Good day, and welcome to the Steel Dynamics T hird Quarter 2022 Earnings Conference C all. At this time, all participants are in a listen-only mode. After management's remarks, we will conduct a question-and-answer session, and instructions will follow at that time. Please be advised this call is being recorded today, October 20, 2022, and your participation implies consent to our recording of this call. If you do not agree to these terms, please disconnect. At this time, I would like to turn the conference over to David Lipschitz, Director, Investor Relations. Please go ahead.
Thank you, Ali. Good morning, and welcome to Steel Dynamics Third Quarter 2022 Earnings Conference Call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, Chairman, President, and Chief Executive Officer of Steel Dynamics, and Theresa Wagler, Executive Vice President and Chief Financial Officer. The other members of our senior leadership team are joining us on the call individually. Some of today's statements, which speak only as of this date, may be forward-looking and predictive, typically preceded by believe, expect, anticipate or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995, should actual results turn out differently.
Such statements involve risks and uncertainties related to integrating or starting up new assets, the aluminum industry, the use of estimates and assumptions in connection with anticipated project returns, and our steel, metals recycling, and fabrication businesses, as well as to general business and economic conditions. Examples of these are described in the related press release, as well as in our annual filed SEC Form 10-K under the heading forward-looking statements and risk factors found on the Internet at www.sec.gov and, if applicable, in any later SEC Form 10-Q. You'll also find any referenced non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Third Quarter 2022 Results. Now I'm pleased to turn the call over to Mark.
Sorry. Thank you, David. I forgot to turn the microphone on there as always. Thank you everyone for being with us on our third quarter earnings call. It certainly was an exciting quarter with great performance by the team and growth on many fronts. Firstly, a great welcome to the Roca team centered in Monterrey. In combination with the former Zimmer Group, OmniSource Mexico now has a significant recycling presence within Mexico that will support their existing Mexican customer base while providing strategic sourcing opportunities for our Sinton and Columbus steel mills and soon-to-be aluminum mill. Sinton has turned the corner and is showing significant improvement. The team is also making great progress on our aluminum flat-rolled strategy, which I will share later on the call. Operationally, our third quarter was a great quarter.
Achieving several new benchmarks, including record steel and steel fabrication shipments and record cash flow from operations, all supporting our cash allocation strategy and commitment to further expansion of shareholder value. I continue to be incredibly proud of our teams. They are our foundation and the catalyst of our current and future success. It's their culture of excellence and the strategic positioning executed over the last number of years that allows us to maximize opportunities, resulting in higher lows and higher highs through the cycle. A great quarter. Yet none of this matters without keeping our team safe. Often, employees are described as a company's most important resource. For us, they are more than that. They are family, and the SDI family now is 26,000 strong. We are focused to provide the very best for their health, safety, and welfare.
We're actively engaged in safety at all times at every level of our organization, k eeping it top of mind in an active conversation throughout the company. We will not rest until we consistently achieve our goal of zero incidents. Before I continue, Theresa, would you like to give us some details?
Thanks, Mark. Good morning, everyone. I add my sincere appreciation and personal congratulations to the team on another strong operational and financial performance. Our third quarter 2022 net income was $914 million or $5.03 per diluted share, inclusive of costs of $111 million or $0.43 per diluted share associated with the continued startup of our Sinton, Texas, flat-rolled steel mill. Excluding these costs, third quarter 2022 adjusted net income was $992 million or $5.46 per diluted share. Third quarter revenues of $5.7 billion declined 9% sequentially based on lower flat-rolled steel and scrap pricing.
Our third quarter 2022 operating income was $1.2 billion, lower than sequential results due to lower pricing and resulting metal spread compression in our flat-rolled steel operations. Our steel operations generated solid operating income of $658 million in the third quarter, with record shipments, as Mark mentioned, of 3.2 million tons, of which Sinton contributed 268,000 tons. Sequential earnings were significantly lower due to the previously mentioned metal spread compression within our flat-rolled steel businesses. In contrast, our long- product steel operations experienced metal spread expansion as average scrap costs declined more than product pricing in the quarter. In fact, our structural and rail and Roanoke bar divisions each achieved record earnings. Congratulations to those teams.
Third quarter operating income for our mills' recycling operations declined to $10 million as ferrous pricing declined month-over-month through the quarter, resulting in significant metal margin compression. The team continues to effectively lever the strength of our circular manufacturing operating model, benefiting both our steel and mills recycling operations by providing higher quality scrap to our steel mills, which improves furnace efficiency and by reducing company-wide working capital requirements. I also give my welcome to the Roca team. A huge congratulations once again to our steel fabrication team. They achieved record third quarter operating income of $677 million. These earnings were driven by record average pricing, record shipments, and lower steel input costs. Steel joists and deck demands remain solid, as evidenced by our continued strong order backlog, which extends well through the first half of 2023.
