美國鋼鐵 (X) 2018 Q3 法說會逐字稿

Good morning, everyone, and welcome to United States Steel Corporation's Third Quarter 2018 Earnings Conference Call and Webcast.

As a reminder, today's call is being recorded.

On the call this morning will be U.S. Steel President and CEO, Dave Burritt; Executive Vice President and CFO, Kevin Bradley; and Dan Lesnak, General Manager of Investor Relations.

After their close of business yesterday, the company posted its earnings release and earnings presentation under the Investors section of its website.

Today's conference call contains forward-looking statements, and future results may differ materially from statements or projections made on today's call.

The forward-looking statements and risk factors that could affect those statements are referenced at the end of the company's earnings release, and in the earnings presentation and are included in U.S. Steel's most recent annual report on Form 10-K and updated in their quarterly reports on Form 10-Q in accordance with the safe harbor provisions.

I would now like to turn the conference call over to your host, U.S. Steel President and CEO, Dave Burritt.

Good morning, everyone, and thank you for joining us.

Before we begin, I know you are all aware of the tragic event that occurred at the Tree of Life Synagogue on Saturday.

On behalf of U.S. Steel, I'd like to extend our condolences to all.

We stand united with the Tree of Life Synagogue.

Our friends and neighbors in the Squirrel Hill community, the people of Pittsburgh and all of those impacted by this senseless act of violence and hate.

Thank you for allowing us to express our feelings, and thank you for your interest in U.S. Steel.

Now for the 6 takeaways we want to leave you with today.

First, the third quarter met our expectations, and we adjusted annual guidance to $1.8 billion of EBITDA due to a longer-than-expected buyer strike and a faster-than-anticipated drop in selling prices over the last 2 months.

We view this as just a timing difference as steel demand has remained strong, and we are now seeing higher daily order rates, longer lead times and improved pricing.

Second, we issued a press release last night announcing the authorization to buyback $300 million of stock and our plan to redeem our 2020 bonds.

Third, on asset revitalization.

Our $2 billion investment plan continues, and everything is on track.

Fourth, related to labor.

We have a tentative agreement with our represented employees that could be approved by mid-November, so we will hold off on detailed comments until ratification is complete.

Again, we're going to hold off on detailed comments until ratification is complete.

Fifth, on trade.

We remain optimistic that the fair trade actions that President Trump has put in place will continue.

Sixth, while we're not ready to provide details on next year, we believe we are in a good position to deliver another strong year in 2019.

I will now turn the call over to Kevin to provide an overview of our financials.

Kevin?

Thanks, Dave, and good morning, everyone.

Third quarter adjusted EBITDA was $526 million, in line with our expectations.

Revenues for the quarter of $3.7 billion represented a 15% growth over Q3 of 2017.

Adjusted EPS of $1.79 was $0.87 higher than the prior year quarter.

Adjustments in the period were $30 million, with the vast majority related to the Granite City startup costs.

North American Flat-Rolled generated 14.7% EBITDA margins in Q3, a 200-basis-point expansion over Q2.

Europe generated EBITDA margins of 12.3% in the quarter.

This segment has generated EBITDA margins over 12% in 9 of the past 10 quarters.

Our European business continues to perform well and is a major contributor to the progress we are making across the enterprise.

Our Tubular segment returned to profitability, delivering $18 million of EBITDA in the quarter, as we began to see the impact of pricing actions initiated earlier in the year.

Now turning to guidance.

We expect adjusted EBITDA for the fourth quarter to be approximately $575 million, which would result in full year adjusted EBITDA of approximately $1.8 billion.

We continue to see consistent and strong end user consumption in our North American flat-rolled markets.

We did see a pause in order rates and a decline in index pricing beginning in Q3.

Impacts of this dynamic are being realized in Q4.

$575 million would represent margins of approximately 15% in the quarter, roughly 500 basis points above Q4 of 2017.

Let me go through some highlights of our balance sheet and capital allocation strategy.

In September, we upsized and extended our European revolver.

