Good day. And welcome to the Steel Dynamics First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, we will conduct a question-and-answer session and instructions will be following at that time. Please be advised this call is being recorded today, April 22, 2019, 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 this conference over to Tricia Meyers, Investor Relations Manager. Please go ahead.

Thank you, Brenda. Good morning, everyone. And welcome to Steel Dynamics' first quarter 2019 earnings conference call. As a reminder, today’s call is being recorded and will be available on the company’s Web site for replay later today. Leading today’s call are Mark Millett, President and Chief Executive Officer of Steel Dynamics and Theresa Wagler, Executive Vice President and Chief Financial Officer. We also have leaders from some of our operating platforms, including our Metals Recycling Operations, Russ Rinn, Executive Vice President; our Steel Operations, Chris Graham, Senior Vice President, Long Products Steel Group; and our new Flat Roll Steel Group; and our new flat roll steel mill and Southwest strategy we have, Glenn Pushis, Senior Vice President, Special Project; and Miquel Alvarez, Senior Vice President, Southwest U.S. and Mexico. 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 the general business and economic conditions. Examples of these are described in our annually filed SEC Form 10-K under the heading forward-looking statements and risk factors, found on the Internet at www.sec.gov and is applicable on any later SEC Form 10-K. You will also find any reference to non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued this morning entitled Steel Dynamics reports first quarter 2019 results. And now, I’m pleased to turn the call over to Mark.

Thank you, Tricia. Good morning, everyone. Welcome to our first quarter 2019 earnings call. We appreciate and value your time with us this morning. At this point, Tricia normally provided performance insights, but I'd like to instead pause for a moment to acknowledge the recent workplace fatality that occurred in our structural and rail division. We are saddened and our thoughts and prayers reside within the family and friends. Although, we have some of the best safety specifics in our industry, it brings little comfort at times like this. The reason I always begin our calls on safety is because it's simply cannot be stressed enough. This is our number one value and our first priority. Nothing is more important than staying in a safe environment. We must all be continuously aware of our surroundings and the team members around us. We must actively think about safe at all times, keeping it an ongoing conversation and top of mind. That being said, Theresa, will you provide us some insights with our recent performance.

Thank you. Good morning, everyone. Our first quarter 2019 net income was $204 million or $0.91 per diluted share, within our guidance range of $0.88 to $0.92 per share. First quarter 2019 revenues were $2.8 billion higher than first quarter 2018 sales, but 3% lower than fourth quarter sequential results as average flat-rolled realized steel prices decline. Our first quarter 2019 operating income was $292 million, 20% lower than sequential fourth quarter results, driven by flat-rolled steel metals price compression. As we discuss our businesses this morning, you will find we are optimistic about 2019 from a macro perspective and even more so because of our unique earnings catalyst. More specifically, our first quarter steel shipments increased 4% sequentially to 2.7 million tons with growth achieved at each division, excluding our structural and engineered bar division. Steels metals price compressed as our average quarterly realized sales price decreased $38 per ton to $902 in the first quarter and average scrap cost consumed only decreased $5 per ton. The sales price decline is driven by lower flat-rolled steel prices. In general, aside from merchant steel, most of our long product steel prices actually increased in the first quarter. The result was first quarter steel operating income of $312 million and although, lower than fourth quarter results historically is strong performance. On March 1st, we acquired 75% controlling interest in United Steel Supply, a leading distributor of painted Galvalume flat roll steel used for roofing and siding applications. We paid cash of $93 million and assume debt of $41 million. The cash payment is still subject to working capital adjustments later in the year. With our recent flat-roll acquisitions, production enhancements and our investments to cost effectively access the excess melting capacity or rolled over the structural steel divisions, we have diversified…

