Steel Dynamics, Inc. (NASDAQ: STLD) Q2 2022 earnings call dated Jul. 21, 2022
Corporate Participants:
David Lipschitz — Director, Investor Relations
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
Analysts:
Emily Christine Chieng — Goldman Sachs — Analyst
Seth R. Rosenfeld — BNP Paribas Exane — Analyst
Carlos De Alba — Morgan Stanley — Analyst
Timna Beth Tanners — Wolfe Research — Analyst
Philip Ross Gibbs — KeyBanc Capital — Analyst
Andrew Michael Keches — Barclays Bank — Analyst
Presentation:
Operator
Good day, and welcome to the Steel Dynamics Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised this call is being recorded today, July 21, 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.
David Lipschitz — Director, Investor Relations
Thank you, Holly. Good morning, and welcome to Steel Dynamics Second 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 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 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 headings 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 will also find any referenced non-GAAP financial measures reconciled to the most directly compared GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Record Second Quarter 2022 Results.
Now I’m pleased to turn the call over to Mark.
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Well, thank you, David. Thank you, everyone, for being with us on our second call this week. It’s been — it was exciting to announce our new growth initiative on Tuesday with our entry into the aluminum market. And it’s only been, I think probably just 48 hours or so, and the customer response from all three market segments, whether it be distribution processes, whether it be the packaging industry or even automotive, it’s been absolutely staggering, the early sign of affirmation of us getting into the marketplace, and I think speaks to the lack of supply and optionality within that market. So that’s exciting.
And it’s as exciting and even more exciting to announce yet another record quarter, record consolidated volumes, earnings per share, cash flow, all supporting our cash allocation strategy and commitment to build shareholder value. Specifically, we repurchased $517 million worth of the company’s common stock, representing 3.5% of our outstanding shares in the quarter. So we’re staying true to our repurchase programs. We are certainly beneficiary of a strong market tailwind, but I’m incredibly proud of our 11,000 strong team. They are the foundation and the catalyst of our success.
They are the ones driving the superior results. It’s their culture of excellence and the strategic positioning executed over the last 10 years that allows us to exploit the current market and will continue to produce higher lows and higher highs through the cycle. I’ve said it many times before, but none of this matters without keeping everyone safe. Often, employees are described as a company’s most important asset. For us, they are more than that. They’re part of the SDI family, the people, and we are always striving to provide the best for their health, their safety and for the welfare. We’re actively focused on safety at all times, keeping it top of mind and an active conversation at every level within the organization. We’re certainly better than industry averages, but we’re not going to rest until we consistently achieve our goal of 0 incidents. We’re continuing to see material market share gains driven by our ESG profile, an industry-leading low carbon footprint for flat-rolled products.
We will continue our journey to environmental excellence through a defined and achievable plan to be carbon neutral by 2050. Our recent Aymium investment and our joint venture is a perfect example of that. It’s an exciting opportunity to reduce greenhouse gas emissions through renewable biomass replacing fossil fuels in our electric arc furnaces. We have tested the product and it works beautifully. We believe it will also work within our iron operations. Initially, it will be 160,000 metric tons per year, and the capex is estimated to be around $125 million to $150 million. It will reduce our Scope one steelmaking greenhouse gas intensity by some 20%, 25% with even further potential upside from the use of the biogas.
So with that said, Theresa, would you like to give us some thoughts?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
Thank you, Mark. Good morning, everyone. As Mark said, what an incredible week. We announced our aluminum strategy on Tuesday, and now we’re sharing our record results. I can see personal things relate to the entire SDI family. Your performance resulted in record sales, earnings and cash flow, a truly exceptional performance. Our second quarter 2022 net income was $1.2 billion or $6.44 per diluted share, inclusive of cost of $77 million or $0.29 per diluted share associated with the continued start-up of our Sinton, Texas flat-rolled steel mill. Excluding these costs, second quarter 2022 adjusted net income was $1.3 billion or $6.73 per diluted share.
