United States Steel - Q4 2021

Transcript

Speaker 0

Good morning, everyone, and welcome to United States Steel Corporation's 4th Quarter and Full Year 2021 Earnings Conference Call and Webcast. As a reminder, today's call is being recorded. I'll now hand the call over to Kevin Lewis, Vice President of Investor Relations and Corporate at TNAIC. Please go ahead.

Speaker 1

Thank you, Tommy. Good morning, and thank you for joining our Q4 and full year 2021 earnings call. On behalf of U. S. Steel, I'd like to wish everyone a happy and healthy 2022.

Joining me on today's call is U. S. Steel President CEO, Dave Burrett Senior Vice President and CFO, Christy Breaves and Senior Vice President and Chief Strategy and Sustainability Officer, Rich Fruehauf. This morning, we posted slides to accompany today's prepared remarks. The link and slides for today's call can be on the U.

S. Steel Investor page under the Events and Presentations section. Before we start, let me remind you that some information provided during this call may include forward looking

Speaker 2

us know. Statements that are

Speaker 1

based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings, and actual future results may vary materially. Forward looking statements in the press release that we issued yesterday, along with our remarks today, are made as of today, and we undertake no duty to update them as actual events unfold. I would now like to turn the conference call over to U. S. Steel President and Dave Burrett, who will begin on Slide 4.

Speaker 3

Thank you, Kevin, and thank you, everyone, for joining us this morning. 2021 was an exceptional year, and it puts us on a path for another strong year in 2022. We delivered for our stakeholders in 2021, achieving record performance across nearly every part of our business. Record earnings, record EBITDA, record EBITDA margin, record free cash flow and record safety, Quality and reliability performance. Collectively, we are pursuing best here at U.

S. Steel, And 2021 is a great example of our progress. But this is just the beginning. Our progress will continue In 2022 and beyond. While the market is certainly looking for every reason to be negative about the prospects for this year, We remain overwhelmingly positive.

As expected, the Q1 will be seasonally weak, including the normal letdown. But we believe this is just temporary. While markets continue to self correct, the macro backdrop is favorable. Supply chain issues will ease, inflationary pressures will abate, saving rates remain high, Cash remains on the sidelines and demand remains pent up for the markets we serve. This is a recipe for success in steel, and we are optimistic that 2022 demand will accelerate.

We have, after all, Double through cycle prices, clearly a great place to be. We know about the risks, The Fed taking rates up too fast, unexpected changes to import restrictions, geopolitical risks, existential risks, The risks are many, but we've seen it all before. We know where we're headed, and we know how to get there. When you are in pursuit, Constant pursuit of BEST, you are never satisfied and challenges will always remain. We're taking the necessary steps to become less capital and carbon intensive.

We're executing on strategic investments to Expand our capabilities, capabilities that will make us a better, not bigger steel company. And we are going to move faster, Not slower in 2022 because as we like to say, we can't get to the future fast enough. This isn't your great great grandpappy's U. S. Steel anymore.

U. S. Steel's future is incredibly bright. The solution remains the same, Execute our best for all strategy by constructing a 2nd new mill greenfield facility and expanding Finishing lines through our investments in an electrical steel line and coating line at Big River while returning capital to stockholders. When we execute, we expect to unlock $850,000,000 of additional EBITDA through state of the art mini mill steelmaking and finishing line capabilities.

And we will have Further differentiated our sustainability advantages by customers as we continue to deliver against our responsible steel And 2,050 decarbonization objectives while growing our offering of sustainable steel solutions, including Vertex. We know you know this. Sounds good, right? We think so. But we clearly know this is a show me story.

So we will keep our heads down, remain focused and disciplined, and we will continue our progress toward our best for all path Because after all, we have to keep showing our stakeholders what best for all means. It's about continuing to reimagine how steel gets made more sustainably, like efforts earned by Big River Facility Daimler's 2021 Sustainability Recognition Award. And it also means continuing to innovate to accelerate and further our best for all progress. Just this week, as an example, we announced a strategic investment and partnership in Carnegie Foundry, a leading robotics an artificial intelligence studio in Pittsburgh supported by Carnegie Mellon University. We look forward to beginning our partnership together as we work to accelerate and scale industrial automation to find new ways to serve our customers.

