Good morning, everybody. Thanks for joining us this rainy Friday. I just want to run through a couple particulars before we get started. If you haven't noticed, the bathrooms are out on the left. There's water and pens in the back here if you need pens and pads. There'll be an itinerary that'll kind of run from around 8:15. We're kicking off now. We should be done by 11:00 A.M. latest. We'll have box lunches and some Nucor swag outside for you at the end of the event. We look forward to the dialogue and the questions this morning. As I said before, the Wi-Fi passcode is Nucor2019. Just one last thing. Well, two last things. We'll have a break around 9:30, a short break. I just ask everybody to remember to silence their mobile devices before we get going.
With that, I'll turn it over to John. Thanks.
Good morning.
Good morning.
Come on, I know it's early for New York. We can get a better response than that. Good morning.
Good morning.
There we go. That's a Nucor type of response. We like that. For those of you who don't know me, I'm John Ferriola, Nucor's Chairman, CEO, and President. I want to start by thanking you for joining us today. We really appreciate you sharing your valuable time with us, with the Nucor team this morning. The more than 26,000 men and women of Nucor are very excited about the projects that we have currently underway to continue Nucor's long tradition of profitable growth. We're here today to share details about these projects and how they'll help us to profitably navigate the cyclical industry that we participate in. Before I continue, let me remind you all that we will be making several forward-looking statements today in the course of our presentation, and take that into account. Let me begin with some context. 2018 was a record year for Nucor.
We generated profits that reflect our leadership position and returned $1.35 billion of those profits to our shareholders. At the same time, we continued to invest to build our leadership positions while maintaining a strong balance sheet, something that we have always considered to be a critical key ingredient to Nucor's success. While 2019 has been a more volatile year with a weakening steel pricing for most of the first half, the good news is, for us, that demand remains strong. Our metal margins have held up reasonably well, and our earnings over the 12 months ending in March, were the highest of any 12-month period in the history of our company. Let's talk about volatility, since that's a common topic among investors today. Listen, the steel business, it's a tough business. It's a cyclical business.
Having begun my steel-making career back in 1974, I understand that fact of just how tough it is better than most. It's cyclical, it always has been cyclical. Here's a newsflash, it always will be cyclical. Nucor understands and respects the realities of our industry, and that's clearly demonstrated by the defining attributes of our business model, which are a low and highly variable cost structure, our diversified business model, our balance sheet strength, and always taking a long-term approach to how we treat our teammates, our customers, and our suppliers. Combining the strength of our business model with disciplined execution of our growth strategy, the Nucor team has established a very solid record of profitable growth dating back decades. Today, we see many attractive investment opportunities that will deliver profitable growth. Importantly, these are opportunities that Nucor is uniquely positioned to act upon, and to act upon now.
When Nucor invests, we invest only where we can achieve a sustainable competitive advantage relative to our competition. Our capital allocation decisions are driven and measured by the economic value added, or EVA, that they create for Nucor shareholders. Simply put, they must generate returns meaningfully above Nucor's cost of capital. Nucor's investments are not just about getting bigger. They're all about becoming more profitable. Every one of our capital projects has a focus on specific market opportunities that leverage our unique strengths. We are often asked two very reasonable questions regarding the capital spending, our capital spending plans over the next several years. First question is: Is Nucor at risk of investing at the peak of the cycle? Second, should Nucor's investment plans be influenced by the expansion plans of the overall steel industry? Addressing the first question first.
Our analysis is always built around what we believe to be conservative through-the-cycle metal margins and volume assumptions. 50 years of steel-making experience has definitely taught the Nucor team not to expect to be able to predict short-term steel markets or short-term economic cycles. On the second question, the answer is clearly no. Nucor does not and should not make its investment decisions based upon the plans of our competitors. We only pursue projects that we believe will allow us to create sustainable differentiation relative to our competition, and where the resulting competitive advantage will deliver returns that exceed our cost of capital through the cycle. We firmly believe in each case, in each of our investments, and our ability to create substantial value for our shareholders by making these investments. After hearing from our team this morning, I believe you will share our confidence in Nucor's continued profitable growth.
With respect to this morning's agenda, I will lead off by briefly reviewing what we see as Nucor's most significant competitive advantages. From there, we'll examine how we leverage these strengths by implementing Nucor's five drivers to profitable growth. I'll remind you of things we've done and point out the things that we are doing now to execute on our strategy. Our objective is simple: industry-leading value creation for our customers, teammates, and shareholders. The leader of our commercial team and Nucor's Vice President, Rick Blume, will discuss our commercial excellence initiative to drive profitable growth. Rick will explain exactly what we mean by the term commercial excellence and how we expect this work will pay off for our customers and for Nucor.
Nucor's Executive Vice President, MaryEmily Slate, will build on this discussion with an explanation of major growth initiatives begun under her leadership as General Manager of our Arkansas sheet mill. They are specifically the specialty cold mill that started operations in the first quarter of this year and a galvanizing line scheduled to begin operating in the second half of 2021. Following MaryEmily's report, we'll take a short break, and then we'll turn to a topic important to Nucor's ongoing success as both the economy and our industry undergo global structural change. Nucor's General Manager of Public Affairs, John Bass, will review our team's work to achieve more effective trade law enforcement. Our objective there is also simple. It's fair trade. Nucor will always thrive in an environment where winners are determined by real economic advantage and not by unfair subsidies and artificial constraints.
After the report from John Bass, Nucor's Chief Financial Officer, Jim Frias, will discuss our disciplined approach to capital allocation and the results that we expect from our initiatives. Jim will also highlight a key attribute of Nucor's culture: an unrelenting drive for continuous improvement. That focus is evidenced by our ongoing work to improve performance at operations that are currently not meeting Nucor's expectations. So that's our agenda today. Without further ado, let's get started. It always starts with our people. Always starts with our people and the culture that they nurture and grow. It's our primary competitive advantage and our most significant competitive advantage. Critical to our culture is the extremely tight alignment of the interest of Nucor's teammates to those of Nucor's customers and our shareholders. We will succeed, and we will succeed together.
The ties that bind us together include the principles and practices such as a safety-first mindset, teamwork, pay for performance, continual improvement drive, and environmental and community stewardship. There's a reason we always stop in every discussion about our company to talk about safety. Safety continues to be job number one for every Nucor teammate. While Nucor's safety incident rates are consistently below the national averages for comparable operations, we will never be satisfied until we reach the goal of zero incidents at all of our Nucor facilities. As you've heard me say many times, our teammates are our most important asset, and we need them to come back to work every day. The communities in which our teammates live and work are also important to us.
Since our first electric arc furnace went online exactly 50 years ago this month, Nucor has built its business model around environmental sustainability and being good stewards of our communities. Today, we are North America's largest recycler. Our production technology, combined with our operating efficiency, delivers energy intensity and greenhouse gas emission rates that are a fraction of the global averages. Steel is a globally competitive business with a large amount of excess capacity centered in countries that do not respect free and fair trade. To thrive and create value in that environment, you must be a low-cost producer. Nucor's low and highly variable cost structure has been the centerpiece of our company's growth from our inception more than 50 years ago. Balance sheet strength is equally important in a cyclical business like steel. Nucor holds the highest credit ratings of any steel producer headquartered in North America.
Maintaining our strong investment-grade credit rating is a priority for our company and a major competitive advantage that supports our profitable growth strategies. Our strong cash flow generation through the cycle speaks to our low and highly variable cost structure, as well as our financial strength. Nucor has always delivered higher highs and higher lows through successive cycles. During the last down cycle in 2015, we promised you higher highs the next up cycle when it returned, and we delivered on that promise in 2018. It is also worth noting that our strong cash flow generation during both the global financial crisis and during the extremely challenging markets of 2015. We are North America's most diversified steel products producer. As a result, our performance is not tied to any one market. Nucor is the leader in most of the markets in which we compete.
Our goal is to earn a market leadership position in all of our markets. Market leadership is the critical underpinning of industry-leading returns on capital. Let me explain our strategy and provide some concrete examples of how it guides our decision-making and our execution. We have a highly flexible and disciplined strategy for profitable growth. We call it the five drivers to profitable growth, which are: always be a low-cost producer, achieve a market leadership position in each market in which we compete, continuously move up the value chain, expand our channels to market, and always strive for commercial excellence. Being a low-cost producer is key to being successful in our industry. Our teammates clearly understand this. Maintaining and building this competitive edge is always top of mind for our team. Our relentless focus on cost has led us to invest in both natural gas and direct reduced iron.
Each of these moves is aimed at mitigating threats to our business model by offsetting escalating input costs. The projects our bar mill group teammates have embarked upon are excellent examples of how we are currently enhancing our low-cost and market leadership positions to grow profitably. Rebar and merchant bar products are long-standing flagship businesses for Nucor. The Florida and Missouri rebar micro mills, as well as the Kankakee, Illinois, full-range MBQ mill, target very specific market opportunities. Market opportunities that Nucor will be uniquely positioned to serve with a significant logistical cost advantage. We see real advantages from being a market leader, including the opportunity to develop mutually beneficial relationships with our customers and our suppliers. As a result, we can generate higher margins and returns on our capital. In 2016 and 2017, we quickly established market-leading positions in pipe and tube market via three acquisitions.
Our timing was good, and those businesses have performed well for us. We expect continued market-leading returns and will look for more value-creative opportunities to grow. I am excited about all of our initiatives, but I am very excited about our state-of-the-art plate mill in Brandenburg, Kentucky. It combines significant logistical cost advantages along with a major expansion of our plate mill group's value-added capabilities and product breadth. We look forward to building a clear market leadership position in the U.S. plate market. Moving up the value chain continues to be a critical driver for us. We challenge Nucor teammates at every division to continuously think about how their markets are evolving and how we can work to solve customers' problems. We understand the products and services we should be developing to gain market share, generate more revenue from each order, and make our product portfolio more import-resistant.
Investments that we have made at Nucor-Yamato over the years are a great example of our execution on that front. In each case, we saw a market opportunity that we could capitalize on by upgrading our capabilities and delivering a more value-added product. The results have been outstanding. Nucor-Yamato continues to be one of our strongest contributors, even when operating at lower utilization rates. Our current investments at both of our Gallatin and Hickman sheet mills are excellent examples of how Nucor continues to move up the value chain. As these operations come online, we will have significant incremental opportunities to provide value-added solutions to the automotive, energy, and other attractive markets. Rick Blume and Mary Emily will discuss these opportunities further in their presentations. Approximately 20% of Nucor steel is now consumed by Nucor's downstream steel products businesses.
Expanding Nucor's downstream channels to the market in this way stabilizes our steel mills' base load volumes. The feedback the steelmaking divisions and product divisions provide each other makes us better at their respective disciplines, better at producing products to fit their needs. We can see this in the quality improvements that external customers cite in their dealings with us. Further, as we have acquired downstream businesses, we bring the Nucor culture to them and realize significant reductions in conversion costs and, importantly, better safety outcomes over time. We will continue to invest in profitable downstream businesses as those opportunities present themselves. We believe the fifth driver to profitable growth, commercial excellence, offers tremendous value for us. In the past several years, we have steadily invested to upgrade our sales and marketing capabilities in terms of technology, people, practices, and market knowledge.
