Nucor Corp (NUE) — Q4 2021 Earnings Call Transcript

Good afternoon, and welcome to our 2021 fourth quarter and full year earnings call. Joining me on the call today are several members of Nucor's executive team, including Jim Frias, our Chief Financial Officer; Dave Sumoski, Chief Operating Officer; Al Behr, responsible for Plate and Structural Products; Doug Jellison, responsible for Raw Materials and Logistics; Greg Murphy, responsible for Business Services; and our General Counsel; Dan Needham, responsible for Bar, Rebar Fabrication and Engineered Bar Products; Rex Query, responsible for Sheet and Tubular Products; MaryEmily Slate, responsible for Commercial Strategy; and Chad Utermark, responsible for Fabricated Construction Products. By so many measures, 2021 was an extraordinary year for Nucor. Our team delivered incredible financial and operating results over the course of the year while working safely and responsibly. Every single day, our nearly 29,000 team members remain focused on our company's mission to grow our core steelmaking capabilities while expanding our presence into related businesses that fit with our culture and leverage our strengths. For our team, the most important value is safety. And so, I'm incredibly pleased to report that 2021 was the safest year in our history. Becoming the world's safest steel company is a lofty goal, and our team has now achieved back-to-back record years in safety. Nucor had 16 divisions that went zero recordable injuries in 2021, and I look forward to the day when our entire company achieves that same goal. I want to thank each of my Nucor team members for your daily commitment to safety, looking out for one another and I look forward to an even safer year in 2022. Turning to our fourth quarter results. Earnings per share were $7.97, exceeding our guidance range of $765 million to $775 million. This represents another new quarterly record for our company. Looking at 2021 as a whole, we set several other financial records. Net income for 2021 was $6.8 billion, and full year earnings per share was $23.16, which were both notable increases over the prior records we set in 2018 with $2.4 billion of net income and an EPS of $7.42. Our record financial performance is the result of years of work reinvesting to strategically position and grow our portfolio of capabilities across the steel value chain. We are leveraging our competitive advantage to aggressively and opportunistically pursue value-enhancing long-term growth. Along the way, we are delivering a differentiated value proposition to our customers and expanding our relationships with them. By executing operationally across our business lines, and in parallel, investing in Nucor's future, we are generating attractive returns for our shareholders and positively impacting our local communities. In the process, we can offer Nucor teammates secure employment and competitive compensation and benefits as well as the opportunities to further their professional growth and development. Our talented, dedicated team members are Nucor's greatest value creators. Reflecting this for 2021, our profit sharing totaled about $850 million. Adding this amount to teammate profit sharing over the course of the last five decades, Nucor has allocated a total of about $3.8 billion in profit sharing to our team members. Most profit-sharing payments are contributed directly to teammates' retirement savings accounts. As a result, we believe that Nucor teammates are far more prepared for retirement than the average American. Of course, we are also mindful of our responsibility to shareholders. We're proud to have been able to provide cash returns via dividends and share repurchases totaling about $3.8 billion in 2021, and in December to increase our regular quarterly dividend for the 49th year in a row, this year by 23% to a rate of $0.50 per quarter. Our quarterly dividend is now about 32% higher than it was in 2018. We reduced our share count by more than 11% in 2021, even as we funded capital expenditures and acquisitions totaling approximately $3 billion to drive the next chapter of our growth story. And as Jim will share, we remain very well capitalized and able to pursue our objectives. And speaking of those, as we move into 2022, we are not letting up when it comes to executing our strategy to grow our value-added product portfolio and expand into new product markets and geographic regions. Two weeks ago, we announced that Mason County, West Virginia will be the location of our new state-of-the-art 3 million-ton sheet mill. The location along the Ohio River provides Nucor with important transportation and logistics advantages in serving the country's two largest sheet steel-consuming regions, the Midwest and Northeast. Two areas where Nucor is currently underrepresented; once operational, our West Virginia mill will have some of the most advanced capabilities and one of the lowest carbon footprints of any sheet mill in the world. We are very excited to begin work with the local community in Mason County on this transformational project that will create substantial long-term value for all Nucor shareholders. On December 16, our Nucor Steel Arkansas sheet mill produced its first prime coil from its new generation three flexible galvanizing line. The new galvanizing line, combined with Hickman's highly successful specialty cold rolling mill that's been in operation for more than two years, uniquely positions our company among North American EAF steelmakers to provide the high strength, lightweight steels that are increasingly in demand. These capabilities represent important competitive advantages for our company, exemplifying Nucor's ability to meet the needs of our customers for higher strength steels. Congratulations to the entire Nucor Arkansas team. Another sheet mill project, Nucor Steel Gallatin's hot band modernization and expansion, is beginning to start up in the current quarter. This project gives Gallatin's new mill thicker slab casting and wider coil capabilities, expanding our product portfolio into markets currently served by higher cost competitors. Our Gallatin team members continue to impress with their ability to safely construct the expansion project within the environment of an operating mill, and we look forward to its continued ramp-up. We are also expanding our presence in the Western U.S. In December, we announced an agreement to acquire a majority ownership stake of 51% in California Steel Industries for about $400 million. CSI is a flat-rolled converter with annual capacity to produce more than 2 million tons of finished steel and steel products. This investment, which is expected to close shortly, expands our geographic reach in the sheet market, grows our portfolio of value-added sheet products and enables us to supply Nucor's downstream businesses in the region, including Verco and the recently acquired Hannibal Industries. We are very excited to partner with JFE Steel Corporation on our second joint venture. Switching to the plate market, our Brandenburg, Kentucky greenfield mill is on track to begin rolling its first steel plate product in the fourth quarter of this year. With the capability to manufacture nearly all the different types of plate products consumed in the United States, Brandenburg will position Nucor as a supplier of choice in the domestic plate market which includes applications in offshore wind, heavy equipment, construction and military. Finally, I would also like to mention a new project in our bar mill group. In December, we announced our plan to build a new rebar micro mill with annual capacity of 430,000 tons in the South Atlantic region. This will be Nucor's third rebar micro mill joining micro mills in Missouri and Florida that began operations in 2020. We are currently evaluating potential sites and are excited about this opportunity to grow our profitable leadership position in rebar, a core business for Nucor throughout the last 50 years. I'm extremely proud of all of our teammates who are working so hard on all these projects as they are prime examples of Nucor's continued execution of our mission to grow the core, expand beyond and live our culture. And before I leave this topic, I just want to note that we believe we are seeing an acceleration of a transformation in our industry that has been underway for decades, forces driving economic efficiency and lower emissions in steelmaking. No North American producer is better positioned than Nucor to continue leading in these areas. With our team's disciplined focus on execution and Nucor's financial and operational strength, we expect to realize very attractive returns on our investments. We're very proud that Nucor has helped make the United States the cleanest place in the world to make steel. The green economy is being built on steel, and the steel it's built on matters. We are also capitalizing on the opportunity to supply the sustainable steel that is building our 21st-century economy. Earlier this month, we shipped our very first coil of Econiq to General Motors after having just launched this new line of steels this past October. Our Econiq offering represents the world's first ever net zero carbon steel available at scale. We look forward to continuing to offer Econiq to more customers and, of course, lower greenhouse gas emission steel across our product portfolio. Nucor will continue to be a key part of our modern economy by supplying the most advanced and sustainable steel products needed to rebuild America's infrastructure. We are pleased that our leaders came together in the fourth quarter to pass historic bipartisan infrastructure legislation that will help advance and modernize U.S. infrastructure and strengthen the health of our economy by creating opportunities for American workers. With approximately half of Nucor's products going into the construction market, we stand ready to help our country meet its infrastructure needs. We also continue to work with the administration and members of Congress to enforce our trade laws so that our market is free from the distortions caused by unfairly traded imports and that as we reinvest in our infrastructure, we do so with steel produced in America, the highest quality, cleanest steel possible. And before I turn the call over to Jim, I'd like to congratulate the entire Nucor team on reaching new heights to achieve our safest and most profitable year in the company's history. You have much to be proud of and on behalf of myself and our entire executive team. Thank you. Team, let's keep up our focus in 2022. And of course, for Nucor, that begins with the value of safety. We have much to look forward to as we progress throughout this New Year. Now, Jim will provide more details about our fourth quarter and full year performance.

