Steel Dynamics Inc (STLD) Q4 2020 Earnings Call Transcript

Steel Dynamics Inc  (NASDAQ: STLD) Q4 2020 earnings call dated Jan. 26, 2021

Corporate Participants:

Tricia Meyers — Investor Relations Manager

Mark Millett — President and Chief Executive Officer

Theresa Wagler — Executive Vice President and Chief Financial Officer

Analysts:

Seth Rosenfeld — Exane BNP Paribas — Analyst

Curt Woodworth — Credit Suisse — Analyst

Timna Tanners — Bank of America — Analyst

Chris Terry — Deutsche Bank — Analyst

Carlos De Alba — Morgan Stanley — Analyst

David Gagliano — BMO Capital Markets — Analyst

Andreas Bokkenheuser — UBS — Analyst

Phil Gibbs — KeyBanc Capital Markets — Analyst

John Tumazos — John Tumazos Very Independent — Analyst

Tyler Kenyon — Cowen & Company — Analyst

Presentation:

Operator

Good day and welcome to the Steel Dynamics Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions]

At this time, I’d like to turn the conference over to Tricia Meyers, Investor Relations Manager. Please go ahead.

Tricia Meyers — Investor Relations Manager

Thank you, Kevin. Good morning and welcome to Steel Dynamics’ fourth quarter and full year 2020 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, 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 as we are following appropriate social distancing guidelines.

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 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 reference to non-GAAP financial measures reconciled in the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Fourth Quarter and Annual 2020 Results.

And now I’m pleased to turn the call over to Mark.

Mark Millett — President and Chief Executive Officer

Well, thank you, Tricia. Good morning, everybody. Thank you for joining our fourth quarter and full year 2020 earnings call. I apologize for the early hour, particularly for those that may be on the — coming in from the West Coast, but hopefully you are going to enjoy the results nonetheless, because 2020 was a year of unprecedented health and economic challenge, as we navigated the impacts from the coronavirus pandemic. Yet through the extraordinary dedication and passion of the Steel Dynamics team, we took care of one another, while also providing for our families and serving our customers. Protecting the health and welfare of our people is our highest priority and I want to thank each of them for their continued commitment to each other. I am proud to work alongside each of them, they are a special team and they continue to do incredible things.

Despite the challenges, we achieved best-in-class performance with record fabrication volume, strong earnings and steel shipments that were only 1% less than our record year, simply a phenomenal performance given the conditions. We’re conscious of these milestones while remembering that none of it matters unless everyone goes home safely at the end of each day. Our safety performance improved in the fourth quarter and notably our annual 2020 injuries severity rate was the lowest in our history.

Again, nothing is more important than the health and safety of our people. Safety is and always will be our number 1 value. Our safety performance is significantly better than industry statistics, but our aim is to have no injuries and we will work tirelessly to get there. In order to achieve this, we must all be continuously aware of our surroundings and our fellow team members, keep safety top of mind to control safety, both in the traditional sense as it relates to keeping one another in good health.

But before I continue, Theresa will provide insights into our recent performance.

Theresa Wagler — Executive Vice President and Chief Financial Officer

Thank you, Mark. Good morning, everyone. I’d like to add my sincere appreciation and congratulations to our entire Steel Dynamics team. As Mark mentioned, we achieved numerous milestones despite the social and economic impacts from the coronavirus. We achieved revenues of $9.6 billion derived from record fabrication shipments and our second highest annual steel shipments. Operating income of $847 million and net income of $551 million or $2.59 per diluted share and cash flow from operations of $987 million and adjusted EBITDA of $1.2 billion, a truly extraordinary performance considering all the peripheral challenges.

Regarding our fourth quarter 2020 performance specifically, net income was $188 million or $0.89 per diluted share, which includes financing costs related to our October 2020 refinancing activities of $0.04 per diluted share. Costs net of capitalized interest associated with the construction of our Sinton Texas Flat Roll Steel Mill of $0.05 per diluted share and non-cash asset impairment charge related to non-core oil and gas investments of $17 million or $0.06 per diluted share net of non-controlling interests and finally, a tax benefit related through reduction of a valuation allowance of $13 million or $0.06 per diluted share, net of non-controlling interests.

Excluding these items, fourth quarter 2020 adjusted net income was $0.97 per diluted share, above our adjusted guidance of $0.80 to $0.84 per share due to stronger-than-anticipated December flat rolled steel shipments as order activity remained very strong. Our fourth quarter 2020 revenues were $2.6 billion, 12% higher than sequential third quarter results as steel and metals recycling pricing improved. Our fourth quarter 2020 operating income was $259 million, $103 million or 66% higher than sequential third quarter results due to higher realized flat rolled steel pricing more than offsetting increased scrap costs. As we discussed our business this morning, you will find that we are positive heading into 2021 considering underlying steel fundamentals and confident in our unique earnings catalyst.

All three of our operating platforms performed well in 2020 and in the fourth quarter with the steel metals recycling teams achieving their best quarterly performance of the year. Our steel operations generated $298 million of operating income in the fourth quarter, more than doubled the third quarter sequential earnings as flat rolled steel selling values increased significantly throughout the fourth quarter driving expanded metal margins.

Fourth quarter steel shipments of 2.7 million tons were on par with sequential third quarter volume. Our steel mills operated 84% of their capability during the quarter, well above the industry average of 72%. For the full year 2020, our steel facilities achieved numerous production and shipment records. The platform’s full year operating income was $906 million, with shipments of 10.7 million tons, again representing our second highest volume and only 1% less than our record, a truly phenomenal performance.