Our customers are seeing and embracing the transformation that's taking place at U. S. Steel, and we are pleased to be a like minded regional partner for them. We look forward to deepening our partnerships to create Unique solutions that build on our long term relationships, industry leading innovation and constantly increasing focus on products our competitors haven't imagined. For our employees and communities, Best for all means investments in their future and our recent announcement that we have selected Osceola, Arkansas as a home for our 2nd, mini mill means jobs.

It means a commitment to that community. It means a more secure future for the region, and it needs a more responsive U. S. Deal to meet the needs of our customers. Osceola is our newest And we continue to invest in regions that have supported U.

S. Steel throughout our history, integrated mills and mini mills, our best Both enabling our best for all future. And for investors, best for all means increasing our future earnings power while Turning capital to stockholders. We don't believe the market is rewarding us yet for continued strength in 2022, Improved through cycle earnings or for the long term value our best for all strategy. So we will continue to buy back our own stock And are pleased to announce an incremental $500,000,000 authorization.

We are generating excess cash, And we have an obligation to reward stockholders. As I said before, this isn't your great, great grandpappy's And we look forward to continuing to show all our stakeholders the power of best for all. Let's get into the agenda for today's call on Slide 5. On this morning's call, we are going to cover 3 topics before heading into Q and A. First, we will spend some time recapping our 2021 performance and strategic milestones.

2nd, We will provide some additional context on why we are confident. And third, we will spend some time providing definition on our capital allocation framework and key priorities, priorities aligned with showing our stakeholders what best for all means for them. 20 21's record performance has fundamentally changed our business. As you see on Slide 6, our record performance in safety and environmental, in customer and operational excellence and in our financial performance It's a direct result of executing our strategy over the past several years. Take safety and environmental as an example.

Safety is and will always be first at U. S. Steel and is at the core of our steel principles. We delivered our best safety and environmental performance on record and continue our progress towards our ambitious 2030 and 2,050 carbon reduction goals. We also demonstrated quality and reliability performance when it mattered most to deliver for our customers in 2021.

We also delivered record financial performance in 2021. We acted boldly in 2020 to announce the acquisition of the remaining stake in Big River Steel, best as the market was gaining momentum. We moved quickly, and our well timed acquisition allowed us to capture the remarkable earnings power Of Big River Steel in 2021, including nearly $1,400,000,000 of EBITDA and 39 percent EBITDA margin. Our Flat Rolled and U. S.

Steel Europe segments also delivered record financial performance. Our integrated operations continue to run well to drive what is expected to be another impressive year in 2022. Before we pivot to 2022, let me turn it over to Christi to provide some more context on 20 21's record financial performance. Christi?

Speaker 4

Thank you, Dave, and good morning, everyone. I'll begin on Slide 7. As Dave mentioned, 2021 was a year of record financial performance. We ended the year with adjusted EBITDA of approximately $5,600,000,000 and an adjusted EBITDA margin of 28%. This translated into record free cash flow generation of approximately 3,200,000,000 including over $1,000,000,000 in the 4th quarter alone.

We expect to generate meaningful levels of free cash flow in 2022 as well. Adjusted EPS in the quarter was $3.64 per share and was significantly impacted by a non cash year end true up to our tax valuation allowance. Excluding this impact, we outperformed expectations on EPS just like did on revenue and adjusted EBITDA. Our strong performance in 2021 allowed us to transform our balance sheet by re paying over $3,000,000,000 in debt in the year and ending the year with 0.7 times leverage. This type of financial performance allows us to enter 2022 from a position of strength.

The remaining debt on the balance sheet is manageable with over 80 percent due until 2029 and beyond. Our pension and OPEB plans are overfunded. We have no mandatory cash contributions for the foreseeable future and have already de risked a component of the plan to further strengthen our balance sheet. And we're also ending the year with nearly $5,000,000,000 of liquidity, including over $2,500,000,000 of cash. Before I hand it back to Dave to expand on our 2022 opportunities, I'll spend a few minutes on our segment performance on Slide 8.

In our Flat Rolled segment, we delivered record EBITDA and EBITDA margin. In the Q4 alone, we generated over $1,000,000,000 of EBITDA and an EBITDA margin of 30%. It was a similar scenario for our mini mill segment. 2021 delivered record EBITDA and $4,000,000,000 and 39%, respectively. This included 406 Our European operations also posted record EBITDA and EBITDA margin in 2021.