We see the benefits in terms of stronger relationships with our customers and an improved understanding of what is valuable to them. Across Nucor, teammates increasingly think not just about making and selling steel, but they think about solving our customers' problems. Now, with that, let me turn over the floor to Rick Blume, our Vice President of Commercial. Rick?
Good morning.
Good morning.
Good morning, Rick.
Thank you, John. Thank you for your interest in Nucor. I'm Rick Blume, and I've been with Nucor for 19 years. I've spent my entire career in the steel industry. That amounts to 42 years. Today's presentation, as John mentioned, I want to talk about commercial excellence. I want to talk about the journey that we're on. Commercial excellence is elevating our commercial prowess, our capability, to the same level as Nucor's world-renowned operational prowess. We've been on this journey for between five and seven years. Prior to 2003, most of you that know Nucor know that Nucor was very decentralized. Our sales effort was based at the mill. In fact, territories were carved out, and the expectation was that the sales manager and the sales team at the division would capture sufficient business to fulfill the order books at the mills. Very little collaboration was expected.
You were expected, again, to fill the mill within the assigned territory. The model worked very well until Nucor began to acquire many of our competitors, and we found that the sales territories began to overlap. This required that we move to a more coordinated commercial approach. From the years 2003 to 2011, the sales team was realigned. It was reorganized and unified. The sales bonus was changed to reflect that our sales team would now be selling for the product group and not for the local mill. As the team was unified, jointly developed commercial strategies were developed and concepts were developed. One such concept we termed the Commercial Five Commandments. In fact, John, I think we called it the Ferriola Five Commandments at the time.
Ferriola five, huh?
Ferriola five. This required additional evolution in our commercial team, and in 2012, we really began the commercial excellence journey. In order to do so, we had to build the team, build the sales process, and execute the commercial strategy. This is a look at the Commercial Five Commandments, and I'll briefly go through them. What's important about these early basic concepts were they became the foundation for our commercial strategy and ultimately commercial excellence. Leverage our size. Certainly, Nucor was growing fairly rapidly. We needed to leverage the broad footprint that we were developing across the United States. Optimize our product diversity. As we were growing, we were also broadening what ultimately became the broadest product portfolio in the industry. We certainly wanted to take advantage of that. Provide a single unified front to the marketplace, as we talked about.
Unifying the team, selling together, collaborating, communicating across the United States so that we all understood where the market opportunities were. Earn a price premium. People think that's a real challenge in the steel business, and it is. We believe that if you can deliver quality, you can deliver service, you can build on relationships, and in fact, you can earn a premium. We have sought to do that. That is an expectation of our commercial team, that we earn a premium to our competitors. Finally, one of the most important concepts that I'll talk about a little bit later because it feeds into the diversification in our order book, and that is managing of the mixes. Making thoughtful decisions about targeting markets, targeting products, customers, and geographies, not simply scurrying out in the marketplace in a grab for tons.
It's a very targeted commercial approach and strategy. We believe that by improving and enriching the mix, that we can improve revenue and margin. We also believe that that improvement is sustainable through the business cycle. As I mentioned before, in 2012, we began our commercial excellence journey. We understood it was important to bring up the capability of our commercial team to match the operational prowess of the company. We asked the team, what does commercial excellence look like? We had a lot of responses, and we sifted through thousands of responses from our entire teammate, not just the commercial team. What was developed was what became internally known as the five pillars of commercial excellence. The first pillar, being market-driven, being market-focused. John talked about Nucor and our projects and the way we strive to create value for our customers.
We sought to be market-driven, market-sensitive, meeting the needs of our customers. Become easier to do business with. You can imagine as the footprint grew and all the products that Nucor can offer into the marketplace, it became more important to become easier to do business with. To go from keep the power of a decentralized organization, but have a commercial team that can represent the entire middle structure and make sure that we're easy to do business with. Strong, loyal relationships. Pivoting away from transactional type of relationships and building strong relationships with our customers. Sustainable results. That pillar was about thinking long-term. Don't think about this order the next quarter. Think about providing and pursuing business that would give us sustainable results through the business cycle. As we mentioned earlier, the cyclicality of the business, very mindful of that.
Finally, we do it together through teamwork, the hallmark of Nucor. As we began to talk about the five pillars and commercial excellence in this journey with the entire Nucor enterprise, 26,000 teammates engaged in this process. There was a challenge from the executive team that said, "We fully support this. We're a part of this." There was a caveat to all of this. Do not lose your operational excellence. Do not take your eye off the ball. It's not a change of focus when we talk about commercial excellence. It's an expansion of expectations. That expectation is we will remain operationally excellent. We will raise our commercial prowess, our commercial excellence, and we will also continue to focus on being the industry leader. Because at Nucor, as you can see from this graphic, we're always climbing a mountain with no top.
That's part of the Nucor culture, continuous improvement. We never get to where we want to go. Every day, we strive to climb up that mountain without a top. The quote you see on the screen is a quote from John Ferriola, really summarizes the commercial excellence viewpoint. "Our vision must include the perspective seen through the eyes of our customers, such that customers desire and choose to do business with us because they believe that doing so will bring value to their company." Here's the important part. "They're willing to pay for the value." As part of our commercial excellence journey, the commercial team suggested that we get a snapshot, a view of how our customers feel about us. We engaged the prestigious Gallup organization to do a broad customer survey across our entire customer base. Our customers were very frank with us.
We learned a lot. We did a survey in 2014. We repeated in 2016, and as you'll see later, we're going to do it again in the fall of this year. Why is it important? Obvious. To understand the needs of our customers and to understand how they view us. Do they view us as a long-term partner in their business? There were three areas of focus. First was consistent reliability. Again, think about the organization, where we had grown from. A lot of mills, a lot of products. It became important that we provided consistency to our customer base, even though we wanted to maintain at the mill level decentralized decision-making. Secondly, ease of doing business for the same reason, with the complexity, the broad product offering, and the multiple mills that many of our customers buy from.
In fact, over half of our customers buy from multiple mills and buy multiple products. It was important for us to focus on becoming easier to do business with. Finally, from the Gallup survey, was the idea of strategic partnerships. This was surprising to us because certainly as commercial people, we feel we have built great relationships. Our strategic customers, the large multi-product customers, expect more from us, and I think that was the finding that we had, and they challenged us to step up and engage with them and in their business and with their results. There was a fourth area that was added, not related to the Gallup survey, but it was sales team effectiveness. That was about making our commercial team more effective, giving them the tools and the ideas and the concepts and the strategies to be successful.
We began to build, and I think we have built the best in-industry commercial team. The one thing that I would note about our commercial team, and by the way, many are longstanding industry veterans. People who wanted to join a company that was growing and had excitement and had clarity about the direction that we were going, particularly in the commercial area. I'll highlight just a couple of these. Our commercial directors. Our commercial directors each are responsible for a product group. They're responsible for the development and execution of the commercial strategy, and they're part of the commercial leadership team in Charlotte. The next role that was developed really came directly out of the feedback from Gallup, the voice of the customer survey, and that was the enterprise account manager. Probably been one of the biggest home runs that we've hit in our commercial excellence journey.
The enterprise account manager's role is to take care of our largest and most strategic multi-product customers. They make sure and ensure the health of the relationship and make sure that we, Nucor, are doing what we need to do to satisfy and to engage them in their needs. We created a steel-making marketing team, the marketing team to help us understand, as we'll talk in a few minutes about the importance of diversifying our order book, helping us understand the emerging trends in 24 end-use markets that we track. The final two areas I want to talk about is the creation of two very important sales teams, and you'll see how this fits into our strategy. First, we established an automotive sales office in 2015. The office is in Detroit, and they were challenged with executing an automotive strategy and taking us to two million tons.
I'm pleased to say that by the end of this year, we'll be at a two-million-ton rate in the automotive business from very little business maybe 10 years ago. We've updated our goal at this point. Remember we talked about the mountain with no top. We're about to attain the two million mark, the original goal. We're moving that goal up to another million tons. We think we can get there. In many cases, it's going to depend on some of the CapEx that you'll see later, and you'll hear talked about by Mary Emily Slate. We do expect to go to three million tons, and we have a high degree of confidence that we're going to achieve this goal. The final team and sales office I want to talk about is the Mexico sales office. It was established back in 2006.
Today, Nucor ships almost 800,000 tons into Mexico as a result in the work of this exceptional team. I'll leave this slide with this final note. Every day, Nucor commercial teammates are engaged with steel customers in each of the 24 end-use markets that we serve. Why is that important? We're engaged with our customers, we're engaged in the markets, we're gaining information and knowledge every day that gets communicated back to our team. I mentioned to you that there was a sales team effectiveness effort established. Let me talk briefly about that. Having reorganized and realigned, we felt it important to enhance the capability of the sales team itself. The first thing that we did was we created a success factor commercial profile.
Basically, a hiring profile built to predict sales success in the Nucor Way of Selling. It seeks talented individuals who can effectively execute our value-based selling model that we call the Nucor Way of Selling. The Nucor Way of Selling was developed, as I mentioned, is a value-based selling model, creating value and getting paid for it. We updated as well the compensation for the sales team. The change was made to compensate and incentivize our salespeople both on volume and on profit. One of the big changes we made was to pay that bonus quarterly, as opposed to more traditional annual bonuses. We felt like it engaged and incentivized the commercial team, it creates clear linkage to the sales team performance within the quarter. We also enjoy tremendous engagement from the executive team. Our executives travel very frequently, spend a lot of time with our customers.
Creates a lot of alignment and collaboration with our teams. As part of our commercial strategy, we focused on making sure our order book was diversified. Making sure that we were participating in the right end-use markets, the right products, and the right geographies with the right customers. I point this out to point out later that the CapEx investments that we are making address our need to diversify in our order book, and also to meet the needs of our customers. It's important to recognize that our CapEx and our plan is not a build it and they will come strategy. We're engaged with our customers. The demand is there. We will be successful as we ramp up this capacity. The final point on the slide, as we said before, we want to provide value-added products and services for value-appreciative customers.
A value-appreciative customer is a customer that will pay for the value that we provide. John showed earlier the investments that we are making. The simple point that I will make here is that each of the CapEx projects has a defined market objective. The matrix shown here highlights those objectives for these investments. Most of the investment is based on value-adding. The investments are made to serve targeted end markets, to provide value-added products, to support selected geographies, supply our own downstream businesses, or to meet cost objectives. How have our customers responded? By the way, their response is building confidence in our team. I'm pleased to announce that General Motors recently announced Nucor as a Supplier of the Year for 2019. Nucor is the first EAF producer to ever receive such a prestigious award. Frankly, this award is a big deal.