As a reminder, we still have additional market opportunity, it’s mostly in the long product side of our steel operations, based on our existing annual steel shipping capability of over 13 million tons. And as our new Texas steel mill begins ramping up, we will have over 16 million tons of steel shipping capability. Our value-added product mix, supply chain differentiation and downstream manufacturing businesses provide a powerful strategic advantage to sustain higher steel mill utilization during all demand environment and to increase our through cycle cash flow.

As overall manufacturing rates improved and domestic steel production increased during 2020, scrap generation and demand strengthened in the fourth quarter resulting in improved pricing and volume. Operating income from our metals recycling operations was $27 million, 75% higher than the sequential third quarter.

For the full year 2020, operating income from our metals recycling business was meaningfully higher than prior year, almost 60% higher at $45 million based on higher and more stable ferrous scrap prices. Our metals recycling operations provide a competitive advantage for sourcing ferrous scrap for our steel mills, allowing for increased scrap quality, melt efficiency and reduction of Company-wide working capital requirements.

Our vertically connected operating model benefits both platforms. Our steel fabrication business had solid operating income of $25 million in the fourth quarter compared to sequential third quarter record earnings of $39 million. Lower earnings were the result of seasonally lower shipments and metal spread compression as average selling values declined and steel raw material input cost increased.

For the full year 2020, fabrication achieved another record year with operating income of $121 million and volume of 666,000 tons. Congratulations to the team. We continue to see strong order inquiry and customer optimism. Although, with rapidly rising steel costs, we will likely see margin compression in the coming months. The order backlog is about a six-month backlog and the steel raw material that we put on the ground is generally around 2.5 months of steel inventory. So we’re likely to see trough margins sometime in the first quarter for fabrication, but the order entry is very strong right now and they’re actually selling at record high joist and deck pricing. So we expect to see that crack very quickly as we go into the second quarter.

For our cash flow from operations, our cash generation continues to be incredibly strong based on our differentiated business model and highly variable cost structure. During the fourth quarter of 2020, we generated $138 million of cash flow from operations, and for the full year, $987 million. We’re simply even more agile today than ever before, we more than doubled our average annual free cash flow to $1.2 billion from 2016 to 2020, that’s compared to the previous five-year period. Even amidst coronavirus, we generated $980 million of free cash flow this year.

Our 2020 capital investments totaled $1.2 billion of which $928 million was invested in our new Texas flat rolled steel mill. For 2021, we currently believe capital investments will be roughly $950 million with the Texas steel mill representing about $800 million of that amount. The Texas steel mill is expected to be within plan of $1.9 billion.

Regarding shareholder distributions, we maintained our quarterly cash dividend at $0.25 per common share after increasing at 4% in the first quarter of this year or the first quarter of 2020, I should say. Since 2016, we’ve also increased or invested $1.3 billion of our common stock, representing over 15% of our outstanding shares. We repurchased $107 million in 2020 and $444 million remains authorized for repurchase at the end of the year.

Additionally, we opportunistically accessed the investment grade capital markets in both June and October of 2020, extending our debt maturity profile. Since becoming investment-grade, we’ve significantly reduced our effective interest rate from 5.4% to 3.5%. These actions reflect the strength of our capital foundation, consistent cash flow capability and strong liquidity profile and the continued optimism and confidence in our future [Technical Issues] position of strength and ample liquidity and we remain in a position of strength as we enter 2021.

At December 31st, 2020 our liquidity was over $2.5 billion, comprised of cash at $1.4 billion and our unsecured revolver of $1.2 billion. Our capital allocation strategy prioritizes responsible strategic growth with shareholder distributions comprised of a base positive dividend profile that’s complemented with a variable share repurchase program, while also being dedicated to preserving our investment grade credit rating. We’re squarely positioned for the continuation of sustainable optimized long-term value creation.

We also believe sustainability is a part of our long-term value creation and we’re dedicated to our people, our communities and our environment. We’re committed to operating our business with the highest integrity and have been since our founding. Today, we produced steel using electric arc furnace technology, with recycled ferrous scrap as the primary raw material. EAF steel production technology currently has a least environmental impact. It is the most cost effective and provides the most operational flexibility. With the addition of our metals recycling and fabrication platforms, we intentionally developed a vertically connected operating model, create an almost closed loop manufacturing business which both benefits us financially and reduces our environmental impact.

In 2020, we shared our qualitative climate related goals in our most recent sustainability report. During 2021, we plan to also adopt quantitative goals to reduce greenhouse gas emissions, participate in greater renewable energy use and continue to invest in energy efficiency opportunities. We are currently in the process of assessing the use of renewable energy alternatives at our new Texas steel mill as well.

Our sustainability and environmental impact strategy is an ongoing journey and we’re moving forward with the intention to make a positive difference. We plan to continue to address these matters and to play a leadership role in developing innovative ways to reduce our impact on the environment. And on a personal note, I want to thank our teams for their passion and generosity and for the care they’re showing for one another’s health and safety. Thank you. Mark?

Mark Millett — President and Chief Executive Officer

Well, thanks, Theresa. As you were talking there, there is a great recap I think of our financial performance for sure, but the startling — the metric there. I think you have a team that produced almost $1 billion of free cash flow during a pandemic and an incredible economic downturn, and I think that speaks remarkably for the team that we have.