EBITDA was nearly $1,100,000,000 for the year or 25 percent EBITDA margin. Lastly, our tubular segment reported nearly $50,000,000 of EBITDA in 2021, including $42,000,000 in the 4th quarter. We are leveraging new trade actions where we can and continue to expect the tubular segment to be a more meaningful contributor to our

Speaker 3

And our balanced and disciplined approach to capital allocation. Thanks, Christy. We remain bullish for 2022 and Slide 9 highlights just a few items that support our point of view. At its core, Consumer demand remains very good. As I mentioned in my earlier remarks, there's a lot of cash sitting on the sidelines with saving rates at elevated levels.

But supply chain issues have prevented the full potential of consumer demand to shine through. In auto, pent up demand continues into 2022 and easing supply chain pressures are driving increased auto production expectations. Auto builds in North America are expected to increase by 2,000,000 units in 2022 and accelerate as the year progresses. This is a significant improvement over 2021 with room to run as broad supply chain issues are resolved. In appliances, production in 2022 is expected to be on pace with last year's record output.

And these expectations are materializing in our order book. In the U. S, we're seeing the Our OEMs order book increased each month in the Q1. Many of these OEM orders Hearing new higher fixed contract prices to begin the year. Also, the tin packaging business is expected to remain strong in 2022.

This is a market we are uniquely positioned to serve and where pricing was also negotiated significantly higher for 2022. Make no mistake, the success we had on fixed price contracts has generated significant year over year uplift on our fixed book of business. On steel market pricing, recent price movement still positions spot indices. Demand is in with normal seasonality and auto and appliance activity keeps us bullish for consumer demand. Meanwhile, the import arbitrage is starting to fade and lead times are normalizing, which we believe are precursors to increased spot market activity and positive price momentum.

In Europe, dollars per tonne in our order book has been steady. We expect order increase to accelerate to the seasonally stronger second quarter and are on pace for another strong year from our European operations. In Tubular, rig counts have increased, supported by higher oil and natural gas prices. This is driving increased demand and higher Pricing for OCTG products, demand is expected to accelerate in 2022 and our EAF And proprietary connections will continue to support higher earnings in 2022. We are enhancing the customer experience and are seeing tangible results for 2022.

The customer is core to everything we do. We recently partnered with Norfolk Southern and Greenbrier to develop a railcar that utilizes U. S. Steel proprietary grades resulting in a Stronger, lighter and more capable railcar. Through collaboration with U.

S. Steel, Norfolk Southern and Greenbrier Are able to extend the useful life, improve their sustainability and increase the efficiency of each gonzolo railcar. This type of product innovation to create sustainable solutions is just the latest example. We are focused on continuing these mutually beneficial partnerships in 2022. Our transformed balance sheet is another reason we're excited for 2022.

Today's strong balance sheet Fully funds the strategic projects we've already discussed, creates a clear path to strategy execution and is a foundation for our balanced and disciplined approach to capital allocation, including direct returns to stockholders. Yesterday, in our earnings press release, we announced a new $500,000,000 stock buyback program. This is in addition to our existing $300,000,000 authorization announced in October 2021, of which approximately 200,000,000 has been repurchased to date under the existing authorization. We will continue to repurchase our own stock, especially when it is trading at what we believe is an outlook on our first Quarter performance.

Speaker 4

We are on pace to deliver another strong performance. 10 outlines some key considerations for Q1 performance. Our Flat Road segment is expected to report increased shipments and higher selling prices from reset annual 1st quarter along with higher coal and natural gas costs, which will more than offset the commercial steel tailwinds. Recall, each year the lots on the Great Lakes close from mid January through the end of March. This not only limits our ability to ship pellets to our own operations, But also to ship to 3rd party customers.

Given our increasing presence as a merchant seller of iron ore, the seasonal impacts of our Mining operations have increased from historical levels. In our mini mill segment, the shifting hot rolled coil pricing dynamic in the U. S. Be more fully reflected in our average selling price. We expect temporarily lower volumes due to more hot rolled coil product Next, then our Flat Rolled segment.

Last year, U. S. Imports of sheet steel increased over 70% to a 6 year high. This quarter, we continue to monitor surges of low priced imports and their impact on the market and on our operations. In Europe, Steel prices and volumes are expected to be similar to the 4th quarter, while raw material and energy costs will be likely headwinds.