Thanks, Leon. As Leon mentioned, fourth quarter of 2021 earnings of $7.97 per diluted share established a new quarterly record, eclipsing the prior record of $7.28 per share established in last year's third quarter. Fourth quarter earnings also exceeded our guidance range of $7.65 to $7.75 per diluted share. Better-than-expected results for the month of December were achieved across a broad group of businesses. Record full year net income of $6.8 billion was driven by Nucor's diverse portfolio of products and capabilities. Profitability records were set by numerous businesses, including Nucor sheet mills, rebar and merchant bar mills, engineered bar mills, plate mills, structural mills, joist and deck, tubular products, cold finished bars, and fasteners. Nucor's product breadth continues to be a powerful driver of value creation through the cycle for both our customers and shareholders. While our 2021 performance unquestionably benefited from an exceptionally strong steel industry up cycle, Nucor's results were also fueled by our team's focus and commitment to safely meeting our customers' needs. Disciplined execution of our growth strategy over the years is a significant factor underlying our success. For example, five major greenfield projects completed commissioning and start-up over the 2019 through 2020 time period. They are the rolling mill modernization at our Ohio rebar mill, the hot band galvanizing line at our Kentucky sheet mill, the specialty cold rolling mill at our Arkansas sheet mill, the rebar micro mill in Missouri, and the rebar micro mill in Florida. These projects represent an aggregate capital investment of just over $1 billion. For the full year of 2021, they generated EBITDA totaling $674 million. Our teammates at these facilities have done stellar work, executing across the board on safety, product quality, and financial performance. Cumulative EBITDA already exceeds the investment outlays for the Gallatin galvanizing line and the Ohio rebar mill modernization. The cumulative EBITDA generated by the Hickman specialty cold mill is nearing that project's capital investment. First-year EBITDA for the Missouri and Florida rebar micro mills are multiples of what we originally projected in our project return budgets. Two more major capital projects totaling just over $1 billion have entered start-up in late 2021 and early 2022. These investments meaningfully enhance Nucor's sheet product capabilities. They are the expansion and modernization of the Gallatin sheet mill and the generation three flexible galvanizing line at the Hickman sheet mill. We look forward to introducing our new capabilities to strategic customers as the year progresses, and we are excited about the returns expected to be generated for our shareholders as these projects ramp up. While 2021 clearly revealed the earnings and cash generation power of Nucor's businesses, it also provided an opportunity for us to fully demonstrate Nucor's balanced capital allocation framework. As most of you know, we are committed to first investing for profitable growth while maintaining our strong investment-grade credit rating and returning capital to our shareholders through cash dividends and share repurchases, a minimum of 40% of net income over time. When we judge that strong free cash flow is causing us to become overcapitalized, we will typically distribute more than 40% of our net income to shareholders. Capital returns have averaged 58% of net income over the five-year period ending in 2021. And they were 55% of Nucor's net income for the year of 2021. 2021 capital returns consisted of dividends of $483 million and share repurchases of just under $3.3 billion. The share repurchases totaled more than 33.8 million shares at an average cost of about $97 per share. These returns were, of course, funded by our strong cash provided by operating activities, also a new record of $6.2 billion. Other significant uses of cash during the year were capital spending of $1.6 billion, expansion of working capital mainly receivables and inventory net of payables totaling approximately $3.3 billion and acquisitions of about $1.4 billion. We remain well capitalized with excellent liquidity. At year-end, gross debt as a percentage of total capital was approximately 28%, while net debt was about 14% of total capital. Our cash, short-term investments, and restricted cash holdings totaled about $2.8 billion at year-end. Nucor's liquidity also includes our undrawn $1.75 billion unsecured revolving credit facility. In November, we increased the capacity by $250 million and extended the maturity date to November of 2026. Given the state of our balance sheet, near-term investment plans, and our expectations for earnings, we anticipate that we will continue returning excess capital to our shareholders during the first quarter of 2022, very likely via continued share repurchases. Our analysis suggests that Nucor's shares are significantly undervalued relative to our risk profile earnings and cash flow generation capacity. For 2022, we project capital spending of approximately $2.3 billion. Growth projects for improved product capabilities and expansion represent about 75% of our expected capital spending for this year. These include the Kentucky plate mill, the West Virginia sheet mill, the South Atlantic rebar micro mill, and Gallatin's tubular products facility. Maintenance capital spending for equipment replacement spares and cost savings projects accounts for the roughly 25% remaining. We currently expect capital expenditures over the next three years to total approximately $5.5 billion. Turning to the outlook, we are confident that 2022 will be another year of strong profitability for Nucor, fueled by continued strong end-use market demand for a wide range of steel and steel products, better margins in our steel products segment as pricing is now caught up with higher steel input costs and lower intercompany inventory revaluation expenses reflecting flatter steel and raw material costs compared to 2021. Focusing on the quarter, we expect consolidated net earnings attributable to Nucor shareholders will be slightly reduced from the fourth quarter of 2021's record results. Diluted earnings per share for the first quarter of 2022 will benefit from lower weighted average shares outstanding. Steel mills segment earnings are expected to decline in the first quarter of 2022 due to decreased profitability of our sheet mills, offsetting increased profitability at our long products mills. The steel products segment is expected to achieve further margin expansion and profitability in the first quarter of 2022 as backlog pricing continues to improve. The raw materials segment is expected to improve slightly in the first quarter of 2022 as compared to the fourth quarter of 2021 due to the improved profitability of our DRI facilities, partially offset by the impact of lower scrap prices on our scrap brokerage and processing operations. Before we go to Q&A, I would like to just take a moment to highlight our Board's action to increase Nucor's base dividend for the 49th consecutive year effective with the February 11 payment. I hope you'll agree that this is an impressive track record. Our team has great determination to continue our record of delivering increased long-term value for our shareholders. Thank you for your interest in Nucor.