Thanks Theresa. As Theresa reported, New Millennium building systems fabrication platform delivered strong performance. Profitability increasing to slight lower shipments, resulting from income as well. Product pricing has improved while steel input costs have decreased, resulting in metal spread expansion. Our order backlog remain strong heading into the summer construction season and a slightly higher than this time last year. Project backlogs are expanding as contractors struggled with the construction labor shortage, which should prolong this long residential construction cycle. The ongoing strength of this business and continued customer optimism bodes well for non-residential construction demand. Our metals recycling team also performed well, improving profitability in the quarter as non-ferrous volumes in metal spread increased, especially related to aluminum. Conversely, ferrous volumes contracted modestly. Ferrous scrap availability has been steady with strong automotive sectors generating a more than ample supply of prime scrap. We expect seasonal flows with cut and shredded grades will continue to pick up and outpace demand. We expect actual volumes to remain constrained through the rest of the year. And this is consistent with our longer term scrap view that pricing will remain stable in support of healthy steel sheet metal margins. The steel platform delivered a solid first quarter performance in a somewhat challenging flat-rolled steel pricing environment. Flat-rolled steel prices began a downward trend in the second half of 2018, which continued through mid-first quarter reaching an inflection point in February. As prices softened, bias remain on the sideline, yet our teams were able to increase flat roll shipments to help offset some of the margin compression. The good news is that underlying demand remained intact. Flat roll pricing increased and order input rates returned, thereby regaining healthy lead times. While industry shipping rates eased in the first quarter 2019 due to 35 day…

[Operator Instructions] Our first question comes from the line of Martin Englert with Jefferies.

Your commentary on demand remains generally positive, expecting continued growth in North America this year. Can you discuss how much of that growth is coming from the core end market versus maybe Steel Dynamics taking market share from either imports or competitors? And then any other additional detail you can provide on potential growth ranges anticipated for steel consumption here?

So obviously demand I think has been a big question relatively for all. I think one have to reflect back a little bit and understand why the fourth quarter was a little soft. It was a tough quarter from an economic standpoint; you had a 35 day government shutdown, you had an inclement weather, you've customers' sentiment -- people sentiment generally was a little a down. You have lingering recessionary concerns overhanging the fourth quarter. You have trade war, rhetoric and softening raw material price expectations. So I don't think it was surprising at all honestly, but you saw all the softness there. That softness inflected in February and our order input rates picked up dramatically, pricing picked back up. And today our lead times are very, very healthy for hot rolled coil that through the end of May, which is exactly where we'd like to see them. And we're actually a little long to be honest in coated and pre-paint we're anywhere higher than six to eight. So we see at least from our order books a very positive environment. I think order backlog remain strong. I think energy has been very good to us. And I think to the industry in general. And as we meet with our energy, pipe and tube customers, they seem to be very bullish going forward. The gas oil transportation infrastructure needs to continue to be built at, particularly with the very large LNG projects that are happening along the coast in the Southwest. So we see energy being very, very, very strong for next several years. Manufacturing base is healthy and we see construction remaining healthy. As I said earlier, [indiscernible] into non-risk construction through New Millennium Building Systems is very positive, and our order backlogs are higher this time this year than they were last time. So I think generally, a very positive environment for the rest of the year.

So Martin, specifically as it relates to whether its market share or fundamental core sector growth, we expect to see in consumption domestically probably about 2% growth year-over-year based on our own projections. But then there is some of that specific to Steel Dynamics where we have continued to take market share, specifically in automotive and some of the energy markets as well. So it's a combination of both.

And if I could one quick follow up, volumes on SBQ do appear down here year-on-year. Can you discuss what you're seeing with demand there and the end users, and why volumes were lower?

Well, I guess we permit a little bit of skittishness in the SBQ market. I think suppliers are getting some pushback on current pricing. Most mills are on pull at this point. People are looking for volume discounts, but we think some of it’s in inventory corrections. Most are still optimistic regarding the second half of '19. I'd say that’s what's driving that. I've spent a couple days at the North American Steel Alliance, which is a gathering of a lot of the -- the family along the smaller processing steel distributors. And I'd say to a customer and they were all very focused only on the market outlook. They are a little cautious with inventories and so they are not speculating in any way shape or form, but it's a positive environment.

Our next question comes from the line of Curt Woodworth with Credit Suisse.

First question is just on the profitability of the steel op segment this quarter. If you look at the ASP increase relative to scrap increase your metal spread was up about $53 a ton year-on-year year, but EBITDA per ton only $9. So I'm just curious what were some of the other moving pieces around cost inflation, electrodes and things like that you could identify?

So Curt, when you're looking year-over-year, the biggest change that you're seeing is the electrode costs. Our electrodes didn't start increasing cost until the second half of 2018, because we had different inventories that were layered in. And so it's almost $20 million quarter-over-quarter increase in just electrodes alone. But if you were to do that same comparison on the sequential fourth quarter, it's basically flat. So you're seeing the highest -- higher input costs and that’s basically the change in year-over-year.