Revenues improved across all of our platforms to a record $6.2 billion, driven by record steel shipments and record pricing volume in our steel fabrication business. Our second quarter 2022 record operating income of $1.6 billion improved 8% versus first quarter results, driven by record steel fabrication earnings. Our steel operations generated very strong operating income of $1.1 billion in the second quarter with record shipments of 3.1 million tons, of which Sinton contributed 171,000 tons. Sequential earnings were 5% lower due to metal spread compression in our flat-rolled steel operations as realized pricing declined and average scrap costs increased. In contrast, our long product steel operations experienced metal spread expansion resulting from rising product prices. In fact, we set quarterly record shipments at our Structural, Engineer Bar and Roanoke Bar divisions.
Second quarter operating income for our metals recycling operations remained strong at $58 million, representing a 20% sequential quarterly improvement as ferrous metal margin and volume improved. The team continues to effectively lever the strength of our circular manufacturing operating model, benefiting both our steel and mills recycling operations by providing higher quality scrap, which improves furnace efficiency and by reducing company-wide working capital requirements. A huge congratulations once again to our steel fabrication team. They achieved record second quarter operating income of $599 million. These earnings were driven by record average pricing, coupled with record shipments. Steel joist and deck demand remains strong as evidenced by the continued strength in our order backlog, which remains at near record levels and contain strong forward pricing.
Based on the strength, we expect steel fabrication earnings to continue to increase even further as the year progresses. Our cash generation continues to be consistently strong based on our differentiated circular business model and highly variable cost structure. At the end of June, we had record liquidity of $2.5 billion, comprised of cash and short-term investments of $1.3 billion and an undrawn unsecured revolver of $1.2 billion. We generated record cash flow from operations of $1 billion in the second quarter and $1.8 billion year-to-date. During the first half of 2022, we have funded $323 million in capital investments. For the second half of 2022, we estimate capital investments will be approximately $350 million to $400 million, the majority of which relate to our four new flat roll coating lines to be located in Sinton and Heartland. We maintained our cash dividend at $0.34 per common share after increasing it 31% in the first quarter. Year-to-date, we repurchased $906 million or 6.5% of our outstanding shares.
At the end of the second quarter, $727 million remained available under our most recent share repurchase authorization. Since 2017, we’ve increased our cash dividend per share by 143%, and we have repurchased $3.2 billion of our common stock, representing 30% of our outstanding shares. 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 the shareholder distributions comprised of a positive dividend profile that is complemented with a variable share repurchase program, while also dedicated to preserving our investment-grade credit designation.
Our recently announced aluminum investment is consistent with our unchanged strategy. As I mentioned on Tuesday’s call, our cash flow profile has fundamentally changed over the last five years. We will readily fund this investment with available cash and cash flow from operations. We also plan to continue strong shareholder distributions. We’ve 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. We are squarely positioned for the continuation of sustainable optimized long-term value creation.
Sustainability is a 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, as Mark mentioned, we’re very excited to — that we formed our joint venture with Aymium recently, a leading producer of renewable biocarbon products. Steel Dynamics owns 55% of the joint venture, and we’re the operating partner. We have an actionable path toward carbon neutrality that is more manageable and we believe considerably less expensive than may lay 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. Mark?
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Thank you, Theresa. As you saw, absolutely incredible results from the New Millennium fabrication platform, record operating income of $599 million in Q2 on record 218,000 tons of shipments. We see the nonresidential construction markets remaining strong. Despite the caution emanating from Amazon’s message for next year, we have had reaffirmation from our major customers anyway, including warehouse customers that everything remains incredibly strong going forward into 2023. Cloud-based computing, data centers, pharma and schools are all strong. Although the ABI index may have drifted slightly month-over-month, the AI reports, ongoing order activity and architectural firms as well as new work online remains very strong.
For us, order input activity remains robust, and we still have near-peak backlog persisting. So that’s a very, very good position to be in. Q3 earnings from fabrication will certainly increase. We’re going to see increased shipments and metal spread expansion from both increased selling values and lower steel input costs. And as you’ve seen, this is a — it’s providing a perfect hedge to softening steel prices. Although we mentioned his impending retirement on our Q1 call, Russ Rinn had his final official day in the office last week after about 11 years of dedicated commitment to SDI and the OmniSource recycling platform. And yes, it’s — people say it’s sweet and sour, but for me, it was tough to see him go.