Congrats on a strong set of financial results as well as the safety record. My first question is on the steel mill segment. You mentioned that you expect earnings to decline due to the lower flat roll margins, but I was just wondering if you could talk about the order entry rate in January and how you see the volumes for the first quarter. And also, can you talk about the ramp-up profile at Gallatin and the total incremental volumes you expect from the mill for the current quarter as well as the full year?

I’ll start off and maybe Jim or Rex can elaborate on the Gallatin expansion. To begin with, as Jim mentioned, we do expect that due to sheet pricing, our steel mills segment will see a decline in profitability. However, it's important to keep in mind that this is coming off a historic year. Specifically, our sheet group achieved record shipments exceeding 11 million tons and generated over $6 billion in EBITDA. Nucor's impressive 55% return on equity was significantly influenced by the performance of the sheet group. As we look ahead, we believe the recent short-term changes in pricing and volumes are temporary. These fluctuations are attributed to import dynamics and the unique buying patterns observed in the third quarter, where the price difference between domestic and international hot rolled coil reached an unprecedented level. The industry responded with increased order entry rates and deliveries. Consequently, the supply chain was filled rapidly, potentially leading to overbuying. Additionally, the combination of supply chain constraints, labor issues, and the Omicron variant contributed to a challenging situation in the fourth quarter and the early part of 2022. Nevertheless, the overall demand across all end markets that Nucor serves remains strong. We believe we will navigate through the inventory adjustments successfully, positioning us well for the future.