We generated record cash flow from operations of $1.5 billion in the third quarter as strong results and release of working capital benefited cash flow. Year to date, 2022, we've generated a record $3.3 billion. Our cash generation is consistently strong based on our differentiated circular business model and highly low-cost variable cost structure. At the end of September, we had record liquidity of $3.2 billion, comprised of cash and short-term investments of $2 billion and an undrawn unsecured revolver of $1.2 billion. Year to date, 2022, we funded $565 million in capital investments.
For the fourth quarter of 2022, we estimate capital investments will be close to $400 million, of which about $200 million is related to our recently announced aluminum flat-rolled investments, with much of the remaining capital related to our four new flat-rolled coating lines that will be located in Sinton and Heartland. Regarding our cash, we maintained our cash dividend at $0.34 per common share after increasing at 31% in the first quarter. We also repurchased $482 million of our common stock in the third quarter, representing over 3% of our outstanding shares. Year to date, we paid cash dividends of $177 million and repurchased $1.4 billion, or 10% of our outstanding shares, representing a 48% net income distribution ratio.
At the end of the third quarter, $245 million remained available under our current share repurchase authorization. These actions reflect the strength of our capital foundation and consistently strong cash flow generation capability throughout all market cycles and the continued optimism and confidence in our future. Our capital allocation strategy prioritizes strategic growth with shareholder distributions comprised of a base positive dividend profile that's complemented with a variable share repurchase program while remaining dedicated to preserving our investment-grade credit designation. Our recently announced aluminum investment is consistent with our unchanged capital allocation philosophy. We have strategically placed ourselves in a position to have a sustainable capital foundation that provides the opportunity for strategic growth, strong shareholder returns, and maintain investment-grade metrics. Our cash flow profile has fundamentally changed over the last five years.
We will readily fund our flat- rolled aluminum investments with available cash and cash flow from operations. We also plan to continue strong shareholder distributions, as we clearly demonstrated in the third quarter. We're squarely positioned for the continuation of sustainable, optimized long-term value creation. Sustainability is also a significant part of our long-term value creation strategy, and we are dedicated to our people, our communities, and our environment. We're committed to operating our business with the highest integrity. In that regard, we're excited about our newly formed joint venture with Aymium, a leading producer of renewable biocarbon products. We believe our first joint venture facility will decrease our steel scope one and two greenhouse gas emissions by as much as 25%.
We have an actionable path toward carbon neutrality that is more manageable and we believe considerably less expensive than may lie ahead for many of our industry peers. Our sustainability and carbon reduction strategy is an ongoing journey, and we are moving forward with the intention to make a positive difference. We plan to continue to address these matters and to play a leadership role moving forward. In conclusion, I know some of you track the details behind our flat-rolled shipments, and so for the quarter, we shipped hot-rolled and P&O of 951,000 tons, cold-rolled of 139,000 tons, and finally, coated flat-rolled products of 1,102,000 tons for a total of 2,192,000 tons of flat-rolled shipments. Mark?
Super. Thank you, Theresa. Certainly incredible results from the steel fabrication platform, a product that is obviously a market tailwind, but our strategic positioning over the years. We had record operating income of $677 million in the quarter, with record shipments of 218,000 tons. Non-residential construction markets remain strong, as would be suggested by the macro indicators. They all remain positive. ABI index a little over 53. AII reports business conditions remain generally strong, and Dodge Momentum Index improved 6% in September. Non-residential starts and build rates are forecast to remain good into 2023. More importantly, our customers tell us demand remains solid in spite of economic uncertainty. Order activity is better paced versus the frenetic pace of the recent past and remains higher than historical norms.
Our order backlog is well into the first half of 2023, with strong pricing dynamics. We expect to see continued strong volume for fabrication in the fourth quarter and for 2023 in general. Aside from the significant advantage of pull-through volume for our sheet mills, New Millennium provides a perfect hedge to our steel operations. Although SDI mills saw steady utilization throughout the third quarter, lower domestic steel industry utilization in general reduced the demand for scrap in the quarter. First, scrap prices have declined month-over-month beginning in May through October, prime dropping from some $735 a ton to more recently around about $380 per gross ton. Omni's earnings suffered as a result of this progression in market pricing and weaker industry demand.
