your -- how you see that evolving in the fourth quarter? Do you think that this is going to probably reverse based on the end market situation and how those are evolving? And also you mentioned in your press release that, seasonally, you see lower volumes in the fourth quarter.

However, your seasonality in the last couple of years has been quite different than what we saw in, say, 2015 to 2019 prior to the pandemic. So if you could share some color as to how you see the seasonality playing out this time around will be also great..

Good morning, Carlos, thanks for joining us on the call. So from the specifics of flat increasing, while, I would say, long products was very strong, because long products had record shipments in the second quarter, so still very strong. But you have to remember that, Sinton is starting up in this time frame.

So the addition of Sinton ramping up helps offset some of the seasonality that you might see in our flat roll shipments even as we head into the fourth quarter.

That being said, we're expecting still to see really resilient volume from the steel base, both in long and flat, as we head into the -- what -- you're correct, is more of a seasonal time frame, but we have some offsetting parameters as we look at both Sinton.

And frankly, as we look at our coated products, specifically Galvalume had a really strong third quarter..

Right. Thank you, Theresa..

Thank you. Our next question is coming from Timna Tanners with Wolfe Research..

Great. Thanks. Good morning..

Good morning..

I wanted to just ask you about things, you utilization continuing to be higher than peers. And it's a pretty big contrast, as you point out, you're ramping up Sinton. And meanwhile, US Steel has cut production, saying there's not enough demand. And your utilization is a pretty stark contrast.

I'm just -- and Nucor said that they're being disciplined in holding off tons because of weaker demand.

So I'm just wondering, you can explain what's different about what you're seeing? And if you could, while you do that, if you could talk a little bit about the opportunities that you'd mentioned in the past for exporting to Mexico and the West Coast from the Sinton operation. Thanks..

Well, Timna, I think, as we told in the past, I do believe our business model is definitely differentiated from our peers for sure. And the high utilization rate is triggered, I think, probably in three spots. One, is we have a much more diversified value-add product portfolio mix than probably any steel producer in the state today.

That allows us optionality across all market sectors and all market products, and that certainly has a significant impact. I do believe we have cultivated and developed over time some pretty unique supply chain sort of partnerships with many of our customers, and that gives us resilience through the cycle.

And then thirdly, the pull-through volume of our sort of downstream conversion facilities and New Millennium is quite considerable. So if you look at this year, New Millennium, we'll be consuming about somewhere close to probably 800,000 tons of substrate. And much of that is procured through our own mills.

So there's a massive volume sort of pull through there. And then our Heartland facility, which is roughly 800 million ton a year converter takes material and also The Techs, which has 850,000, 900,000 tons of consumption. So that pull-through volume onto itself. When there's a need, we bring a lot more of that in-house to maintain that utilization.

And as you point out, through the cycle, we typically at 10%, 15% higher utilization than the industry in general. And I can't overemphasize the impact that has on our through-cycle cash generation capability.

It certainly supports that and in turn, supports all the growth and the cash allocation strategies that we -- the balanced cash allocation strategies that we continue to execute..

Okay. Great.

Would you mind on the other part of the question about the opportunities that you'd allocation strategies that ability to ramp -- produce at higher levels as well?.

Yes. Sorry. I mean, a little tough time hearing Timna. The Sinton mill, obviously, ramping up focused on furnishing material through the two coating lines, the galvanized line, the paint line and just ramping up and commissioning all the different product capabilities we have there.

We believe Mexico will long-term despite the additional hot band capability that's come on stream, we'll continue to have a mismatch in the cold-rolled coated arena and so it's our intent to be transferring or selling into the Mexican market, HVAC appliance, and automotive there.

And we have yet to develop a meaningful sort of shipping volume to the West Coast, but I'm confident that, that will occur over time as that ramp continues..

Okay. Thanks. I'll get back in the queue..

Thank you. Our next question is coming from Cleveland Rueckert with UBS Securities..

Hey everybody. I'll say good day, it's almost noon here. I appreciate question I'll stick to one, just to start. But Mark, I wanted to build on your comment about raw materials and scrap availability.