Yes. And for Gallatin and Rex, you can add to this if you'd like to. It's just going to have the capacity over the year to give us an incremental 800,000 to 900,000 tons. But the way the market is right now, we're going to start off at a much slower pace in the first quarter, and it's going to depend on market demand. We're not just going to make steel enforcement in the marketplace if we can't sell it at a reasonable price, Rex?

Yes, I wanted to provide some additional information on Gallatin. Regarding the outage we experienced, we are on track to recover. As Jim mentioned, we anticipate an additional 800,000 tons for the year. We will evaluate that ramp-up during the first quarter based on demand. There is no need to accelerate this process more than necessary. We still have work to complete, which is part of our plan. In March, we will commission the electric arc furnace, ladle metallurgy furnace, and caster. By the end of March, we expect to reach full production capabilities with a wider strip and thicker slab. However, we will closely monitor the market and adjust our ramp-up based on the conditions at Gallatin.

Okay. Thank you for the color. And then my second question is on the steel products segment. So you mentioned that you expect margin expansion in the first quarter. But can you talk about the size and duration of your backlogs currently and provide a bit more color on how you see the margin profile through the remainder of the year? We should see some strong tailwind from lower input costs. So just any color you can provide. Thank you.

Yes. Sathish, I'll start this discussion and invite Chad Utermark, our Executive Vice President of Products, to provide more details. Reflecting on the peak of the pandemic in 2020, that business segment proved to be very strong, and that strength has persisted, with expectations for it to continue. Our comments regarding returns and the anticipated strength in 2022 suggest that as input costs decrease, margin expansion will likely extend into 2022. Chad, could you share more insights about our backlogs?

Yes. Thank you, Leon. And as Leon mentioned, as we talked about in the script, we believe non-res construction will remain very strong as we enter 2022 and even beyond. We continue to see solid seasonally adjusted quoting activity. So as we look across our broad portfolio of downstream products, it's really solid quoting activity that's ongoing. And if you combine that with our backlogs that are very robust and in some cases, they are all-time record backlogs. So that's one data set that we look at. The second and very important data set we look at is what our customers are saying. And our customers are overwhelmingly bullish on their 2022 demand. And I would ask that you remember, our growth through the years in downstream steel products allows Nucor to have a very good visibility into the demand of construction products such as rebar fab, steel piling, pre-engineered metal buildings, racking, steel tubing, insulated panels, joist and deck, steel conduit. So as we look and analyze that demand from this broad non-res construction base, we are very excited about what 2022 holds. And as far as the margins in our backlog, they're solid. We believe that pricing is solid. We don't see many of any cancellations. And I would also say that the strong backlog margins are not predicated on falling steel prices that could be coming at us. These are healthy margins due to the supply and the strong demand balance that's out there.

Thanks for taking the question. So first, if you could comment as to how you see capacity utilization in your different key products, particularly in Q1, and maybe how you see the progression into Q2 and the second half of the year, if you have visibility, given your backlog. Second question, if I may, is given the $5.5 billion in CapEx over the next three years, I mean, some of that already clearly is ongoing with projects that you are executing, but how do you see the returns on these investments? Any sense of the incremental EBITDA that you could generate from these projects? That would be great.

Yes, I'll begin, Carlos. Regarding capacity utilization, we typically don't provide detailed breakdowns by business. However, we expect overall volumes in the first quarter to be slightly higher due to seasonal factors. While sheet volumes may decrease slightly, we anticipate that other products will more than compensate for that. We expect volumes to improve in the second quarter, influenced by winter weather conditions affecting shipments and the ongoing disruptions caused by Omicron in the supply chains. Towards the end, I will share some broader thoughts about the year and the economic implications for Nucor. As for capital expenditures and their benefits, we typically provide details on major projects when we announce them, including some EBITDA run rate expectations. I will review our earnings release regarding these projects to gather that information, and we might eventually summarize the status of upcoming projects along with their cumulative EBITDA benefits. In my earlier comments, I mentioned the real-time EBITDA we are experiencing from projects completed in 2021. Does that make sense?

Yes, that makes sense.

