Steel Dynamics (NASDAQ:STLD) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Steel Dynamics reported a strong Q3 2026, with net income of $756 million, $5.26 per diluted share and adjusted EBITDA of $1.2 billion, despite a slight miss on earlier guidance due to foreign currency and aluminum hedging adjustments.
The company achieved record steel shipments of 3.8 million tons and maintained high utilization rates, with steel mills operating at 92%, outperforming the domestic industry rate of 80%.
Strategic growth initiatives included successful milestones in aluminum mill commissioning, with expectations for improved performance in Q4 2026 and 2027.
Management highlighted continued strong demand in flat-rolled and long product steel markets, with significant increases in order backlogs and pricing power expected to benefit future results.
Steel Dynamics generated robust cash flow from operations of $846 million, maintained liquidity of $2.4 billion and executed $591 million in share repurchases during the year.
The company forecasts continued growth and competitive positioning through strategic investments in aluminum and diversified product lines, supported by a strong capital allocation strategy.
Management announced a transition in which Teresa Wagler will take over as CEO, emphasizing continuity in strategic vision and leadership.
Management addressed operational challenges in the aluminum division, with improvements expected, and said the division is set to capitalize on the structural supply deficit in the U.S. aluminum market.
Full Transcript
OPERATOR
Good day and welcome to the Steel Dynamics third quarter 2026 earnings conference call. At this time all participants are in a listen-only mode. After management’s remarks, we will conduct a question and answer session and instructions will follow at that time. Please be advised that this call is being recorded today, October 20, 2026, and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect at this time.
I would like to turn the conference over to David Lipschen, Director, Investor Relations. Please go ahead, sir.
David Lipschen (Director, Investor Relations)
Thank you, Sylvie. Good morning and welcome to Steel Dynamics third quarter 2026 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 and Chief Executive Officer of Steel Dynamics, and Teresa 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, fabrication, and aluminum businesses, as well as to general business and economic conditions.
Examples of these are described in the related press release as well as in our annually filed SEC Form 10-K under the headings Forward-Looking Statements and Risk Factors found on the internet at www.sec.gov and, if applicable, in any later SEC Form 10-Q. You will also find any 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 2026 Results.
And now I’m pleased to turn the call over to Mark.
Mark Millett (Chairman and Chief Executive Officer)
Well, good morning everyone. Thank you for joining us this morning for the third quarter 2026 earnings call. Before I begin our report, I would like to take a moment to congratulate Teresa on her appointment to CEO at the end of this year. As most of you know, she’s been with the company for 28 plus years, starting when we had just our first mill in Butler, Indiana. Back then it was just a handful of people and now we’ve got 14,000 strong in our team.
In that time she has built an incredible understanding of our markets, our customers, and our company. Most importantly, she understands our culture and is passionate about our people. She has been acutely involved with the strategic decisions and direction we have taken these past 15 years. Decisions that have driven tremendous growth and about 3,000% in shareholder value appreciation, a value very few can claim. That success has also been supported by an incredible team of 14,000 people, as I said, and the best senior leadership on the planet, all of whom have been very, very key contributors of our growth. I just want to, very unusually maybe, but I just like to single them out: Miguel Alvarez, Jim Anderson, Matt Bell, Chad Bickford, Chris Graham, Barry Schneider, Tommy Scruggs, Rick Poinsatte. These folks have been incredible. And with this team and with Teresa at the helm, we will undoubtedly drive SDI to even greater heights.
So that said, and congratulations, Teresa.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Thank you very much, Mark.
Mark Millett (Chairman and Chief Executive Officer)
Our teams, I think, in the third quarter achieved a very strong quarter-over-quarter financial and operational performance. That said, we did come in just shy of our earlier guidance range due to late September anticipated moves in foreign currency and aluminum hedging, unrealized mark-to-market adjustments of just under 30 million. Some quarter highlights included record quarterly steel shipments of 3.8 million tonnes, adjusted EBITDA of 1.2 billion, and extremely strong cash flow from operations of $846 million.
Further milestones relating to the aluminum mill commissioning and ramp were also achieved. Seriously, my sincere thanks to an amazing team that consistently brings our vision and strategies to life. As I’ve said always, safety will be our most important cultural pillar and value. With great dedication to each other, our team continues to focus on our Take Control of Safety philosophy. We have hundreds of volunteers that travel across our company not simply auditing our safety practices at our facilities, but cultivating our culture to ensure each facility has the right attitude and mindset to drive our performance ever upwards. It is an incredible time commitment and so inspiring as they operate as a family, supporting each other while challenging the status quo and striving for continuous improvement every day.
Before I continue though, Teresa, will you update us on some specifics relative to Q3?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Absolutely. Thank you, Mark, and thank you for your kind words. Good morning, everyone. Appreciate you being with us this morning. For the third quarter 2026, our net income was $756 million, or $5.26 per diluted share, with adjusted EBITDA of $1.2 billion. Third quarter 2026 revenues were $6.5 billion, and operating income was just under $1 billion. Was just over $1 billion, higher than sequential second quarter results, driven by higher realized steel pricing and record steel shipments.