This enhancement provides additional liquidity and flexibility in our capital structure and has allowed us to take additional actions to optimize our debt maturity profile.

In October, we drew on this facility and repatriated approximately $220 million of low cost capital to the United States.

As announced last night, we will be using these proceeds, along with approximately $140 million in cash on hand to redeem the remainder of our 2020 senior notes.

This is our highest coupon debt and excluding the revolver drawing, is the only significant maturity between now and 2025.

We will continue to be vigilant on our capital structure, but this redemption completes the major body of work on the balance sheet that we began last summer.

Upon the completion of this redemption, we will have made the following improvements since Q2 of '17: debt reductions of $554 million; extended average maturities of over 9 years; reduced annualized interest expense of $73 million.

With that work behind us, we are pleased to announce the share repurchase authorization of $300 million over the next 2 years.

This authorization is a reflection of the strength of our balance sheet, the strong fundamentals in the steel industry and the structural improvements we have made to our company.

We are pleased to be taking this first step and expect direct capital returns to our stockholders to be a core component of our capital allocation strategy going forward.

We are committed to creating long-term stockholder value, as we execute our disciplined and balanced capital allocation strategy.

With that, I'll turn it back to Dave.

Thank you, Kevin.

Before we move to Q&A, here is a quick recap.

We have worked hard to strengthen our balance sheet and credit profile to create a solid foundation to support our business.

We are making progress on our strategy to create value by: one, focusing on our most attractive markets by investing in our customers, with a focus on creating differentiated solutions that will help our customers succeed; two, moving down the cost curve through the investments we are making in our facilities to increase productivity; three, moving up the talent curve by providing our employees with the training and resources they need to succeed.

Effectively executing our strategy will secure our long-term position as an industry leader.

We are making progress and see many opportunities for our future.

As we create value, we must make sure the value we create translates into rewards for our stockholders.

We believe we are now making progress in this very important area.

Dan, let's move to Q&A.

Thanks, Dave.

Brad, can you please queue the line for questions?

(Operator Instructions) And we'll go to the line of Chris Terry with Deutsche Bank.

A couple of questions from me.

Just on 4Q specifically.

I guess you still hit the 3Q numbers.

So you're saying, just to be clear, that what you flagged around the market is going to hit more in the 4Q?

And can you just give a little bit of color around the volume versus pricing?

We had slightly higher volumes expected in the 4Q.

Are you saying most of it is price-related?

Or is there a little bit of volume impact there as well?

That's the first question.

Yes.

Sure, Chris.

This is Dan.

So we did reduce our full year guidance, volume guidance for Flat-Rolled from 10.8 million to 10.6 million.

The slowdown in order rates lasted longer than we anticipated.

It's just the order rates didn't get in there in time for us to get fourth quarter shipments in.

We actually had a shortfall in October because we had order rates that's going to then trickle down into November, December.

So about a 200,000-ton impact on what we've expected for volumes.

And then the steep drop in prices.

You saw us here, huge dip, $90 in a pretty quick run.

That's going to flow through into our spot tons and our monthly adjustable tons for the most part.

So those are the 2 big moving parts: a couple of hundred thousands on the volume; and then the impact of CRU dropping, it hits about 40% of our volumes.

Great.

The second question I had is on the CapEx.

So it looks like there's around a $50 million increase in 2018 to $1 billion.

That's if revitalization spending remains unchanged at $275 million to $325 million.

Can you just talk about that increase?

And then I guess backing it out, about $700 million is nonasset revitalization.

I know you don't want to talk fully around 2019, but can you just talk about the direction of that $700 million?

Yes, I'll comment.

This is Kevin.

Some of that increase from $950 million to $1 billion is really timing of payables, depending on -- it's not necessarily doing a tremendous amount of additional work in the quarter, but timing of payables does factor into the cash impact in the year.

So right now, it's looking like closer to $1 billion is the right number for us.

We did mention that next year is the kind of the peak year for revitalization in terms of CapEx, and that remains to be the case.

We'll give a lot more detailed color on that in January.

But we are expecting overall capital expenditures to be higher in '19 than '18.