To start, regarding expectations for the year, there are two key areas to focus on: our earnings and our free cash flow. These aspects are likely of most interest to you. It begins with end market demand, which we have already discussed, and it remains strong. The primary driver is non-residential construction, the largest consumer of steel, although we have not seen the benefits just yet. The auto sector is still weak due to chip shortages; however, we anticipate an increase in demand from this sector later this year. Infrastructure projects have not yet contributed to our earnings, but those benefits are on the horizon. Overall, we expect steel demand to increase in 2022 compared to 2021, despite some factors in the first quarter that may not provide immediate benefits. Furthermore, we have the largest downstream product operations among steel companies, which experienced pressure on margins last year. Pricing is finally beginning to improve, and there remains potential for further margin expansion for these businesses as they work through their backlogs. We believe this will be a positive trend beginning in the first quarter and continuing thereafter. Additionally, we will gain incremental benefits from ramping up three major projects: the Hickman mill, the galvanized line, and the Gallatin hot mill, assuming there is sufficient sheet demand to utilize part of the 800,000 tons of extra capacity we anticipate having this year. Lastly, we have yet to fully leverage the capacity of the Kentucky merchant bar mill, and we expect to see benefits from this in the upcoming year. Moreover, our intercompany eliminations expense from revaluing inventory was approximately $776 million last year, but this figure will be much lower in the coming year, likely approaching zero. This change should positively impact our earnings. Looking ahead, we do face some challenges, particularly related to sheet pricing, primarily due to imports. However, contemplating the overall sheet market, our EBITDA for the year could be on par with last year’s figures. In the first quarter of last year, we achieved around $285 per ton, concluding the year close to $800 per ton, with an average of $560 per ton overall. While we are not making specific predictions, we consider it possible for sheet prices to hold steady or increase compared to last year's performance. This remains one of the main uncertainties in our yearly forecast. On the other hand, we expect longs, plates, beams, and bars to perform slightly better in 2022 compared to 2021, given the weak start we experienced in the first quarter of many of these segments. Raw material costs are anticipated to decrease year-over-year due to the exceptionally high prices in 2021 that allowed us to capture value through existing inventory. Consequently, the raw materials segment might be a minor headwind, while depreciation and amortization expense will likely rise from approximately $865 million last year to just over $1 billion this year, serving as another slight headwind. If we maintain this trajectory, we anticipate a strong earnings result based on the assumptions we make. Free cash flow usage was a significant $3.3 billion last year due to changes in working capital involving inventory, receivables, and payables. This year, we do not expect a similar cash drain; instead, it may yield some small benefits, contributing positively to free cash flow. Capital expenditures are projected to rise by about $700 million based on current insights. Additionally, we have a robust M&A pipeline, with one project, the CSI project base, expected to close soon, though it is smaller than last year's significant activities. As we look forward to next year, we successfully reduced our share count by 11% last year through significant capital returns, including share buybacks. We plan to continue strong share repurchases in the first quarter. This could be another year of substantial free cash flow, allowing us to return a significant amount of cash to our investors. These are our overarching thoughts as we reflect on the year ahead from a broad perspective.

Congratulations on a strong update today. My first question is just around the capital allocation. And I think last year, you shared that you've been able to execute both growth and a significant amount of capital return. How could we think about that balance going forward in 2022? And what does the next chapter of your growth strategy look like?

Yes. Emily, I'll start off, and thanks for the question. As we mentioned and have talked previously, our mission is very simple. It's a word. It's to grow the core, expand beyond and live our culture. If we think about the core of our steelmaking capabilities, it's the expansions of regional and capabilities. It's not about adding capacity. So the acquisition of CSI for us and having JFE as a second partnership in California and again, a majority shareholder in that operation is really exciting for us. The announcement of our rebar micro mill will continue our market leadership position in rebar. The new mill in West Virginia, we are incredibly excited about because, again, it provides a long-term differentiated value proposition for our customers that have been asking for in need. And if you think about the move in the time over the last 24 to 36 months and what's going on in ESG, the sustainability side of our industry is paramount. And again, Nucor is incredibly well positioned as one of the cleanest steelmakers in the world to offer the steels like we just did to General Motors. So that is going to continue. You're going to see Nucor continue to grow our capability. The second piece of that is the expanding beyond, beyond the traditional bounds of our steelmaking range. And those projects like Hannibal Industries in racking, like CENTRIA and Metl-Span to give us a market leadership position today in the insulated metal panels. That is all about the digital economy. As we think about what's happening in warehousing, data storage, cold storage, that is a booming industry that really is insulated from the traditional cyclicality of steelmaking. And so, you're going to see Nucor continue to move and invest in projects where we can combine our culture, our strong balance sheet and our investment strategy and deploying capital that will greatly exceed our cost of capital goals to return to our shareholders. Jim, anything you'd add?

The only thing I would add, Emily, is that when we think about returning capital to investors, that portion of it, it's going to start with 40% of our earnings. And that's going to be a pretty good number in the first quarter. But we do use an intrinsic value model that we show the Board every quarter. There's a very disciplined process. We published our net debt to capital range that we want to live in to maintain our strong investment-grade credit rating, that's 18% to 22%. We're below that right now. And so we would expect that we need to keep investing and returning capital to our investors both. And we have the capacity to do both as we go forward. The other thing, Leon, that regarding growth is we are likely to have another announcement next week on a growth initiative that's in the pipeline. That's again to add capabilities around our product mix. Do you want to talk about that at all?