As Mark mentioned, the steel team delivered an outstanding quarter with record shipments of 3.8 million tons. Our steel operations generated operating income of $1 billion in the third quarter, a 43% sequential increase as average selling prices per ton increased $102. During the third quarter 2026, the domestic steel industry operated at an estimated utilization rate of 80%, while our steel mills operated at 92%. We consistently achieve higher utilization due to our value-added product diversification, differentiated customer supply chain solutions, and the support of our internal manufacturing businesses.
And this is consistent throughout all market cycles. Regarding flat-rolled steel, market conditions remain favorable. Customer demand is strong, inventory levels throughout the supply chain remain very lean, and order lead times are elevated. Value-added spreads to hot-rolled coil prices have recovered, increasing to over $230 per ton. As the largest flat-rolled steel coater in North America, we are well positioned to capitalize on these margin opportunities. As a reminder, approximately 80% of our flat-rolled steel portfolio, sometimes more, is linked to contractual pricing that generally lags market changes by two months.
Given the significant improvement in flat-rolled steel pricing and the continued expansion of value-added spreads, we expect these favorable market dynamics to positively impact our fourth quarter results and into 2027. Long product steel markets also remain incredibly strong, supported by healthy activity in nonresidential construction. Customer demand continues to be exceptionally robust, with order backlogs extending well into 2027. We remain optimistic about demand for our diversified product portfolio of steel products and believe our end market exposure positions us incredibly well.
For modeling purposes, for those on the call, our hot-rolled coil shipments in the third quarter were 992,000 tons. Our cold-rolled shipments were 146,000 tons. And finally, our coated flat-rolled shipments were 1 million—excuse me, were 1,630,000 tons. Third quarter 2026 operating income for metals recycling was $33 million lower than sequential. Sorry. With $33 million lower than second quarter earnings due to lower realized pricing. Our metals recycling team is partnering even more closely with our steel and aluminum teams to expand scrap separation capabilities. This will provide a meaningful advantage in increasing recycled content in our aluminum flat-rolled products while expanding our earnings opportunities.
Our steel fabrication team achieved third quarter operating income of $91 million, an increase from second quarter results of $85 million, as increased volume and higher average pricing offset significantly higher steel raw material input costs. I want to give a shout-out to the team. They did an incredible job. Our steel joists and deck business is experiencing strong demand, with our order backlog 50% higher today than a year ago. The Dodge Momentum Index, which generally leads construction spending by 12 to 18 months, remains elevated and is improving.
We are also seeing improved pricing within our steel joists and deck business, with strong expectations for 2027, supported by positive customer sentiment and quoting activity, continued manufacturing onshoring, and public funding for infrastructure and other fixed asset investment programs. We’re starting to see the uplift from this macro environment, and we believe it could be considerable. Third quarter 2026 operating losses from our aluminum operations were $26 million, a 21% improvement over sequential results. Shipments and financial performance were below our original expectations due to a matter within the hot strip mill, which Mark will describe in a moment. The issue has been resolved, and we expect improved performance going forward. We expect volumes, cost structure, and profitability from the aluminum rolling mill to improve in the fourth quarter and throughout 2027.
In the third quarter, we generated strong cash flow from operations of $846 million. Our cash generation is supported by our differentiated circular business model and highly variable, low-cost structure. At the end of the quarter, we had liquidity of $2.4 billion. During the third quarter 2026, we invested $150 million in capital investments, with fourth quarter estimates also in that same range. During 2026, we have repurchased $591 million of our common stock and continued a positive dividend profile.
As of September 30, $216 million remained available under our current repurchase program. These actions reflect the strength of our capital foundation and cash flow generation capability and the continued confidence in our future. Our capital allocation strategy prioritizes high-return growth opportunities while maintaining a disciplined and balanced approach to shareholder value creation. Shareholder returns are anchored by a sustainable and growing base dividend, complemented by a flexible share repurchase program that allows us to return additional capital to shareholders when appropriate. At the same time, we remain committed to preserving our investment-grade credit profile, ensuring the financial strength and flexibility needed to support strategic growth initiatives, navigate market cycles, and create long-term value for our shareholders.
Our free cash flow profile has fundamentally changed, increasing to an average annual $2.4 billion during the most recent five years. And if you exclude our recent transformational growth, it averages $3.2 billion per year, an incredible achievement. And there’s more to come. Over the past number of years, we’ve invested more than $5 billion—arguably six—in three primary transformative organic growth initiatives. These investments reflect our disciplined approach to capital allocation and our commitment to growing in markets where we believe we can create sustainable competitive advantages.
As these assets continue to mature, we expect them to generate meaningful earnings and related free cash flow. We’ve established a strong and sustainable capital foundation that enables us to invest in meaningful strategic growth opportunities, consistently return capital to shareholders, and maintain the investment-grade financial metrics that underpin our long-term success. I would be remiss if I also didn’t congratulate Mark on his upcoming retirement—although my belief is he’ll be busier then than he is now. And just to point out, under Mark’s leadership we went from a market cap of $3 billion to today $35 billion. And continuing to move forward, we had around 3,000 people when he originally started—we had three—to now almost 15,000. And that was all under Mark’s leadership. So thank you, Mark, for that.