But as you also mentioned, the steel fabrication platform delivered an outstanding performance, achieving record annual earnings and shipments. The non-residential construction markets remained resilient throughout 2020, especially in areas that support online retail and computing activities such as warehouses for the retail distribution and cloud computing functions. This continues to be a strong area for our fabrication projects. We ended the year with a record fabrication customer backlog which is atypical for this time of year, as seasonality tends to impact order activity. So I think it bodes well for the future.

As steel prices increased quickly, is likely we’ll see near term margin compression for the fabrication platform. However, the strong steel pricing environment will obviously benefit our steel operations to a much greater degree. This is one of the strengths of the symbiotic nature of the vertical integration of our primary operating platforms. Another is the ability to keep utilization of our steel mills at the highest level.

Our fabrication facilities bought almost 460,000 tons of steel from our own steel mills in 2020, helping mitigate the impact of reduced demand in the second quarter, driving a significantly higher utilization rate as compared to the industry as a whole.

Our metals recycling operations performed admirably in the wake of a COVID-19 related state mandates and manufacturing disruptions earlier in the year. The team was critical in supplying our steel mills with adequate scrap when supply was severely reduced during the second quarter, another example of the strength of our vertical operating platforms. As manufacturing resumed mid-year and domestic steel production increased, scrap generation and the brand improved significantly in the second half of 2020, culminating in a significant price increase in January ’21 of $100 per gross ton. We believe scrap generation will be strong in 2021 and that pricing will stabilize at moderately lower levels than we have today.

Steel team achieved incredible things this year, and I thank everyone involved, because it took a team effort. Our metals recycling and fabrication teams, our customers and our vendors, everyone contributed to the performance. Our own steel consuming businesses purchased 1.5 million tons of steel from our steel mills, representing 14% of our total 2020 steel shipments, clearly another example of the strength of our vertical operating platforms to mitigate risk and increase through cycle earnings.

As a result of the pandemic, an estimated 15 million tons of higher cost domestic blast furnace flat roll steel production was idled in early 2020. Since that time, we believe between 5 million to 6 million tons of net production capacity has resumed.

We believe some of the idle capacity will be kept permanently offline due to the high cost required to restart and maintain their operations. We believe this supports our flat roll supply demand balance thesis that the impending additional flat roll capacity will not cause the material supply side imbalance, as there are only approximately 6 million tons of new capacity that is planned to start in the next 12 month.

Combined with the capacity already restarted, it still doesn’t match the tons taken offline in early 2020. While the overall domestic steel industry operated at 68% utilization, the strength of our differentiated business model coupled with the passion of our people drove Steel Dynamics’ utilization rate to 86%. Even more remarkable, our flat roll steel mills achieved utilization of 97% through the year.

In tough environments, the strength of our people and our unique business model becomes even more powerful. As demonstrated this year, June periods of market inflection, we maintain higher volumes compared to our peers and we gained market share. Uninterrupted low cost operations help provide customer optionality, value-added product and end market diversification provides flexibility for our commercial teams to go get orders. The unique supply chain solutions create customer value making us a preferred supplier.

And as I mentioned, our internal manufacturing businesses provide meaningful utilization support. We are in extremely tight flat roll market right now, we can’t even supply our internal operations to the extent they would like. Underlying demand for flat roll steel recovered much more quickly than expected, coupled with already extremely low supply chain inventories, the flat roll steel supply environment tightened in the second half of 2020 and remains extremely tight today.

Customers are not yet rebuilding inventory due to limited availability and the speculative risk associated with the accumulation of higher priced inventory. They appear to be ordering for only immediate needs. As per trade, we believe existing country agreements and legislated steel trade cases that are in place will continue to moderate imports.

From an end market perspective, the North American automotive sector has experienced the most rapid rebound, already operating at pre-COVID levels with expectations and production in 2020 of around 60 million units or more. The non-residential construction sector remained steady as evidenced by record Structural and Rail Division shipments, record steel fabrication shipments and strong customer backlogs.

Residential construction has also been strong, generating high demand for related HVAC and appliance products. We’re also beginning to see improvements in mining and yellow and green goods at our Engineered Bar Products Division. A slight offset is steel consumption related to the energy sector which remains historically weak, but is seeing glimpses of turnaround. We are continuing our impressive growth, margin enhancing growth. We have recently executed several strategic investments that we believe will meaningfully benefit our future through cycle earnings and free cash flow position.

We expanded two steel mills by adding 440,000 tons of annual steel rebar production capability, adding product diversification and differentiated customer supply chain. This end market diversification supports higher through cycle utilization for our Structural and Roanoke Bar Steel divisions. The Heartland operations acquired in 2018 continue to expand. The team has been operating at record levels, providing additional internal value added flat roll production support and operational flexibility for our Butler Flat Roll division.

The acquisition of United Steel Supply has also been an excellent investment, as a regional distributor of prepainted Flat Roll Steel construction products, they provide a strategic channel to new, more diversified customers. Our combined brand is powerful in these markets, establishing us as the clear supplier of choice.

Since the acquisition of Columbus Flat Roll division, we have meaningfully increased its through cycle earnings capability. We have transformed this product portfolio with the expansion of value-added steel products and customer end markets. The team achieved another milestone in July 2020 with the start-up of the new 400,000 ton value-added metallic coating line. Columbus now has four value-added coating lines, the investment reduces Columbus’ hot-rolled coil exposure and provides a ready southern Heartland consumer base for our new Sinton Texas electric arc furnace flat rolled steel mill, when it starts operating later this year.