And then follow up just on the new 3 million ton mill. Mark, how do you think about the cadence of layering production, I mean 3 million tons is almost a 50% increase to your current footprint on a productive capacity basis for sheet, so clearly pretty transformative. Is your strategic imperative is that you'd want to try to quickly gain that market share and maybe be more disruptive, or what's the strategic philosophy in terms of how quickly you could ramp to 3 million tons? And would you like to stagger it as well?

Well, we have no intention of staggering it. And I think the market will be very, very receptive and at least from all countries to-date, they're incredibly receptive. I think one has to recognize that in Southwest region, right now, there's a vacuum of domestic supply. This mill is going to have some minimum of $30 plus trade advantage over any domestic mill, plus its right in the heart of the import to reduce them. So we have trade advantage there and probably even more importantly, a lead time advantage. When folks are bringing imports and they have got a two, three, four month lead time and price speculation, I think we're going to gain massive volume or market share of that import downstream. And it's going to allow the pipe producers, steel producers in that region in Louisiana, as well as Texas compared to the scope that they haven't been able to procure at this point. And that will allow a massive amount of pipe and tube imports as well. So I think you've got to consider -- again, this should avoid the supply today, and I think this mill is going to supply, it's going supply the four-state region. As I said earlier, it's 7 million, 8 million, 9 million tons onto itself. It's a very competitive freight rates to the West Coast about 3 million to 4 million ton market, and they are suffering on the supply side dramatically today. Plus, we're within $30 million freight of the Northern Mexican markets run rate, in particular and that's a growing region. It's 15 million tons, 16 million tons today and that's predicted to be 20 million plus over the next three to four years. So I have no doubt of the ability of that mill to penetrate the market and pick up market share very, very quickly.

In addition, Curt, I don't think you can emphasize enough the fact what Mark said early is that we've got considerable number of customers that actually want to move on campus. And so, that's going to help to ramp up that facility as well.

And also if you look at or if you reflect on any market that we've entered in the past, most of those markets actually have been over-served in any event. And our strategy has always been to differentiate ourselves, to create value from the supply chain, which obviously creates value to the end user and to the customer. And this mill is very, very different from many other electric-arc-furnace facilities to today. You can understand as electric-arc-furnace mini mill with hot rolled mill. So the two-state rolling, which will allow us to do thermal mechanical rolling, adds strength, capability, adds toughness. So our mill offerings 84 wide up to 1 inch, 100 ksi material is very, very differentiated and can only be really accessed by the integrated mills today and there at least probably have $50 to $60.

Our next question comes from the line of Matthew Korn with Goldman Sachs.

So I appreciate the new detail on CapEx from the new mill. Question is, given the number of new furnaces announced in or near construction. Is there any constraint on available engineering talent? I imagine that the population anybody really experienced in leading in the area of build out is fairly small and well bid. And then you also mentioned timeliness in your approvals. What is the timeline on permitting, what should we be watching for? Is that a second quarter, second half? Where's the calendar there?

Glenn?

This is Glenn Pushis. We're going to project that pretty much full time now. We've got our environmental permit in place of Texas application, we're being told it about a one year process for that. And we're really not finding anything -- to your question on engineering talent, we're really not finding any real challenges there. It seems to be that there's lot of people that’s in available engineering time and are ready to jump on the project that pretty quickly here.

And to answer that again, it’s the best way I model. I was in the conference room, watching the folks leading what we call the war room that in our basement. And there’re probably a dozen individuals just walking out at the end of the day. And it's just amazing the amount of knowledge and talent and experience we have within our organizations and designing, procuring and building constructing, signing up large capital assets. And so at the middle of the day the team is going to perform annual review as well. The equipment itself has been spec out and Glenn and team, I think expects to have that all placed in the next two weeks.

Let me ask in on the scrap market. Week-after-week, we see domestic steel production up year-over-year, utilization rates are higher. Naturally, that would mean the drawn scrap should be higher. Yet, global steel production keeps growing, global iron ore prices are substantially higher, which all of constant should be a tailwind for scrap prices. So why have scrap prices remained so moderate? And does it come down to we should especially expect finished steel prices to lead scrap moving forward and not the other way around as has been in the past? I'd love your opinion on that.