Mark Millett (Chairman and Chief Executive Officer)
Well, thank you, Teresa. But it takes a team, takes a village. So thank you, though. You know, consistently achieving those incredible results year over year just doesn’t happen. It is the product of an effective business model that mitigates volatility, a commitment to state-of-the-art technology, both leveraged by a unique and passionate culture driven to excel. The resulting performance reflects the dedication of our teams and the effective strategies we have developed and executed over time.
We’ve invested strategically to gain significant scale, high-margin product and market diversification, efficient and unique customer supply chains, and synergistic operating platforms to optimize market opportunities throughout economic cycles. These strategies enable us to consistently achieve at the highest levels, allow us to control our own destiny, and outperform competitors across all market cycles. A foundational focus on market and product diversification, particularly in higher-margin, value-added products, supports stronger through-cycle facility utilization and drives superior financial performance.
We optimize cash generation, which enables a balanced and consistent capital allocation strategy that supports growth, maintains financial strength, and delivers compelling long-term returns to our shareholders. Our disciplined approach to capital investment continues to generate strong through-cycle cash flow and supports one of the highest return on invested capital profiles not only of steel companies but in the industrial sector. Our most recent and most significant current investment is in aluminum flat-rolled products. The mill is transitioning from commissioning to full production ramp, and the excitement continues to be palpable as you tour the facility. The team has outperformed all industry expectations, constructing and commissioning an incredible facility in industry-leading time. Competitors and customers alike that have toured the mill are amazed at the quality and the capability of the plant and the speed of product qualification.
But even more important to me, they are broadly complimentary of the quality and the esprit de corps of the team. Again, they and our culture will differentiate us from the rest of the industry. The team is navigating a volatile aluminum market driven by the impacts of geopolitical conflict and domestic supply chain challenges. But despite these near-term challenges, they’ve remained focused on execution, customer service, and operational excellence. Beyond these temporary constraints, we are operating in a unique and highly favorable long-term market environment. The United States faces a significant structural supply deficit of more than 1.4 million tons of aluminum sheet, and that shortfall is forecast to widen as demand continues to grow across key end markets.
We believe our aluminum platform is exceptionally well positioned to capitalize on that growing domestic demand, creating substantial long-term value for our shareholders. The investment is in clear alignment with our core competencies. Our construction capabilities have once again been proven. Both Columbus and the Mexican slab cast mill are state-of-the-art facilities built cost effectively and in record time. We expect the same result for our second recycled slab center currently being built in Mississippi. We are using our deep operational know-how in combination with technical expertise of aluminum industry experts.
Our proven incentive-driven performance culture will drive higher efficiency and lower-cost operations compared to our competitors. Our metals recycling platform will facilitate higher recycle content, with the largest North American metals recycler, including aluminum supply chains, in place in both Columbus and Mexico to achieve the highest recycled content in the industry. New separation technologies are now successful in amplifying supply chain value while providing broader access to usable aluminum scrap. Production today is confirming our expected cost differentiation when operating at our nameplate capacity and expected product mix through cycle.
EBITDA expectation for past normalized market conditions remains at 650 to 700 million dollars, plus a further 40 to 50 million for our metals recycling platform. Operating experience today, albeit still in ramp-up, supports our five key competitive cost advantages: labor efficiency, higher recycled content which we will achieve in 1H27, high yields, and optimized logistics, all driven by a performance-based operating culture utilizing state-of-the-art equipment.
This strategic investment is a cost-effective and high-return growth opportunity, providing Steel Dynamics with additional countercyclical diversification while further stabilizing and growing our cash generation capabilities. The customer base remains eager for a new market entrant—one that is known to be innovative, customer-focused, and responsive. With that said, every startup and ramp-up brings its share of challenges. I’d like to sincerely thank our customers for their patience and partnership as we continue to fine-tune our operations and optimize performance.
Their trust and support have been invaluable, and we remain focused on delivering the highest quality products, reliability, and service they deserve. The hot side is fully operational with the ability to run at rated capacity and superior yields. All three cold mills are now operational and running well, which will allow us to access the full 650,000 metric tons annual capability. We’re in the process of improving yields and anticipate achieving our efficiency goals over the coming months. The first of two automotive continuous anneal and solution heat treat lines is fully operational. We achieved finished product qualification status with multiple automotive manufacturers for 5182 and 5754 products, and we are currently in trials for 6000 series material.
We have plans to ship finished automotive products before the end of this year, and I think all would agree that is a phenomenal achievement. The second CAS line is currently in commissioning and will be operational in the first quarter of 2027. We have experienced earlier-than-anticipated product certifications, and it is a testament to the incredible talent we have been able to embed in the team and the technical capabilities of the mill. There’s great energy, great momentum as we move through construction, commissioning, and ramping of the various production lines.
We continue to be excited by our progress, with expectations for significant cost optimization benefits to occur in the near term and product mix benefits throughout 2027. We did expect to have higher shipments and profitability in the third quarter, but as we ramped up to the higher rolling speeds for light-gauge product, we developed a surface quality issue that resulted in significant yield losses. After a period of troubleshooting, we identified the need to change the coolant in the hot strip mill.
The troubleshooting, coolant change, and subsequent re-establishment of rolling conditions led to several weeks of lower production and lower yield, impacting volume and increasing costs in the quarter. But as Teresa suggested, the matter has been fully resolved, and operations have been excellent so far in October. Quality and yields throughout the facility have improved dramatically. The hot strip mill has been operating at 75% thus far in October.