And our next question will come from Matthew Korn with Goldman Sachs.

Well done on the steps taken so far in capital allocation.

First question.

You've been first out of the gate with the substantial restart, post the new tariff regime.

And there have been a number of announced expansion since then from other steel companies.

Do you believe that it's realistic that most of these are going to get built as planned over the next couple of years?

How destructive would you expect this to be to pricing?

And then I guess last, what are your own plans after finishing your capital revitalization program that you're going to start looking at growth?

This is Dave.

While I can't speak to what the others are going to be doing for sure, I can tell you that we feel comfortable about what we've done with Granite City.

That was clearly the right decision to make.

We believe that this administration is going to stay true to creating this fair trade environment.

So we're comfortable with where we are.

We're focused on revitalization of assets and making sure that we carry through that program and making sure that these assets are as productive as possible.

As far as adding a bunch of capacity, that's not going to happen.

We're going to run the assets that we have exceptionally well and do our best to return value to our stockholders, especially over the longer term.

Got it.

I hear you loud and clear there.

I just want to be clear.

We can grow profitably without increasing capacity.

That's a high priority for us to continue to grow profitably, but we can do that without increasing capacity.

Let me follow up with this then.

Coal costs are rising.

Some Appalachian producers are noting their contract price increases for the coming year.

Where do you stand right now on your coal sourcing for next year?

How much of an increase can you -- do you face, if you can quantify that in any way?

Matt, this is Dan.

We are traditionally negotiating with our suppliers.

We take a lot of actions within our blends to help minimize the impact.

We certainly are going to see a price increase, but we're not ready to quantify it yet.

We'll certainly give you guys more color on that in the January call.

But directionally, they're going up.

We are still actively thinking about what we can do to try and maybe offset that by shifting our blends around.

So that's just where we are right now.

And we'll move to the line of Seth Rosenfeld with Jefferies.

Seth Rosenfeld from Jefferies.

Two points, I guess, on the European operations, please.

With regards to the European inventory revaluation, can you give us a little bit more color on the drivers of that, so due to FX or raw materials?

Of course, recognizing that, that facility is non-vertically integrated.

You've seen strength in both iron ore and coking coal.

So I'm surprised by that announcement.

And secondly, the guidance for Q4 earnings will be down Q-over-Q, another bit of a surprise there given that you won't see a repeat of the realign from Q3.

Also Q4s are like seasonally stronger.

So should we think that, that decline is primarily because of the revaluation?

Or are there other headwinds such as orders?

Yes.

This is Dan.

So yes, we called out that revaluation is the main reason that results will be down a little bit.

So on the commercial side, on the other moving parts of the business, pretty flat quarter-to-quarter.

This is just a FIFO accounting inventory revaluation.

We have this on a regular basis.

It tends to go back and forth during the year and net itself out pretty well.

And in fact, when you look at the net impact of the entire year, it's not material.

But it was a big enough factor to call out as why you're seeing a downturn in 4Q as opposed to 3Q.

But there's really nothing more to it than that.

Like I said, commercially, things are just -- basically, European market is staying pretty stable.

Yes, shortly, we have pricing.

Europe picked up in Q4 more than we saw this year, but that's really the moving parts.

And just a follow up with some of your customer contracts going into 2019.

I know that you have some longer-term sales exposed to, let's say, orders in sort of white goods end markets.

Some of your peers in the Central European market have talked down on pricing expectations into 2019.

Do you have any view on the potential outlook there?

I would say that since we are negotiating with our customers, we tend to respect the confidentiality of that.

And we really think that's commercially sensitive information that we don't want to get into.

And we'll go to the line of Michael Gambardella with JPMorgan.

Congratulations on the capital allocation transformation and especially on the buyback this morning, the equity buyback.

I have a question.

You mentioned the buyer strike and how you think it's temporary.

And you said demand remains strong.

But could you give us some other indications why you're so confident that this is a temporary phenomenon going into '19?

Sure.

Order rates, lead times, those are the things that we're seeing a greater sense of urgency, particularly with service centers to fill orders.