The Omni platform is continuing to work with our steel mill teams to expand our shred separation opportunities to provide even higher volumes of low residual scrap. The impact of our efforts, along with others in the industry, has amply demonstrated our view that innovation will solve any perceived fears of prime scrap shortage in the years ahead. With additional producers coming to the market, pig iron availability is normalized, and pricing has moderated significantly to a little over $500 per ton. We have sufficient pig iron sourced well into next year. Supply is not an issue for our flat-rolled operations. Again, we're excited for the addition of Roca Acero to our OmniSource Mexico portfolio, which now will grow to some 2.5 million tons of ferrous and nonferrous annual capability. It was another historically strong quarter for the steel platform.
We had record shipments of 3.2 million tons and operating income of $658 million. Our third quarter production utilization rate was around 93%, just incrementally lower than the second quarter t hat was 95%. Yet significantly above the industry average of 78%. Our high utilization rates are clearly demonstrated through time. Value-added diversified product offerings, differentiated supply chain solutions, all support and the support of internal pull-through volume all support that utilization, high utilization rate compared to our peers. In turn, it supports our strong and growing through-cycle cash generation capability and best-in-class financial metrics. Looking forward, customer order entry is good and backlogs are solid, and that's supported by our diversified portfolio value, portfolio of value-added products which comprise now of around 70% of steel sales.
We focus on value-creating supply chains to mitigate the impact of price volatility, and all this just maintains a higher through-cycle utilization rate. Relative to the markets, we see automotive steady at current rates, and we expect that to improve off low 2022 production based on the extremely low dealer inventories and pent-up vehicle demand. The 2022 build rate is gonna be some 14.5 million units, and we would expect 2023 to grow to 15.5 million units or so, and 2024 to 16+ million units. Non-residential construction remains solid, as evidenced by fabrication backlog and long product steel volumes. Our long- product steel backlogs are good, and several of our divisions, Columbia City and Roanoke in particular, achieved strong volumes and record earnings in the third quarter, demonstrating our market depth.
Infrastructure spending should also provide further meaningful support in the coming years. New residential construction has softened a little, impacting HVAC and appliance and other housing-related products. Fortunately, our portfolio is biased to replacement and we won't get the a ton for ton impact. Oil and gas activity is driving improved orders for OCTG and line pipe, and solar renewable expansions continues to grow. Turning to Sinton, both coating lines are running extremely well and ramp- up continues on the hot side and the tandem cold mill. I believe the hot mill has certainly turned the corner, becoming more consistent of late, running at a 60%, 65% month- to- date, with days exceeding well over 80%. Surface quality is excellent. Reported coil shape from processing customers is also excellent.
Our hot strip mill design has allowed for thermal-mechanical rolling, allowing higher strength grades with lower alloy content and associated cost. We've already been approved and shipped some API grades, which is quite remarkable given the mill has only been up and running for nine months. The team has done a phenomenal job, and I think it certainly affirms our technical and process choices, and it is indeed a next-generation mill. Our exceptional through-cycle operating and financial performance continues to support our cash allocation strategies and growth. The four value-add flat-rolled steel coating lines are going well and are targeted for the second half of 2023 for startup, two for Sinton and two for Heartland. We're already seeing customer interest for that new volume.
We're the largest domestic non-automotive coater of flat-rolled steel with an annual coating capacity over 6 million tons. These four new lines will increase that capacity by an additional 1.1 million tons. We have created unique supply chain solutions for our customers, which allow our downstream lines to remain almost always full with our highest margin products. Relative to aluminum dynamics, the market response from both current and new customers across all market sectors has been absolutely incredible. To recap that project, it's a 650,000 metric ton a year aluminum flat-rolled facility which will be located in the southeastern U.S. We expect to announce that site location in the next few weeks.
On-site melt and cast slab capacity will consist of 450,000 metric tons, and that'll be supported by two satellite recycled aluminum slab casting centers, one in the Southwest U.S. and one in the South. We'll have two cast lines, coating line, and downstream processing and packaging lines. We'll be able to furnish all products to the beverage, food packaging arena, automotive, and industrial. The mill is planned to start up mid-2025, the Mexico slab center in 2024, and the Southwest slab center in the first quarter of 2025. The financial impact will be around $2.2 billion CapEx over four years. It's gonna be funded 100% with available cash and cash flow from operations with no additional debt needed.