That put us a month behind. We still believe we can achieve 90% by the end of the year. We believe volume and profitability from our aluminum operations will increase sharply in the fourth quarter and continue improving through 2027 as startup costs subside, utilization and yields improve, and scrap content increases. We remain highly enthusiastic about our current and future growth initiatives, which we believe will continue to drive the high-return growth momentum we have consistently demonstrated. The through-cycle earnings potential of over 1.4 billion from our recent key growth projects is becoming a reality. Capital funding is substantially complete, and operational optimization is our focus for both our recent flat-rolled steel and aluminum investments.
I’m encouraged by the growing recognition among our teams, customers, and investors of the strength and consistency of our cash generation, coupled with our disciplined, high-return approach to capital allocation. We believe the steel industry has undergone a fundamental paradigm shift in recent years, supported by an increasingly mercantilistic global trade environment that should help maintain a more level playing field through continued and appropriate trade enforcement mechanisms. We expect continued growth in fixed asset investment, which remains a key driver of demand for metal products. Manufacturing reshoring continues to gain momentum and, together with growing investments in industrial infrastructure and computing, is expected to continue to support non-residential construction activity.
As decarbonization initiatives continue, the resulting increase in global cost structures will materially steepen the cost curve, enhancing Steel Dynamics’ competitive position and driving opportunities for market share gains and expanded metal spreads. Our highly diversified, value-added product capabilities provide a distinct competitive advantage, allowing us to leverage the evolving metals market environment and amplify our relative earnings power.
In closing, as I have often said, our people are our foundation, and I thank each of them for their passion, dedication, and commitment to our success. And we are committed to them. I remind each teammate listening today, nothing is more important than safety—for you, your families, and for one another. I also thank our loyal customers. Our partnerships are built on trust, delivering on our commitments, and collaborating to create innovative solutions and value.
Finally, I thank our suppliers and our service providers. Your partnership, trust, and support are essential to our continued success. I would suggest SDI has never been in a better position. Current business is in phenomenal shape, and we’re on the cusp of yet another step-function increase in through-cycle cash generation. We have a phenomenal team in place to continue our leading growth trajectory, and I look forward to looking from afar at their success.
So with that, we will take questions, please.
OPERATOR
If you would like to ask a question, please signal by pressing the star key followed by the digit 1 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 1 earlier during today’s call, please press Star 1 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 re-entering the queue. And your first question will be from Nick Cash at Goldman Sachs. Please go ahead.
Nick Cash (Analyst)
Thank you, team, and congrats again, Teresa and Mark. So you just mentioned, Mark, still expect to hit about 90% utilization in terms of hot band production exiting the year. But we just wanted to know, how should investors think about that 90% utilization? Is that, you know, hot band production, cold mill, or finished sheet shipments? If it is hot band production, should investors think about how that translates to shipments?
Mark Millett (Chairman and Chief Executive Officer)
Well, I think obviously you’ve got to start at the beginning, and the hot mill feeds all the material downstream. So the 90% capability I’m suggesting is the hot strip mill; shipments will not be at 90%. Albeit we have the three cold mills fully operational today, it’s going to take a little while—like a month or two—to get the entry through the supply chain.
Nick Cash (Analyst)
No, that’s helpful. And just one more to follow up on the margin side. You guys gave a pretty extensive list of margin tailwinds on the aluminum side. But is it possible to provide any color or break down the margin opportunity that comes from the higher scrap utilization versus better yields, fixed cost absorption, and richer product mix? And also, what is the cadence for getting to your optimal scrap utilization?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Yeah, Nick, so the magnitude, we haven’t. It’s really hard to give a range of what that might look like. The magnitude of impact really is that the yields will have the most impact. And as Mark mentioned, we actually saw a significant improvement in yields across the facility, including the cold mills, in October so far. I know we’re just, you know, three weeks in, but since we made the coolant change, we’ve really been able to dial into those preferred yields and what we think is a long-term goal for us of where we want to be.
So we see getting to those yields before the end of this year and then refining them and having them be consistent throughout 2027. So that’s the biggest impact. The second then would be the scrap content. And so we have been using more primary aluminum or P1020 as we’ve gone through the certification or qualification processes with the different product types. We will, the first half of 2027, be increasing the amount of scrap content. So hopefully by mid-year next year, we’re in more of an optimized product mix on the raw material side.
And then finally, the component of labor, we really are already there, right? So the third impact would be having a lower labor cost, and we’re operating more with, what, 750 people today? Around 700 people compared to what the competitors would be, which, you know, well over 1,000 people. So we’ve got that already dialed in. So the things that you should focus on would be on our yields and the scrap content, which we think we’ll have definitely in line by mid next year, if not before.
Nick Cash (Analyst)
That is all extremely helpful. Thank you so much. I’ll pass it on.
OPERATOR
Next question comes from Alex Pecking at Citi. Please go ahead.
Alex Pecking (Analyst)
Yeah, good morning, Mark, let me add my congratulations. I know you’re still going to be around at the company, but I guess this might be our last earnings call. You know, taking a company from three people to 14,000 people, it’s quite, quite some achievement, I guess. Just following up on the aluminum side, Teresa, you gave some color there on the, you know, the raw materials mix and the yields. When do you think you get to an optimal kind of end product mix?