I'm just curious, as we think about investment opportunities, I get that you're shifting investment into aluminum and that's kind of the priority right now.

But -- is there any opportunity to invest in some of the raw materials businesses that you already own? I think on these calls before; you've talked about increasing usage of different scrap grades.

I'm just wondering if that's more of an R&D exercise on your part on the steel operations or if there's some infrastructure that you're thinking could add some efficiency there?.

Well, I think the -- given our investment in Mexico for Zimmer and with Roka where we thought there was a very unique opportunity that, that arena is prime scrap rich and it would allow us to support Columbus and Sinton. Beyond that, we're not interested in any sort of large-scale recycled sort of acquisition-type investment.

The investments will be centered though on streamlining and improving our existing operations, lowering our cost structure throughout that organization. And more specifically, investing in sort of segregation separating type technologies to optimize the streams, the waste streams that we have.

So the ore, the switch and everything divide that up into more value-added 5,000, 6,000 series type raw materials for our aluminum mill.

And also investing in technologies and expanding our current technologies because in all honesty, on the ferrous separation, what we call Shred One [ph], the improved shredded material; we have the technologies available to us. It's just a matter of expanding that across our omni base.

And those technologies, they honestly, it's not a massive amount of CapEx spend. Can be underemphasized though, how that's impacting the scrap flows, and it's not just us. Some of our peers are doing the same thing, producing a very low residual shred.

And as I've said in the past, if you look at a shredded car today, if you just take a piece of the rusty metal itself, that's likely been produced through a integrated mill and is a very, very low residual. So by separating out the little bit of copper and nickel, you can get a prime scrap from that obsolete flow.

And I think we're seeing it, you can see it in the marketplace today where prime is actually selling under the shred price today. And it is amplifying the fact that their perceived concerns as additional capacity comes online over the next few years.

But I think we've demonstrated clearly -- the industry has demonstrated clearly what I've always said, and as innovation will trump a challenge each and every day..

That’s well understood. Thanks..

Thank you. Our next question is coming from Alex Hacking with Citi..

Yeah. Thanks Mark and Theresa. So on Sinton, Mark, I think you mentioned that it had turned the corner.

How close are you there to operating at consistent 80% rate? What are the remaining challenges? And then what needs to happen to get it up to 90%, 95% or whatever you would be targeting longer term? And is that the rate you would be expecting 90%, 95% exit rate in 2023? So you stopped below 80% and then you build up through the year, or it would be more of a consistent rate through the year? Thanks..

Well, I would describe the issues at Sinton today as just typical start-up issues, a little amplified by the supply chain constraints out there. In the old days or the other mills we started up, you need a spare part, and it's like literally on the shelf in the local city. We were seeing a little more time to react to certain issues.

That said, it is purely just making sure that we are operating each piece of equipment all the way from the electric arc furnaces through the label furnaces cast and external just operating each and every minute of each and every day. As I said earlier, the equipment is proven to be able to produce everything we intended. It's produced out to 84 wide.

We've gone down to 043 or 044 and light gauge. We produced 1-inch plate. As I said earlier, we've already been certified on some of the perhaps slightly easier API grades, but the other grades will come with time. There's no issue or challenge to get there. It's just a matter of time. So from a capability standpoint, it's definitely there.

We've had shifts. We've had days close to 85%, 86% of production rate, which again, given the relative short time that, that team has been ramping up is absolutely incredible. I think it took us three years in Butler to get a 4,000 ton shift, and we've had many of those already. So I'm not concerned. It's just a matter of time.

Would expect that 2023, we should get around 80% of our 3 million tons of shipping capability..

But Alex, you're correct. That's for the entirety of the year. So there will be a progression of ramp so that by the time we're exiting 2023, we would expect to be operating at or near that capacity rate -- that full capacity rate..

Okay. Thanks. And then just to clarify on the earlier comments, again, on Sinton. Would you be expecting to ship more flat-rolled in the 4Q, considering the ramp-up of Sinton or the seasonality will offset that? Thank you..