We expect to add about $650 million-$700 million of through cycle annual EBITDA once it's up and running. In closing, we're excited and impassioned by our future growth opportunities as they will continue the high returning growth momentum we have demonstrated over the last 15 years. Our teams are our foundation. I thank each of them for their passion and their dedication and their desire to excel. We're committed to their health and safety, and remind those listening today that safety for yourselves and each other is our highest priority. Our culture and business model continues to positively differentiate our performance from others. We're competitively positioned and continue to focus on providing superior value for our company, our customers, team members, and shareholders, and we look forward to creating new opportunities for everyone today and in the years ahead.
With that said, we would love to answer any questions you might have.
Thank you. If you would like to ask a question, please signal by pressing the star key followed by the digit one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. If you pressed star one earlier during today's call, please press star one again to ensure our equipment has captured your signal. Also, we ask that you please limit yourself to one question to facilitate time for everyone. Any additional questions can be addressed upon reentering the queue. Thank you. Our first question is coming from Emily Chieng with Goldman Sachs.
Good morning, Mark and Theresa. Thank you for the time this morning. My question is just around the fabrication business, and we've certainly seen realized pricing here trend higher on a sequential basis. Perhaps could you share some color on where new contract awards are getting priced, and how should we be thinking about the sustainability of your margins in this segment, in the near term and perhaps call it on a normalized basis?
Certainly, Emily. Well, again, that business is incredibly robust. Our backlogs are sort of from a volume standpoint and pricing standpoint at historic highs. We see that backlog well into 2023, probably about eight months from there, and it remains solid. Spreads are at very high numbers, as you can see from our most recent results. We see that volume being sustained, our Q3 volume into Q4, and our earnings should certainly parallel that as relative to the third quarter, I do believe. So very strong. As you may recognize, that industry over the years is sort of rationalized and consolidated, and no longer fragmented as it once was.
We see higher pricing and higher spreads being sustained through the cycle going forward.
Great. Thank you.
Thank you. Our next question is coming from Carlos de Alba with Morgan Stanley.
Yeah, thank you very much. Good morning. So my question is based on the comments for end market. It seems that long products should be doing better than the flat end markets and the flat end products. But in the reported volumes, we saw your long steel volumes falling a little bit quarter-over-quarter while flats improved. So I just wonder if you can give us a little bit of how you see that evolving in the fourth quarter. Do you think that this is going to probably reverse, you know, based on the end market situation and how those are evolving? And also you mentioned in your press release that your seasonality you see lower volumes in the fourth quarter.
However, your seasonality in the last couple of years has been quite different than what we saw in, say, 2015 to 2019 prior to the pandemic. If you could share some color as to how you see the seasonality playing out this time around, that will be also great.
Good morning, Carlos. Thanks for joining us on the call. From the specifics of flat increasing while, I would say long products was very strong because long products had record shipments in the second quarter, so still very strong.
You have to remember that Sinton is starting up in this timeframe, so the addition of Sinton ramping up helps offset some of the seasonality that you might see in our flat-rolled shipments even as we head into the fourth quarter. That being said, we're expecting still to see really resilient volume from the steel base, both in long and flat, as we head into. You're correct, is more of a seasonal timeframe, but we have some offsetting parameters as we look at both Sinton and frankly, as we look at our coated products, specifically Galvalume had a really strong third quarter.
Great. Thank you, Theresa.
Thank you. Our next question is coming from Timna Tanners with Wolfe Research.
Great. Thanks. Good morning. Wanted to just
Good morning.
Your utilization continuing to be higher than peers, and it's a pretty big contrast as you point out. You're ramping up Sinton, and meanwhile, you know, U.S. Steel has cut production, saying there's not enough demand. Your utilization is a pretty stark contrast. I'm just, you know, and Nucor had said that they're being disciplined and holding off tons 'cause of weaker demand. I'm just wondering if you can explain what's different about what you're seeing, and if you could, while you do that, if you could talk a little bit about the opportunities that you'd mentioned in the past for exporting to Mexico and the West Coast from the Sinton operations. Thanks.
Well, Timna, I think as we've talked in the past, I do believe our business model is definitely differentiated from our peers, for sure. The high utilization rate is triggered, I think, probably in three spots. One is we have a much more diversified value- add product portfolio mix than probably any steel producer in the States today. That allows us optionality across all market sectors and all market products, and that certainly has a significant impact. I do believe we have cultivated and developed over time some pretty unique supply chain sort of partnerships with many of our customers, and that gives us resilience through the cycle.
Thirdly, the pull-through volume of our sort of downstream conversion facilities and New Millennium is quite considerable. If you look at this year, New Millennium will be consuming about somewhere close to probably 800,000 tons of substrate. Much of that is procured through our own mills, so there's a massive volume sort of pull-through there. Our Heartland facility, which is roughly a 800,000-ton-a-year converter, takes material and also The Techs, which has 850,000-900,000 tons of consumption. That pull-through volume onto itself, when there's a need, we bring a lot more of that in-house to maintain that utilization.