Is that, would that be achievable by the end of next year or that’s something that we should be looking for more in 2028? Thank you.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Yeah, no, thanks, Alex. And thanks for your comments about Mark on your first report too. We tease him about being the titan of the industry. That said, as it relates to the product mix, the fact that the team has achieved the ability to ship finished automotive product here in the next coming months, that’s extraordinary. We’ve only been operating for just less than a year. We do expect to be increasing the amount of automotive as part of the mix throughout 2027. Whether we’re completely dialed in at 30% by the end of next year probably won’t be, only because we need to be able to get onto the automotive platforms.
So can sheet, industrial definitely are already there on the can sheet side. Automotive will have a significantly more amount in 2027, but I’d say you probably get to optimize sometime in that 2028 period, just because we need to have the ability to get on the new platforms from an automotive producer perspective.
Alex Pecking (Analyst)
Thank you.
OPERATOR
Next question will be from Katja Jensic at BMO Capital Markets. Please go ahead.
Katja Jensic (Analyst)
Hi. Thank you for taking my question and congrats to both Teresa and Mark. Maybe on the fabrication side, prices seem to be inflecting. How should we think about pricing in that business from here?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
So, Katja, you’re right, and that was what was super extraordinary, is that the fabrication team—obviously the volume is all-important. And as a reminder, we had really, the industry didn’t have great volume. It was lower than pre-COVID for 2024 and 2025. We started to see demand really pick up at the end of 2025 into 2026. And we’ve seen that momentum continue as projects that were put on delay in 2024 and 2025 are now coming to fruition. And that’s also impacting the long product steel side of our business in a very positive way.
So the pricing that’s going into the backlog today—so those projects that are being priced and really looking for delivery in early 2027—do have higher pricing associated with them. So you should see that be very positive for the fabrication segment. That said, fourth quarter seasonality, you know, you still might see some of that. So I wouldn’t expect to see something other than the team keeping really strong with volumes and with consistent pricing in the fourth quarter.
But 2027 seems to be a really strong opportunity for an uplift on margins, volumes, and pricing.
Katja Jensic (Analyst)
Maybe just quickly, would it be possible to quantify how much higher prices are in the backlog?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
It would be possible, Katja, but then the commercial team would fire me, so I can’t. Thanks for asking. Sorry about that.
Katja Jensic (Analyst)
Okay, thank you.
OPERATOR
Next question will be from Carlos de Alba at Morgan Stanley. Please go ahead.
Carlos de Alba (Analyst)
Yeah, thank you. And let me join the congratulatory comments for both Mark and Teresa. And my question is on the steel mills: any color, maybe Mark or Teresa, on how you see the margins in that business trending in the fourth quarter, maybe early 2027? Scrap prices that have been lagging steel prices are now catching up, so wondering if you see potential for margin expansion in the fourth, early next year.
Mark Millett (Chairman and Chief Executive Officer)
Well, Carlos, I think the marketplace, as you likely know, is very, very tight right this second. You’ve got the confluence of mill lead times have extended well into 2027. Right now, inventories remain at sort of the low end of historical ranges. You’ve got Q4 outages, probably going to take a million, 1.2 million tonnes out of the marketplace. And you’ve had up to this point restrained imports. And so you’ve got this tightness, for sure. And I do believe that we’ll see some continued—again, intentional and not rapid—pricing increases or momentum.
That momentum, I think, is going to continue. And then on the scrap side, you’re right, it’s been relatively stable. We saw a bump in October, but if you look at the dynamics of the marketplace out there, even at this price, it’s incredibly attractive to the folks bringing scrap to our yards. So the obsolete flow right now is very, very, very strong. The export market still remains relatively soft. The scrap segregation technologies that we’ve talked about in the past are truly sort of effectively expanding the scrap reservoir and reducing the prime scrap needs.
And you’ve got strong manufacturing, so prompt scrap flows are also strong. So I don’t see any major upward pressure in raw material costs. So it would be our view that the margins, or spreads, will remain very, very strong to slightly upward in the coming months.
Carlos de Alba (Analyst)
Great, thank you.
OPERATOR
Question comes from Lawson Winder at Bank of America. Please go ahead.
Lawson Winder (Analyst)
Yeah, thanks very much, operator. And then good morning, Mark and Teresa, it’s nice to hear from you. Appreciate today’s update. And then I would just say it’s really reassuring to see a very well-planned, well-thought-out, and very sensible leadership transition. Well done.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Thank you.
Lawson Winder (Analyst)
I’d like to follow up on the comments on the steel fab business. So message heard loud and clear: there’s going to be an uplift on pricing, volume, and margin in 2027. Nevertheless, I mean, it is notable that just if you look at Q3 TTM versus Q2 TTM metrics, volumes are up substantially, but then operating incomes were down. And I just wanted to ask if there’s some partly offsetting cost headwinds that we should be thinking about heading into 2027 on the fab business as well as those positives that you noted in the prior comments.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Yeah, Lawson, thank you for your kind comments earlier. As it relates to the TTM, the difference is the fact that steel prices just strengthened very, very quickly, and our steel joists and deck uses a lot of flat-rolled steel. And so that pricing differential has impacted the margins because the teams needed a minute to be able to increase the pricing associated with that raw material uplift, and that’s being placed into the backlog into the future.