He repositioned OmniSource to record earnings last year, dramatically influenced their safety performance over the years and has been a key contributor to the strategic moves we’ve made as a company. Right now, he hiking in Virginia. And mate, thank you very much for everything you’ve done. The recycled platform saw stronger earnings based on higher domestic steel industry utilization pushing demand up, drove higher shipment volume, pricing and associated metal spread. After a strong downward move in prime scrap relative to shred through the quarter, that spread is normalized and pricing is expected to remain more stable in the months ahead.
The Omni platform is continuing to work with the steel melt teams to further expand our shred segregation to provide higher volumes of low residual shred scrap, which continues to reduce our dependence on more expensive prime grades. Pig iron availability is normalized and pricing has moderated significantly to low $50 per ton range. We have sufficient pig iron sourced well into next year, and supply is not an issue. And the rumors of us having problems with fast levels and such is totally inaccurate.
There’s no problem using the Brazilian pig iron that we’re bringing into our mills. Steel operations had another terrific quarter, record shipments of 3.1 million tons, strong operating income of $1.1 billion. Our second quarter production utilization rate was 95%, certainly above the industry average of some 82%. And I think we clearly communicated in the past that higher utilization rates have been clearly demonstrated over time.
Our strategy of the value-add diversified product offerings and coming out with differentiated supply chains support that, along with our internal support from fabrication and downstream. Altogether, it supports our strong and growing through-cycle cash generation capability. Our customer order entry remains strong. Support of value-added products is certainly a part of that. And as I said, we’ve intentionally grown that value-added steel product mix and created valuable supply chains to mitigate the impact of price volatility. Today, some 70% of our steel sales are value added. This supports our continued best-in-class financial metrics and cash generation. Specifically to the markets, we expect the automotive arena to remain strong and probably improve as the chip issue mitigates.
We still have extremely low dealer inventories and a very strong pent-up vehicle demand from the consumer base. ’22 build rate, there’ll be some, I don’t know, around about 14 million units, and it’s projected to grow to 16.4 million in ’23 and perhaps 16.8 million in 2024. I think the chip shortage actually for us is a good thing. It’s effectively extending the auto cycle and just given us a market that’s going to be strong for longer. Construction remains strong as evidenced with the fabrication backlog.
Our last products steel backlogs are also strong and several of our divisions recorded record earnings and volume in the second quarter, demonstrating the market’s depth. Infrastructure is a further meaningful support. High demand continues for HVAC, appliance and other related products. Energy continues to improve. We’re getting large orders in the South. I think it’s significant to note that the import arrivals that the sort of Ukraine-Russia conflict drove early in the year, those are arriving now, but there’s very, very little import interest for sort of October, November, December.
And I believe we’re going to see moderated import volumes in the second half. And significantly, it appears our hot-rolled coil order input rate has improved dramatically in the last week or so, showing signs of an inflection there. Turning to Sinton. Commissioning continues on the hot side and tandem cold mill. The rest of the mill is fully operational. The hot mill has established target volume throughput rates with an average run rate of 75% to 80%. And I just want to emphasize that, that is when we are running, we’re running at that rate. Surface quality is excellent and it’s proven to be superior to both our Columbus and our Butler facilities. The hot strip mill design is allowed for thermomechanical rolling. That’s allowing higher strength grades to be produced at lower alloy content. The reported coil shape from our processes is excellent.
And so in total, it affirms the technical process capability of the equipment and affirms the design decisions that were made some years ago for the mill. We are wrestling a little with uptime in July. We have a substation arcing issue that should be resolved this week. We have some unique Texas power supply issues right now. And we are seeing some miscellaneous equipment failures that are typical of commissioning an integrated line. The supply chain is aggravating that a little bit because when you have a — when you need a part instead of getting it in a matter of hours, sometimes it takes a day or two. So we are wrestling with those alligators, not atypical of a start-up of new plant, but we expect substantial resolution of these issues over the next few weeks.