Alex, I think you were asking about the full complement of our flat roll operations? And we are expecting to have higher shipments from Sinton itself, but I'll leave you to determine what seasonality does to the rest of the group..

Okay. Thank you..

You’re welcome..

Thank you. Our next question is coming from Curt Woodworth with Credit Suisse. Please go ahead..

Yes. Hi, Mark and Theresa.

How are you?.

Good, thanks..

So I just wanted to talk a little bit more about fabrication.

Can you kind of talk to the diversity within your backlog and maybe how bidding activity has progressed maybe the last 90 days? I think there is some concern in the market that the data center and warehouse build-out has really driven the bulk of this growth rate, and that could potentially fall sharply.

And it sounds clear, if you have like a lot of big chunky projects that once those burn off, then you could be more at risk. And then within that, I know you spoke about pricing being fairly favorable.

And I think you talked about how pricing would be going up progressively, I believe, into the second quarter, but can you just confirm that?.

Good afternoon, Kurt. Thanks for the question. I'll let Mark address the diversity within the backlog of the fabrication business. It has changed just slightly. And I think it's become more favorable as these things are changing.

As it relates to the backlog and the pricing, what Mark was suggesting is that we still have incredibly favorable pricing heading with the backlog that goes through much of the first half of 2023. It's not likely to be at that same peak level of $5,000-plus, but still very favorable.

And at the same time, we're going to and expect to have lower steel input costs as we move through at least the fourth quarter. And so, as you can imagine, that's why the power in the business model of having fabrication be a real natural hedge to lower steel prices is very favorable to us.

And that's what you're seeing today, and we would expect to see in the coming quarters as well.

Mark, do you want to describe the diversity in the order backlog?.

Yes. I think it is transitioning a little bit. Early on, it was very, very sort of distribution warehouse focused with cloud computing and things are following along. Cloud computing, construction tends to be -- continue to be strong and grow. Warehouse may be kind of flat to stable.

And we're also seeing sort of more infrastructure, hospitals, school type construction activity. So we see it strong. I mentioned earlier, it's not at the frenetic pace that it was perhaps six months ago or eight months ago. It's normalized to still very high relative to historic norms.

And if you think about it, given the interest rate sort of environment and the little economic cloud that we have, it's not unexpected that people are wondering about projects, 7, 8, 9, 10 months out, and they're just waiting a little.

But, in general, we see that just the nonresidential construction in general, remaining very, very, very robust through certainly the first half of next year into the latter half..

And just to address your point on the backlog, if there's any risk that we’d want to point out, there's really not. It's a well-diversified backlog. There's not individual projects that are of too large of a size.

And something to just keep in mind as well as once something enters the backlog for the fabrication business, the projects have already been engineered. They generally have already been financed. There's a lot of certainty in that backlog.

And if you look on average of the projects that we do, the cost of steel joist and steel jack or steel deck as a part of the entire project itself is only between 10% and 15%. So it's a small piece of that project in and of itself, which also reduces the risk..

Okay. Very helpful. And then, just as a follow-up, I think there have been some maybe incremental concerns on the aluminum flat rolled market, just given some of the announcements by Ball and others on the beverage can sheet side.

So can you just give an update on maybe how you're progressing commercially with that project and what initial discussions have been like since you announced the project? Thanks very much..

Well, relative to aluminum, we are awash with interest, an incredible interest. To be honest, we have been focused of late locating the facilities. Glenn and his team have just, in the last week or two, completed the purchase of all the major sort of components. Certainly, all the long lead time issues, equipment packages.

So progress is being made dramatically. We're now starting to focus on the commercial side. We've had initial conversations with all but one of the major beverage outfits, can makers. Incredible interest in honesty there. And also in automotive, there are several folks that have approached us to partner with us going forward.

So, from a standpoint of contracted volumes, pricing, those sorts of things, that's too early yet..

Great. Thank you very much..

Thank you. [Operator Instructions] Our next question is coming from Phil Gibbs with KeyBanc..

Sorry, I was on mute.

Can you hear me now?.

We can. Hi Phil..

Hey, how are you?.

Good..