So it’s not real time, although they’re experiencing the higher steel costs. So that’s really why you’re seeing the difference in the TTM amounts that you’re looking at going forward. As they’ve had the momentum now of having much higher demand dynamics, they’re able to have pricing power, if you will—or pricing support is a better word, I guess. We don’t see that as affecting nearly as much the 2027, even in light of what we believe will be an elevated steel price environment.
Lawson Winder (Analyst)
Okay, that’s very helpful. And then there are planned maintenance outages at all three of the flat-rolled mills this quarter. Any factors that you would potentially call out that might cause these outages to be shorter or longer than any of those of the past? And then when specifically do you expect each of them to happen?
Mark Millett (Chairman and Chief Executive Officer)
All the outages are somewhat normal, you know, like three, three-and-a-half day outages, with the exception of Butler. Butler may be, I don’t know, a little longer. We’re changing out one of the large overhead cranes, but nothing overly substantial as we see it right now. And those outages are October, November, Austin.
Lawson Winder (Analyst)
Okay, fantastic. Thank you both very much.
OPERATOR
Next question will be from Albert Rolini at Jefferies. Please go ahead.
Albert Rolini (Analyst at Jefferies)
Hey, good morning. And also congratulations both, Mark, and thank you. So just, you know, higher level here: across the major steel players, we’ve kind of seen a branch to diversify earnings, whether downstream offerings, specialty steel products, or maybe even consumer. You guys, you’ve positioned the company increasingly to kind of become a value-added metals producer rather than solely a steel producer. Recently the earnings mix has shifted pretty meaningfully back towards steel.
You know, the mills have accounted for better than 90% of earnings, I believe this quarter, which I think is probably the highest level since pre-COVID and a bit higher than maybe some of your peers. So just, you know, should we think of that as something as maybe like a high watermark for steel share of earnings and, you know, based on how you anticipate aluminum eventually rebounding, kind of, how do you expect that shift to evolve over the next year?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Yeah, Albert, that’s a great observation, actually. Yes, it probably is, I would say, to use your vernacular, a high watermark, simply because fabrication is rebounding from a volume perspective, pricing perspective, and we do think it was muted in 2024 and 2025. We don’t think that’s even through-cycle for them or representative of through-cycle. And aluminum is just getting started. And aluminum will be consistent, so it will be somewhat of a stabilization in both the earnings and the cash flow, as there’s less volatility generally in that industry as it relates to the earnings profile.
And certainly we’ve built diversification within our rolling mill to have even further, I think, stability as it relates to cash flow and earnings. So as we progress through, you’ll see a shift in the fourth quarter and then certainly throughout all of 2027 as aluminum ramps, both from a volume perspective but also from an earnings capability perspective. Steel’s still very important, but you’ll see aluminum and fabrication become increasingly more of a contribution to the total mix. Mark, do you agree with that?
Albert Rolini (Analyst at Jefferies)
Great. Thank you. Congratulations again.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Thank you.
OPERATOR
Question will be from Tristan Gresser at BNP Paribas. Please go ahead.
Tristan Gresser (Analyst)
Yes, hi. Thank you for taking my questions and congratulations, Mark. And Teresa, if I may push you a little bit on aluminum division, I think previously you had this target to be EBIT positive in H2. Would that still be possible now? And maybe for next year. I mean, when we look at consensus, it is already above your normalized kind of EBITDA target. So how do you feel about that and do you think there are the conditions to get there given the visibility you have on your ramp?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
We were EBITDA positive actually in Q3. EBITDA. Sorry, I’m sorry. EBIT. Yeah, I’m sorry, I thought you said EBITDA too. That was my fault. Sorry. No, no, no, that’s okay. For the second half of the year in totality, given the experience that we had in the third quarter, I don’t think it’s likely. Definitely there in the first quarter and onward for 2027. And regarding the second part of your question, we won’t comment on where analyst estimates are for the company as a whole. So as far as, you know, comment on whether we’re comfortable with where estimates are for aluminum next year, we won’t comment on that.
What we will say is that we have complete confidence in the team. Commercially, it’s there, the orders are there, the opportunity is there. From a raw material perspective, we have full confidence in the recycling team to help us support supply and increase the amount of recycled content. So operationally, given the changes that just took place in the August–September timeframe, we feel confident in the ramp as well. So we feel very constructive, very optimistic about next year for aluminum.
Mark Millett (Chairman and Chief Executive Officer)
I would just add, I think sometimes one has to reflect and calibrate a little bit. And obviously some of the headlines this morning on the reports suggesting a challenge and maybe a stumble, all I can say is that one has to recognize this has been a phenomenal achievement by the team. Those that have toured the facility, it is absolutely spectacular. And Teresa will likely hold a visit early at some point next year and you’ll see it. But it’s absolutely first, first class facility.