In Tubular, higher prices are increasingly being reflected in our performance as well as lower scrap costs for our Fairfield EAF. As a result, we expect Tubular's EBITDA to improve again

Speaker 3

in the Q1. Dave, back to you. Thanks, Christy. Over the past year, we've talked a lot about our strategy and the continued progress towards our best for all future. With each passing quarter, we have transformed the balance sheet, announced and advanced critical capability and sustainability related strategic projects, to improve our through cycle earnings power and reduce our capital and carbon And provide more definition around our financial position framework on Slide 11, a framework that we believe will create long term stockholder value.

As we've discussed this morning, Achieving our strategic ambition provides the principles we will use over the coming years to develop our strategy. The major theme should be familiar to you. We will maintain a strong balance sheet. We will invest in capability not to become bigger, but to become better, and we will return capital stockholders as the business continues to perform exceptionally well. Let's discuss each component First, we consider a strong balance sheet to be foundational to the success of our We are pleased with the significant progress we've made to reduce our debt, extend our maturity profile, Lower our debt service costs and improve our credit ratings.

As we continue to execute our strategy, we at times, Based on the progress we've already made to delever the balance sheet and the improved through cycle earnings power Of our integrated and mini mill business model, we are confident that our mid cycle performance and optimize our capital structure. 2nd, we believe the highest value added use of our cash is to fund the announced investments that will transform consistency of our free cash flow. U. S. Steel is executing from a position of strength, a position that we've earned through operational and commercial excellence and record EBITDA and free cash flow performance.

It is a position that is tremendously valuable and is a catalyst to advancing our strategy, which our customers demand from us. At all, we will protect The successful execution of Mini Mill 2 and the strategic investments We are making a non grain oriented electrical steel and galvanizing capability at Big River Steel by maintaining a cash position no less Our next 12 month CapEx. This will ensure that our strategic investments will be Fully funded by existing cash and free cash flow while preserving our ability to maintain a balanced and disciplined Capital allocation strategy. 3rd, as you would expect, we will continue to evaluate investment opportunities to further our best for all strategic transition. As we seek to lower the sustaining capital webcast.

We are sharpening our focus on the types of projects we may pursue in the future. For us, Best Raw starts with enhancing our focus on expanding our competitive advantages, low Cost iron ore, mini mill steelmaking, and best in class finishing capabilities, and by returning and by delivering returns of at least 15%. There are no additional capability investments announce at this time, as our focus is on completing the announced projects ahead of schedule and the Thunder budget, something our Big River Steel team has demonstrated they are highly capable of doing. Lastly, An important component of our capital allocation framework is stockholder distributions. Last quarter, we were pleased to announce our restored $0.05 per share quarterly dividend and our first priority for direct returns is to maintain that dividend policy.

We plan to supplement our commitment to a quarterly dividend by returning excess cash through measured and opportunistic stock buybacks. This allows for direct participation in capital returns for our investors as we successfully deliver our strategy. As mentioned earlier, I am pleased to say that our Board has authorized a new and incremental repurchase program of $500,000,000 Our best for all future has never been clearer, and we believe the framework described today provides even more definition on how we will advance framework delivers a compelling investor proposition, a proposition that balances financial strength, Investments that sustainably advance our competitive advantages and long term through cycle value creation by increasing our earnings Our improving our free cash flow and distributing capital to stockholders. I'm pretty pumped up about where we are today and what our future holds. With that, let's get to Q and A.

Speaker 1

Thank you, Dave. We ask that you each please limit yourself to one question and a follow-up so everyone has the opportunity to ask a question. Operator, can you please queue the line for questions?

Speaker 0

Let letdown. And we'll get our first question on the line from David Gabriel, Capital Markets. Go right ahead.

Speaker 5

Okay, great. Thanks for taking my questions. I did want to just And then also On the mini mill side, because I was a little confused, you said prices have volumes up in flat a little bit Offset, I think, by iron ore. So if you could just talk a little more about that. And then again, on the minimals side, you can talk about A little more detail on why you expect things to roll a little bit harder in that business?

Thanks.

Speaker 3

Well, there's a lot in that, David. I think what you're asking for, near term, first quarter Commentary where we are and where we're headed in the near term because there has been some noise. Am I right in assuming that's where you're interested in? Because can tell you, we remain bullish on 2022 and the strong And continue. So we still feel the fundamentals of a super cycle, they remain intact.