So clearly, U.S. scrap pricing seemed to be coming up.

And so we feel that things are coming back in line.

In fact, I guess in the last couple weeks, we've seen some -- the price drop as more stabilized and headed in the opposite direction.

So clearly, to us, that was a temporary slowdown.

And we do think things are coming back and setting a good stage for another strong year in 2019.

And we'll go to the line of David Gagliano with BMO Capital Markets.

Just a couple of longer-term questions, I guess.

Once the asset revitalization program is finished, what will the annual raw steel production capacity be versus the 17 million tons that's disclosed in this quarter specially?

Yes.

Dave, the capacity is not changing.

It's going to be our ability to get more productivity out of that.

There's always limitations on how much you can get out of your nameplate capacity based on scheduled maintenance and then unplanned downtime along the way.

And so our objective is we're going to make these operations run better, run more efficiently, run more lively.

So our expectation is that we're going to get more production out of that same footprint.

So it's not an increase in capacity, it's just better utilization of our existing capacity.

Okay.

And then just a question for Dave.

Last quarter, you indicated, at least on the call, it sounded to me like your main message was you've earned the right to grow.

You indicated, at least from my perspective, you're focusing on growth rather than capital returns in your term.

Now this quarter, you're saying you can grow through profitability rather than adding capacity, and obviously, you've got this buyback authorization, which I agree is a good step in the right direction.

I'm just kind of curious.

What changed versus the comments in August?

We'll, I don't know that anything really changed.

You have to realize where we were at what point in time.

We've always said that we want to grow profitably, and that's our top priority.

We're finding the appropriate balance.

You have to realize where we were, and the things that we were thinking about.

We're in the midst of labor negotiations.

We're thinking through the rest of the balance sheet changes that we just announced.

And so once we have those things essentially behind us, we'll have to see if the labor agreement gets signed.

We're optimistic that it will get signed, and this positions us well to be able to make this a regular part of our capital allocation strategy.

But clearly, we continue to believe that growing profitably, without growing capacity, and working on our productivity with revitalization of assets is in the best long-term interest of our stockholders.

And when we position ourselves in a good position like we are right now, we're happy to return to stockholders.

And again, I'd like to continue to make this priority because it is a very valuable way for us to return value to the stockholders.

Yes.

That's helpful.

Just one more quick question.

It looks like for the asset revitalization program, obviously, you spent about $550 million so far.

There's another $1 billion left for '19 and '20.

My question is, for 2019, what are some of the key larger projects?

And what's the timing of those projects during 2019?

David, this is Dan.

I think I said we designed this to be a series of smaller projects, so it's less disruptive to operations when thinking of our customers.

So I would say there aren't any big one-off projects.

It is just a series of smaller disciplined projects to get us where we need to be.

The pace and timing over the course of the year, well, we're moving pretty much as fast as we can.

So it should be a pretty steady pace for us.

I'd just say this D4 outage at Great Lakes Works, this is a big deal for us.

This is an extended outage to make sure that we are able to put things -- in fact, the outage lasted a bit longer than we had originally planned, but we were able to get more things done through that outage.

So as we've said, when we can move faster, we will move faster on these things.

And when our assets perform, we end up performing as a company.

We'll go to the line of Timna Tanners with Bank of America.

Yes.

Thank you for the detail and the comments on last weekend's tragedy.

I wanted to just start out and kind of probe a bit more on Tubular.

So nice turnaround in profits there.

What does it take for U.S. Steel to change its current footprint and perhaps restart or kind of regain its presence in the market?

Because clearly, you have, in the past, been a larger player there.

What do you see for that market?

Why have imports stayed so high?

If you could talk a little bit about tubular.

Yes.

Timna, this is Dan.

In the imports, you know, the import quotas, they've certainly addressed some of the more damaging players, I would say.

But it's still -- there are still supply.

It's still a competitive market.

We are seeing our shipments move up.

We are -- 4Q, we expect higher shipments that we've seen since probably -- or been in 2015.

So we're making progress there.