This is, Russ. I think the biggest difference in the U.S. market today is the export market. Again, you've got a tepid export market, which means the scrap is staying on the coast and it's more accessible. Therefore, it's a little bit higher to buy than what we've seen probably in the past decade or so. Obviously, that could change the heartbeat and you can certainly look at the fact that iron ore has traded at $9 range, per ton range and use the standards 4.5 times, it shouldn't be higher in price. But when there is excess scrap we're paying around, it's all facing a smaller market because they lack exports.

Our next question comes from the line of Chris Terry with Deutsche Bank.

I just had a question on the overall market dynamics I just wanted to flush out a little bit. In terms of your comments that there was an inflection point around the middle of February, we started to see pricing move up on the back of that. And then I guess linked to the question before on the scrap environment, we're seeing that easing the last couple of months. How you’re seeing activity at the moment and the pricing environment? It seems like things have eased a little bit, but you’re still very positive on the demand story. So just want to think about spreads in the next couple of quarters and overall pricing dynamics for the end products and also scrap? Thanks.

Well, I think as Russ said, we look for the stable scrap pricing, going forward, the rest of the year and maybe soften a little bit this coming month. But again, 10, 20 is not massive move so stability on the [indiscernible] side. On the pricing side, yes, if the inflected went up and it's eased a little. But if you look at the arbitrage to foreign pricing today, it's pretty well evaporated, imports are still under control on an annual basis it'll be under control and probably will continue to erode through the year. So, I think the market pricing presenting is going to be relatively stable. So spreads will remain healthy.

And then just following up on your comments a bit earlier around the Section 232 quotas versus tariffs. Can you just talk a little bit more about that and the timing you expect on that from Steel Dynamics' point of view?

Well, I think we would say absolutely totally speculative but I don’t think. And our intelligence would suggest that the progress is being made in China and the progress is certainly being made in the USMCA. That would likely change to a quota based agreement. Those quotas based on certain level of historic import levels with the tariff for any exceeding through the overlap, and I think that will be a positive outcome for all three countries. On the trade move that we actually are seeing some pretty positive outcome, it's three of one I guess prefabricated imports. That action is underway, hasn't been concluded yet but we're already seeing some of the larger projects that will bid out and destine to the Chinese steel, prefabricated Chinese steel coming into country. Those are now being rebid and I think that's a very, very positive sign for our non-products metals market in general.

Our next question comes from the line of Brett Levy with Wedbush.

Hey, guys, it's the recipe questions. You guys are adding 3 million tons, you're adding galvanizing, you're adding the width. You're getting potentially from Cliffs and other people, iron ore feed be very pure. Have you guys gone and I'm guessing you have and just asked to see if you can make the recipe, or maybe the hood of a Chevy or a Dodge, in terms of rolling pattern alloys, galvanizing all of the pieces of the puzzle, because it just doesn't seem right. You just build it and expect them to come. I would think that you probably have done some work on this and can you give any clarity on that?

Well, first and foremost, we're certainly not a builder of dreams. As I said many times before, we don't manage the hope. We do things that control our own destiny. I think the teams -- obviously, in Butler, they've been supplying roughly 30% of their output to the automotive growth for years -- years and years. And the Columbus team has built a phenomenal following already, particularly with the higher strengths of advanced peoples, and are attaining incredible acceptance, particularly with the European automotive producers, BMW, VW, for instance. And this the new mill just adds to that. As we said, the two-stage rolling, the thicker cast slab will allow us to get the best steels for automotive and much stronger steel. And will allow us to get the tougher, thicker steels for the energy markets, API grade. So I think the opportunity for the market is definitely in front of us. We just have to get the thing up and running by 2021.

Our next question is from the line of Timna Tanners with Bank of America.

I don't want to beat the topic up too much here on the near-term market conditions. And I know we talked a little bit about your demand outlook, but one thing I wanted to ask you about is. Why do you think domestic prices have narrowed so much the gap between imports, like a lot of on the flat rolled side hot rolled in particular prices have been below landed import level so well? Do you see like a lot of extra steel competing? Is this a short-term thing? What's your sense of why prices for domestic mills are below important landed levels?

Well, there remains a slight hesitancy. As I said, the customer base is fairly optimistic for business conditions and demand for the rest of the year. That being said, they're cautious on inventory. So they're buying steady as she goes and again with the addition of little bit more capacity, maybe stressed supply-demand a little bit. But from all we can see, Timna, the market through our own order book and that remain strong. As I said, we're right through the end of May with all that and we're too long in my own opinion on the [indiscernible] and prepaying.