So the July issue may have cost us 100,000, 150,000 tons of production for the year, we think, to itself because July is not over yet, but certainly moving in the right direction, and we clearly expect to be EBITDA positive in the Q4. We continue on our growth. We have the four value-added coating lines under construction and progressing well. They’re targeted for the second half of 2023 to start up. As you know, we — again, it’s the strength of our overall strategy and our product mix, but we are the largest nonautomotive coater of flat rolled steels, and now have annual coating capacity of over six million tons. The four new lines will increase that capacity by an additional 1.1 million tons. We’ve created unique supply chain solutions for our customers, and these lines are almost always fully utilized with our highest-margin products.
So switching now to aluminum dynamics. It’s been an incredibly exciting week, and it has been incredible. I said it earlier, it’s been staggering, the initial support that we’re seeing from all our customers and a massive number of new customers. To recap, it’s a 650,000 metric ton a year flat-rolled facility that’s going to be located in the Southeastern U.S. It have on-site melt and cast lab capacity of roughly 450,000 metric tons. It’s a fully equipped flat-rolled mill with two cash lines, coating line and downstream processing and packaging capability. It’s going to be supported by two satellite recycled aluminum slab casting centers, one in the Southwest U.S. and one in Mexico.
And we expect the mill itself to start up in the first half of ’25, the Mexican slab casting center in 2024 and the Southwest slap casting center in — at the end of 2025. The financial impact a total project cost of some $2.2 billion. That expenditure is going to be spread over four years of the project. It’s going to be 100% funded with available cash and cash flow through operations, and it’s expected to add a good $650 million to $700 million in through-cycle consolidated annual EBITDA per year. And we certainly anticipate no requirement to add any additional debt. From conversations on the call and subsequent conversations there appears to be some skepticism regarding our EBITDA per ton target of $1,000. We are confident of that number.
And it speaks to what was driven by a myriad of things, but firstly, it’s a greenfield facility. Everything is happening essentially on one side or the rolling process and coding, heat treating. It allows for an optimum site layout and flow of material and logistics, and you can quite easily reduce the labor, the man power input because of that and with robotics and automatic storage and retrievable systems. So labor input is going to be dramatically less than the current industry. We will not be burdened by aged facilities and legacy costs. Energy, because of the — just the state-of-the-art equipment that we be installing is going to be a lot lower. Yield improvements will dramatically improve the cost structure, pushing higher scrap content levels and transportation, given the satellite slab casting centers transporting solid dense slab as opposed to scrap is going to be a significant improvement. So we’re very, very confident of that cost projection. From an investment premise standpoint, obviously, we see a very clear gap in the supply and demand.
There’s a current and growing deficit — supply deficit. We see a very close sort of overlap and business alignment. And essentially, you could — if we filmed the steel mill and an aluminum mill in black and white, most people on the call today wouldn’t be able to tell the difference. I mean it’s — all it is, is a different metal. We clearly will be able to execute the project well. It’s incredibly cost-effective growth. Given the opportunities that are in the marketplace today, and the exorbitant multiples that are expected from sellers. This is a very, very capex efficient growth project.
As I said, we have got absolutely great customer support. And at the end of the day, our success has always been driven by the SDI culture by our employees. It drives higher efficiency than anyone else, it drive lower cost. And if you look at that industry, it has a very, very, very steep cost curve. And that will obviously — if you were at the lowest quartile, that’s going to support margin through the cycle. So we’re incredibly excited by the opportunity. So in general, it’s been a phenomenal week. It’s been a phenomenal year for SDI that will continue through the rest of this year.
Our team provides our success, the foundation for that success, and I thank each of them for their hard work and their commitment. I remind each and everyone to remember, safety is always our first priority. We’re going to continue to focus on providing superior value for our customers, through our company, team members and shareholders alike, and we look forward to creating new opportunities for everyone in the years ahead.
So with that said, I’d like to pass the call over for questions. Holly?
Questions and Answers:
Operator
[Operator Instructions] Your first question for today is coming from Emily Chieng with Goldman Sachs. Your line is live.