Yes. Thanks again. Stay tuned in the coming days, we will announce as we think about our portfolio and our weighting, particularly around sheet, moving up the value chain and expanding our offering in galvanized and painted products. Again, in the coming days, you'll see another announcement we're very excited about that. We'll continue to move us in that direction and again, providing a better rounding out of that value added in our sheet products businesses.

Got it, that's very helpful and look forward to an update. My second question just very quickly is around the integration progress you've made at some of your recently acquired businesses, including Hannibal and IMP. Perhaps give us a sense of how they are trending relative to expectations today. I'll leave it at that.

Yes. Thanks, Emily. I'm going to turn this one to Rex Query, our EVP of our Sheet and Tubular, who's over at the Hannibal Industries, and then maybe Chad touched on our CENTRIA and Metl-Span.

Emily, thank you for the question. Hannibal Industries represents our initial entry into the racking sector. We prioritize acquiring companies that have demonstrated success, which is our primary strategy for Nucor. Hannibal has proven to be successful and aligns well with our company culture. In terms of integration, we assess the leadership of the existing company and evaluate how well it fits with ours. In the case of Hannibal, we found a strong match. They operate in a couple of locations, including California and Houston, and the leadership there has been outstanding, fitting seamlessly with our organization. We have transitioned a General Manager from Nucor to oversee that business. Our goal is to integrate this group into Nucor, helping them understand our operations and incorporate our production bonus system. We are taking a measured approach, learning about their business while also focusing on growth. I’d also like to mention that within Hannibal and the racking team, both the existing leaders and our new additions from Nucor are focused on expanding the business. We are currently assessing potential acquisitions and opportunities for new developments in the racking sector, as our aim is to grow and expand geographically while enhancing our capabilities.

Yes. We're very excited just like Rex said, about Hannibal, but especially in the IMP space and Leon mentioned about that space. And I want to actually want to talk a little bit more about it. But we're excited about the Cornerstone IMP acquisition, the team that we now have. The insulated metal panel space has been attractive to Nucor for a long time, and we were excited back in 2019 to purchase a start-up company called TrueCore and we're equally excited to welcome the Cornerstone IMP team into Nucor. We are working diligently through the integration and onboarding process. While we face some short-term challenges with chemical supply and a portion of inadequately priced backlog at the time of acquisition, we're still very excited about our future in IMP. And again, just why IMP? First of all, there is significant growth. I think Leon mentioned it earlier in this controlled environmental facilities, e-commerce, data centers, food, medicine. Furthermore, building codes across the country for commercial and industrial buildings continue to be more stringent, and insulated panels are one of the best solutions out there in the construction market to achieve those thermal requirements. More and more companies, as you guys know, developers and owners see the value and are focusing on the E and ESG. And we've also watched the growth of IMP in Europe. And we believe the U.S. market, while currently about $1 billion market for IMP, we believe that could grow in excess of $2 billion. So still onboarding, still integrating. We've got a few challenges to work through, but excited about the future.

Thank you, Chad. And I'll just close and saying, hey, we welcome the Hannibal team and insulated metal panel team to the Nucor family. And again, excited about the opportunities of those businesses will bring in the years to come.

I have two questions. First on plate and then I'll follow up later on green steel, please. On the plate market, obviously, plate prices have been remarkably resilient the last couple of weeks even a sheet has fallen at an accelerating rate. Can you just give us a bit of color on what you're seeing specifically supporting the plate market today? What's unique in that supply-demand balance? How sustainable is that? In the past, we've seen a pretty tight relationship in plate and hot rolled. Do you think that can break out right now? Or is there a reason to be more concerns looking into the middle of the year for plate? I'll start there, please.

Yes, great question, Seth. I'm going to kick that to Al Behr, our EVP of our Plate and Structural Group now.

Thanks, Seth. I appreciate the question. I don't know that I'd add a lot more than what we've talked about as a consistent drumbeat around demand. The pricing for our product is always driven by demand. And what we see in the plate market, I'd highlight three key markets for us. One is non-residential construction. We've talked about that quite a bit. Our visibility into that market is extremely good, and the demand picture is very strong. Another key market would be heavy equipment, industrial equipment. That market is very strong right now. If there's any indication of weakness that's around the supply chain and not true consumption and demand at the OEMs. The final market I would highlight would be energy, broadly energy, which includes renewables as well as oil and gas. Oil and gas has been a bit weaker in the last couple of years, and that with oil prices today is growing by the day. So that really is what it comes down to Seth. It's just a very solid demand picture. Our crystal ball gets pretty buzzy when we look out very much past the next month or so. We don't know what the rest of the year will bring, but we're optimistic about the plate market. The demand in key markets is very good. And we instituted a published price in August of 2020, and that's a relevant price. We're committed to keeping that as a relevant price that's transactionally based. And as we need to move that according to the supply and demand in the markets, we will do that. But what direction that may go is just tough for us to tell, then the demand is good, and we're encouraged.