And then -- our channel taxes just that there's too much supply. So that's what I was trying to get at is, there seems to be this fight for market share is what we're hearing. And I was just wondering if you're getting that sense from the field as well, but I can make leave it there. And then just on the new mill, I don't understand the Mexico commentary. I just want to understand a little bit better. If I look at the Mexican net imports plus production, I come up with about a 30 million ton market. And between the two new rolling mills Ternium and ArcelorMittal that are coming on next few years, it's what 5-plus million new tons. And then your mill is also talking about targeting these tons. And I know you said demand is growing. But how are you looking at that equation? Can you talk us through a little bit more of that detail please?

Well, again, the market is still short for sure. Yes, Ternium is going to add a little bit capacity we think, you don’t know until it's actually on board. Arcelor is adding hot rolled coil capacity. So, there's a vision now and that is way down in the Southwest. So they've got a massive freight to get it up to the lower end. And I think you also need to understand there're product capabilities efficiencies within Mexico that our mill is going to do serve. Miquel, you've got some thoughts?

Yes, I mean, I just listened that you mainly spend your last comment on the product capabilities that we're going to have for the mill compared to what it's offering in Mexico. We've been talking to a lot of consumers in Mexico. We have confirmed that the broad capabilities that we're going to have on the mill are going to make a difference in the market. So the capacity that is being added in Mexico, its capacity that in fact you may want to continue to compete with some of the domestic mills there where we're going to offer [indiscernible] probably inflation some of the tonnage that is being importing from other countries. So we feel very confident about quickly gaining market share there. We just got capabilities that we're going to have.

So those capabilities would be not just the galvanize I'm assuming, because there is three galv lines coming on in Mexico as well. So, you're talking about capabilities aside from finishing, so maybe like the wider gauges or maybe the thickness. Is that what you're talking about?

There's a combination of width, gauge and strengths.

Our next question comes from the line of Piyush Sood with Morgan Stanley.

Couple of questions, first one on the fabrication business. You would have picked up higher price orders throughout last year. So wondering whether you've seen all those higher price orders come through the results already? Or is there more to go through the year?

From a fabrication perspective for the backlog, actually we've increased prices pretty effectively in the first quarter of this year and we would expect to see that continue honestly through the year. And that in combination with the lower steel pricing that is now in the inventory for the fabrication business should result in higher spreads than you would have seen in 2018.

And going back to spreads, I just want to understand that the spread between hot roll and cold roll has widened closer to about $150. So, is the market much more tighter on cold than on cold and coated versus hot roll? Also, how sustainable do you think that difference in the tightness is?

Well, certainly on the coated side, galvanize side and pre-paint side things are very, very healthy. We actually have not necessarily been a major player in coated sheet. Although, that's a marketplace we'll be venturing through the Heartland acquisition. But I think on the coated pre-paint spreads those will be maintained.

Our next question comes from the line of Matthew Fields with Bank of America.

Thanks for the detail on the CapEx schedule for the new mill. Is it your intention at this point to fund the construction spending through free cash flow generation and not any additional debt incurring?

Right now, Matt, our current intention is to watch the capital markets throughout the year. And you see our capital structure today and you will see that we have some notes that are actually stepping down on pricing. So, I think we're just going to continue to monitor the market. We definitely believe we could do that but that might limit some options as we do other things. So I think it's something that we're going to wait and see what happens in the capital markets this year.

And then as you enter this period of elevated CapEx spending over the next few years, against the backdrop that some of the other analysts have mentioned with all this new supply coming on from other producers. Is there leverage level that you would like to maintain as you're spending all this cash building this mill?

Well, certainly obviously, yes. Today, obviously, Matt, leverage levels are quite attractive. I think our net leverage is less than 1 times at the end of the quarter. But during this cycle, we've consistently said and we really like to maintain that through cycle net leverage somewhere between 2 and 3 times. And so with that, we believe that we’ll be able to effectively do that even with the elevated levels of CapEx spending, because I think one need to keep in mind that we have all these earnings catalysts that are also coming online this year. For example, the rebar project the Structural Rail Division, we just started shipping rebar in the first quarter of this year. So by the third quarter of this year, we expect to be up to about 90% to 95% capacity, and that’s quite a bit of additional volume. And that's why I may have mentioned the fact that our shipping capability today is over 13 million tons. So I think one needs to keep in mind that there's earnings catalysts that will be kicking in along with that additional spending over the next two to three years.