As you point out, you know, through the cycle, we typically attain 15% higher utilization than the industry in general. I can't overemphasize the impact that has on our through cycle cash generation capability. It certainly supports that and in turn supports all the growth and the balanced cash allocation strategies that we continue to execute.
Okay, great. Would you mind on the other part of the question about the opportunities that you'd mentioned on Sinton as part of that ability to ramp, you know, produce at higher levels as well? Thanks.
Sorry?
Mexico and California. Sinton's exporting to Mexico and shipping to California. That will have capabilities.
Sorry. I'm having a little tough time hearing Timna now. The Sinton mill obviously ramping up, focused on furnishing material through the two coating lines, the galvanizing line, the paint line, and just ramping up and commissioning all the different product capabilities we have there. We believe Mexico will long-term, you know, despite the additional hot band capability that's coming on stream, will continue to have a mismatch in the cold roll coated arena. It's our intent to be transferring or selling into the Mexican market, HVAC, appliance, and automotive there. We have yet to develop a meaningful sort of shipping volume to the West Coast, but I'm confident that that will occur over time as that ramp continues.
Okay, thanks. I'll get back in the queue.
Thank you. Our next question is coming from Cleve Rueckert with UBS Securities.
Hey, everybody. I'll say good day since it's almost noon here. I appreciate you taking the question. I'll stick to one just to start. Yeah, Mark, I wanted to build on your comment about raw materials and scrap availability. I'm just curious, you know, as we think about investment opportunities, you know, I get that you're shifting investment into aluminum, and that's kind of the priority right now. You know, is there any opportunity to invest in some of the raw materials businesses that you already own? You know, I think on these calls before, you've talked about increasing usage of different scrap grades. Now I'm just wondering if that's more of an R&D exercise on your part on the steel operations or if there's some infrastructure that you're thinking could add some efficiency there.
Well, I think given our investment in Mexico for Zimmer, and with Roca Acero, where we thought there was a very unique opportunity, you know, that arena is prime scrap-rich and it will allow us to support Columbus and Sinton. Beyond that, we're not interested in any sort of large-scale recycled sort of acquisition-type investment. The investments will be centered though on streamlining and improving our existing operations, lowering our cost structure throughout that organization, and most specifically investing in sort of segregation, separating-type technologies to optimize the streams, the waste streams that we have. The absorbers, the twitch and everything to divide that up into more value-added 5,000, 6,000 series-type raw materials for our aluminum mill.
Also investing in technologies and expanding our current technologies because in all honesty, on the ferrous separation, or what we call shred one, the improved shredded material, we have the technologies available to us. It's just a matter of expanding that across our OmniSource base. Those technologies, in all honesty, it's not a massive amount of CapEx spend. Can't be underemphasized, though, how that's impacting the scrap flows. It's not just us, you know, some of our peers are doing the same thing, producing a sort of a very low residual shred.
As I've said in the past, you know, if you look at a shredded car today, if you just take a piece of the rusty metal itself, that's likely been produced through an integrated mill and is a very, very low residual. By separating out the little bits of copper and nickel, you can get a prime scrap from that obsolete flow. I think we're seeing it. You can see it in the marketplace today where, you know, prime is actually selling under the shred price today. It is amplifying the fact that, you know, that there are perceived concerns as additional capacity comes online over the next few years.
I think we've demonstrated clearly, the industry has demonstrated clearly what I've always said, and that's innovation will trump a challenge each and every day.
That's well understood.
Thank you. Our next question is coming from Alex Hacking with Citi.
Yep. Thanks, Mark and Theresa. On Sinton, Mark, I think you mentioned that it had turned a corner. How close are you there to, you know, operating at a consistent 80% rate? You know, what are the remaining challenges? What needs to happen to get it up to 90%-95% or whatever you would be targeting longer term? Is that the kinda rate you would be expecting, you know, 90%-95% exit rate in 2023? You start below 80% and then you kinda build up through the year, or it would be more of a consistent rate through the year? Thanks.
Well, I would describe the issues at Sinton today as just typical startup issues. A little amplified by the supply chain constraints out there. You know, in the old days or the other mills we've started up, you need a spare part, and it's like literally on the shelf in the local city. We're seeing a little more time to react to certain issues. That said, it is purely just making sure that we are operating each piece of equipment all the way from the electric arc furnace through the ladle furnaces, caster, and the hot strip mill, just operating each and every minute of each and every day.