It's a big deal in the automotive market, and it's a big deal for Nucor. This will help us achieve our additional goal of 1 million tons in this space. We've gotten other customer awards. Honda Environmental Award, VW, and ThyssenKrupp have also given us Supplier of the Year awards. In closing this slide, I'd say this: I meet with many of our customers, and I am proud to hear on a consistent basis that Nucor's quality, our delivery, and our service are best-in-industry, second to none. In fact, we were just with a customer in the last few days at Steel Success Strategies who made the comment that they wanted to clone Nucor after asking, "How are we doing?" They said, "We'd like to clone you guys." It's kudos to the team, to the commercial team, and to the entire Nucor team. The road forward.
I mentioned earlier this fall we will do another Voice of the Customer survey, engaging Gallup to check in with our customers. How are we doing? How are we doing on that mountain with no top? The team is going to be focused. Commercial team is going to be focused on profitable utilization of our new capabilities. We're engaged. We're talking to customers. We're soliciting orders, and we're taking orders for that capacity. The third point, digitalization as a key enabler. Very important initiative. A lot of investment into our digitalization capabilities. Allows us to get stickier with our customers. It allows them to connect with us. It makes us easier to do business with. Many of our customers are concerned about purchasing efficiencies. This takes out waste in that, and it makes a very durable supply chain. The final point, KEN: Knowledge Empowering Nucor.
You'll notice that it's an acronym for and named in honor of our founder, Ken Iverson. What KEN does for the organization, it provides business intelligence across our enterprise, not only to our leadership, but to our field salespeople. It gives us powerful information to make commercial decisions. Finally, as we close today, in this review of our Commercial Excellence initiative, I want to talk about our branding activity. Nucor's brand work provides the language and imagery that is consistent with our Commercial Excellence journey. Powerful Partnerships, Powerful Results is a rallying point for the entire organization. When this was first developed and I heard this phrase, it was like a bell went off. That's it. It's exactly what we're doing. We're creating Powerful Partnerships with our customers, resulting in Powerful Results. I'm reminded of a quote from one of Nucor's board members in a recent meeting.
Nucor bringing Commercial Excellence and its performance culture into value-added markets will create a powerful competitive advantage. In closing, we are confident in the future success of our commercial strategy, our Commercial Excellence journey, the CapEx that's being invested to allow us to create value for our customers. We believe we have the right commercial team executing the Nucor Way of Selling. We have a market-driven strategy, deep commercial relationships. Most importantly, we've got the entire Nucor team pursuing Commercial Excellence and Operational Excellence. Thank you for your time.
Good morning. I am thrilled to be here with you today, even though it is a rainy Monday. I get to talk to you about some projects going on at a mill that I was just at, so that's a lot of fun. Before we get into the presentation, I would like to tell you a little bit about myself. I've been in the steel industry less than you, Rick, a little over 30 years. I started out as a receptionist at a service center, worked my way up through the sales organization to be general manager of a couple of service centers before joining Nucor about 19 years ago.
I joined Nucor as a district sales manager in Hickman, Arkansas, had the opportunity to then move to Decatur, Alabama, as sales manager, then operations manager, before moving to Auburn, New York, as general manager of a bar mill. I got to come full circle, and I ended up at Hickman, Arkansas, as the vice president and general manager, and that's where I've been for the last four years until recently. I'm now transitioning up to Charlotte. At Hickman, the mill was built in 1992, and it was a melt shop and a hot mill. In 1998, we invested in further processing, and we put a cold mill in and a galv line, which took about 500,000 tons. Excuse me. Can you get me a water, please? 500,000 tons of the 2.6 million tons of hot roll capacity for further added value. Thank you very much.
All righty. That's our Hickman mill as of today. Actually, Nucor operates five strategically located sheet mills, as well as two cast strip sheet facilities that are in Crawfordsville, Indiana, with that sheet mill and one in Blytheville, Arkansas, which is close to the Hickman, Arkansas, sheet mill. The capacity of all of our sheet products is about 12.1 million tons a year, and four of our sheet mills, like Hickman, are equipped with cold rolling and galvanizing lines for further processing of that hot roll. Through strategic investments and continuous improvement at our existing facilities, Nucor continues to expand our sheet offerings, including producing thinner, higher-strength steel to facilitate the development of the advanced applications that we're needing in the next few years. One of the things that I love about Nucor is that at each division, the team members take responsibility for planning for their own future.
It's a lot of fun when you're there and you're looking at your market with your team and evaluating where the division needs to go for investment plans. Every investment plan is made through the disciplined execution of the five drivers that John talked about. At Hickman and in the sheet mill group, we've recognized that there's opportunity for Nucor to move up the value chain by adding sheet capacity that meets the growth and demand for value-added products. We're not adding commodity-grade hot band, but we're adding the high-margin products that our customers are actually asking us to add and asking us to develop. Many of these products will be products that they require in the future. Thanks to our decentralization, the entrepreneurial spirit, it runs deep at Nucor. In our team meetings back at the mill, you'll hear teammates talking about new commercial opportunities.
They'll be asking, "Where can we sell more of the products that we make? What can we make or develop that's going to generate higher-margin products?" At Hickman, because of our location, the bulk of our revenue has come from selling steel into the energy sector, and that has served us well for many years. Pipe and tube customers have been our largest customers. We were riding the fracking boom since the early 2010s, which actually made Hickman one of the most profitable Nucor facilities. In late 2014, right before I got there, oil prices collapsed, and with it, the demand from most of our customers at Hickman. In a matter of weeks, the division went from being the most profitable to losing money and very few orders because their customers didn't need the steel.
As you can imagine, it triggered an immediate response and a plant-wide search for what are we going to do? What are our solutions? We asked the team to think about how we could diversify our product range and our industry's exposure. We asked what can we produce that differentiates us from our competitors, as well as from our other Nucor mills. We developed small teams, and we fanned out, and we went and talked to customers. We talked to our colleagues, and we talked to different industry experts. The brainstorming revealed two promising growth areas for specialized steel for electric motors and high-strength steel for automotive applications. Team members from Hickman were soon traveling all over the world to locate new technology and equipment that we needed to deliver on our strategy.
In parallel, other team members were working up a proposal for a $230 million mill expansion that would add about 650,000 tons of annual value-added products. I presented that proposal to our executive group in February of 2016, and within just a few months, we had board approval and the capital to move forward on the project. The greatest thing about this is that the team determined where they wanted to go and how to make their business successful. It wasn't the executive group pushing down on the team saying, "This is what you're going to do." Because of this, the entire Hickman team have ownership in these projects. They're excited. They're getting involved, and they are truly invested in making these projects extremely successful and profitable. The first major investment project is aimed at moving Hickman up the value chain, and that's our specialty cold mill expansion.
This is a $230 million project that will take the Hickman Mill into the future, and it will separate us from our competition. There are no other carbon mills like this in North America. The cold mill is like a transformer. It can change from a high reduction mill for the advanced high-strength steels of the future to a very efficient four-high mill in just six minutes, and this gives us incredible flexibility. I'm glad to be able to tell you that in the first quarter, the mill started up, had a great startup, and we've already shipped prime product from the pickle line as well as from the cold mill, fully processed cold roll. That team will continue to work with the mill and bring that up to speed. The second project utilizes the material from the specialty cold mill.
The gal line is a generation 3 flexible line, and it's designed from the ground up for flexibility of products and for efficiency. We wanted to make sure that this is the most cost-effective line out there and that it gives us the flexibility to change as the market needs change and develop. We broke ground earlier this year, and approximately two years from now, this line will be up and running. Building the mill of the future was the focus of the team from the very beginning. We wanted to separate ourselves from the competition and diversify our markets. These projects position the Hickman Mill and the Nucor Sheet Mill Group to efficiently make steels that our customers are asking us for today, and they want us to develop steels that they will need in the future.
With the specialty cold mill complex, we will have a broader range of products, actually value-added products, than any of our other North American competition. This slide just gives you an idea of our location. Arkansas' central location to the automotive corridor made it a great location for both of these projects. It allows us a nimble approach to our main markets, and especially the automotive market. We can go up and down the Mississippi by barge, east and west, rail, and truck. We've got great opportunities to get to all the stampers. If you take a look, all of our sheet mills are located in prime locations to serve the growing auto market, construction market, HVAC, and white goods markets. Our investments in Arkansas are part of a greater commercial strategy to align our product mix with current and future demand of our customers.
It is moving us further away from commodity hot band markets towards value-added products. Our increased value-added production will continue to grow our share of construction, auto, HVAC, and white goods markets. We expect the U.S. sheet demand to grow to about 65 million tons in the year 2022. That's from about 58 million-59 million tons in 2017. Most of that growth will be the value-added products. These markets that we've chosen to focus on are sizable and profitable. They're markets that we see opportunity for growth. Auto is the largest sheet end-user market in the United States. They use about 20 million tons per year. We believe that Nucor is underweighted in the automotive market. This represents even greater opportunity for our growth.
We have direct OEM channels into the market. As we continue to grow our auto presence, we are also growing our customer base. Construction is the second-largest sheet market and Nucor's largest end-user sheet market. We believe our investments will enable us to grow our presence even more in this market by offering the higher value-added products. Lastly, Hickman has always performed well in HVAC and appliance markets because of our location and our logistics advantages over our competition. That piece right there makes us the low-cost producer for these products. For the past 50 years, Nucor has made investments that are designed to be profitable throughout the cycle. We have never operated quarter-to-quarter, and we've always been focused on the long term. Our flat roll investments are no different.
We're excited about the opportunities that we have with these new capabilities, and we're looking forward to what the next few years will bring. Thank you very much. I think we're going to break for about 10 minutes, and when we get back, we'll have John Bass in about more things about Nucor.
Good morning. I'm John Bass. I'm with the Nucor Public Affairs team. With me this morning, I might introduce Katherine Miller, who's our corporate director of communications. I've had the opportunity to work for Nucor in various roles and various locations for the past 41 years. Thanks for the opportunity you've given me today to talk with you about our team, how we came about, and some of the various activities that we've worked on in the past and are currently working on today. Let me be clear, our entire company makes up the Nucor Public Affairs team. We all work together each and every day to promote and protect the Nucor brand. Part of our team is in Charlotte and parts in D.C. that work each day on corporate communications, both internally and externally.
We also work on state, federal, and international public policy, trade activity, commercial and operational support, and as a resource for other needs within our corporation. At Nucor, it's every team member's responsibility to be educated about the policy issues that impact our ability to successfully compete. From regulations to taxes, from a safe infrastructure to a fair business climate, from foreign subsidies to currency manipulation, these government actions can have a tremendous positive, and in some cases, negative effect on the way we do business.
Switch slides.
I'm sorry. Thank you. Let me back up. Okay. Thank you. There are many ways for our team members to stay engaged. We encourage them to serve in their communities, from local government elected positions to school boards to various community associations. Nucor teammates are encouraged to keep in contact with the local, state, and congressional members to talk about our issues. They are able to provide a manufacturer's perspective on government action. Nucor executives regularly testify before state and federal legislative committees and caucuses. Our GMs invite the same members to come to our plants, to our mills, and interact and meet with our team members. Finally, we encourage our team members to consider manufacturing issues when they go to the ballot box.