And then last question for me. How do you balance the $2 billion you intend to spend on the mill, some acquisitions you're making along the way, share repurchases and dividends with the goal to get investment grade?

Well, right now, I think we have the ability to have what we'd like to call balanced approach to the capital allocation, which you've seen us doing. If we are going to see a larger acquisition or transaction, you’ll probably likely see us go back a little bit on the share repurchases in advance of that or in combination with that, because that's a lever that we can use quite effectively. Otherwise, I think you should expect to continue to see a positive dividend profile from us what you've seen over the last long period of time actually along with the additional capital that we've been spending with expectations for that continued cash flow generation. So I think you're going to continue to see us do what we've been doing.

Our next question comes from the line of Chris Olin with Longbow.

I get the whole underlying thesis that import quotas have a better long-term impact on the U.S. steel industry. I guess my question is when you start thinking about the new NAFTA agreement, or I guess I should say the USMCA. Once we see a shift from tariffs to quotas. Is there going to be potentially a destabilizing effect as the market need to reset and could that explain some of the slowdown in orders heading into a final decision?

I don't believe so. I think the final USMCA agreement will be based on past levels of trades. As such, there’ll be some stability there more than anything else.

So the market will naturally be set the lower import prices, especially when you look at some of these long products being under priced before the tariffs. So I don't need to adjust for that at all?

I don’t think so.

And our next question comes from Phil Gibbs with KeyBanc.

Mark, in terms of the United Steel Supply deal. Is that something we should expect you all to do moving forward in terms of making more of these downstream acquisitions similar to what Mittal does in Europe? Or was this more of a one-time special situation?

Phil, I don't look at U.S. Steel Supply as being the European model of steel mills entering the steel distribution processing space. I think this is very unique to our supply chain for prefect. You might see us continue to expand in that very unique specific area, but it's not my intent to become a steel processor or distributor in any way shape or form.

And is this business going to get talked in the steel or fabrication?

Actually, it's already been reported through steel field, and you'd have -- their shipments would have been reported in the coated shipments that I gave you earlier on the call.

And then I just have a one follow-up. Typically in the release, you give changes in profit per part of the steel business, whether that's flat rolled or long products I think that's the way you discussed it in the past. Any color you can give us on directional -- although directional change I think we know. But in terms of the magnitude of the change in each of those divisions would the helpful?

So typically, it's part of the message we try to give sometimes the difference between flat rolled products. I would just say that flat rolled profitability was down, probably somewhere between 20% and 25% versus long products profitability being down maybe around 10%.

Our next question is from the line of John Tumazos with Very Independent Research.

Mark, I'm going to ask a deliberately dumb question that I think all of us are probably confused by. There's potentially at most 10 million tons of new electric furnace SMS tin slat hot stripped mill capacity. If both you and Big River build the new plants in the Texas Gulf Coast vicinity and Big River Doubles and Arkansas, Nucor Doubles Gallantin, maybe delta expanding as a slightly different than SMS design. So, on the surface it might appear to some people in the investment community that they're all identical designs. And I'm might worry that an SMS coil sells at $25 or $50 discount, because they're all the same and/or so middle has different designs, different marketing practices and might not for example be impacted as much. Now, we know that you sell a lot of painted still. Nucor is putting in a six high cold mill into Hickman with four work rolls. Probably everybody's doing their best to buy clean metallics. How will your design be different so that everybody isn't selling the same SMS coil?

I guess you've asked a very fair question. No, I don't think it's a dumb. I may give the answer. I think I can't see for any future mills installed by any other future entrants. But as of the projects today, ours will be a very, very I think differentiated project in the honesty. Again, the cap section with combination is going to be unique. No one is going to able to make 84 wide, 1-inch 100 ksi product, that not when we able to make a 13 to 50 -- 50 ton coil…

13, 50 to full width, 16, 50 to narrow width, so it's a very large flow…

So, the yield improvement of the large coil, John, to a pipe and tube is probably in the order of 5% to 6%. So again my comment earlier is anytime we've entered the market no matter what it is, whether its rail, whether it's pre-paint or whether it's rebar. We look for differentiating angles from a technology and supply chain value-add, and I think this provides it. In addition to that, the color considered the geographic location. Gallatin is in Kentucky. These other facilities still remain a long distance away from the market. They can't get to the West Coast for 55 bucks. They can't get to the market or the regional market that we're going to be able to supply anywhere close to the freight cost that we'll be able to avail ourselves. So again, I think this project is very, very FDI specific, it's unique. And people said we based this decision on trade, and absolutely not. This is a market based expansion for us and I think the investment profile is going to be an absolute going forward.