The Sinton investment will be another transformational step function increase to through cycle cash flow generation, providing next generation EAF steel production capabilities, new products and new customers. The team’s momentum is absolutely unbelievable and to be admired. When you toe the site that the excitement there is palatable. We have an incredible depth of experience in the construction, start-up and operation of large steel manufacturing assets. Collectively, we likely have more relevant experience than any other company in the industry. Construction is going well and it’s beyond exciting to know, we will be producing steel this coming summer.

The new 3 million ton state-of-the-art flat roll steel mill will include two value-added coating lines comprised of a 550,000 ton galvanizing line and 250,000 ton paint line. These lines will likely start ahead of the full mill in the second quarter of this year using either internally supplied or purchase steel substrate. Our new electric arc furnace steel mills adhering to the same stringent sustainability model as our other steelmaking facilities utilizing state-of-the-art environmental controls and processes to produce high quality sustainable steel.

Our existing electric arc furnace steel mills have a fraction of the greenhouse gas emission and energy intensity of average traditional steelmaking technology. With an 84-inch coil width and up to 1-inch thick 100 KSI product, our Texas mill will have product capabilities beyond existing flat roll steel producers competing even more effectively with the integrated steel model and steel imports.

The town of Sinton provides a strategic location near the port of Corpus Christi. We have three targeted regional commercial markets for our new steel mill, which represents over 27 million tons of relevant flat roll steel consumption in the Southern and Western United States and Mexico. We also plan to effectively compete with the steel imports arriving through Houston and the West Coast. Our customers are excited to have a regional flat roll steel supplier. We have three customers committed to locate on site representing over 1 million tons of annual processing and consumption capacity. We’re still speaking with several other potential on-site customers as well, those that may build facilities offsite but near our campus.

Our location provides a significant freight benefit to most of our intended flat roll customers. Compared to their current domestic supplying options, we believe the potential customer savings will be at least $20 to $30 per ton and some would be much higher. This freight advantage coupled with much shorter lead times provides a superior customer supply chain solution, allowing us to be preferred domestic steel supplier in the Southern and Western US and Mexico. It allows us to effectively compete with imports, which inherently have long lead times and speculative pricing risk.

We have also made considerable progress concerning our raw material procurement strategy. We completed the acquisition of a Mexican scrap company in August, which I deem a critical step. The acquisition complements our current metals recycling business in both the US and Mexico. The operations are strategically located near high volume industrial scrap sources throughout Central and Northern Mexico and prior to our ownership, they shipped 500,000 gross tons of scrap annually, but they have an estimated annual processing capability of almost 2 million gross tons. We plan to increase the volume quickly and has already had success in doing so.

Our performance-based operating culture coupled with our considerable experience in successfully constructing and operating highly profitable steel assets positions us incredibly well to successfully execute this transformational growth. We’re not simply adding Flat Roll Steel production capacity, we have a differentiated product offering, a unique regional supply chain solution, a significant geographic freight and lead time advantage and offer a sustainable alternative to regional imports.

Our unique culture and the execution of our long-term strategy continues to strengthen our financial position through consistent strong cash flow generation and long-term value creation, differentiating us from others and demonstrating our sustainability. This has clearly been demonstrated during 2020.

Again, our commitment is the health and safety of our people, our families and our communities, all while supporting our vendors, serving our customers and sustaining our value creation journey. Our leadership team and our 10,000 strong SDI family drives our success, collectively, they are second to none. I thank each of you for your passion, strength and commitment to one another during these unchartered times, you truly drive us to excellence. And finally, a sincere and heartfelt thank you to the healthcare providers and their families, both within Steel Dynamics and those serving individuals across the world.

Thank you and be safe and be well. So, Kevin, please open the call for questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question today is coming from Seth Rosenfeld from Exane BNP Paribas. Your line is now live.

Seth Rosenfeld — Exane BNP Paribas — Analyst

Good morning. Thank you for taking our questions today.

Mark Millett — President and Chief Executive Officer

Good morning.

Seth Rosenfeld — Exane BNP Paribas — Analyst

If I can kick off please with the question on kind of how we’re seeing the market develop in the near term, but I think that on the lines at this point quite excited by the strength of the market right now because get us on the outlook going into 2021 with prices where they are. I wonder if you can comment on how you’re seeing your order book develop in recent weeks. Has there been any slowdown in order intake due to high prices and some concern about price maybe inflecting in the coming months, while we’re still seeing the same strength you’ve already talked through and that benefited your Q4 performance? Thank you.

Mark Millett — President and Chief Executive Officer

Well, certainly and I think it’s intriguing that one keeps hearing about the issues with the market because, and I’m sorry I don’t know whether you heard that I may have been on mute. But it’s intriguing to me that there is this concern about the strength of the market, because it, right now it is absolutely incredible. I know the supply side tightness, but demand is very, very strong, automotive recovered and it’s going to be 16 million units or so this year and probably more and that’s very, very strong for us, we’ll continue to gain market share both at flat roll and engineered bar.