As I said earlier, the equipment is proven to be able to produce everything we intended. It's produced out to 84 wide. We've gone down to 0.043 or 0.044 in light gauge. We produced 1-in plate. As I said earlier, we've already been certified on some of the perhaps slightly easier API grades, but the other grades will come with time. There's no issue or challenge to get there. It's just a matter of time. From a capability standpoint, it's definitely there.
You know, we've had shifts, we've had days close to 85%-86% of production rate, which again, given the relatively short time that team has been ramping up is absolutely incredible. I think it took us three years in Butler to get a 4,000-ton shift, and we've had many of those already. I'm not concerned. It's just a matter of time. Would expect that 2023, we should get around 80% of our 3 million tons of shipping capability.
Alex, you're correct. That's for the entirety of the year. There will be a progression of ramp, so that by the time we're exiting 2023, we would expect to be operating at or near that capacity rate, that full capacity rate.
Okay, thanks. Just to clarify on the earlier comments, again, on Sinton, would you be expecting to ship more flat-rolled in the 4Q, considering the ramp up of Sinton or the seasonality will offset that? Thank you.
Alex, I think you were asking about the full complement of our flat-roll operations. We are expecting to have higher shipments from Sinton itself, but I'll leave you to determine what seasonality does to the rest of the group.
Okay, thank you.
You're welcome.
Thank you. Our next question is coming from Curt Woodworth with Credit Suisse. Please go ahead.
Yeah. Hi, Mark and Theresa. How are you?
Good, thanks.
I just wanted to talk a little bit more about fabrication. Can you kinda talk to the diversity within your backlog and maybe how bidding activity has progressed, you know, maybe the last 90 days? I think there is some concern in the market that, you know, the data center and warehouse build-out, you know, has really driven the bulk of this, growth rate, and that could potentially fall, you know, sharply. You know, it's unclear, you know, if you have, like, a lot of big chunky projects that once those burn off, then you could be more at risk. And then within that, you know, I know you spoke about pricing being fairly favorable, and I think you talked about how pricing, you know, would be going up progressively, I believe, into the second quarter, but can you just confirm that?
Good afternoon, Curt. Thanks for the question. I'll let Mark address the diversity within the backlog of the fabrication business. It has changed just slightly, and I think it's become more favorable as things are changing. As it relates to the backlog and the pricing, what Mark was suggesting is that we still have incredibly favorable pricing in the backlog that goes through much of the first half of 2023. It's not likely to be at that same peak level of $5,000+ , but still very favorable. At the same time, we expect to have lower steel input costs as we move through at least the fourth quarter.
As you can imagine, that's why, the power in the business model of having fabrication, be a real natural hedge to lower steel prices is very favorable to us. That's what you're seeing today, and we would expect to see, in the coming quarters as well. Mark, do you wanna describe the diversity in the order backlog?
Yeah. I think it is transitioning a little bit. You know, early on, it was very sort of distribution warehouse-focused, with cloud computing and things following along. Cloud computing construction tends to be continue to be strong and grow. Warehouse may be kind of flat to stable. And we're also seeing sort of more infrastructure, hospitals, school-type construction activity. We see it strong. I mentioned earlier, it's not at the frenetic pace that it was perhaps six months ago or eight months ago. It's normalized to still very high relative to historic norms.
If you think about it, given the interest rate sort of environment and a little economic cloud that we have, it's not unexpected that people are wondering about projects seven, eight, nine, 10 months out. They're just waiting a little. In general, we see that just the non-residential construction in general remaining very robust through certainly the first half of next year into the latter half.
Just to address your point on the backlog, if there's any risk that we would wanna point out, there's really not. It's a well-diversified backlog. There's not individual projects that are of too large of a size. You know, something to just keep in mind as well is once something enters the backlog for the fabrication business, the projects have already been engineered. They generally have already been financed. There's a lot of certainty in that backlog. If you look on average of the projects that we do, the cost of steel joists and steel deck or steel deck as a part of the entire project itself is only between 10%-15%. It's a small piece of that project in and of itself, which also reduces the risk.
Okay, very helpful. And then just as a follow-up, I think there have been some maybe incremental concerns on the aluminum flat-rolled market, just given some of the announcements by Ball and others on the beverage can sheet side. You know, can you just give an update on maybe how you're progressing commercially with that project and, you know, what initial discussions have been like since you announced the project? Thanks very much.