And we I don't believe we're overacting to anything in the short term. So I think you got a good question here. But let me just kind of Expand on that a bit because I think it's important to provide some context before getting into some of the specifics. The steel industry is on quite a run. So it's easy, I think, to forget just how far we've come.

Q3 and Q4 2021 represented all time best performance for the business. Us. We're talking about, what is it, dollars 4,000,000,000 of EBITDA generated in the second half of last year. So letdown. Frankly, we do expect to be a modest step down from Q4.

That's for sure. But this shouldn't surprise anyone. We fully expect Q1 2022 to be our 3rd highest EBITDA quarter in the past decade, Plus and EBITDA and free cash flow generation. But I think a couple of things that Everybody needs to remember related to U. S.

Steel that maybe folks forget about Q1. There are seasonal impacts within our mining operations and they're Significant and have become increasingly more material as our presence as a merchant pellet supplier has increased. Us. Historically, we've said seasonal mining headwinds ranged from something like $50,000,000 to $100,000,000 But we could see $150,000,000 in the Q1 of this And this headwind will reverse in subsequent quarters and be more more than offset through the firm and contracted Volumes in place for 2022. But there's obviously these puts and takes with North American Flat Roll.

But once you adjust for the impact of our mining operations, we expect the rest of the segment to perform similarly to the Q4. Now you mentioned the mini mill segment. In our mini mill segment, we're navigating these seasonal impacts on demand as nimbly as we can and are optimizing our order book And operations to satisfy the demand, and we're seeing in doing that in the most profitable way possible. But let's not forget, Big River is a segment within our business with the most hot rolled coil exposure, Which has been a huge benefit for the business over the past year. And while they are more heavily acted in the near term in this quarter, we expect them to be well positioned to participate in what we see as an inevitable snapback.

And it's also worth noting that investors will take a way as we speak to further enhance They're value added mix with the NGL line and incremental galvanizing capability. So the EBITDA contribution for Big River We'll be down, no doubt, quarter over quarter. But this is an extremely cost effective and efficient Operation, and we don't expect a material change in their margin profile in Q1. Us. And then maybe a little bit on Europe, since Christy mentioned in her remarks, we expect a modest step down primarily for Energy and raw material headwinds.

But again, our operations in Europe, they're highly cost competitive. And the Q1 should be one of the best quarters in history. And then you didn't mention Tubular, but since I'm covering the segments here, I do think we have to look at the 2 Pure business with the trend is our friend and expect Q1 to be higher than Q4, and we expect the segment to continue to benefit from the electric arc furnace that put in place and is running well and the momentum we're seeing in the energy sector It's very good. So while we're not running this business for the next quarter, we certainly appreciate the interest in how things are developing. Again, Softness, seasonal softness now, but it will become coming back.

Near term noise, but we believe it will be Coming back and coming back strongly.

Speaker 5

Okay. That's very helpful. Thank you. Just a quick follow-up on some of those comments. Just on the flat rolled side, Obviously, there's a mix between contract and spot and flowing through in the Q1.

I'm just trying to get a sense as to how much of the volume in the Q1 is

Speaker 1

letdown. You'll see, particularly the automotive order entry rate accelerate through 2022. I would say that it's manifesting itself here in the second half of the first quarter, and we expect it to continue to accelerate in the second quarter and beyond. So probably a little bit more spot index exposure in the Q1. But as those markets like appliance and autos continue to kind of break through the supply chain Any subsequent quarter in the year.

Speaker 0

Thank you. We will proceed with our next question on the line from the line of Emily Chang with Goldman Sachs. Go ahead.

Speaker 6

Good morning, Dave and Christine. Thank you for the update today. Maybe my first question is just around that same color. Are you able Right. Any color around the magnitude of uplift you're seeing there?

Speaker 1

Yes. So we are our annual fixed price contract And how we negotiated those contracts for the year. We continue to expect, as we mentioned earlier call, our average selling prices in 2022 for North American Fly Roll to reset higher than 2021 as a result of those successful negotiations. So I would say, if anything, we're even more confident in the value that we've locked in year over year related to the fixed price contracts, right? Tin products, auto products, appliance products, All seeing meaningful uplifts year over year.