Mark, I think it maybe me important to note that my understanding is that Glenn's team have now selected a mill supplier, and that we're not buying a model number off the shelve that we have specified a mill that probably no one built before and all the suppliers are looking for a solution to fit your expectations there.

This is a very good point. You just embraced SMS being the mill of provider of choice for everyone, that's not necessarily the case.

So you might go with a different design and a different equipment supplier in your new mill?

Glenn and the team are evaluating two -- well, depending on the equipment but the hot-stripped mill cast are -- hot side two basic vendors.

Our next question comes from the line of Sean Wondrack with Deutsche Bank.

I just have a follow-up on one of your earlier comment. So, you've stated you expect through-cycle net leverage in a 2 to 3 times range, and I think your net leverage is somewhere closer to 0.7 turns right now. Even if you were to lump on $2 million project, you're still going to be below 2 turns. So when you talk about 2 to 3 turns, is that somewhere you expect to be? Or do you think that's more of a ceiling to where your leverage would go? And is it better to think about distributable cash flow from your eyes in terms of the leverage you could pull back on or accelerate?

Yes, so 2 to 3 times is again in the ceiling area. It wouldn't be somewhere where we would be sustained on a through-recycle basis, so that's a correct statement.

So it's more of a ceiling, you're obviously embarking on these projects, leverage may move up a bit but you wouldn't expect it to go anywhere higher than 2 to 3 times. Is that what you're saying?

That's correct. But remember that when I was answering that question, that wasn't just about organic projects that also include any potential transactions from time-to-time that may arise.

And I'm just looking at this again where enterprise multiples are trading somewhere in the 4 to 5 turns range for a lot of companies. It seems like 3 turns would be a lot of leverage on the business given that backdrop, because that makes a lot more sense. All right. Thank you.

And our next question comes from the line of John Tumazos with Very Independent Research.

Mark, today, there are certain I guess generally accepted practices and financial analysis like EBITDA ratios. A defect in EBITDA ratios are the selling price changes or the metal margin changes. It doesn't change -- it does change, it could be -- EBITDA can be illusory at the top of the economy, for example. When I was a little boy 40 years ago beginning to do financial analysis, debt divided by debt plus equity was calculated. A conservative way to look at equity is to exclude goodwill for tangible network. Steel Dynamics isn't as strong a credit using the ancient debt-to-debt plus equity tangible equity ratios. And I just want to remind you and I might sound like the smart-arse, the guy that popularized EBITDA ratio, Mike Milken, went to jail even though it's generally accepted today. Do you worry that your balance sheet is too levered just in case there's a bump in the road and the world economy changes?

Well, I am not worried at all. I think our business model, again, is differentiated in good times, bad times, quarter-to-quarter. It's demonstrated the ability to generate cash, a superior rate than our peers. I agree and I'm -- I don't what the relative ages are. I turned 60, so I've been in the industry for the 35 or whatever too many years. And I remember people would be focused on net earnings, not necessarily so much EBITDA. We still look at that, things, projects and have to make money, not just cash per se. And all I can tell you, John is reflect on our past performance. I think it's demonstrated through-cycle superiority and we intend to maintain that.

And then, John, I would just add if you look at the total debt level just over $2 billion and then you take into consideration the capital structure, which is perfectly laddered out where there is not anyone more material maturity in one year and that current maturities actually don’t even have a meaningful maturity even at three to four years. And that’s purposeful and that’s we maintain what we believe to be a very conservative balance sheet, but appropriate for a growth company.

Thank you. This concludes our question-and-answer session. I'd like to turn the floor back over to management for closing comments.

So, thank you. And for those still on the call, I’d like to thank you for your time today. And those that supports us, thank you for your support. To our employees, again, our priority is safety, safety, safety. Please be safe in anything that you do and thank you for all you do for our company. And also, thank you to loyal customers for your support as well. Without you, we wouldn't be who we are. So thank you and have a great day.

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