We see residential construction is very, very strong. We can supply enough steel currently to appliance, HVAC, garage — metal garage door panels are incredibly strong, so that’s a very good — a good sector. And although people are little concerned about perhaps ABI numbers coming off a little bit, we certainly don’t see that in our order book as both Theresa and I have said, we have record sort of booking and backlog at our fabrication platform. The retailer shift to online sort of purchasing is really, really driving massive expansion of the warehouses distribution, warehouses and cloud computing likewise is increasing dramatically and it has a considerable build out too.

And if you look at just the momentum, the steel joists institute bookings for last year was 17% up year-over-year at 1.36 million tons, that’s a considerable market, just below their previous record back in 2007. 2020 shipments were up 7% and we’re seeing — we’re seeing that momentum carry into this year and we are very, very happy with where we are from a backlog perspective.

Theresa Wagler — Executive Vice President and Chief Financial Officer

I think Jim Anderson this morning told me the market is “red hot”.

Mark Millett — President and Chief Executive Officer

Yeah, so they are pretty excited team, let me tell you. And then you get further down into the demand, you look at the truck trailer material handling. Again, they were anticipating a little bit of a flat to down year, but they are actually changed that. We’re anticipating going to be up 20% or more, yellow goods, green goods, we’re seeing very, very, very strong demand and they’re telling us at least again, we don’t know what they’re doing with other customer, suppliers, but our order book is going to be substantially up throughout this year.

Solar is a growing marketplace and a surprisingly large marketplace. And the only real sort of weak area is the oil patch and we’re seeing glimpses of light even there, but they typically even in a strong market they’re only 8% of the total marketplace. So it’s not a massive, massive impact. So, just generally, we see a very, very positive perspective out there. Our order books are incredibly strong. I wish we could make a lot more steel today because we could certainly sell a lot more steel and we see it sustaining or persisting through the year.

Operator

Thank you. Our next question is coming from Curt Woodworth from Credit Suisse. Your line is now live.

Curt Woodworth — Credit Suisse — Analyst

Hey, good morning, Mark and Theresa.

Mark Millett — President and Chief Executive Officer

Good morning.

Curt Woodworth — Credit Suisse — Analyst

Mark, just had a couple of questions around Sinton, you talked about the paint line starting up before the mill, at this point when do you expect first coat production at Sinton and is the plan to light both EAF at the same time, because I know it’s kind of a different configuration with dual EAFs for a single caster, so just curious what the timeline is looking like?

Mark Millett — President and Chief Executive Officer

The second question, absolutely, we’ll be starting both furnaces up at the same time, because we were expecting a strong, a strong ramp and I think it’s exciting, the gain even through the challenge the last year that the project still remains on schedule for a summer start-up. And as Theresa said, it’s still remaining on a $1.9 billion budget and a few have — if you’ve seen the and you get on our website and take a look at the drone video that we continually update each year, once-a-month, it’s not each year.

Theresa Wagler — Executive Vice President and Chief Financial Officer

It’s not each year, they’re applicable.

Mark Millett — President and Chief Executive Officer

You see a big difference each year, but it’s making remarkable progress and it’s a massive, massive project. So they’ve done incredibly well. That doesn’t mean to say there have been some zigs and zags along the way and likely some more to come, but the team has done an outstanding job I think overcoming the challenges. We have had a few COVID related delays in equipment and actually more impactful was ocean freight, getting ships to bring it here, but that’s no longer an issue. And fortunately none of that was on the critical path for the project. So again timing for the project is still on time for summer stock. As I said, the coating lines, the paint line, the galvanizing line and likely the pickle line should be in good shape for the second quarter likely is kind of a May-June start there and we’ll be supplying substrate from Columbus likely and purchasing some substrate from third parties.

Operator

Thank you. Our next question is coming from Timna Tanners from Bank of America. Your line is now live.

Timna Tanners — Bank of America — Analyst

Hey, good morning. Happy New Year. Wanted to just ask a little bit about the capex, it looks like maybe you’re little light in 2020 and that’s the explanation for the higher value for 2021, but wanted to get a little bit more color on how that’s progressing. And had heard that Sinton was starting a little later because of COVID delays, but it sounds like that’s not the case so or if you could clarify those items please.

Theresa Wagler — Executive Vice President and Chief Financial Officer

Yeah, no problem, Timna good morning. From a capex perspective, you’re actually exactly correct. Sinton simply had about $100 million that shifted from the fourth quarter of 2020 into the first half of 2021. So wherein as last quarter, I would suggest that capex for 2021 would be about $850 million, it’s now about $950 million and likely about $600 million to $700 million of $950 million will be spent in the first half of the year. As it relates to the timeline of Sinton, Mark?

Mark Millett — President and Chief Executive Officer

Yeah, I think Timna, we’ve always advertised a sort of a summer start-up and that’s not changed. Internally, we may have had some more aggressive goals as we typically do within SDI and if the sun and moon align maybe we could have started up six weeks or so earlier, but again I’ve got absolutely no problems, no concerns there right now, everything is progressing well and the team is doing a phenomenal job.

Operator

Thank you. Our next question today is coming from Chris Terry from Deutsche Bank. Your line is now live.

Chris Terry — Deutsche Bank — Analyst

Thanks for taking my question. Hi, Mark and Theresa. I had a question just around working capital as we think about 2021 and the higher price environment and then also the integration of Sinton. I just wondered if you could talk through maybe first half and second half ’21 expectations on working capital?