We have a political action committee in a number of our different states that enable our team members to collectively make contributions to those officials who support American manufacturing. Let's talk about some of the issues that we're continuously working on that impact our industry. U.S. steel production has been on a steady decline over the last 45 years. Our country has become a dumping ground for steel-producing countries around the world. For years, Nucor did not involve itself in trade disputes or public policy issues. Our founder, Ken Iverson, felt we needed to focus on serving our customers by being a low-cost producer, providing competitively priced products, and have a quality product. It's important to note that those attributes, along with maintaining a safe work environment for our team members, are still foundational to the way we operate our company today.
Things began to change towards the end of the last century as we saw a globalized steel demand begin to impact our industry. We went from competing with companies in this country to competing with other countries. It became apparent, though, that our industry and our nation could thrive in a system of fair and rule-based trade, but we would all lose if we did not fight trade cheaters and state-supported steel over capacity. A general manager at one of our plants decided he wanted to take the fight to the cheaters. He wanted to be the Nucor to file their first trade case against the dump steel that was coming into the U.S. After much insistence, probably making a valid argument, and probably using a very loud voice, Iverson finally relented and allowed the GM to take part in the trade case. It was successful, and we won.
That GM was Dan DiMicco. Within a few years, he became the President and CEO of Nucor, and shortly after that, our public affairs team was formed. Let me just talk real briefly on trade cases and how they've become a very instrumental part of the policy areas that we work in. I might note that our present CEO continues to be very supportive of us in this area also today. It's a very lengthy and expensive process. A trade case will normally take 12 to 18 months to complete. If the producer, an association, or a union believes it's being injured by dumped or subsidized imports, the industry may file a petition with the DOC or the ITC to investigate imports of a specific product from a specified country or from multiple countries.
A dumped product is a product that's either sold below the cost of producing it or sold below the price it would sell in the producing country. A subsidized product is a product where the producing company receives financial benefit, either directly or indirectly from its government. I'm not going to dwell on the details of the process itself. We can discuss that later in the Q&A, if you wish. I might note, though, that this process is a team process within Nucor Corporation. Our financial and commercial team members at the various divisions are very active in providing detailed data to both ITC and to the Commerce Department when the cases are filed. We also have our commercial and executive leaders provide testimony during the hearings.
With a successful case, we're able to establish duties with an order against the producer and the country that'll last for a five-year period. At a sunset review, DOC and ITC would review the orders and determine whether or not the dumping and the subsidies and material injury could continue or reoccur, and the orders would continue on for another five years, if successful there. Over the years, we've participated in dozens and dozens of successful cases. We've had a high degree of success with our sunset reviews also. This slide depicts some various products and countries covered under current orders. Let me also note that we've had a lot of successful cases with the previous administration, in particular in the areas of hot-rolled, cold-rolled, and coated sheet products . Unfortunately, some products, it can take multiple rounds and several years to get comprehensive coverage.
Even though we bring trade cases to stop the illegally subsidized and dumped steel, some state-supported companies have funneled steel into other nations, so it'll get dumped under a different flag into the U.S. It takes years to discover this, and it takes even longer to get relief from these trans-shipped products. 2017, with the new administration, a more comprehensive solution was put forth. Section 232 of the Trade Expansion Act was a strategy that the president chose to use. The goal was to reduce imports by at least 37% to achieve a minimum utilization capacity of 80% within the domestic steel industry. That level was necessary to provide for the national defense and economic security of our country by maintaining a sustainable steel industry. Dumped, artificially cheap steel would not be tolerated. Broad circumvention would be reduced.
Level playing fields would allow price to return to fair market levels based on supply and demand. There'd be no shortage of steel. It'd just be a shortage of dump steel. The Commerce Department conducted its study and offered the president three options to choose from. A 25% tariff on all imported steels was the one he chose. I might mention, too, that the tariffs on previous trade cases remained in effect. The 232 tariffs have been used as a form of leverage to get some steel-producing countries around the world to negotiate individual new trade agreements. Tariffs from some countries were also replaced by quotas, and others were placed under a monitoring agreement. The tariffs have also been used to encourage countries to continue to put pressure on China to become a more active market economy.
Presently, about 28% of all imports originally covered under 232 are covered under the 25% tariff still. U.S. steel producers continued to see lower imports since the tariffs went into effect last June. From May of 2018 through April of this year, imports have decreased by a little over 5.8 million tons, and utilization capacity in our industry actually hit a seven-year high in March of this year at a little less than 84%. One quick comment on the 232 exclusion process. This process was developed to allow domestic steel producers and customers, rather, to apply for exclusions to the 225% tariff on imported steel products if they were not available in the U.S. now or in the near future.
Nucor has been very active in monitoring the process and filing objections on the products that we produce now or will be producing in the near future, or those requests that may go contrary to the intent of the 232 action. The information that's been provided with the exclusions that have been filed have enabled our commercial team to access detailed commercial information on product volume, metallurgical specifications, customer contacts, and product applications on a huge amount of steel imports. We've had a great deal of success with this process with securing new customers and securing new volume. Just a side note, to date, the total volume of exclusions that have been requested of Commerce is about 81 million tons. I might note that last year, there was about a little over 30 million tons that were imported in the U.S.
Over the past several years, trade cases, as well as the comprehensive action of the 232 duties, have contributed to the critical market improvements with significant reductions in imports, as you can see from this slide. The illegally subsidized and dump transship products had been undermining the steel industry's ability to recover in the wake of the 2008 recession. Our profits had been consistently lower than other manufacturers, despite the resurgence of our economy. We're finally making progress compared to the all other manufacturing category. We still have more work to do. We continue to be very supportive of the administration and their goal of holding China accountable for growing excess capacity that is disruptive to our markets throughout the world. You can see here the tremendous growth that we've seen in Chinese steel industry over the past 18 years.
You may also note that our U.S. production has gone down during that time. China still has over half the world's production capacity. They produce half the world's steel volume, and they have half the world's overcapacity as far as steel production is concerned. More work needs to be done by the entire world community to address the problem going forward. This is another policy area that our team has continued to be very active in. Let's talk real briefly about NAFTA and the proposed USMCA agreement. NAFTA has been good for our industry, but it's a 24-year-old agreement, and frankly, it needs some updating. The proposed USMCA agreement will have positive language with regard to rules of origin, which will incentivize the use of more North American steel in the automotive industry. It also has strong language in trade enforcement.
It also has strong language in addressing subsidies by state-owned entities to businesses within their countries. It would also be a good model to be used on future trade agreements with other countries, and we're working very actively to help get USMCA passed. In closing, because of the efforts of our entire 26,000 team members and our public affairs group, we're working to shape state and national policy that can benefit not only Nucor, but our entire industry. Our messaging is bipartisan and concise. In addition to the topics that I discussed pertaining to trade enforcement and global steel overcapacity, we continue to work in other policy areas such as rebuilding our infrastructure, fighting against over-regulation, supporting abundant, affordable energy, and promoting pro-business growth tax policy. Thanks for attending this morning. I'm going to turn the microphone over to Jim Frias, our Chief Financial Officer.
Thank you, John. Good morning. It's kind of interesting. I listened to my peer presenters talk about their years of experience in the steel industry. I guess I'm a newbie. I joined Nucor in 1991, so I've got roughly 28 years in the steel industry, and I've had the honor of serving as Nucor's Chief Financial Officer since the beginning of 2010. At the beginning of today's discussion, John talked about how Nucor leverages our competitive strengths to execute growth through the five drivers of profitable growth. I'd like to continue that discussion by helping you understand how our disciplined approach to capital allocation supports both our strategic growth initiatives as well as our disciplined thinking about returning capital to investors. As we think about our capital allocation priorities, it begins with this foundational idea, and that is this: that we're committed to a strong investment-grade credit rating.
We think that's important, partly because of something John talked about. We're in a highly cyclical industry with ups and downs, and we need to have access to capital to make strategic investments throughout the cycle. That's why we don't try and time the market when we make strategic investments. We make investments when the time is right based on the opportunities in front of us. Back to the capital allocation priorities. Our number 1 priority is investing in strategic growth initiatives that allow us to achieve the long-term goal of growing our company. Number 2, we want to pay a strong base dividend that is supportable through the ups and downs of the steel cycle. Right now, that base dividend is about $1.60 per share per year.
3, we want to return additional cash to investors based on a look at both the income statement and the balance sheet. We have a disciplined approach. We start with the income statement and say this: We want to return a minimum of 40% of our earnings to our shareholders. If the base dividend doesn't get us there, we're going to return more, via either a dividend that's supplemental or a share purchase. Secondly, we're going to look at the balance sheet, and we're trying to operate the company in a debt-to-capital range that we haven't published, but it's probably obvious to the people that understand what a strong investment-grade credit rating requires. If we become under-leveraged, as we did towards the end of last year, we're going to do more return to investors. If we become over-levered, we might turn the dial down a little bit.
As we think about that, last year was a continuation of a trend where we returned $5.9 billion of cash to investors from 2009 through the first quarter of this year. Last year, we returned $1.35 billion to our investors. How do we choose between supplemental dividends and share repurchases? We have an intrinsic value model that we use, and we have a couple of our investment banks kick tires on that model to make sure it makes economic sense. This is a data point, this debt-to-capital projection range and our financial forecast that we show the board at every board meeting. They're very informed about our thinking about returning capital to investors and why we're thinking that.
They understand that the plans we have to invest in growth in the future and how these two things work together and the fact that there's room for us to both return capital to investors and achieve our growth objectives. What are some of the growth objectives that we're talking about now? I know this is kind of a replay of some things we already talked about, but I just want to hit on them again really quickly. We've got a number of bar investments, and all those bar investments are tied towards achieving cost advantage through logistics. We did a market study of the U.S. We looked at where steel is produced, where steel is consumed, and where the scrap is that feeds those steel mills.
That identified some important opportunities for us to invest in growth, where we could create significant competitive advantage where the scrap is, close to the customers, and make steels for customers that we're bringing in from far distances. When we look at our sheet investments, it's primarily about moving up the value chain. Right now, Nucor is a little over-weighted in our product mix in sheet steel towards hot band. We're making more cold-rolled, more galvanized, and in hot band, we're making specialty hot bands that very few steel companies in the U.S. can make today through the upgrades we're making at our Gallatin steel mill. Finally, our new plate mill in Kentucky. The plate mill in Kentucky is the biggest investment. It's also one that has the most positive attributes. It starts with the idea of logistics. The biggest market for plate is the Midwest.
Today, for us to serve that market, we eat a penalty of roughly $80 per ton to come out of Hertford, North Carolina or Tuscaloosa, Alabama. It's a value-added play. We can make about 60%-70% of the sizes of plate that are consumed today. There's only one steel mill, Coatesville, Pennsylvania, ArcelorMittal's plant, that can make the full range of sizes. We think it's time for a modern state-of-the-art steel mill to be built closer to the customer that can achieve those same ends, make those products that very few other people can make. We think market leadership matters. We think that this combination of breadth of products in the right location is going to allow us to establish a market leadership position that has sustainable long-term advantage. Here's a small case study that shows you why we think that's important and how that works.