Specifically, you talked about in the script that you were at a 60% to 65% utilization on average for the month of October so far.

Is that what we should expect for the fourth quarter, which would get us near 500,000 tons for that asset, or do we expect something a little bit more than that as you ramp?.

I would not expect 65% for the whole quarter. No. But I -- Phil, it's tough to give you a number. If things continue to proceed as they have, month-to-date, then you're going to see a very good number for the quarter. But I can't foretell the future. All I can say is the operation has reached a more stable, consistent level of operation.

The big shifts or the big days, there are more of them. But more importantly, we're not seeing the zero shifts as we once were in the summer and as you see in any startup. So, the consistency of operation is very, very much improved and gives me a lot of confidence going forward..

Should we expect, given higher volume incrementally and some of that stabilization and just the overall operations that you will get to EBITDA positive in the fourth quarter and sort of out of the start-up phase that you've been in?.

Yes, Phil, good afternoon. We talked about it on the second quarter conference call that our expectations were sitting at that point in time was that we would reach EBITDA positive sometime in the fourth quarter. That's likely pushed out sometime in the first quarter rather than the fourth quarter.

But definitely, as Mark mentioned, we're seeing a lot of positive changes and there's been some key successes that the teams had just recently in October that we would expect to result in some really good changes heading forward. But I would suggest it's probably closer to in the first quarter versus the fourth..

Okay. And then as just a follow-up, if you could take a shot and talking about 2023 CapEx if you have a general idea? And then just also thoughts on net working capital in Q4. Thank you..

You're welcome. So we're in the middle of our detailed planning phase related to capital. I'll give some directionality, but we would have more clear and defined expectations for you as we meet in January for the fourth quarter conference call.

But right now, the aluminum investments still look like we'll be spending about $750 million in 2023 as it relates to both the recycled shop centers and the rolling mill itself. We also have the completion of the four flat roll lines, which is likely to be around $200 million in 2023. And then we have the biocarbon facility.

So I would say just those growth projects alone will probably get us to around $1 billion for capital spending in 2023. And then as we think about the additional projects that we're evaluating right now, I would suggest that it shouldn't be any greater than $1.2 billion to $1.3 billion, but we'll have more clarity as we talk to you in January.

I'm sorry. Thanks, David. And as it relates to the working capital, as we've had -- as we expect to see some seasonality in volume for customers to reorient their inventories by the end of the year, and as we've seen pricing declines in both scrap and in steel, I would expect to see another pretty significant funding from working capital.

So a contribution from working capital in the fourth quarter..

Thank you. Our next question is coming from Tristan Gresser with BNP Paribas..

Yes, hi. Thank you for taking my questions. First one is on the cost of ferrous scrap. This came much higher than what we forecasted. And I guess this is due to the purchase of more expensive metallics in H1 that some of your peers also flagged.

Are you able to quantify this extra negative impact yet in the quarter? And do you believe this will remain a headwind into Q4? Thank you..

So the question related to ferrous scrap pricing and our average price was higher than expected from their models. And I would tell you, there's a significant piece of that that has to do with higher pig iron prices.

So during the first quarter with the Russian-Ukraine circumstance, we, as did others, went out and purchased more pig iron to have certainty around supply. It was at a higher price than we're currently seeing today, which I think Mark mentioned was around $500 per ton.

And so the flat-rolled steel mills, specifically Sinton, Columbus and Butler are still working through that higher cost pig iron at this time.

Mark, do you wish to add any more commentary?.

The pig iron, and we also ended the quarter with some scrap inventory that obviously flows through into the higher-priced scrap inventory that flowed into the third quarter, too. Those inventories are well in control now, and we're back to four-week, maybe five-week inventory level. So going forward, I think that will normalize.

But the pig iron price in all honestly is going to continue into the fourth quarter, for sure..

Okay. That's very helpful. And maybe just a quick follow-up on the Buy Clean Initiative that has been put in motion by the US government. What kind of impact are you expecting from that new policy the potential boost to demand? And are you seeing already some impact on that initiative? Thank you..