Theresa Wagler — Executive Vice President and Chief Financial Officer

Yeah, absolutely. Good morning, Chris. From the perspective of Sinton standalone, since likely to have a working capital ramp of somewhere around $130 million to $150 million including all of the inventory and receivables, that will be a ramp. So in the second half of the year, you might get some of the raw materials, so maybe $50 million to $60 million in the first half, but most of that will come second half of 2021 and then into the first half of 2022.

As it relates to Company-wide working capital, you would have seen that we did have a draw of about $200 million in the fourth quarter related to primarily pricing of raw materials and of finished goods, that would be an inventory at that point in time. You’re likely to see a bit more of a draw as we’re expecting to have higher prices and volumes sustained into the first quarter, but not as much of a draw as you saw in the fourth quarter. So I would say the first half, you’re going to see a draw more than you typically would see, second half you’d see that moderate.

Chris Terry — Deutsche Bank — Analyst

Thanks for that. And then just in terms of the overall capital structure and the buyback, how are you thinking about that in terms of Sinton in the middle of the year and maybe second half?

Theresa Wagler — Executive Vice President and Chief Financial Officer

From a capital allocation perspective, obviously we’re still focused on a big capital investment year in 2021. That being said, the cash flow generation that we’ve been having is quite strong and we would expect to see that continue in 2021. So from a capital allocation perspective, we would expect to see the positive dividend profile continue, once Sinton is up and running that’s likely going to be an opportunity for another’s kind of step function increase in our dividend policy as we like to grow the dividend with sustainable free cash flow.

As we have excess cash flow along the way that’s what the share buyback program for its to complement the dividend profile because we see the dividends as forever. So you’re likely to see us start to look for opportunities potentially from time to time in the market from a share buyback, once we get pass more the larger spend in the first half of the year. Mark is that…

Mark Millett — President and Chief Executive Officer

Yeah.

Theresa Wagler — Executive Vice President and Chief Financial Officer

Okay.

Operator

Thank you. Our next question is coming from Carlos De Alba from Morgan Stanley. Your line is now live.

Carlos De Alba — Morgan Stanley — Analyst

Yeah, good morning, Mark and Theresa, Happy New Year. Just in terms of the potential infrastructure package, there are comments about a $1.5 trillion potential stimulus in the second half of the year. How do you see that benefit in steel demand in the US and Steel Dynamics in particular? I know you have a sense of the volumes or yeah then you could benefit from it.

Mark Millett — President and Chief Executive Officer

I think the — it’s certainly more than likely that we will see an infrastructure package as you know, which is going to be a great sort of general benefit. Right now, it’s difficult to discern where those dollars are going to be spent specifically and hence where the impact will be from a volume perspective. Certainly, just the upward momentum that it will provide the economy in general will certainly help us and any — actual infrastructure steel consuming infrastructure project will be to our benefit. But to actually try to estimate, calculate a volume when you don’t really know, where the dollars are going to be spent, I think that it would be disingenuous for us to suggest.

Operator

Thank you. Our next question is coming from David Gagliano from BMO Capital Markets. Your line is now live.

David Gagliano — BMO Capital Markets — Analyst

Hi, great, thanks for taking my question. I just want to ask a little bit about the scrap market and how scrap costs are flowing through the results, just obviously historically Steel Dynamics has typically reports quarter-over-quarter changes in scrap costs that are typically less than the change that we see in the public market or domain. But this quarter was a pretty big spread and I’m just wondering is any of that timing related, should we be thinking about how should we be thinking about the first quarter in terms of the scrap input costs? And also if you could just also share your views on the near-term outlook on scrap beyond what looks to be down in February. Thanks.

Theresa Wagler — Executive Vice President and Chief Financial Officer

Yeah, good morning. I’m going to let Mark talk about the scrap markets, but as it relates to the scrap flows, there really hasn’t been any change. We’re still turning inventories on a monthly basis both at our — the metals recycling operations and we tend to keep somewhere between three to four weeks on the ground at the steel mills. So I can’t really address why it may have been greater than you typically see, but there hasn’t been a change and how we’re using or accounting for the scrap.

Mark Millett — President and Chief Executive Officer

Yeah, well I guess the only impact would be if such a rapid increase in a short period of time and you’ve seen the difference between the market and our inventory. But just in the scrap market as a whole, obviously it is bond up some the last month or two quite considerably. We would imagine that we’ll retreat from the current highs or moderate somewhat, it’s not going to take all couple of $100 back, but it’s going to retreat we believe, because the strong pricing has driven a substantial increase in the flow, particularly the obsolete grades, people out there are collecting, it’s flowing in dramatically and the industry has actually dropped the scale prices. And so I would expect the market prices the drop over the next couple of months.

For prime scrap flows are fully reestablished in connectivity with the automotive business coming back. We expect prices there to soften, but not quite as much as obsolete grades, so the shred to prime spread will likely expand a little more than it is today. And we think the export market will remain relatively soft. And so there is — again we feel pricing is going to moderate. I think despite China listing its import restrictions, it’s not going to impact the ferrous market dramatically not in the US anyway, but it is going to give us or has given us significant upside on non-ferrous.

Obviously, as many of you know the non-ferrous, the copper, aluminum, zorba, those sorts of grades really didn’t have much of a home for the last year or so with them opening up, they are able to increase margins there. So I think that’s a positive for us.

Operator

Thank you. Our next question is coming from Andreas Bokkenheuser from UBS. Your line is now live.