There is additional upside potential in April. We have some other Fixed price contracts coming due on auto that we're in the midst of negotiating now with our customers, and those offer Another opportunity, I think, to create some year over year uplift. So as you've heard us talking about, we're deepening our relationships strong market we find ourselves in is really allowing us to be successful on fixed price contracts. So I know it's a bit of a repeat, but I think it's stronger letdown. And we're really pleased with where we see the packaging, the auto and the appliance book for 2022.

You kind

Speaker 3

of look at where we Negotiated some over a year ago, I guess, where the contracts were and the prices were at such a much lower level. But We clearly find ourselves in a lot better position on these contracts. Kristi, do you have something to add here?

Speaker 4

I think Kevin covered it. Okay. Yes. Great.

Speaker 6

Thanks. And then my second question is just around the volume outlook for Big Rivers deal. You provided full year 2022 guidance. Maybe even backing out sort of the impact of intercompany shipments, it looks like utilization Right. Maybe a little below 90%.

Is there an opportunity to get that higher within that 90% plus range consistently?

Speaker 1

Yes, I think 90% utilization of MLP is the right way to think about utilization of Big River. I think that's pretty consistent across the Mini mill operations, we'd certainly look to push that higher to the extent possible. But as you rightfully pointed out, this full year of the synergies of the Big River acquisition was leveraging their melt and their high quality substrate to serve our North American flower hold finishing line capabilities. So there is intersegment movement of materials that wouldn't be reflected in those 3rd party shipments. And so we are running Big River at the highest level of utilization we can based on the order book that we have and how it fits within the footprint.

Obviously, the quarter, as we mentioned, is going to be seasonally weak. But we feel pretty good about the full year prospects for our tire operations, Including Big River?

Speaker 3

Yes. I think it's important to punctuate that or highlight that because we do believe it's temporary and we expect Big River Steel shipments, The 3rd party volumes in 2022 to 20 21's record level. So we remain bullish with Big River. And again, we're Sorting through some seasonality, I think, as everybody is right now.

Speaker 0

Thank you very much. I will proceed with our next question on the line from the line of Seth Rosenfeld with Exane BNP. Go right ahead.

Speaker 7

Good afternoon. Thanks for taking our questions today. If I can ask 2 questions, please. First, I guess, on the cost side. In Europe, I believe you flagged that there will be a decrease in your carbon costs in 2022.

Can you walk us through the drivers That despite the sharp rise in carbon credit prices in the spot market in Europe?

Speaker 3

Yeah. Christy, why don't you take that one?

Speaker 4

Okay. Yeah. We it's a couple of different things that are affecting the carbon costs. One, we have a higher free allocation this year because of the production level that we ran at last year. So that's a significant The Freer allocation.

The Freer allocation, I'm sorry. And we also, we have been And hedging CO2 costs. And so going out and buying CO2 carbon credits in advance also has Impacted our average costs. And we also have lower emissions. So that's also impacting the overall CO2 costs.

Speaker 7

Okay. Thank you very much. And then over in North America, can you touch on letdown. Outlook for annual coal contracts, any sense of the scale of cost pressure or the year over year increase in price per ton we can expect for your coal procurement?

Speaker 4

Yeah. I can comment on that. Yeah. This year, we've seen extreme price increases in the coal market. And we feel like we have a very strong position because of our ability to blend coals.

We Can our Kohl's lending capability? We also have, what we consider to We expect the optimal sourcing through a mixture of long term and short term contracts. And all of those things together, We believe our pricing is advantaged.

Speaker 0

Thank you very much. And we'll now proceed with our next Question on the line is from the line of Michael Glick with JPMorgan. Go right ahead.

Speaker 3

Good morning. Just on the financial How should we think about working capital in 1Q and moving through the year? And could you start off with the year?

Speaker 1

So I'm happy to start off. I think in the Q1, we would expect working capital to be a modest source of cash, with working capital for the full year, and we're also looking at a source of cash as well. So, I think And maybe I'll hand it over to Dave and to Rich to talk about any non core asset divestiture opportunities. Yes. I would

Speaker 3

Thank you. And then, I'll turn the call back over to Steve. Thank you. Thank you. Thank you.

Thank you. Thank you. Thank you. Thank you. Our next question comes from the line of Chris with Cash conversion cycle.