Emily Christine Chieng — Goldman Sachs — Analyst
My question is just around your power cost exposures across the portfolio. Can you highlight to us what is hedged or fixed price power and what still remains on spot? Is Sinton actually exposed to market prices? Or have you since put some hedges in place there?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
Emily, we have — across the portfolio of those steel mills, we have a mix. So for example, and then to be able to split it out in a manner on a percentage basis, I’ll have to kind of go back and talk to the team. But I would say it’s probably at least 50% to 60% that’s contractual, and they tend to be long-term contracts of two to three years, have escalating factors included in them. And the remainder is spot. There is some that we hedge. Sinton right now is a little bit difficult simply because, as Mark mentioned, we’re in startup and they actually constructed a massive substation on our behalf in the region. And so I think most of Sinton at this point is still on a spot basis because of the stop and start that we’ve been having right now in July.
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
And Emily, that’s the electrical power. On the natural gas side of things, we typically hedge around about 60%, 65% of our consumption.
Emily Christine Chieng — Goldman Sachs — Analyst
That’s very clear. Thank you.
Operator
Your next question for today is coming from Seth Rosenfeld with BNP Paribas. Your line is live.
Seth R. Rosenfeld — BNP Paribas Exane — Analyst
Thanks for taking our question If I can ask one with regards to fabrication and non-resi activity. At the time of Q1 results, I think you noted still record backlog and that change site to a near record. Can you give us any color for how significant of the contraction in backlog tons or duration has been realized? And on the pricing side, you commented earlier, aggregate price realizations will increase coming quarters. But on the most recently one orders, are we seeing any downward inflection of light?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
Thanks, Seth. So as it relates to the fabrication business, we said near records just because of recent have people back checking all the time and if it’s not a record, we have to say near record. There has been some contraction from the peaks, but we’re still having a backlog that’s well into 2023. So it’s not something that we’re concerned about or we think it’s endemic of anything changing significantly. From a pricing perspective, we’re still having very strong price support, and there is still increased pricing that is included in the backlog. So we’re feeling very good about the nonresidential market, specifically for our steel fabrication business. Mark, do you have anything to add?
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
No, no. That sums it up well.
Seth R. Rosenfeld — BNP Paribas Exane — Analyst
Okay. And I’ve got a separate question, please. On the working capital side, I think on the call earlier this week, you had a potential tailwind from working capital release moving forward. And Q2, you saw another quarter of large investment. Can you give us any color on your expectations for second half as steel and raw materials price decline?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
Absolutely, Seth. We’re still — so I don’t — I guess I wouldn’t call it a significant increase. I think the increase in the second quarter for working capital was just a little over $100 million. So I thought small, but given the size of the working capital at this point in time, it was incremental. But we would expect a pretty significant working capital release in the probably two to three quarters. And it has to do with not necessarily just even have seen some weakness, as Mark mentioned, or some softening in the flat-rolled prices, but we’ve also been specifically reducing physical inventories at our steel fabrication business as they had extra substrate for different reasons on the ground from a steel perspective. So there’s some structural things that we’re doing as well as from a pricing standpoint. So again, second half of the year into next year, I would expect working capital release.
Operator
Your next question for today is coming from Carlos De Alba with Morgan Stanley. Your line is live.
Carlos De Alba — Morgan Stanley — Analyst
The question is on capex progression for the aluminum project announced, how do you see the capex for this year and for the coming years until the project is ready to start up?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
Carlos, I’ll point you to the presentation that’s still out on the website that we provided on Tuesday. But from a capex progression standpoint, we believe we’ll spend somewhere between $200 million and $300 million on the flat-rolled aluminum project in 2022. That would be additive to the number that I gave you earlier for the estimate for the rest of 2022 of being in that $350 million to $400 million range And then the bulk of the spend will be in 2023 and 2024, each of those years being around $750 million to $800 million. And then finally, we would have the remainder, which is around $300 million to $350 million in that 2025, 2026 time frame. So it’s over a period of four to five years where we’ll be spending the investment. And that’s why Mark was very clear, and I’ve tried to be clear as well that this will readily be funded through cash flow and cash flow from operations.
Carlos De Alba — Morgan Stanley — Analyst
Fair enough. And if I may just try another one quickly. Have you seen any particular pricing pressure in the steel Southern markets or Northern Mexico with the ramp-up of Sinton as well as the ramp-up of — steel ramp-up of Ternium’s facility as well as metals facility, a little bit further south in the Mexican market?