Well, relative to aluminum, we are awash with interest, incredible interest, to be honest. We have been focused of late locating the facilities. Glenn and his team have just in the last week or two completed the purchase of all the major sort of components, certainly all the long lead time issues, equipment packages. Progress is being made dramatically. We're now starting to focus on the commercial side. We've had initial conversations with all but one of the major beverage outfits, can makers. Incredible interest in all honesty there.
In automotive, there are several folks that have approached us to partner with us going forward. From the standpoint of contracted volumes, pricing, those sorts of things, that's too early yet.
Great. Thank you very much.
Thank you. Once again, we ask that you please limit yourselves to one question to facilitate time for everyone, and any additional questions can be addressed upon reentering the queue. Our next question is coming from Phil Gibbs with KeyBanc.
Sorry, I was on mute. Can you hear me now? Good morning.
Yes, we can. Hi, Phil.
Hey, how are you?
Good.
Specifically, you talked about in the script that you were at a 60%-65% utilization on average for the month of October so far. Is that what we should expect for the fourth quarter, which would get us near 500,000 tons for that asset? Or do we expect something a little bit more than that as you ramp?
I would not expect 65% for the whole quarter. No. Phil, it's tough to give you a number. If things continue to proceed as they have month to date, then you're gonna see a very good number for the quarter. I can't foretell the future. All I can say is the operation has reached a much more stable, consistent level of operation. You know, the big shifts or the big days, there are more of them. More importantly, we're not seeing the zero shifts as we once were, you know, in the summer and as you see in any startup.
The consistency of operation is very, very much improved. It gives me a lot of confidence going forward.
Should we expect, given higher, you know, volume incrementally and some of that stabilization and just the overall operations, that you will get to EBITDA positive in the fourth quarter and sort of out of the startup phase that you've been in?
Yeah. Good afternoon. You know, we talked about it on the second quarter conference call that our expectations were sitting at that point in time was that we would reach EBITDA positive sometime in the fourth quarter. That's likely pushed out sometime in the first quarter rather than the fourth quarter. Definitely, as Mark mentioned, we're seeing a lot of positive changes, and there's been some key successes that the team's had just recently in October that we would expect to result in some really good changes heading forward. I would suggest it's probably closer to in the first quarter versus the fourth.
Okay. As just a follow-up, if you could take a shot in talking about 2023 CapEx, if you have a general idea, and then just also thoughts on net working capital in Q4. Thank you.
You're welcome. We're in the middle of our detailed planning phase related to capital. I'll give some directionality, but we would have more clear and defined expectations for you as we meet in January for the fourth quarter conference call. Right now, the aluminum investments still look like we'll be funding about, you know, $750 million in 2023 as it relates to both the recycled slab centers and the rolling mill itself. We also have the completion of the four flat- roll lines, which is likely to be around $200 million in 2023. And then we have the biocarbon facility. I would say just those growth projects alone will probably get us to around $1 billion for capital expenditures in 2023.
Then as we think about the additional projects that we're evaluating right now, I would suggest that it shouldn't be any greater than $1.2 billion-$1.3 billion, but we'll have more clarity as we talk to you in January. Oh, I'm sorry. Thanks, David. As it relates to the working capital, you know, as we expect to see some seasonality in volume for customers to reorient their inventories by the end of the year, and as we've seen pricing declines in both scrap and in steel, I would expect to see another pretty significant funding from working capital, so a contribution from working capital in the fourth quarter.
Thank you. Our next question is coming from Tristan Gresser with BNP Paribas.
Yes, hi. Thank you for taking my questions. First one is on the cost of ferrous scrap. This came much higher than what we forecasted, and I guess this is due to the purchase of more expensive metallics in H1, that some of your peers also flagged. Are you able to quantify this extra negative impact you had in the quarter, and do you believe this will remain a headwind into Q4? Thank you.
Mark, the question related to ferrous scrap pricing and our average price was higher than expected from their models. I would tell you, there's a significant piece of that has to do with higher pig iron prices. During the first quarter with the Russia-Ukraine circumstance, we, as did others, went out and purchased more pig iron to have certainty around supply. It was at a higher price than we're currently seeing today, which I think Mark mentioned was around $500 per ton. The flat roll steel mills, specifically in Columbus and Butler, are still working through that higher- cost pig iron at this time. Mark, do you wish to add any more commentary?
Was the pig iron. We also ended the quarter with some scrap inventory that obviously flows through into the higher price scrap inventory that flowed into the third quarter too. Those inventories are well in control now, and we're back to kind of a four-week, maybe five-week inventory level. Going forward, I think that will normalize. The pig iron price, in all honesty, is gonna continue into the fourth quarter, for sure.