Now as far as the non core asset sales, We've as you recall, we had TranStar this last year of things that we look at From time to time. And Rich, if you could give us

Speaker 8

an update. Yes. Thanks, Thanks, Dave. So as Dave said, we do have real estate and other non core assets and we are continually looking at those to see whether they do or do not fit within the best for all strategy. I won't get into any specifics, obviously, but there are always Processes that we're looking at, as we say, everything is for sale at the right price.

We get inquiries all the time for some of our assets. And Over the past couple of years, we've done the deals with the Selco option in our Minnesota or we announced the Keystone Industrial Ford Complex Real Estate Trans Just assume that we continue to look at those kinds of opportunities going forward on a regular basis.

Speaker 3

Thanks. And then on demand, I get the near term noise

Speaker 5

on the hot band side, but

Speaker 3

What you've seen in recent weeks on the automotive

Speaker 5

side?

Speaker 3

Well, we on the automotive side, our folks report that there's more inquiries and I'd say more optimism as we go ahead. Obviously, you got Supply chain issues that have been there for a while. But the thing that's amazing with auto is just unfulfilled And there's the inventories are so low. And it's I mean, it's just a matter it's not I think if, it's When? I mean people are wanting to buy cars and there's a lot of money in folks' pockets as we talked about the savings rate.

So we're encouraged about where we are. Again, softness in the Q1, but I think it's going to come back. I mean, all these risks, these things kind of swirling around Right now with the Fed and the rate increases, we have to remember some of these things are just noise. I mean, it wasn't that long ago where the Fed said they weren't going to take rates up until 2024, right? And now we're hearing the four times.

One thing's for sure is that it's rare that what they say ends up being what because they are nimble and they're going to watch what's going on here. So a lot depends on some of those Actions that are being taken. But again, we're optimistic. I mean, the auto geysers and things like that, it's the Demand is so strong that I think letdown. Again, it's not a matter of if, but when.

And we'll participate greatly in that.

Speaker 0

Go right ahead.

Speaker 2

Just interested in the capital allocation updates that you provided around the 3 3.5 tons leverage target. Interested in your thoughts on how you arrived at that and any steel prices. Where I'm coming from here When you think about your EBITDA floor going forward, the asset improvements you've made, that's I think significantly higher on Cision. Just interested in any thoughts there. Thanks.

Speaker 0

Well, I think we're going to

Speaker 3

focus on how to better reward stockholders and provide more Certainty as to how we're thinking about this. So there's a whole lot of research and study that goes into each one of these lines on That capital allocation with the 3% to 3.5% leverage ratio as an important one, right? Because We are a cyclical business. And you asked how do we think about the through cycle number, We do our modeling. And while we get, of course, input from rating agencies, banks and other folks To help us hone in on all these things.

But as you look through the bridge of steel prices on a very conservative basis, which was something like 6 $16, dollars down. I personally don't think it's going to go that low For a whole host of reasons, we could get into a longer discussion. But we try to look is in a conservative way so that we have some optimism to manage the flows through this. And So

Speaker 1

when we look

Speaker 3

at the strength of the Siggit through a full cycle and then as far as The investments that we've already identified, Mini Mill 2, the Galvalume, the NGO, all those things are identified and we're going Through those and then if there's other opportunities at 15%, we can pick and choose on those as we go forward. But we don't have anything else that we see where we're That we're ready to talk about to announce that we have to raise money or get additional debt. We're heads down

Speaker 1

executing this best for all strategy

Speaker 3

and making sure that This best for all strategy and making sure that when you're flush with cash, the obligation is and when you're confident of where you are, The obligation is to return to stockholders, and that's what that additional $500,000,000 is. So there's a lot of modeling that went Through all this, we tried to condense it down to its simplest form that we think should be able to resonate with You guys as you do your analysis and also the folks that are buying our shares. And we hope people see that we're spending a lot more time on that And rewarding stockholders more. Kevin, do you have something to add?

Speaker 1

I think the only thing I would add, Dave, and firm, there's probably some opportunities to further repay debt. As you us. There's some debt within the Big River capital structure that we could chip away at on an annual basis. And we'll look To do that, obviously, as it makes sense. To your point about increasing debt, as Dave mentioned, really something we're not going to be focused us.