Some background before we get into the details of this slide. Back in the late 1980s, Nucor built its first beam mill in partnership with Yamato Kogyo. Nucor-Yamato Steel was built in Blytheville, Arkansas, and the first mill, rolling mill one, had a size range that. How deep does the first rolling mill go? 14-inch depth, which covered 60%-70% of the size consumed in the beam market, and was a very successful mill right away. Now, some information about that joint venture. Nucor owns 51% of that joint venture. Yamato Kogyo owns 49%. It's roughly a 50/50 split. I've got two data points on this chart that I'm going to talk you through. The first data point is the line, which represents the shipments of beams from Nucor. That's public information that we put out each quarter.
The only noise that I'd say that's in there is beginning in 1999, the Berkeley mill started up, some of Berkeley's beams are also included in the shipments. It's a little bit of a, I'd say, roughly 20%-25%, maybe sometimes 30% of those shipments beyond 1999 probably come from our Berkeley mill. Let's say 25% as a proxy. The other line is the non-controlling interest expense that we publish on our income statement every year. There are some other items in there, but it primarily represents the profits of Yamato Kogyo, our joint venture partner. When we present our income statement, our revenue line includes all the revenue for Nucor-Yamato. Our gross profit line includes all the profits of Nucor-Yamato. When we get down to our pre-tax income line, we have to deduct non-controlling interest expense.
Again, those are the profits that belong to our partner. You can look at this data, and you can get a very good idea of the profitability of Nucor-Yamato by doubling that green line. It's not the exact number, but it's a very good proxy. You can take that yellow line and look at the shipments and get a feel for what our profit per ton is. Now, what's interesting about this chart are a couple of things. First of all, Yamato started up with a single beam mill that can only make 60%-70% of the sizes that the market needed. If you look back to about 1992 or 1993, we started up NYS II, which greatly expanded the size range of beams we could produce. There were only a few competitors besides Nucor that could make those sizes at that time.
We went through a year and a half or so of difficult times as we established ourselves in the market. Look at the profitability of Nucor-Yamato after that. Significant. Double those numbers. Think about the numbers of profits per ton. Okay. This has been one of our most profitable steel mills because of two things: its market leadership position and its unique breadth of products capabilities. Those two things together create significant leverage in the marketplace. If we jump to 2008 or 2009, that was a crash year for our industry. Nucor lost money. Many of our steel mills lost money. Yamato operated at 42% of capacity utilization in that year. Yet, you can see by that line that they generated profits that approached $150 million, maybe $140 million or $130 million of profits pre-tax in a very weak economy.
If we look since 2008, Nucor-Yamato has operated somewhere around 60% of capacity utilization, and look at the profits it generates. Again, because of that combination of breadth of product capability and market leadership position. When we talk about the plate mill and people scratch their heads, "Why are you adding another plate mill?" It's just not more tons. It's about having this unique advantage in the plate business of breadth of product and a market leadership position. We can leverage those sizes where we're closest to the end markets in the Midwest, and we'll leverage the sizes across our portfolio.
We'll complement steel that we make in Hertford with steel that we make in Brandenburg to serve the Northeast, to make the full size ranges for customers in that region that need both the bigger, heavier plate that's wider and thicker, as well as the more conventional sizes that we make at Hertford County. That's the case study that I wanted to share with you to help you understand more about the strategy behind the plate mill investment. We talked about our growth initiatives. I want to take a minute and talk about the fact that we don't just look at what we're going to do in the future. We're continually looking ourselves in the mirror and saying, "How can we get better?" This idea that Rick introduced, climbing a mountain without a peak.
We've been in the metal building business since about the time we started Nucor-Yamato, the late 1980s. We built our first metal building division in Waterloo, Indiana. That's where I started my career in 1991. I was the division controller at Nucor Building Systems in Waterloo, Indiana, from 1991 till 1994. When we started that business, we just had one operation. Over time, we ended up building four. We acquired a company called Magnatrax and added more. Just a few years ago, we had 11 operating units. But we were in an industry that was shrinking for a variety of reasons. Manufacturing moving overseas, more warehouse and distribution space being built using conventional construction instead of metal buildings. We recognized that there was a need to rationalize our footprint.
Starting about two years ago, we began a plan, and we reduced the footprint from 11 operating plants to eight, shut down three operations, permanently eliminated 300 positions. I want to make a point about that. Every teammate who was in good standing was given an opportunity to keep a job at Nucor. If they're willing to relocate, every employee was given a job that wanted a job. About half those employees relocated other places and are still Nucor employees. They are great Nucor team members, and they truly appreciate our commitment to them as teammates, being willing to relocate them and help them stay in the Nucor family. Back to the point. This business had been underperforming for a number of years because of this major trend.
This year, even though we're just in the beginnings of capturing the value in what we've done here, that group will achieve a 25% return on assets. That's the minimum threshold that we think is acceptable for every Nucor business. That's your target minimum, a 25% return on assets. If you look at the way our incentive comp plans work in Nucor, it's all about creating value, generating returns that significantly exceed our cost of capital. If you look at our incentive comp plan for our executive, it's the same way. We look at measures like return on equity and return on invested capital, not based on did we do better than last year or what % improvement or did we hit our budget targets? No. Absolute measures. Are we creating value that significantly exceeds our cost of capital?
Another story about looking at our portfolio and making things better. We started up our second DRI plant down in Louisiana back at the end of 2013. Quite frankly, it was a rocky road. We had a number of issues, both operationally and with the team in terms of consistency of operations. We made a change in leadership there, and we began a renovation of that mill from the perspective of first looking at people and process. What are the things we can do to improve the team and the disciplines and how the team operates to make that a more reliable mill? We achieved record performance in 2018. We made 1.8 million tons of DRI, and we had 82% uptime at that mill. That's pretty good, but it's not good enough.
We've launched Project 8,000, and we're making some significant investments in that plant. Roughly $180 million in the fourth quarter of this year, $20 million next year. Those investments are going to deal with some of the chronic issues we've had at that mill. We're upgrading, replacing the process gas heater. We're changing the feed system. We're installing a new ore yard. Those things are both going to improve the reliability of the facility and reduce its cost by improving the yield of the pellets through the process. Next year's investment will mainly be relining the DRI vessel itself. We'll have a 60-day outage to do most of the work this year in the third quarter and a second outage sometime next year to reline the vessel. Again, our objective is to run that plant at more than 8,000 hours per year.
That's what we think a world-class DRI facility should achieve. Okay, my closing slide is this. We've talked about this before. We are in a volatile cyclical industry, but the truth of the matter is, right now, demand for steel is still relatively strong. Rick talked about the 24 markets we track. Quite frankly, the majority of the markets we serve are stable to strong or improving. If not strong, at least improving. We're optimistic, even though we're in what feels like a choppy time period right now with things happening with price. We're still optimistic about end-use demand. This is going to be a strong year for Nucor. Those are it for my comments, and I'd like to pass the baton now to John and let John make some closing comments before we start the question and answer period. Thank you.
Before we go to questions and answers, I do want to introduce Leon Topalian. Leon, would you stand up? Leon is our Executive Vice President. He runs our structural and our plate business, and he's available for questions also, although he did not make any comments during the presentation. We'll go to questions now, and I'll make my closing comments after the questions. Who wants to kick the ball off? Okay.
If you could wait until we bring a mic to you so the people in the audience can hear as well. Greg and Paul will be bringing mics so that you can ask the questions, and the folks that are listening can hear your questions as well as the answers. Thank you.
Thanks. Phil Gibbs at KeyBank. Just had a question on DRI for clarification. Did you say spending $180 in Q4 in terms of capital dollars?
Yes, that's part of the budget amount that we've talked about this year.
Another $120 million next year?
No, $20 million next year.
$20 million next year.
The cumulative total is $200 million. I tend to speak too quickly and mumble, and I apologize for making that not clear.
Regarding that, can you talk a little bit about what your targeted returns are for that or what it's going to do to conversion cost? Obviously right now the issue is more on the reliability, which is a cost factor. Per ton reduction or absolute $ reduction, or how should we be thinking about this?
It changes because of the nature of the raw material cost. The DRI plant is a strategic investment that's more than just about reducing cost. It's also about keeping electric arc furnace sheet mills competitive with iron ore-based sheet mills. If you remember back in 2008 when the market was red hot, we saw prime scrap prices run up to $300 and $400 a ton higher than obsolete scrap prices and also go way out above and beyond iron ore prices. Our DRI investment is not just about a specific return metric. The returns will change. In a stronger market, the returns will be higher. In a weaker market, the returns will be lower. I don't think that we were intending to share details about the specific returns from that DRI investment, but they will vary based on the strength of the market for steel.
The stronger market, the higher the prices of pig iron, the higher the profits of the DRI business will be.
Correct.
Yeah.
Absent the yield improvement.
Yeah. The yield improvement. Do we have data, Paul, on what we're anticipating for yield improvement? I can't remember what that data point is. It's both the yield improvement benefit and a efficiency of labor costs to put the product into the vessel itself. We're not calling out what that cost reduction is, Phil.
Jim, just to follow up on that. Jim pointed out the value of the investment now in terms of its ability to limit the run-up of prime scrap. We always talk, and we've said several times during the presentation, that our investments are focused on a long-term portion of our strategy. Our strategy has to be long-term. One of the concerns that we believe when you look at scrap availability for electric arc furnaces is the availability of scrap, particularly prime scrap. Prime scrap, if you're not familiar with it, comes from the manufacturing process, right? It comes off of the manufacturing process. Manufacturing continues to leave the U.S. In addition to that, with the advent of computerized nesting or the way that they cut out the pieces that they do cut out of coils to become much more efficient, less waste. I always use the numbers.
These are a little bit older. Maybe a couple of years old. If you go back 10 or 15 years ago, when we would sell a coil to an automotive stamping company, we'd get back about 33%-35% of that steel as waste product or excess from the cuttings. Today, we get about 23% or 24%. In addition to that, every time the scrap goes through and as we process it degrades. We pick up more impurities, more alloys that we have to get out of the steel. Most of it we can remove as we go through the melting process. One that isn't. We always say copper is the steel maker's enemy. You cannot get copper out of steel in the melting process. Every time we go through, and we actually track this.
I think from around 1990, we began in 1990, 1995, and we've seen about a 300% increase in the copper in the prime scrap that we get. What does all of this mean? As you go forward and we continue to use more EAF-based production in the U.S., look at how it's grown over the last 20 years. It continues to grow. It's going to be more and more challenged to get scrap overall, and particularly to get, because of these other issues, prime scrap. The need for what we call virgin iron units, cleaner scrap units, is gonna continue to grow.
The DRI investment that we've made a long time ago in Trinidad and a couple of years ago in Louisiana, another example of a long-term approach to our strategy of investment, recognizing longer-term issues that we're going to have to face, preparing for the future today.
Hi. Chris Olin with Longbow Research, also a fellow Mumbler. I wanted to ask about your 24-chart breakdown here in the back. The four red areas, are those markets that would be considered more important for steel relative to other end markets? I guess more or less tied to that, it looks like scrap pricing now is going to potentially fall again for July or see some weakness. I guess that to me suggests that there is no stability out there and maybe there is something underneath the market that we should worry about. I just wanted to see if you could reconcile why scrap continues to fall.