Andreas Bokkenheuser — UBS — Analyst

Well, thank you very much. Just a follow-up on scrap actually and something we’ve talked to you about before as well about availability of scrap in the US market. I think you guys have always like maintain your view that there is plenty of scrap in the US market for everyone to go around. Does that change now given the new import rules in China, I mean China obviously reopening their doors for seaborne scrap and is obviously not a large seaborne market, so do you think that could go in and kind of tighten the market and maybe even lead to some consolidation of mills in the US, they’re buying more scrap just the same way you guys did in Mexico recently or do you still see the US scrap market pretty well supplied. That’s my question. Thank you.

Mark Millett — President and Chief Executive Officer

Well, I can’t speak for other companies, I would suggest that as we’ve said in the past, we will expand or grow to support our steel mills regionally. So we did that, we bought some yards around our Columbus facility, just to base load that mill. And Zimmer obviously is destined to supply some scrap to Sinton quite cost effectively. So you may see us again just add smaller opportunities, but we’re not going to be in consolidating the whole scrap market or anything like that for sure.

Regarding scrap supply, I think you’re seeing what has been typical in the past, scrap is incredibly elastic, certainly the obsolete grades are incredibly elastic and has scrap pricing has increased dramatically in the last month or two, it’s amazing how folks get out and that flow increases dramatically. And so I don’t see a long-term issue with scrap supply in any way shape or form.

Theresa Wagler — Executive Vice President and Chief Financial Officer

I think when this — so as we look at scrap generation, we see it continuing to increase and we see it increasing even more quickly than potentially some of the additional demand that will be derived from some of the new EAF capacity coming online domestically. But one also has to look at the additional HBI, DRI and other projects that are either coming online have been announced or being contemplated by even the blast furnace participant. So I think there should be ample raw material as Mark said.

Mark Millett — President and Chief Executive Officer

And with the rationalization of the integrated side of the industry, it’s quite possible that you’re starting to see them actually produce pig iron which help the supply balance, supply-demand balance as well.

Operator

Thank you. Our next question is coming from Phil Gibbs from KeyBanc Capital Markets. Your line is now live.

Phil Gibbs — KeyBanc Capital Markets — Analyst

Hey, good morning.

Mark Millett — President and Chief Executive Officer

Good morning, Phil.

Theresa Wagler — Executive Vice President and Chief Financial Officer

Good morning.

Phil Gibbs — KeyBanc Capital Markets — Analyst

Hey, Theresa, the question I had was just on the flat roll shipments by grade if you have that handy?

Theresa Wagler — Executive Vice President and Chief Financial Officer

Yeah, I’m sorry I made you ask, I skipped all right, I didn’t mean to. So, hot rolls and P&O for the quarter was 749,000 tons, cold roll 139,000 tons and coated products were 973,000 tons, for a total of about 1.9 million tons of flat roll.

Phil Gibbs — KeyBanc Capital Markets — Analyst

And the coated number again, I’m sorry.

Theresa Wagler — Executive Vice President and Chief Financial Officer

The coated number was 973,000 tons.

Phil Gibbs — KeyBanc Capital Markets — Analyst

Okay. Thank you. I appreciate it.

Theresa Wagler — Executive Vice President and Chief Financial Officer

No worries.

Operator

Thank you. Our next question is coming from John Tumazos from John Tumazos Very Independent. Your line is now live.

John Tumazos — John Tumazos Very Independent — Analyst

Thank you very much.

Mark Millett — President and Chief Executive Officer

Good morning, John.

John Tumazos — John Tumazos Very Independent — Analyst

Good morning. The forward curve for the hot rolled sheet contract is over six months down $367. I’m not sure I understand that, but do you think the forward curve reflects new supply so I should say a 1 million tons more flat rolled, 1 million tons more long products or do you think the forward curve reflects a fall in the price of iron units. You’re mill is only going to be a quarter million tons a month, not 1 million or 2 million tons a month, and you’re probably just be striking an arc by August where the forward curve is down $367. It seems to me that market is anticipating a lot of supply I’m not sure where it is, but I appreciate your view Mark.

Mark Millett — President and Chief Executive Officer

Well, John, simply I don’t understand it either. Again, as I try to suggest earlier, this isn’t just supply side tightness demand, the markets are incredibly strong and robust right now. And we see that persisting certainly very, very, very strong first half and I think it’s going to continue into the second half. And I don’t see any appreciable change will drive or out to change that. To your point, okay, we’re out a few tons here, incremental tons relatively to the market anyway, the second half of the year.

Big River reportedly is running, we don’t see them in the marketplace necessarily, but they have got their capacity up and running pretty strong from all reports. So there is not that additional capacity there. So I don’t see where the relief is going to be. I don’t see to be honest the Biden administration changing the trade environment materially at least not near term.

I think they recognize that China is a massive threat, their approach to them might be different than the Trump administration, they will likely ally with our friends in Europe and in places, but they are not — they will likely change 232 [Phonetic], but I think they will be very cognizant that there needs to be trade controls there. And they’re underlying legislated trade constraints in place that aren’t just an executive order, they’re legislated and they are going to be there for years to come, the Section 201 for countervailing duties and antidumping. So I don’t see necessarily an import flood, the arbitrage certainly has grown to China, but nonetheless lead times month-to-month at. And you see some specialty items coming in, but I don’t see any dramatic change in the import profile. So I don’t see where the pressure comes off the accelerator to drop $317 [Phonetic] here in the next whatever it is say six months. So I agree, I don’t understand it either. We don’t see — we certainly don’t see it within the fundamental drivers of the marketplace.