We’ve got a first class team and in combination it’s led to these accelerated qualifications in both automotive and can sheet again. One needs, I think, to reflect and focus on that. You know, when you climb a peak or Everest, you’re going to stumble a little bit along the way. But when you have a champion team like we have, there’s absolutely no doubt in my mind that you will be startled in the future as to what that facility is going to be able to achieve.
Tristan Gresser (Analyst)
All right, that’s good to hear. Thank you. And the second question is, well, given you have a very strong free cash flow outlook for next year, can you give us some update on capital allocation for 2027. I mean, what will be the focus? It looks like building another steel mill in the US may not be a great idea. M&A has not worked. So I don’t know, do you need to see the aluminum plant to be well ramped up and on a good track before you announce anything and we just need to expect higher buybacks until then, or how should I think about it, Tristan?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
So we’re in the middle of going through our kind of formal process around capital allocation as it relates to capex and other items. We have a clear pipeline of organic growth opportunities of differing sizes and the team right now is in the process of prioritizing those over the next kind of one to three year time frame. We’re going to be talking about those early next year. In 2027 right now, for capex next year it might be in the range of, you know, 600 plus million dollars, but that needs to be refined and we’ll be talking about that during a capital markets day sometime in the first half of next year as it relates to more specificity about what those projects look like. Mark, do you have anything to add?
Mark Millett (Chairman and Chief Executive Officer)
I assume that the new steel mill is the Essar project that was announced, or suggested, let me put it that way, a week or two ago, and I think it’s an incredulous, almost fantasy, I would say. We do not feel that the chances of that coming to fruition, in all honesty, is going to occur.
Tristan Gresser (Analyst)
All right, that’s very clear. Thanks a lot.
OPERATOR
Next question comes from Tim Attanners at Wells Fargo. Please go ahead.
Timna Tanners (Analyst at Wells Fargo)
Good morning and it’s been great working with you, Mark, over all these years, so best of wishes in the next chapter. Look forward to continuing to work with Teresa into this capital markets day. Wanted to talk about your supply. Flat-rolled volume surprised us down year over year on the carbon side and, as you mentioned, markets are super tight for that. And for merchants and structurals, is there anything in your system that you can flex a bit and produce more of into next year?
How do we think about your volumes and opportunities to reach this growing demand and opportunity?
Mark Millett (Chairman and Chief Executive Officer)
Well, I think obviously Sinton has room to expand materially. In all honesty, it’s doing incredibly well. You know, it’s running at, let’s just say, 210,000 to 220,000 tons a month right this second, and the expectation is for that to continue to grow to 250,000 tons a month or perhaps more. But there’s certainly room to improve there. And as that facility ramps up, they’re also ramping up the products that they’re making. So they’re at X65 right now, well on their way to X70 product.
And as a reminder, it is the only mill, I believe, that can produce 84 wide, 1-inch coil plate, sort of an X70 grade material. So certainly room to expand there. Our structure mill has a few little tricks up their sleeve and that’s going to add, I don’t know whether we’ve been saying how much. Teresa, have you been advertising that?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
80 to 100,000?
Mark Millett (Chairman and Chief Executive Officer)
Yeah, about 80 to 100,000 tons of extra structural out of that facility. And as we always have been able to do, we tweak here and tweak there and the guys and the girls just do better year over year. So yes, there’s room to grow our capability for sure.
Timna Tanners (Analyst at Wells Fargo)
Okay, that’s a lot of structural. That’s a great update. Can I just follow up and ask why that hasn’t been running full out? Is it a mix issue or is there anything else to explain?
Mark Millett (Chairman and Chief Executive Officer)
Well, we obviously, I think and hopefully everyone considers our challenges there to be history. But we’ve got to that good solid state of 80, 85% and it just takes a little bit of time to tweak and get all the little bugs out of it. So there’s no Achilles heel whatsoever. The team has got a great attitude, they’ve got a plan to get there. It’s just a matter of a little bit of time. Thank you.
OPERATOR
Next question comes from Samuel McKinney at KeyBank. Please go ahead.
Samuel McKinney (Analyst at KeyBanc Capital Markets)
Hi, good morning Mark and Teresa.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Good morning.
Samuel McKinney (Analyst at KeyBanc Capital Markets)
Coated product mix as a percentage of the flat-rolled volumes has increased every quarter for a year now, with GALF spreads relative to hot-rolled nicely improved and looking poised to remain above their long-term average for a while. Just talk about the internal strategy and the demand drivers to keep increasing that mix if you can.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Yeah, it’s a great observation. So that was done intentionally. If you’ll remember about a year, year and a half ago we added four value-added flat-roll coating lines, two at Sinton and two at one of our Indiana processing facilities. And so those have been ramping up during this period of time, very much supporting the increase of value-added product mix within the portfolio. And you should expect to continue to see that improve over the next probably six months as well because there’s still room for higher utilization from those lines.
So you should continue to see that increasing as we continue our strategy of as much value-added as we can to create a supply chain that’s a little harder to change.
Samuel McKinney (Analyst at KeyBanc Capital Markets)
All right, appreciate it. Thanks, Teresa.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
You’re welcome.
Mark Millett (Chairman and Chief Executive Officer)
And just to add to that, it’s been our MO for years and it’s something one has to do in the steel industry because essentially no secrets, but the team continues to have a pipeline of new coated-type products. We’ve got digital print, which is an absolutely phenomenal technology. And we also have some prepaint improvements that we’re going to be bringing to market. So it’s not just the volume thing. We will continue to expand our products on those lines.