Well, let me address your first question first. You talked about the markets that we feel are declining in 2019. The first one that we talk about is power transmission. That's really just a function that there were so many power transmission extension projects over the last two years that it's just a natural slowdown after two years of very heavy investment in power supply extension. The other areas are, frankly, automotive. We see that going down. Last year, we saw about 17.2 million tons. Excuse me, million units. Okay. Too used to talking in terms of tons. We saw about 17.2 million units last year. We expect it to be about 16.8 million units this year. That's a decline. I'm also quick to point out that 16.8 million units, if you went back a few years ago, that was a really good number.
16.8 units, that's still a historically high number of units. Although it's down a little bit, it's still relatively strong compared to where it was historically.
Hi. Alexander Hacking from Citi. Jim, you mentioned the importance of return on invested capital in terms of how you run the business and management is judged. If we look back, Nucor's ROIC is quite a bit lower today than it was kind of 15, 20 years ago. The primary driver of that has been going downstream, right? Because the core steelmaking business is super high ROIC and the downstream stuff less so. I guess, how do you reconcile that or how do you think about that in terms of what it brings to shareholders? Obviously, you're raising the operating rates at the mills in theory, but you're also diluting the return profile.
Alex, I think that's a little bit of an oversimplification saying it's because we've shifted our mix into downstream. Quite frankly, some of our downstream businesses generate the highest return on assets in the company. In fact, 2 years ago, the metal building division that I started at, Building Systems in Waterloo, set the record. That's one of the trophies we give out each year at the general managers meeting. They had the highest return on assets of any division within Nucor. As I think about what's happened more recently with lower ROIC for Nucor, I think it's more about a couple of things. One, our overexposure to commodity hot band. Commodity hot band is the most volatile steel product in the space. When energy prices crashed in 2017, it took a dive, and it took a while for it to recover.
Of course, we've seen more recently hot band prices under pressure again. Again, compared to the rest of the domestic steelmaking universe, we're overweighted in hot band. Secondly, I'd say the rebar business has been very tough, and we've been one of the 2 market leaders or the market leader in rebar over the past decade. It's been tough because of significant imports from Turkey, quite frankly. We see that improving in the near term. You're right, the steel mills tend to have really good return on invested capital in general. I would say the more recent history, it's not as simple as saying it's because we've got more downstream businesses. I would say it's more because of hot band and rebar businesses being under pressure.
Just a follow-up, if I may. Could you expand, I guess, a little bit more on why you think market leadership is so important? I understand the case study that you gave on the structurals. My thought would be that as long as you're top 2 or 3, that you have effectively enough scale to maximize your returns profile. Why is it that being number 1 versus number 2 or 3 is so important and generates additional returns? Thanks.
That's a great question, Alex. I don't think it's as simple as saying if we made it sound that number 1 is always the absolute has-to-be goal. It's not quite that simple. In the metal building business, we've been the top guy for a while, yet that business was underperforming because of the fact that we just had too much capacity and not enough differentiation. Again, we've retooled that footprint to make it match what the market needed more appropriately. We do think market significance is important, so that's really the point. We do want to be one of the top 2 or 3 players. In fact, as we think about capital allocation, we talk about the 5 drivers for profitable growth. The first 2 drivers are a pass-fail test.
If it can't be a low-cost producer in the space, I'm off on a little bit of a tangent, I'll come back to your question in a minute. If we can't be a low-cost producer in the space and we can't achieve market significance, we're not interested in the business, whether it's an organic investment or an acquisition. Back to this question about market leadership. Where market leadership and being the top guy really is important is when you can bring something unique in terms of scale of products together with market leadership. That's what we're doing in the plate business to mirror what we accomplished in the beam business.
I would just add to that, when we talk about being a leader in the marketplace, it's not always being number 1 in terms of volume. There's different ways that you can be a leader in a market, leader in an industry. You might remember in the chart that we posted that we showed not only where we were number 1, we showed where we were number 2 and number 3. To Jim's point, that you don't have to be number 1. You just have to be in that top 3. It's always good to be number 1, don't get me wrong. We work towards that goal because we do get benefits in dealing with our customers when we are a market leader.
Again, if we're a market leader, despite the fact that we're not the highest volume supplier, our customers recognize that, and they look to us for leadership in their businesses also.
Hi, Dave Gagliano from BMO. No doubt Nucor is an industry leader in steel. There's a lot of ways to show leadership in the industry. Some industries lately, leaders have gone the route of returning cash to shareholders and not reinvesting in their business so much. Obviously, Nucor's gone a different route over the last year or so. I'm wondering if you could just talk through what you think the ramifications are for the industry from the route that Nucor's chosen.
Well, let me start, because the first thing I'd do is I'd say we've taken both routes, right? We're investing heavily in growing our business for the future, and at the same time, we're returning a lot of cash to our shareholders. $1.35 billion last year. That's a pretty good number. As Jim said earlier in his presentation, our target is always around 40% of our earnings to go back in that neighborhood, depending upon what opportunities we have in front of us. To go to your question about what does that do for the industry or what impact does it have on the industry? We view it as a positive impact because when we make our investments, they're more state-of-the-art. They're highly technical investments.
They are always investments that give us as an industry, Nucor within the industry, but as the industry as a whole, a competitive edge in the global marketplace. To the industry, I think it presents a challenge to our competitors as we continue to invest, growing our businesses in all the areas of product diversity and geographical diversity. I'm not sure how it helps the industry as a whole. It certainly helps us in the position of the industry.
John, I think part of Dave's question is the idea of the industry adding so much capacity.
That was basically a nice way to ask that question.
Yeah. I would just say this: We can't control what our competitors do. We can only be thoughtful about what we're doing. When we think about the bar investments we're making, those were opportunities that somebody was going to take advantage of. The scrap was there, the demand was there, the steel mills were far away, we're a first mover. We recognize that in making those moves, we do cannibalize some steel from ourselves. Knowing we're going to do it in advance allows us to think strategically about how we're going to sell steel from the mills that used to ship into Chicago or used to ship into Central South Florida, used to ship into Sedalia, Kansas City, Missouri area, where we're going to move that steel to today.
We've been very proactively thinking about how we shift our products around globally to take advantage of new opportunities because of the capacity we're adding. Again, with the doubling of Gallatin's capacity, it's an inexpensive capacity add, but it's not just new tons. We're changing the caster and the rolling mill configuration so they can make wider steels and can make steels that very few steel companies can make today that allow us to get into API grades. In fact, part of the plan is for some of that substrate to go to Hickman, Arkansas, for automotive applications that will need the capabilities of both Gallatin and Hickman to serve properly. There's more to it than just more tons with everything we're doing. Again, we can't let ourselves be totally distracted with what our competitors are doing. We're very intentional about things that we're doing.
We have very intentional strategies around our investments.
Okay. Thank you. Just really one quick follow-up. When you add up all the projects, can you just remind us again what you expect the incremental annual EBITDA to be?
I'm glad you mentioned that. I meant to say it.
Just, and also please frame the underlying pricing environment. Sorry, go ahead.
Yeah. We think about pricing through the cycle, and we would say that through the cycle, EBITDA benefit of the $3.5 billion is roughly $600 million per year of EBITDA. Further, on the plate mill, we've talked about, through the cycle, EBITDA per ton of, in the neighborhood of $200 per ton, but in a stronger market, much higher than that.
Chris Terry from Deutsche Bank. I had a question just on the Nucor automotive sector. You mentioned hitting 2 million tons and then potentially going to 3 million tons. Just wondered if you could give some details on the timeline and the investments to potentially get to that bigger number of maybe 3.
Sure. Within the automotive space, as we mentioned, we are today working with 14 of the 14 OEMs. The last 4 we are in the process of qualifying. The business has been identified. It's there. We talked earlier about the performance, the recognition that we're getting from the automotive sector. Really, when we look at the incremental 1 million tons, the expectation for that is sometime around 2022. That's primarily not because the business is not there for us to take advantage of. It's that we need these CapEx investments, most notably what we're doing at Hickman with the cold mill and with the galvanizing line at Hickman as well. There's an emphasis on automotive capability on those pieces of equipment.
I would also add, though, however, Gallatin, and the galvanizing line that's ramping up in a few months, we're gonna see tremendous opportunity there, we think, from the automotive space as we're able to bring hot-roll galvanized into that market. It's a product that we believe the automotive industry wants, they need. We're excited about that. That's really what drives, in my mind, more of the timing is getting these pieces of equipment started.
Chris, I'd give a much shorter answer to your question. I'd say not fast enough. Okay. We're pushing forward ahead as quick as we can with the investments that we're making that Rick mentioned. Rick, I want to highlight something that he said. Certainly, we look for business to go out to find new business. In the case of automotive, I have to tell you, we have customers coming to us saying that they need a better stable supply of high-quality product from a reliable supplier that they know, because of our balance sheet, is going to be around for quite some time. We're not gonna be going out of business. That gives them Now, when you qualify on a platform, they're picking a steel for a platform that might last three to five years.
They wanna make sure that that supply is gonna be around for those three to five years to supply that steel.
Just to follow up on Dave's question earlier, just in terms of the projects that you're investing in, you've got a good slide on 33 where you go through the reasons and the commercial reasons for why you're doing each of the projects. To ask it another way, is there any environment or anything that could happen in, say, the next one to three years where you would either delay or spread any of the capital investment over a longer timeframe or change your decision on those that you can see? Thanks.
Thank you for that question. Let me start on that, John. We do a lot of modeling of both strong and weak market conditions when we make our capital plans. We believe we're well-positioned to execute these plans, whether the market is strong or weak. Again, we're not doing these projects to time the market and hit the peak of a market. We're doing them to create value for our customers, to be able to serve them with a broader range of value-added products and to achieve competitive advantage in the marketplace. The simple answer is no, we're not likely to slow or stop any of our projects based on things that happen in terms of the economy or the marketplace.
Hi, Curt Woodworth with Credit Suisse. Glad to see you all here today. It's nice to have an investor day in New York, appreciate it. Got a couple questions. First maybe for Rick. You talked about sort of the commercial strategy, and one of the things you mentioned was focus on profitably filling the order books. Even at current, arguably recessionary-type price levels, you are profitable. One of the parts of being a leader is supply-side discipline. Can you talk about how you're managing through this current environment? Lead times per WSD Conference are 10 days or It feels pretty bad. Can you talk about how you're trying to manage supply in this market? Would you look to take supply off?
To address that point, I think it's something that's important to recognize, with EAF production, we produce the orders that we have. Okay? In fact, if the order book weakens, you in fact take off capacity. We're not producing product and laying it on the ground specifically to the sheet and plate products. We're pacing to the market as the market expects, but we're also aggressively working with our customers to make sure we understand what their needs are. We talked about the commercial strategy, being the best in the business to make sure that we're getting the business, and frankly, more than our lion's share of that business. Go ahead.
Finish up, Rick.
No, go ahead.