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Well, I think, Carlos, you saw generally a sort of erosion on the hot band, hot-rolled coil pricing across, across the U.S. in general, and it was a little stronger in the South because of the reasons that you suggest. As I suggested, we’re seeing our order activity on hot band recently pick up dramatically. And so I think there’s no support there in that product category.
Carlos De Alba — Morgan Stanley — Analyst
Fair enough. Thank you very much. Good luck.
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Thank you.
Operator
Your next question for today is coming from Timna Tanners with Wolfe Research. Your line is live.
Timna Beth Tanners — Wolfe Research — Analyst
I wanted to ask a little bit more, if I could, I know on the last call, when we’ve spoken to you, you mentioned that you were looking at a pig iron alternative kind of leveraging your iron dynamics operations. So I was wondering if you could expand on that. And then if I could throw in one more. Just and I thought it was interesting that you mentioned the market is pessimistic, but your customers are optimistic. So I was just hoping you could also elaborate on that.
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Well, from a pig iron perspective, we certainly would like to pursue sort of some level of captive supply and self-sufficiency. And not unlike the last call, we are pursuing or exploring whether the Iron Dynamics technology or an alternative technology is best suited for us. But that’s sort of a project in process going forward, Timna. If there were to be a project, again, from a capital perspective, that’s not a huge, huge issue. I’m sorry, I didn’t catch the – quite the second comment or question.
Timna Beth Tanners — Wolfe Research — Analyst
Thanks. on Iron Dynamics. That’s helpful. So it doesn’t sound like a big capital use then, is that what you’re saying?
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Absolutely not. Yes
Timna Beth Tanners — Wolfe Research — Analyst
Okay. Helpful. No, I just wanted to.
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
You had a market question?
Timna Beth Tanners — Wolfe Research — Analyst
Yes, if you wouldn’t mind elaborating, in the release, you talked about how there’s a prevailing pessimism, but your customers are optimistic? And then you talked about hot-rolled order entry improving recently. And I’m just wondering if you could elaborate a bit on how that contrasts with the pessimism and maybe some elevated inventories, please?
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Well, I guess, all we can do or all I can do is look through the lens of our order book. And as I mentioned over the years, a wise man told me that, hey, the order book tells all, but it tells all for us. I can’t speak for the rest of the industry. But we’re not — we haven’t seen a dramatic structural sort of change in underlying demand. Order activity has remained pretty strong. There was a little softness in hot-rolled coil, and that’s rebounding, I think. And so there’s — when I say sort of motion in the marketplace, there seems to be a cloud out there that you got recessionary pressures and all these things going to drive the market there. As just pointed out, right now, through our order book, we don’t see it.
Timna Beth Tanners — Wolfe Research — Analyst
Thanks very much.
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Thanks, Tom.
Operator
Your next question for today is coming from Phil Gibbs with KeyBanc. Your line is live.
Philip Ross Gibbs — KeyBanc Capital — Analyst
Mark, you mentioned spot prices for pig iron are clearly coming down, and we see that, too. But are you all locked into higher numbers than that prevailing spot if you chose to hedge a lot more forward during the war?
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
We had, I would say, a mix. There were right at the onset of the conflict. We did buy a couple of boats were at the high end of that range that you saw. But we now have a kind of a mix of material. I think the highest we may have paid is like $900 or so a ton. We got a couple of boatloads of that. But then we have a lot more material coming in at lower pricing. And the forwardboats are tending to be indexed against the market price. So it shouldn’t be a major impact for us.
Philip Ross Gibbs — KeyBanc Capital — Analyst
Okay. And then Theresa, the normal mix dispersion on sheet, if you have it?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
Absolutely, Phil. The hot rolled P&O number is 861,000 tons; cold rolled, 131,000 tons; and the coated products are 1,132,000 tons.