A separate question, please, on Econiq for the green steel brand. First, congrats on your first delivery to GM. Can you give us a bit more color on the scale of volume growth you think could be achievable, say, in the next one to two years? And then on the pricing side, obviously, demand is perhaps growing very rapidly right now. Supply is very tight. What's the degree of pricing power you're able to achieve compared to any cost escalation perhaps as you adjust raw materials mix or power supply?

Thank you, Seth. We are very excited about Econiq. Over the past few years, we have undergone a significant transformation toward a more sustainable approach, and Nucor has been ahead of the curve in this regard. Our balance sheet allows us to enter into two virtual power purchase agreements, a move that many in our industry have yet to undertake. We are starting with a carbon intensity that is significantly lower than that of some of our integrated competitors. This positions us strongly as we aim to become even cleaner. We have set a target to reduce our carbon emissions by 35% by 2030, which would bring our emissions to approximately 0.37 to 0.38 tons of CO2 per ton of steel produced—remarkably low on a global scale. This gives Nucor the ability to supply General Motors with our first coil of net zero steel recently. However, I want to emphasize that the demand landscape is changing rapidly. It’s not only the major automotive OEMs that are seeking this eco-friendly steel; many of our construction and other OEM partners outside the automotive sector are also starting to inquire. While I won't specify the current value, I can assure you it is increasing as we move forward. Many end customers will struggle to meet their carbon reduction targets without steel that significantly outperforms the average emissions in the industry. There is value in our offering today, and that value will only continue to grow. We will monitor how this evolves over the next several months and years regarding the amount of steel Nucor produces and how quickly we can scale up, but we have the control to enhance our capabilities to meet this growing demand.

I wanted to ask a bit about your visibility into the first quarter now that lead times are a lot shorter. Can you talk a little bit about how good your visibility is for sheet in particular and what you're looking for in order to ramp up Gallatin, like what conditions? Is it demand? Is it price or both?

Yes. Maybe I'll start, and Rex, maybe if you want to add some color. Look, I think with the Gallatin expansion, as Jim mentioned, and possibly Rex, we're going to be disciplined in that ramp up. At the same time, balancing out we've invested a lot of money. So we want to make sure that equipment is ready and available as we progress out. So, that team is working feverishly to bring its capability to where we need. At the same time, I would tell you over the last 12 or 18 months, particularly as we've moved through the last contract season, Nucor has been very disciplined about our approach into the marketplace and how we want to transact. So as Jim mentioned a few minutes ago, we're not going to flood the market just because we want to produce the steel out of Gallatin, and we're going to have a very measured approach and a very deliberate approach into the marketplace. So I expect that we're going to scale up. As we've mentioned throughout the call, we used to track and share, I think, the numbers of end markets. And we track virtually every end market that you can imagine. Of all the end markets we look at, virtually every one of them is projected to grow. In fact, our estimated growth for full year 2022 is about 6% in terms of overall shipment increase. So, we see that as an opportunity. And again, we expect Gallatin to continue to ramp up and meet its objectives and hit the nameplate investment, which is about 1.4 million tons of additional capacity. But Rex, any other color you'd like to share in terms of that ramp-up?

Yes, Timna, thanks for the question. Regarding the visibility, we have good visibility. I mean we talk with our customers weekly. And with the correction that we're seeing right now on the sheet side with what you see in some of the pricing, what led up to that is we entered 2020 with COVID, and things started to contract and shut down. And 2021 was the recovery, so to speak, from that standpoint. So you saw demand increase considerably pricing runoff. That's an opportunity as that demand is increasing for some imports to come in. And that's what we've seen as we come in late in the year and we see some of that correction occurring. But the thing we keep hearing right now is this is short-term temporal correction in the underlying demand, much like Al mentioned in those sectors. Those are key sectors, the automotive sector that Jim Frias mentioned as well. What we hear from our customers is they do expect 2022 overall to be a fairly strong year from demand. So that's what we hear from our customers. We see this temporal correction. And as Leon just stated about Gallatin, it's really an opportunity as we're getting some work done there. That team has been in a construction mode for quite some time now. So we're able to ramp that up as we see fit. And so what will we be looking for? We're going to be looking for that demand. It's not a price standpoint. It's the demand we're going to make sure we take care of and service our customers.

Timna, I want to point out that we are somewhat more focused on hot band products compared to some of our competitors, and that's where the majority of our imports are coming from. Over the past few years, we have been adding galvanizing lines, including one currently being completed in Arkansas and one we started in Gallatin last year. We also have a line in Mexico that uses some substrate from our Berkeley mill, and we are preparing to announce another galvanized line soon. We understand that our heavy reliance on the hot band market is impacting our performance, so we plan to take further actions to address this situation.

That makes sense. My other question was just on contracts into 2022. I know that there was a lot of chatter about moving to shrink the discounts against CRU. And in the past, you've helped us understand Nucor's breakdown of contract business and how to think about it. So I was wondering if you could update us on how those contract negotiations went now that they're over. And any changes in your exposure to automotive, please?