That flexibility that Rick is talking about not only has to do with utilization rates, but because our process is so flexible, we can move from product to product very quickly, and change in much smaller batches to meet our customers' needs, even in a smaller demand situation.
Is your sense of what's going on currently in the market, because it's sort of odd in that you still have broad-based tariff protection, you have fairly strong auto, construction seems to be very good. We're very late in an economic expansion, yet the pricing has gotten bad quickly. Clearly, there's got to be some real demand weakness and on top of an aggressive destock. Can you just comment on maybe how your order book has trended or how you would characterize what's happened in the last, say, 60 days?
Our overall long-term demand is still very strong. What I think there was two factors that really played into the first half of this year. Number 1 was the weather. We had terrible weather for the first quarter of the year and bad weather going into the second quarter of the year. That has really negatively impacted non-residential construction, which you know is one of the largest consumers of steel in the country. You had a situation where a lot of projects were just put on hold. They were still out there. We're still getting inquiries about them, but we just can't move forward with them because of the weather. The second issue you touched upon, and that's destocking by our service center customers.
At the end of last year, I think there was a lot of confusion in the marketplace, what was going on with tariffs, what would happen with the 25%. Frankly, our service center customers got a little bit heavy on the inventory side. That's something we track very carefully. As you go into the first year, we saw each individual service center begin to destock their own inventory. Then as service centers get down to a certain level, okay, they might not have the product that their customer needs, but another service center does. You go through this period where they're kind of swapping products back and forth between the service centers to lower the overall inventory level across the entire service center market.
If you look at two things when we look at the impact long-term of that, we look at the supply on hands, months on hand, and we also look at the months of ship rate. How quickly are they shipping the product out? In other words, the rate that they're shipping, how much will they move down their inventory on a monthly basis? If you look at where we are today, they have very low inventories on hand, yet their shipping rates are still pretty much normal. When we talk to our service centers customers, we've met a lot of them over the last couple of days as part of the Steel Success Strategies, we're told that the service center customer demand is still strong. They're still hearing that their customers want the product as on a normalized basis.
Yet, they're getting to a point where they're shipping out of their inventory. At some point, the weather will improve, okay? At some point, we think relatively quickly, the inventory levels are going to get to a point where they simply have to start returning to the marketplace.
The other thing I would add to that dynamic, obviously, the announcement of idling two blast furnaces impact on the supply side. I think with those conditions, I think that's important to the outlook over the last half of the year.
Further to that point, Curt, most of that negative volatility has been in hot rolled. Again, we tend to be overweight hot rolled. When people on the blast furnace side turn off blast furnaces, they don't stop making cold rolled and gal, they're taking hot band out of the marketplace. We're probably going to be more than average benefited by that change in the marketplace.
Then as a follow-up, the case study you provided on Nucor-Yamato, which is unbelievable success story for you guys, it seems like you're kind of using that as a template sort of for the plate market. Can you just characterize sort of today how those two markets compare? What is your market share today in plate versus beam? Is it a fair kind of comparison in terms of replicating that?
I'm going to let Leon answer that question. He is our Executive Vice President over both plate and beams. Those are his businesses. Leon, you want to take that?
Sure. Curt, the rough market share percentage today in plate, we share about a third of the market. SSAB and ArcelorMittal make up the other two-thirds, then the remaining few percentage points JSW Steel has. On the beam side, we're much higher. We're in 42%, 43% of the overall market share of the beam side. The other similarity, they're roughly 5.5, 6-million-ton a year market. In terms of the overall size of the pie, they're very similar in the total tonnage.
I would add to that, when you look at the comparison of what we went through with structural and what we're anticipating will happen in our plate business, you look at the analogies. The plate mill that we're building will have a very large product breadth, very good product breadth. As we said, about 97% of the consumption we'll be able to supply. The two competitors we have in the market today, Leon, I can't see you, but correct me if I'm wrong here. Really, it's one competitor that we have that can produce all of these products. SSAB has a much more limited supply of products. I worked for Bethlehem Steel during the time when Nucor-Yamato came online, so I lived through that transformation.
When Nucor-Yamato came online, the situation was actually a little bit more competitive because at that time, we had two major competitors that were producing all of the sizes of beams that we ultimately produced at NYS. We had Bethlehem Steel, and we had U.S. Steel. I would argue that today, when you look at the plate market and the analogy, we're actually in a better position today in the plate analogy than we were back when we introduced structural. At that time, we had more competition in the marketplace, and yet we kind of did okay at NYS over the long term. Bethlehem, not so much.
Hey, good morning. Timna Tanners, Bank of America Merrill Lynch. I guess we'll stay with beams, and I'll ask Leon a question, then I have a couple about sheet and auto, please. On the beam side, that market's been battered by imports originating in China, like we talked about at the break. I was just hoping you could elaborate a little bit more on how you see that developing. Are you confident? What's the timeframe for the trade case, the anti-dumping and countervailing? Are you confident that that can make a meaningful change? What's been the hit so far just to think about the evolution potentially and improvement?
Okay. John, why don't you start with where we are on the case and what you think success rates are and so forth, then Leon, you can build upon that.
Talk about the fabricated trade case. Nucor is a member of the AISC, and they're the ones that actually brought the fabrication trade case against Mexico, Canada, and China. We did get a favorable ruling from ITC, and we'll be seeing preliminary rulings from Commerce in July of this year as well as September this year on the dumping and countervailing portion of that. What we've seen historically is when the interim decisions are made or the preliminary decisions are made, it does have a tendency to kind of temper the imports, especially if the duties are large and favorable to our industry. Next year sometime, we'll see the final decision made on the duties as well as the final decision on the order going forward.
Timna, the other thing I would add is when you look at the level of imports on parallel flange, which is very well tracked and monitored in public information, that ranges today in about nine or 10% of the overall demand of our market. About 500,000 tons of a year of parallel flange imported steel is coming in. We estimate the fabricated structural steel to be two and a half to three times that, so nearly one and a half million tons a year of imported fabricated structural steel coming in through Canada, Mexico, and China. The significance to our industry, the significance to the U.S. structural market is massive. It's a huge number.
Two million of eight million tons or something? Is that ballpark to think about the market demand versus the impact, or is that too much?
Yeah, probably too much. It's probably six million overall total demand, again, one and a half is a rough number. We don't have exact figures, but we estimate around one and a half million tons of fabricated steel coming in through-
Of a six million ton market?
Yes.
Okay, thank you. I just wanted to follow up on sheet. I heard MaryEmily, and I might have heard you wrong, I'm sorry, talk about how you expect the sheet market to grow to 65 million tons from 59 million in 2022, from 59 million in 2017. Yeah, where is that coming from if auto is sideways? That would be a severe shift from the decline that we've seen. I think you showed a steady decline in steel production in the U.S. over the years. What's going to drive that rebound? Is that domestic versus imported, or is that underlying demand?
We feel that that's underlying demand, but also some of the products that we'll be adding will be products that can't be purchased in the U.S. today, some of the higher strength, or it's limited that you can purchase it today versus purchasing in maybe Japan or other places.
Some replacing import and some under, but where's the underlying demand coming from?
The underlying demand. I don't have that chart with me, but I think it's automotive as well as-
I was going to say automotive. You've got a couple plants that are being built right now, Toyota, Mazda in Huntsville, Alabama. You're going to see a little more onshoring, I think, in terms of production of automotive. We'll see how that plays out with the administration. I think the other area of growth that we anticipate is, and that we will participate with some of these CapEx investments at Gallatin and Brandenburg, is in the line pipe, the energy tube pipe. Again, we've talked about meeting with our customers this week and spent some time with some line pipe producers who tell us, you ask the question, as you look out, what's this demand looking like? And they say, "Listen, there's need for pipelines, and there's projects every year for oil and gas, and we're participating.
on those. Frankly, they're talking to us about how we can become a bigger part of that. I think, your question is about the overall demand. I think we'll see growth in those areas. I think naturally, I recognize there's a sense that it's flat, and at best, it's minimal growth. I think we're likely to see some minimal growth too as more steel applications are developed. The Steel Market Development Institute working on other uses for steel. It's a back-and-forth thinking. It's a very small growth in steel demand. Steel demand driven many times by population trends. It's going to be moderate, but I think particularly in those markets like automotive. More automotive is being produced here, and the line pipe probably are contributors to that.
Okay. My final question was just, actually, in the past, I know John's talked about how the automotive market is cutthroat, did you even want to participate in it, right? Over the years, you've made that point, now you're talking about another 1 million tons. Just want to hear a little bit more about why. You're making investments, but the auto industry beats up the steel industry every year, to put it bluntly, right? I think the question is, are you going to get paid for that, or are you going to be able to enter the market for that? Do you see the other participants quietly going away, or how does that pan out? There's a lot of galvanizing lines coming on. You're adding three, including Mexico. There's two others in Mexico. There's Steel Dynamics.
How does all this play out with new capacity and the auto industry in the past, your comments there? Thanks.
Yeah, that's a very good question. Thank you. As we look at the automotive market, I mentioned to you, I've been in the business 42 years. 22 years at a prior integrated mill that was heavily focused on automotive. I came to Nucor, certainly at that time in 2000, I think the opinion, the view was, in fact, you could not make money in automotive. When we first began to talk about, "Is this a market that we should participate in?" We recognized, first of all, how big the market is from a sheet perspective. There was a lot of reticence to get involved. Then in 2004, there was an automotive producer that got in some serious trouble with a supplier that they had. It was a negative situation.
They came to us and said, "Would you be willing to supply us in automotive?" We said, John, you were in that meeting. "We've really never pursued and been interested in automotive. We'll do the best we can." In that regard, we were able to assist that particular automotive producer. What we ultimately found out are a couple things we learned in the process. First of all, we learned that we were very good and consistent with the product. If you look at EAF production versus integrated production, where you're putting grades of slabs on the ground, then you're converting them later, it's a different process than the continuous process that EAF's Nucor uses from start, from the scrap charge and the DRI charge all the way through. It's designed for that specific customer. The process is shorter. The lead times are shorter.
The implications of a more consistent process yields a more consistent product. Ultimately, the shorter lead times in making steel in an EAF way is the fact that your deliveries are better. We were just recently with an automotive customer a few weeks ago, made a visit there, and they said, "Your Q&D is second to none.
Quality and delivery.
I'm getting there. "Your Q&D is second to none." I said, "Q&D?" Frankly, I had never heard that term, quality and delivery. I think what we found, Timna, is we're very good at it. A testament to that is that GM Supplier of the Year award. I think that was important. The question about can you get paid for it? What's changed? I think what's fundamentally changed in the automotive business is their absolute need for advanced high-strength steels and third-generation steels. It's truly value that the steel industry, and Nucor in particular, bring to that customer, and they will pay for that quality and that characteristic. I think we've learned that we can make money at it. It's been good business for us. It's a less crowded space. Frankly, not everybody's going to be able to make third-gen steels. Okay?
That's sort of the paradigm change, I think that's occurred with our thinking about automotive.