Operator

Thank you. Our next question today is coming from Tyler Kenyon from Cowen & Company. Your line is now live.

Tyler Kenyon — Cowen & Company — Analyst

Hey, good morning, Mark and Theresa.

Mark Millett — President and Chief Executive Officer

Good morning.

Theresa Wagler — Executive Vice President and Chief Financial Officer

Good morning.

Tyler Kenyon — Cowen & Company — Analyst

Certainly as you’ve addressed some potential tailwinds for coming from infrastructure spending, but I was just curious if you had any thoughts on how the suspension of border wall construction and the cancellation of the XL pipeline, how that could maybe impact steel demand and/or scrap supply. I mean I think we read in — for the Department of Homeland Security that pretty close to 700,000 tons of steel has been consumed since 2008 on the border wall. So, yeah, question is, how do you see that impacting the market and has Steel Dynamics been participating in supplying steel to any of these projects?

Mark Millett — President and Chief Executive Officer

Well, I think the Board won’t to be honest was relatively incremental. We didn’t see much of that product and that tends to be at the low-end commodity hop and side of the business that we tend not to play in to any great extent anyway. So, but I don’t see that is as a massive impact to demand.

Theresa Wagler — Executive Vice President and Chief Financial Officer

The XL pipeline is hard to tell how much that may have an influence and what the Biden administration may do going forward with additional kind of oil and gas might, it’s obviously is not going to help from that perspective, but as Mark said, at least in the fourth quarter which was prior to some of these things happening, we were starting to see some orders come in from those customers both at Columbus and at our Engineered Bar Products division where we would have the most impact, but I just think it’s a little too early to tell.

Mark Millett — President and Chief Executive Officer

One and that pipeline — actually that pipeline to be honest a massive amount of that pipe has already been made and it is lying on the ground. So it’s not going to have a massive impact.

Tyler Kenyon — Cowen & Company — Analyst

Got it. Thanks for that. And then just, Theresa, just one last one, just on cash taxes this year. I think in the last call you guided to a pretty, pretty low cash tax rate, just curious if that’s changed significantly and may be how we should be thinking about that rate moving even into 2022?

Theresa Wagler — Executive Vice President and Chief Financial Officer

Well, in 2021, the provisions that allow us to expense the fixed asset investment once we start up Sinton are still in place. So as long as those provisions are still in place, we’ll be able to basically pay maybe 3% state cash taxes in 2020 and likely remain very low, I’m sorry in 2021 and likely remain very low in 2022 as well, but obviously we need to watch the administration and things that may change according to that, but right now we’re still planning on the benefit in total being somewhere around $300 million to $350 million of cash tax savings between 2021 and 2022.

Operator

Thank you. Our next question today is a follow-up from David Gagliano from BMO Capital Markets. Your line is now live.

David Gagliano — BMO Capital Markets — Analyst

Hi, just to circle back on the scrap question, sorry to ask another scrap question. Just on the near-term it’s to help calibrate expectations on our side, if we start with a assumption that scrap rates actually don’t change for the remainder of the quarter, I realize that’s not the view, but if we assume that they don’t change, just from a timing perspective, what should we expect for the scrap cost change quarter-over-quarter in the first quarter?

Theresa Wagler — Executive Vice President and Chief Financial Officer

Well, again for us David from a scrap mix perspective, the mills keep three to four months on hand. So whatever your estimation would be from, I’m sorry weeks on hand, so whatever your estimation would be from an index perspective, you can just apply that and you’re going to get very close to what will actually happen.

David Gagliano — BMO Capital Markets — Analyst

Okay. That works. That’s what I needed now. Thanks.

Operator

We’ve reached end of our question-and-answer session. I’d like to turn the floor back for any further or closing comments.

Mark Millett — President and Chief Executive Officer

Well, to those on the phone still, we certainly appreciate you’re listening in and you’re supportive of your Company. And I think it’s just one last comment that, I guess, didn’t really come out clearly. People are focused on price, and it’s not price that matters, we’re a margin. We’re a metal spread business. And again, we anticipate a very strong demand year that’s going to support pricing on the price side on the market side. Supply side, the inventories remain very, very low. We expect import activity to remain very moderate. A significant portion of the idled blast furnace capacity, we expect to remain down, and lead times are extended.

So you couple that with a moderating scrap environment, we see that metal spreads themselves are going to persist sort of higher than the normal through-cycle levels and should be very, very helpful for us, and we’re anticipating a remarkable year, in all honesty. That being said, to our customers out there, folks, we had an absolutely phenomenal year, last year, and we couldn’t do it without you. So thank you for your support. Similarly for our vendors and service providers. Thank you. And most importantly, thank you to each and every employee out there. It was an absolutely tremendous year. I think it vulcanizes or just affirms our business model, that we are a differentiated company.

To make $1 billion of free cash in a year like that, I think just spells out clearly that we’re a different Company today. And with Sinton coming online, it’s going to add 25% to our steelmaking capability. That’s going to be a significant step function increase in our through-cycle cash generation. So we’ve done a phenomenal job, and we’re going to keep doing it, and we can’t do it without each and every one of you. So thank you. Go ahead, have a great day. Be safe, stay healthy.

Operator

[Operator Closing Remarks]