Samuel McKinney (Analyst at KeyBanc Capital Markets)
Okay, that’s good color. Thanks, Mark.
Mark Millett (Chairman and Chief Executive Officer)
Thank you.
OPERATOR
Next question comes from Bill Peterson at JP Morgan. Please go ahead.
Bill Peterson (Analyst)
Hi, good morning. Thanks for taking the questions and also echoing the congratulations, you know, for the entire team there. First question is on long products. I think you answered partially in relation to Tim this question. But the ship is continuing to outperform year to date relative to flat-rolled. You described some of the key drivers in the market and I guess you have the ability to expand capacity. Should we think about this outperformance continuing and what would be driving that?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
I’ll start and then Mark can put the icing on the top. There was a change, Bill, at the very beginning of the year that Jim Anderson and the team executed incredibly well, where we actually at our Steel West Virginia facility shuttered an ancient, if you will, melt shop. And so internally that’s allowed us to send billets throughout the system from our other facilities. So that’s helped create a much more efficient supply chain internally and helped improve margins and utilization across the other mills, if you will.
So that’s one part of it. The second part of it is just that the markets are so incredibly strong. And it really dovetails from what we mentioned around the demand for steel joist and deck on industrial and nonresidential construction. It’s really driving, specifically within structural beams, an increased demand environment that we see. And it is actually dovetailing into 2027 as well. Mark, did you want to add something?
Mark Millett (Chairman and Chief Executive Officer)
Yeah, I would for sure. Long products, structural markets are incredibly, incredibly strong. Spreads are at very, very good levels. I wouldn’t get too overexcited thinking that we’re too focused in, like, data centers or whatever. It is pretty broad-based across a lot of sectors, to be honest. I think our exposure to the data center push is only about 15% in the structural world.
Bill Peterson (Analyst)
That’s actually going to lead to my—thanks for the color, but that was going to lead to my second question. And, you know, obviously there’s some concerns in the market on data center. Fifteen percent, that’s a great data point. But can you give us a sense for how that compares to the last year in terms of the backlogs or just other sort of reference point? Has it grown as a portion of the backlog or has it been steady? And, you know, recognizing you’ve called out manufacturing, industrial strength more broadly.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
As Mark mentioned, in structurals, steel joist and deck and our fabrication business, it represents less than 10%, generally around 8%. That’s been pretty steady. As it relates to the structural world, it’s probably increased in 2026, but it’s leveled off. It’s not something that’s driving a frenzy or driving the demand dynamic itself. It’s much more broadly based than that.
Bill Peterson (Analyst)
Perfect. Thanks again and congrats again.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Thanks, Bill.
OPERATOR
Next question comes from John Tumazos, Very Independent Research. Please go ahead.
John Tumazos (Analyst)
Congratulations and thank everyone for their service to the company.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Thank you, John.
John Tumazos (Analyst)
In terms of the aluminum business, is there room in the scrap market to supply, and the finished product market, for a second, say, northerly Columbus complex? Is that something that could be a potential use of funds or compete for capital allocation?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
So I’m just going to jump in for a second, John. Those were kind of two questions. So the scrap environment and the demand environment can support another rolling mill in the US or in North America for sure. Whether that’s at Columbus or not is a different question. Mark, I don’t— you can go ahead.
Mark Millett (Chairman and Chief Executive Officer)
Yeah, no, no, no. The market is definitely there. Even when Novelis’ facility finally comes online, there’s still at least a, in today’s market, that’s only going to grow in the future. There’s still a space for certainly one full Columbus-based mill for sure. And there is definitely the scrap to play out there, John, to support it.
John Tumazos (Analyst)
Your highest cost debt is five and three-eighths. So today do your cash balances yield more than your debt costs?
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Oh, come on. Don’t you want to go out big bang? No. From a capital foundation perspective, we do have some notes next year that will be coming due, I think in December of next year. And we’re constantly looking at the balance between the capital stack, John, and what our opportunities are. We’re pretty opportunistic on the financing side. So well-pointed-out point.
John Tumazos (Analyst)
I model debt repayments because I don’t know where the money’s going to go, but it seems like your yields might be more than. Congratulations.
Teresa Wagler (Executive Vice President and Chief Financial Officer)
Thank you.
Mark Millett (Chairman and Chief Executive Officer)
Super. Thank you, John.
OPERATOR
That concludes our question and answer session. I’d like to turn the call back over to Mr. Millett for any closing remarks.
Mark Millett (Chairman and Chief Executive Officer)
Well, super. Well, for those remaining on the line, thank you. Thank you for your support and our employees. Really, really, you’ve done a phenomenal job. And I think, as was noted, it’s likely my last conference earnings call anyway, still going to be associated at a distance to help out wherever I’m asked to help out in the future. But again, thank you for your patience and support over the years. It’s been an absolutely incredible journey and it’s only going to be continued by what I consider a phenomenal team and the best leadership team in the world.
So thank you, everyone. Have a great day. Be safe.
OPERATOR
Once again, ladies and gentlemen, that concludes today’s call. Thank you for your participation and have a great and safe day.
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