Rick, let me just add a couple more points-
Yeah
as to why we like automotive, then I'm going to address your point, Timna, about why we feel that we can do okay in that sector, even though, as you put it, you automotive guys tend to beat up suppliers. Look at our locations. You saw the map earlier. It's a great location. It's all about location, location. We're right where we want to be in terms of location and to supply the automotive market. Another reason we like it is one that I referred to earlier, is once you qualify on a platform, you've got that business. It's consistent. You know you have it. You can count on it. You can plan for it, and that's a definite plus. Why are we able to do better in that sector than some of our competitors?
Why are we not going to get beat up as bad as some of our competitors? The answer's easy. We can walk away, and we have. In one of the very first experiences that you and I were together at Rick, I won't mention the automotive company, but we went in and offered them a price. They said, "That price isn't good enough." We said, "Well, that's our price. We have to stick with it." They said, "Give us a minute." They went out into the hallway and we sat there, you know how that tactic goes. They come in, and there's five of them, and they're all smiles, and they say, "Hey, we got great news, okay. We're going to double." We were talking about 50,000 tons, if I remember the number. They said, "Great news.
We're going to give you 100,000 tons, and all you have to do is lower the price $20." We said, "What?" We said, "No, thank you. We don't need it. Our price is this for the 50,000. If you want it, you can have 50,000 at that price. We're not interested in doing more at any lower number." What happened? We got the 50,000 tons at the price that we went into. Having the ability to walk away is a very powerful negotiating tool. We have other places we can put the steel. When you get a company, I'm not going to name a steel company, but there are steel companies today that 90% of their order book goes to automotive. They're captured. They're in a very bad negotiating position.
We believe, and it's proven out thus far, that we're in a better negotiating position because the automotive companies know that we can walk away if we have to. Frankly, as Rick pointed out, they don't want us to walk away. The quality of our product, our service. Can I mention the automotive company that said it? I'll say it, General Motors, in a discussion that we had, as we were receiving this award for Supplier of the Year, made a comment about our internal sales service. They said, "Nucor" This was the global director of purchasing, made this comment. He said, "We love your service is outstanding." He said, "Do you know that when we call your sales team, a member of your commercial team, they call us back the same day?" Like, he was amazed at that. Remember the comment?
Yeah.
They recognize the quality we have. They recognize the service. They recognize the fact that we're going to be around for a long period of time. That's why they like to buy from us, and we like to sell to them because we feel that we can walk away when we have to if we don't get the prices that we feel are justified.
I'd like to add one more comment to that, Timna, that I left off your question about the value of advanced high-strength steels. Recognize that the alternative to third gen and advanced high-strength steels is aluminum, which is three to four times the cost of steel. Carbon fiber, which is 10 times the cost of steel. It's an economic decision.
I'm sorry, can you repeat the question?
The question, I think, was, with the amount of galvanizing coming online, do you consider that an issue going forward, particularly in the automotive sector? We have announced several galv lines. Some of our competitors have announced galv lines. Do we see that as an issue?
We do not. Actually, right now, we are very limited on the galv capacity. We're sold out on our galvanizing. That's one place that our customers continue to ask us for more capacity. One of the things that we just talked about, and I think that goes along with your galv lines that are being added. When you talk about going heavier into automotive, this new technology, both with the new galv lines that we've purchased and that new cold mill, they're based on more efficiency. They can take steels that today, a dual phase, for instance, that we can make today on a reversing mill, it would take 18 passes to get the strength level that the customer needs. This new cold mill, and then in addition, being able to process it through the galv line, takes that into about a quarter of the time.
The efficiency is gained by having the newer lines. The galv line in Arkansas also has some very specific technology built into it that makes it very flexible to be able to move between galvanneal, galvanize the different products that the automotive customers are growing with. That flexibility will also give us cost efficiencies there.
Timna, I'd ask you to always remember, a galv line is not always just a galv line, right? There's different types of galv lines. When we talk about the galv lines that we're putting in, particularly at Hickman, it's an automotive-grade galv line. It has the ability to do things that typical galv lines do not normally do in terms of heating and cooling the product with some forms of continuous annealing and other technological innovations that produce a better product for the customer.
One of the other comments I'd make, Timna, around the Gallatin galv line, which is hot-roll galvanizing, the widest in North America. There's also a likelihood or a potential for a galvanized product, hot-roll product that can be used for an application like truck frames, for instance, that today are hot-roll, but the automotive producers can down-gauge the truck frame and potentially use a galvanized hot-roll surface. You have that opportunity. The other final thing I'd point out about that, just in terms of all capacity, as John said, is not the same. Certainly, AK Steel Ashland Works has just recently shut down a galvanizing line as well. It's a combination of effects. I think we're pretty confident.
I have a couple questions in regards to trade. Right now, I think a lot of people associate the tariffs and quotas to Trump. Even though you've started the process way before Trump, how much support do you see in Washington right now that is bipartisan? If Trump were not to get reelected, are the tariffs and quotas reliant on him? What do you think happens to it post-election?
I'll start, and then, John, maybe you can add to it. One of the things that I'd point out is we've had bipartisan support for trade in general. Okay? If you go back and you look at history, traditionally, the Republicans were more free traders than the Democrats. When you look at the success that we had during the Obama years, we had tremendous success not with tariffs or with quotas, but through a different route, trade cases. Frankly, we prefer trade cases. Right? The tariffs and quotas, they're at the whim of the administration. When you have a trade case, and there's been many of them that we have prosecuted over the last several years against the largest violators. Now, number one, the penalties, the duties or countervailing duties are much higher than the tariffs are today.
We've had duties that are as high as 150% on some products from some countries. Number two, they're in effect for five years, and they're going to stay in effect for five years. At the end of those five-year period, you have the opportunity to do what they call a sunset review, which has a very high probability of success that they're extended then for an additional five years. In those cases, you have 10 years of the penalty being opposed. You know it's going to be there for that 10-year period. I don't know if there's a change in administration, would it still be the same in terms of tariffs and quotas and so forth?
If it would go from a Republican administration to a Democratic one, we feel that we'd still have a lot of support on free and fair trade from that administration also. John, is there anything you'd want to add?
You covered it well.
Ed?
Do you think the recent announcement of the closures? Obviously, there was a lot of fanfare about starting up Granite City again. Now that you have plants being shut down, does that erode any of the view towards the tariffs and the effectiveness of it, especially looking at the hot roll price versus international price right now?
If there's any impact on it might be a statement that the tariff rates aren't high enough. Okay? You could view it that way also. I don't think it's going to have an effect one way or the other, but you could argue both sides. You could argue that it didn't help the industry in that case, or you could argue that we didn't get enough help. John, you might want to comment on this, but one of the things that we have seen over time, even with the tariffs, the countries and products that the tariffs have been imposed again is being reduced. I think, what percentage today, John, would you say about 30%?
Yeah, about 28% are still-
28%, okay
covered with tariffs at this time. I might comment, too, is that 232's initial purpose was to create an environment where the industry could reinvest, if you will, lessen imports, and increase utilization capacity. I think, frankly, it's accomplished that so far. There's been some side benefits that we've seen out of it, too. I think you've seen countries around the world have recognized global steel capacity, overcapacity is a problem. We've seen as when 232 was put in place, we've seen other countries that the material that would've come to the U.S. going into their countries. They've placed safeguards in effect to take care of their industries, if you will.
You're seeing the entire world begin to recognize the seriousness of overcapacity, and they're beginning to unite to bring pressure to those countries that have a tendency to disrupt the markets because of their overcapacity. I might also add that the 232s have been used to help negotiate new free trade agreements between the U.S. and other countries. You might look at 232 and trade cases as a belt and suspenders type of situation. In other words, the suspenders go away, but there's still a belt there to hold things up. As John alluded to, 232's short-term. It's at the will of the administration. The trade cases are there for a longer period of time. Granted, they're subject to administrative reviews on an annual basis that could adjust the tariff rates up and down.
That five-year period is pretty effective as far as creating a discipline as far as dumped imported products coming into the country.
I know you showed that the imports are down five-point-whatever, eight or so million tons. At the current import level, what do you think of that current level? Do you think this is the right level? Are there still problematic areas? If you'd be specific as to, is pipe still an issue? What do you think is the right level of imports considering we are net short?
The graph that I showed showed that we were at, I think, 21% imports back right in probably 2008, 2009. As a country, we're still short. In other words, we still have to bring imports into the country. I think looking at our utilization capacity is probably the best way to gauge what the right level of imports would be. If we're producing in excess of 80%, that's probably not a bad level. We'd like for it to be less, but I think most of the steel industry can compete and be sustainable at that level.
Let me add to that, though, because we get a lot of comments, particularly over the last couple of weeks, about all the capacity that is being added among American steel manufacturers. To John's point, we are still having a lot of imports come in because we need them. That doesn't mean they should be coming in or that they're coming in on a fairly traded basis. Right? As we continue to build capacity, you'll see more aggressive action against dumped steel. Imports will decline again, and that creates an opportunity for that capacity to fill the need. We shouldn't be importing the amount of steel that we've imported in the past. Some of it was a result of dumping and those violations, but some of it was also, as Rick mentioned earlier, about that we couldn't produce some of the steels that were required in our marketplace.
We had to import them. The projects that are going on, the investments we are making, and frankly, others are making, can help fill that gap.
And just-
Go ahead, one more.
One last one. There's still a fair amount of slabs being imported into the U.S. What is your view on slabs? I mean, the end product is still being made here. Do you think there should be higher quotas or tariffs on slabs, or what's your view? It does help the raw material side.
We believe in melted and rolled in the United States. We think that's what, when we talk about trade and fair trade, we are talking about melted and rolled. You kind of defeat the whole purpose of it. Think about it this way. A lot of the investment in the steel mill, the bulk of it comes in the melt shop, in the melting and casting area. That's where the high investments are. If you don't stop the slabs from coming in, one of the key things about the 232 was it was to be done to ensure that there was a steel industry in the United States for the purpose of national defense. Well, if you don't have any melting in the United States, you're not helping that situation at all. You can't roll what you can't get.
If there's no melting in the United States, and we're in a conflict with a country that's supplying the slabs and they stop supplying them, we can't help the national defense. We think that it's both melted and rolled in the United States. We have time for one more question.
Good morning. Tyler Kenyon with Cowen. I was wondering if you could talk about if any of the investments that you're making in the steel mill business open up any growth opportunities just within your downstream steel products business.
We're not going to answer that specifically, okay? You heard us mention several times that our investments are strategic, long-term focused, and that we, as one of our five drivers of profitable growth, we want to expand and continue to grow our channel to the market. That's something that we always look at as we make all of our investments. Does it provide an opportunity either now or in the future to go further downstream with our products and get a better, today we have about 20% of our steel is consumed by companies we own downstream. We would like to see that grow. Okay. With that, we'll end the questions, and I'll just make a couple of closing remarks. First of all, I'd like to thank all of you for coming today.
I appreciate the good questions that you had, and I hope that you learned a little bit more about our flexible, long-term, and very strategic approach to the investments that we're making today and that we'll be making into the future. Thanks for your interest in Nucor. Get home safely. I understand there's some boxed lunches outside. Thank you for your interest in our company today.