Philip Ross Gibbs — KeyBanc Capital — Analyst
And if I could sneak in one more here. Just on Sinton, have you all changed your thought process on what it’s going to do this year in terms of volume contribution to the second half? I’m just trying to read what you all have put now in terms of having lost production in July, but having got to high melt utilization at one point. So just trying to think through what the next few months look like here because we’re getting to the tail end of the year.
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Got it. The — and again, it’s — we’re wrestling alligators a little, I guess, and sometimes you don’t know when you’re going to win. But I suggested earlier, our July issues have probably cost us 100,000, 150,000 tons, Phil, from our annual sort of projection, and we were around 1.5-ish. So you can do the math, Phil.
Philip Ross Gibbs — KeyBanc Capital — Analyst
Okay. But that number was relative to the 1.5-ish that’s kind of just what I wanted to hear in terms of understanding that. And then last question from a housekeeping standpoint is just what the updated capex numbers for this year, if I missed it because I know you got the aluminum project and some other things that you had done there?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
So Phil, for the second half of the year, excluding the aluminum project, we estimate capex to be somewhere between $350 million and $400 million, and a majority of that relates to the four new flat-rolled coating lines. If we look at what we may spend on the aluminum investment, we’ll likely spend an additional $200 million to $300 million. So the total second half of the year is likely to be somewhere between $550 million and call it, yes, around $550 million, $600 million.
Philip Ross Gibbs — KeyBanc Capital — Analyst
Thank you.
Operator
Your next question for today is coming from Andrew Keches with Barclays. Your line is live.
Andrew Michael Keches — Barclays Bank — Analyst
Theresa, I don’t want to belabor the point, but I want to try and ask the capital deployment question from earlier in the week in a slightly different way. So you have the two turns of net debt threshold out there, but the reality is you’ve been operating at about half of that for the past year or so. And you made the comment, I think it’s obvious that without buybacks, you’d eventually find yourself net cash, and you also don’t want to go to the bottom end of that range. So I guess what would be helpful is to know what you think the right level of leverage is for the business at this point in the cycle? Is two times the level where you’re comfortable getting back to? Or should we take the fact that you’ve been operating below that for the last year or so as an indication that you want to keep some flexibility within that range, so we’re not just going to intentionally lever back up?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
No, the intent isn’t to intentionally lever the balance sheet. We like to maintain it at a flexible level to allow for growth projects just like we’re doing right now. So we did this with Sinton as well. We started out with an additional cash, lower leverage on the balance sheet so that we were able to very easily commit to a capital investment that would be funded through cash and cash flow from operations while maintaining flexibility and optionality in case there were to be some sort of acquisition opportunity that were to become available, etc, or in the absence of that, so that we’re able to continue to have our very, what we believe, is a positive shareholder distribution plan, which allows for us to continue to keep increasing the dividend at an appropriate level because it is a forever type of investment for us. We want to make sure it’s maintained at a manageable level. And then in addition to that, we have the opportunity to strategically and opportunistically use the share buyback program. So there is no intention to relever the balance sheet, but we are keeping that flexibility within it so that we can easily fund these projects.
Andrew Michael Keches — Barclays Bank — Analyst
Okay. Maybe just as a quick follow-up. So what — you’ve talked about the cash flow profile structurally changing, but the business is also growing. So what do you think the right level of cash is for the business going forward?
Theresa E. Wagler — Executive Vice President, Chief Financial Officer and Company Secretary
We actually don’t manage to a cash level on the balance sheet. We look at liquidity in totality. And so yes, I’m not really comfortable answering that question.
Operator
[Operator Instructions] There appear to be no further questions in queue. I’d like to turn the call back over to Mr. Millett for any closing remarks.
Mark D. Millett — Chairman, Co-Founder, Chief Executive Officer and President
Well, thank you, Holly. Again, thank you, everyone, for being on the call joining us today. Just finally, I’d like to congratulate once again the team. Absolutely fantastic performance this past quarter, and we’re continuing that through the rest of the year. To our customers, again, you have been loyal to us. Thank you for your support and for the growing support. And I would also like to look forward to welcoming our new customers on the aluminum side and any folks that want an incredibly dynamic career, come join us, we’re going to be making some aluminum. So thank you very much, everyone. Have a great day. Bye-bye
Operator
[Operator Closing Remarks]