From a Buy America policy, I'm sorry, it was hard to hear you at the very end. Is it had -- it related to the Buy-America policy, that is still so early on. We're not seeing a considerable amount of traction from it at this point.

Conversations with customers on the commercial side though, we believe that it won't just be Buy America, but if you look at, again, our steel operations, specifically as it relates to even our current low carbon footprint for our carbon steels and our long product steel, we believe will be the beneficiary continuing going forward of that, I'm going to call it steel for lack of a more simple terminology at this point in time.

And we believe that the Buy America will also have a positive influence. As well as the Jobs Act and the infrastructure program, which you should really start seeing traction from in the next nine to 12 months. That should support steel consumption in the US specifically in our estimation.

Mark, do you have anything to add?.

No..

Thanks a lot..

Thank you. Our next question is coming from John Tumazos with John Tumazos Independent Research..

Thank you.

Do you expect a significant drop in scrap flows with funds and [ph] scrap steel prices?.

John, they've eased and ebbed a little. I would say that reduction in flow is probably going to sort of mitigate any further substantial decline in scrap pricing..

Thank you. Mark, I just want to recall that we met in 2083 at Darlington when you were working the House Lancaster for Nucor when you were a fresh student..

I remember..

Your aluminum competitors have 30- to 50-year old house with Twin belt casters that you intimately understand often unionized. And maybe you're a little bit too humble or modest and don't want to say that you think you can build a new plant with an SMS design that's more efficient.

People don't understand the opportunity you have in aluminum and congratulations. It looks great..

Thank you, John. Thanks for the memory. But I do believe, to your point, the new aluminum mill -- and honestly, I don't look at it as an aluminum mill. It's a new horizon. It's the aluminum business for us. And it's not unlike 27 years ago, when we put SDI together and we penetrated and have been somewhat successful growing within the steel industry.

The same sort of drivers exists today in aluminum as it did back in steel. You've got an aged industry, has very, very high legacy costs for sure, inefficiencies. Hasn't been a new mill built for some 45 years. And as you know, Glenn and his team is incredibly smart and talented getting the right technology and building it effectively and efficiently.

It's exciting. And it's exciting for the young team that we have to see that being the foundation of our growth for the next 25 years..

Congratulations..

Thanks mate..

Thank you. Our next question is coming from Timna Tanners with Wolfe Research..

Hi, guys. Thanks for the follow-up. I guess I had another big picture question, if you could indulge me. There are so many new galvanizing lines being added just by you guys, by Nucor for sure, definitely some planned ones around the corner potentially from US Steel in Ternium.

I'm just wondering, is there a structurally better outlook for galvanize? There some incremental demand story or some supply piece I'm missing that's going to continue to support that level -- increased level of galvanized supply?.

Well, I think the utilization of galv product is just generally expanding. I don't know whether you have a crawl around cars, but over my 20 or 30 years, it went from just one or two parts of the car to be galvanized -- or almost the whole car is becoming galvanized. So I think there's just a general expansion of that.

Over time, people talk about the lightweighting in the automotive arena or lightweighting comes from stronger products, but also comes through thinner gauge material. So if you look at the length of coated material today versus the past. Just thinner means less throughput and needs more lines to get the same volume.

So, I don't see there being a galvanized flood or issue that you might see..

Okay, great. Thanks again. Appreciate it..

End of Q&A:.

Ladies and gentlemen, that concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks..

Well, super. Well, thank you, everyone, for your time today. Certainly, for those that have enabled our success, our customers, our service providers, and most importantly, our teams absolutely phenomenal group of people. We appreciate your loyalty, because we've been doing business together for years and years and years.

And to those in the investment community that support us, thank you. We will endeavor to continue to treat our money or SDI's money like our own, like your money. We're going to utilize it very, very effectively.

I think if you look at our use of those proceeds, we're very diligent, very disciplined in this interesting environment, spending money, again, effectively with higher returns than perhaps the industry in general. So thank you. Thank you for your support and to every individual of the SDI family that's on the line. Thank you for what you do.

Be safe each and every day and look after each other. Cheers. Bye..

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