Yes. Maybe I'll start with the automotive, and then Rex, you can update on the contracts. For a long time, we've been in that 1.5 million to 1.6 million ton a year range in the automotive side. Our expectation and our stated goals are to double that to around 3 million tons. And so what I would tell you, in a year that was way off because of the chip shortages in 2021 somewhere in that 12.5 million, 13 million units, Nucor's share in automotive grew, and that is going to continue to grow. And so I can tell you, there's a lot of excitement about Nucor's capabilities being the first EAF to be able to produce a full generation three steel in Hickman as well as what the opportunity and capability of the West Virginia sheet mill will be able to do in terms of transforming a differentiated clean steel, net zero steels into the OEMs. And so, we're committed to move there. At the same time, our goals are not to get overly weighted. We're not looking to move to 20% or 25% of our overall mix in automotive. But to be in the 10% to 12% range, I think, is probably about the right number today. Rex, do you want to touch on contracts?

Yes. I'll finish up on the Hickman galv line. Really, just pleased with what's occurred there, the start-up of that. It's going to be an automotive capable and focused galv line with the additional or the extra high strength. So, we'll be able to feed into that. So that's a step for sure into that. And the new Midwest mill, as Leon mentioned. Automotive is going to be a significant portion of what we look for in that business for that. So you'll see that growth occurring. On the contract side, we're contract season, I would say was what we expected, we had going into it some strength in the marketplace from a demand standpoint. So, the things from great extra, some of those things, but we're discuss with our customers, but at the same time, you got to look at the total package, if you will, of what they see as value. So it's more than just what those pieces are. It's price, but it's delivery, it's service. So our contract season for us, we finished very typical with what we target for contract percents, both on the service center side as well as overall. So, we're in the 80% range and overall target for us. So fairly typical from a volume standpoint as we finish up contract season for heading into 2022.

And we had very few customers that chose not to renew. Isn't that correct?

Yes. In fact, I would tell you, we had more requests for increased volume. So I've seen some of the information of not running in their contracts, those types of things. We did not experience that as a company. In fact, it was the other way around. We performed in a really tight market for our customers, and we had the interest in renewing contracts. That's what we saw for this season.

A couple of questions on the market. You mentioned your hot band exposure. And right now, we're looking at historically wide spreads between hot-rolled and value-added products. Do you expect that spread to contract back to where it has been historically? Or do you think there's something going on to keep those spreads wider than we've seen historically?

When you say value-added products, what are you referring to?

Cold-rolled and coated products.

Got it. Yes. Look, Michael, I would tell you, I think the overall trend is, you're going to see that gap shrink. We saw, obviously, a huge spike of imports coming in mainly from Canada and Mexico. Predominantly hot band is what we saw with CRU's numbers out yesterday. Those numbers are correcting. And so, I think you're going to see a closer level set to norm. But what's norm, right? Coming off a historic year like we had in '21, I think there's three things that Nucor has touched on over really the last year. If you look at our industry over the last 12 or 18 to 24 months, there's been significant shift in consolidation, rationalization and trade. If you think about just five years, six years ago, we had about 55 cases that were won in carbon steel. Today, that's over 110. The trade case is different, but obviously, the door opened up with the massive spread. So while I think there's some correction, I also think the industry has moved as well as Nucor in terms of creating higher highs and higher lows that will continue to move forward. In terms of the overall where that ends up, I'm not going to speculate. I would tell you that the healthy functioning market, it's going to find its equilibrium. And at the end of the day, supply and demand will always be the drivers to how we price our products.

And then my second question will also be just kind of bigger picture. The focus on potential capacity curtailments has been on the blast furnace side, but I presume technology on the electric arc furnace side has improved pretty considerably since the late 1980s. I mean do you see any industry EAF flat-rolled mills nearing the end of their relative useful lives given the dilutive impacts on portfolio returns and are of higher scrap and labor costs and a fleet of new mills coming on?

Look, I can only speak to Nucor. And I would just tell you, Nucor has had a long history, like 5.5 decades worth of reinvesting back into our mills so that as those mills generate the returns and the EBITDA and the margins, we make sure we reinvest for the long term in all of those assets. So the modernization that our acquisition of the Marion facility, our investment in Kankakee, our investments across the entire product portfolio has been significant in the billions and billions range. And so from a Nucor perspective, I would tell you not at all. Some of our oldest mills are the highest generating returns that we have in our entire portfolio, and it's because we do a great job of reinvesting. Our teams do an amazing job of keeping the maintenance enough to keep and stay on the latest trends for the improvements in technology to implement, to ensure not only the safest delivery of that steel, but also the lowest cost output to those steel products for our customers.

Thank you. As we conclude our call today, I just want to thank the entire Nucor family for delivering the safest year in our history and the most profitable year in our history. Thank you. And I look forward to continuing the exceptional performance across all of our businesses in 2022. To our customers, thank you for the trust and the partnership as we continue to build the capabilities required to differentiate Nucor as the supplier of choice. And finally, to our shareholders, we're proud of the record returns provided in 2021. However, we're not resting on our past performance. The Nucor team is focused on maximizing our profitability and continuing to be great stewards of the valuable shareholder capital you entrust us with. Thank you, and have a great day.