Okay. That's very helpful. Maybe just a quick follow-up on the Buy Clean initiative that has been put in motion by the U.S. government. What kind of impact are you expecting from that new policy, the potential boost to demand? Are you seeing already some impact on that initiative? Thank you.
From a Buy American policy, I'm sorry, it was hard to hear you at the very end. If it related to the Buy American policy, you know, that is still so early on. We're not seeing a considerable amount of traction from it at this point. Conversations with customers on the commercial side, though, we believe that it won't just be Buy American, but if you look at, again, our steel operations specifically as it relates to even our current low carbon footprint for our carbon steels and our long product steels, we believe we'll be the beneficiary continuing going forward of that, I'm gonna call it green steel for lack of a more simple terminology at this point in time.
We believe that the Buy American Act will also have a positive influence, as well as the Jobs Act and the infrastructure program, which you should really start seeing traction from in the next nine to 12 months. That should support steel consumption in the U.S. specifically in our estimation. Mark, do you have anything to add?
No.
All right. Thanks a lot.
Thank you. Our next question is coming from John Tumazos with John Tumazos Very Independent Research.
Thank you. Do you expect a significant drop in scrap flows with the plunge in scrap steel prices?
Expect scrap flows to go down significantly due to steel prices going down.
John, they've eased and ebbed a little. I would say that reduction in flow is probably gonna sort of mitigate any further substantial decline in scrap pricing.
Thank you. Mark, I just wanna recall that we met in 1983 at Darlington when you were working the Hazelett caster for Nucor when you were a freshman student.
I remember.
Your aluminum competitors have 30- to 50-year-old Hazelett twin belt casters that you intimately understand, often unionized. Maybe you're a little bit too humble or modest and don't wanna say that you think you can build a new plant with an SMS design that's more efficient. People don't understand the opportunity you have in aluminum. Congratulations, it looks great.
Thank you, John. Thanks. Thanks for the memory. I do believe to your point, the new aluminum mill. In all honesty, I don't look at it as an aluminum mill. It's a new horizon. It's the aluminum business for us. It's not unlike 27 years ago, you know, when we put SDI together and we penetrated and have been somewhat successful growing within the steel industry. The same. The drivers exist today in aluminum as it did back in steel. You've got a aged industry, very high legacy cost for sure, inefficiencies. There hasn't been a new mill built for some 45 years. As you know, Glenn is...
His team is incredibly smart and talented getting the right technology and building it effectively and efficiently. It's exciting. It's exciting for the young team that we have to see that being the foundation of our growth for the next 25 years.
Congratulations.
Thanks, mate.
Thank you. Our next question is coming from Timna Tanners with Wolfe Research.
Hey, guys. Thanks for the follow-up. I guess I had another big picture question, if you could indulge me. There are so many new galvanizing lines being added just by you guys, by Nucor for sure, definitely some planned ones around the corner, potentially from U.S. Steel and Ternium. I'm just wondering, is there a structurally better outlook for galvanized or some incremental demand story or some supply piece I'm missing that's gonna continue to support that level, you know, increased level of galvanized supply?
I think the utilization of Galvalume product is just generally expanding. I don't know whether you ever crawl around cars, but over my 20 or 30 years, you know, it went from just one or two parts of the car to be galvanized. Now almost the whole car is becoming galvanized. I think there's just a general expansion of that. Over time, you know, people talk about the lightweighting in the automotive arena. Lightweighting comes from stronger products but also comes through thinner gauge material.
If you look at the length of coated material today versus the past, just thinner means less throughput and needs more lines to get the same volume. I don't see there being a galvanized flood or issue that you might see.
Okay, great. Thanks again. Appreciate it.
Ladies and gentlemen, that concludes our question and answer session. I'd like to turn the call back over to Mr. Millett for any closing remarks.
Well, thank you everyone for your time today. Certainly for those that have enabled our success, our customers, our service providers, and most importantly, our teams. You're absolutely phenomenal group of people. We appreciate your loyalty because we've been doing business together for years and years. To those in the investment community that support us, thank you. We will endeavor to continue to treat our money or SDI's money like our own, like your money. We're gonna utilize it in very, very, very effectively.
I think if you look at our use of those proceeds, we're very diligent, very disciplined in this interesting environment, spending money again effectively with higher returns than perhaps the industry in general. Thank you. Thank you for your support. To every individual of the SDI family that's on the line, thank you for what you do. Be safe each and every day, and look after each other. Cheers. Bye.
Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation, and have a great and safe day.