In any material way, in the near term throughout the execution horizon. As you've seen us do in the past, though, we do like to look At project specific financing, it's elongated cost. To the extent that may be complementary to any of the projects that we're pursuing, particularly the 3 strategic projects that will generate 8 $50,000,000 of incremental through cycle EBITDA beginning in 2024 or ramping in 2026. Those could make sense, but the goal is certainly not From the balance sheet strength, we've been able to deliver throughout 2021, and we want to maintain the strength that we've worked so hard to build over the

Speaker 6

12 months.

Speaker 2

So very helpful in the case that you made for a higher steel price floor and well noted Kevin, you anticipated my follow-up about preferential, if you will, financing at the additional mill at Bigler because you do have Really good terms on some of your bonds there. Thanks very much for the time. Appreciate it.

Speaker 7

Thanks, Karl.

Speaker 0

Thank you very much. We'll take our next question on the line from Timna Taner with Wolfe Research. Go right ahead.

Speaker 9

Yes. Hey, good morning. I wanted to ask first question about Europe. The I had in my notes and this can seem a little light, so I was wanting for some color

Speaker 0

us know. And then

Speaker 9

to understand the $80,000,000 favorable change in purchased CO2 Credit cost, is that like through the year or is that lumpy in terms of realization?

Speaker 1

I mean, I think the $1,000,000 on the credit card credit cost, Timna, you can just assume it's kind of spread out throughout the year. Probably no particular reason why it'd be particularly lumpy in any given quarter. 5,000,000 tons of Data capacity at USSK is kind of the nameplate capacity. But as you know, like targeted utilization rate for an integrated facility, think about it somewhere in the of 80% range on maybe a little bit higher at USS K. So I think that we feel like demand and shipments there are going to be quite strong and letdown.

We continue to be strong in 2022. So really no reason for any different shipment volume. We did complete an outage in the month of January. So that could weigh down shipments a bit in the near term.

Speaker 9

Okay. Thank you. And then my second letdown. Just thinking commercially about the Q1 versus the Q4. I know you had said that the Q4 volumes were a little light because you didn't want to chase lower prices.

But the prices still are even lower than they were in the Q4. So I'm just trying to understand how we should think about shipments relative to market conditions. Like do you think that the destocking is complete already and that will help Q1 volumes or how do we think about Volumes quarter over quarter in light of the current lower steel prices than flat rolled? Thanks.

Speaker 1

Yes. I think we could we would expect to see shipments Slightly up in North American flower oil quarter over quarter, with the Q1 being higher than the 4th. I think we could see volumes in our Mini Mill segment maybe take a modest step down, and then relatively flat in Europe and in tubular. I think we're navigating the domestic sheet market the best we can, and we would expect shipments to then accelerate in the Q2 forward to get to our Full year guidance targets.

Speaker 9

Got you. Okay. Thank you very much.

Speaker 0

Thanks very much. Now I will now turn the call back to US Steel CEO, Jay Burrows, for closing remarks.

Speaker 3

Thank you for joining the call this morning. We are just beginning to show the potential of our best for all strategy and look forward to proving the power of the strategy over the coming quarters years. We know that U. S. Steel has the right strategy for the long term future, but we know that to achieve best for all, we need the best from all.

And that includes strong support from the United States government to support a sustainable steel industry through trade enforcement and support for Innovation and decarbonization. To our U. S. Steel and Big River Steel employees, thank you for delivering You didn't get distracted by record steel prices. Instead, you stepped up your game to deliver record levels of quality and reliability to amaze and delight our customers, and we're so pleased to reward you with record profit sharing and incentive pay.

And you did it all by continuing to work safely for yourselves and your colleagues. But we're never satisfied until everyone who enters our facility returns home safely. We truly have a world class team at USDA. Earlier this year, our compliance team was recognized Best Compliance and Ethics program by Corporate Secretary. And just yesterday, we were awarded a perfect 100 score on the We are pleased to work with such talented and diverse individuals and are fostering an inclusive environment for all our employees to thrive.

And of course, to our customers. Your challenges are what drive and inform our strategy. We are creating a U. S. Deal that we part of a Greener world and part of your solutions to meet your own decarbonization challenges.

Thank you for your continued partnership In pursuit of our shared customer, planet Earth. Now let's get back to work safely.

Speaker 0

This does conclude the call for today. We thank you for your participation. Have a good rest of the day, everyone.