STEEL DYNAMICS INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Performance: Achieved solid financial and operational performance in 2024 with second highest annual steel shipments of 12.7 million tons, cash from operations of $1.8 billion, adjusted EBITDA of $2.5 billion, and was the safest year ever. Recordable injury and lost time rates were the lowest in history.
• Value-Added Lines and Sinton: Ramping up four new value-added flat rolled steel coating lines with full earnings benefit expected in 2025. Sinton team gained momentum, running above 80% capacity in last two months and expected to reach profitability in coming months.
• Aluminum Project: Aluminum Dynamics cast first aluminum ingot, with systematic commissioning of the rest of the plant on schedule for commercial shipments in June 2025.
• Safety Culture: Core safety teams visited 85% of 124 locations in 2024. 60% of locations had zero recordable injuries and 81% had zero lost time incidents last year.
• Capital Investments and Share Repurchases: In 2024, invested $1.9 billion in capital investments, approximately 70% related to aluminum flat rolled investments. Repurchased $295 million of common stock in fourth quarter and $1.2 billion for the year.
• Sustainability: Announced new certified science based greenhouse gas emissions intensity targets for steel mills in alignment with Paris Agreement goals. Received an award from Corporate Knights as one of the world's most sustainable companies.

Segment Performance

• Steel Operations: In 2024, operating income from steel operations was $1.6 billion with near record annual shipments. Fourth quarter 2024 steel operations generated operating income of $165 million. Hot band shipments were 901,000 tons, cold rolled shipments were 119,000 tons, and coated flat rolled shipments were 1,282,000 tons.
• Metals Recycling: In 2024, operating income from metals recycling operations was $77 million, higher than prior year results. Fourth quarter 2024 operating income from metals recycling operations was $23 million.
• Steel Fabrication: In 2024, earnings from the steel fabrication platform were $667 million. Fourth quarter 2024 steel fabrication operating income was $142 million.
• Aluminum Operations: Aluminum Dynamics cast its first aluminum ingot two weeks ago at the Columbus facility. Expectations are to have commercial shipments in June 2025. Plan to operate the rolling mill at approximately 50% in 2025 and 75% in 2026.

Guidance

• Aluminum Operations: Plan to operate the aluminum rolling mill at approximately 50% in 2025 and 75% in 2026.
• Steel and Fabrication: Optimistic regarding steel demand and pricing dynamics entering 2025. Steel fabrication platform has high expectations due to positive customer sentiment, moderating interest rate environment, manufacturing onshoring, and infrastructure spending. Sinton expected to have strong production and financial contribution in 2025.
• Market Outlook: Believes moderating interest rates will unlock pent up project work and create new opportunities in nonresidential construction, and onshoring and infrastructure spending will support fixed asset investment in related projects.

Risks

• Integration and Startup: Risks related to integrating or starting up new assets.
• Aluminum Industry: Risks associated with the aluminum industry.
• Estimates and Assumptions: Risks in connection with anticipated project returns in steel, metals recycling, and fabrication businesses due to use of estimates and assumptions.
• General Business and Economic Conditions: Risks related to general business and economic conditions, such as trade case outcomes and weather impact on scrap supply.

Question and Answer

Q: Have you witnessed any weather impact either on your operations so far this year or on demand dynamics? And also what type of volume increase should we expect in steel and fabrication Q1?

A: Barry Schneider mentioned weather has minimally impacted operations so far, with teams working through cold weather. Theresa Wagler said limited guidance on quarter - over - quarter volume, but expects seasonally higher volumes in first quarter and increased consumption and volume across platforms in 2025 due to public funding and reduced imports.

Q: Can you explain why the investigation was asked to be delayed regarding the hot dip galvanized trade case? Is that because there were signs that the tariffs may not be applied in full? And also regarding the import situation, obviously there's a lot of chatter around potential tariffs. Have you witnessed some import bounce in recent weeks or before those potential tariffs take place?

A: Mark Millett said timing of trade case delay is typical procedural. Has seen import bump, expects favorable rulings on trade cases and anticipates taking unnecessary noise out of the marketplace.

Q: I wanted to really understand better the situation at Sinton and the finishing lines. So in the Q4 results you talked about Sinton at 80%. So it looks like great progress there, but I'm not understanding why that's not more profitable at that utilization? And similar question for the finishing lines, like what does it take to get to greater profitability, when should we see that switch over and what could the contribution look like?

A: Barry Schneider said Sinton's progress is great, throughput is a part of cost compression. Extraordinary costs are related to machine reliability, maintenance, and commissioning. Expect profitability to be gained in first half of 2025.

Q: Can I just ask on capital allocation priorities? So, I mean it's a very nice setup for Steel Dynamics heading into 2025 with a pretty material free cash flow inflection expected here. Are there any new projects in the pipeline that could possibly be green lit in 2025? And then on the other side of potential growth options, what is Steel Dynamics appetite to potentially acquire new capacity?

A: Mark Millett said no imminent large - scale organic growth anticipated currently, focus is on executing current projects. Theresa Wagler said will continue with share repurchase program and positive dividend profile while focused on execution.

Q: Can you just clarify the expectations for the aluminum mill in terms of production? I think you said 50% this year, 75% next year. Is that sort of exit rate or is that average? I guess, put another way, like, how many tons would you expect to ship this year and next year?

A: Barry Schneider said 50% for 2025 is ending the year at a 50% utilization rate, 75% for 2026 is total capability.

Q: I wanted to get your thoughts on recent tightness in UBC scrap spreads and whether this could be a structural trend with greater demand from two new rolling mills ramping and China recently removing scrap import controls. And if you could also remind us what the expected scrap intensity will be across the three product groups out of ADI.

A: Mark Millett said not anticipating this being a new norm, scrap markets will normalize. Anticipates can stock at around 95% recycle content and automotive grades at around 60% - 65% recycle content for ADI.

Q: Could you give us some color contrasting the lightning blitzkrieg startup for the aluminum versus Sinton, where we're in the fourth year who were the equipment suppliers primarily for aluminum versus for Sinton? Are there issues at Sinton that the product mix is different than anticipated, narrower coils or more batchy or tougher to procure scrap or if there's nonprime steel, is it because of dirty scrap or the melt shop not getting the chemistry right or the rolling practice?

A: Mark Millett said aluminum mill is different as it's not pioneering new technology, equipment supplied more broadly. Barry Schneider said quality out of Sinton is good, product development for high strength products is going well, and Sinton's continuous process has different challenges but quality is pleased.