As far as the facilities we shut down, they were in very good condition.

When we shut them down, customers really are going to dictate whether that is -- that product and those facilities are needed.

Certainly, just like with our Flat-Rolled, we are responsive to our customers.

But the customers will really determine, are those facilities -- do those facilities belong back in the market.

But they were in good condition when we shut them down.

So they're still there, and they're still available to us.

They're not a big capital investment required to get this back up and running, you think?

It shouldn't be, no.

Tubular mills are more finishing mills.

They don't have nearly the complexity of a blast furnace steelmaking operation.

And then if I could just try to follow up on 2019 outlook a little bit.

I know you've said you're going to provide more detail next quarter, but it'll be really helpful to kind of understand what kind of operations you might be running.

And I know you just mentioned that it should be less disruptive.

But we're running all furnaces as I understand in Q4, right?

So Granite City's second furnace ramped up.

I mean, do you expect that Q4 utilization to be sustained through 2019?

Can you give us any more color on what kind of disruption or utilization we should expect to see for next year?

Actually, we talked a little bit about this on the call last quarter.

I think I may have answered one of Curt's -- Curt Woodworth's questions.

But we are going to take more downtime at Gary, Great Lakes and Mon Valley than we did this year due to the asset revitalization work.

The trade-off is that we do have Granite City on line for a full year.

And right now, our expectation is that we're going to need those furnaces.

That's what demand is telling us or at least our forward look.

We're running -- we expect them to run in about 80% of our nameplate utilization in 4Q.

When you take -- when you adjust that for impacts that our mix have on our utilization impacts or asset revitalization, we're running north of 90% in 4Q.

So we're running pretty hard.

As the markets are telling us we need those furnaces on, we'll keep them on as long as we need them.

I think we have a pretty good track record over the last decade of doing an effective job of matching our production to what customers need.

And I think that you should expect us to continue that way.

And we'll go to the next question that will come from Phil Gibbs with KeyBanc.

So Dave, it looks like the shipment guidance for Flat-Rolled is taken down just a bit to 10.6 million from 11 million.

But the 4Q utilization, I think you've noted going to 80%.

So that implies some building of inventory in the fourth quarter heading into 2019.

Question is, is that the right read?

And why build inventory into next year?

Phil, this is Dan.

That's actually a normal process for us.

The 2 options you have when you think about the winter conditions in the Great Lakes, we know we're going to have to stop shipping pellets for a period of time.

So how we prepare for that is pocket a certain amount of pellets on here.

But we also have to stock a certain amount of semi-finished steel here to make sure we have the right total.

There's a limit to how much pellets -- how many pellets we can bring down here and store.

So we combine that with semi-finished steel to make sure we're well prepared for the Great Lakes loss outages and what their duration could be.

And Kevin, there is some good pruning of the debt and maturity extension that's taken place over the last couple of years, which is to be applauded.

That's great.

Question is just what we should be anticipating after this recent redemption in December for interest expense moving forward?

Yes.

So we're going to be below $150 million going forward.

And again, the only thing we have between now and 2025 is that EUR 200 million draw on the European revolver, which has got a 5-year duration on it.

Everything else is really out beyond -- out to and beyond 2025.

So we're feeling really good, Phil, in terms of kind of clearing the runway for us to continue to improve this company without anything really coming at us anytime soon.

So below $150 million.

And we'll go to the line of Paretosh Misra with Berenberg.

I have one on your capital allocation plans.

Is there any CapEx level where you might max out on capital spending next year just to allow share buyback, especially if the stock looks cheap like it is right now?

So the way we do our capital forecasting, obviously, a very kind of elaborate and detailed process.

And we're always considering the needs of the market to make sure that -- I would say, that's the toggle point.

We want to make sure we're able to serve our customers.

But we don't put a specific cap on it.

As I've said, it's going to be up next year due to the peak year in AMP.

But we don't really think of it as putting a cap to allow room for return of capital.

Again, we're really pleased to be able to do this $300 million as a first step.

As Dave said, we see this as a permanent part of our allocation methodology going forward.

But we're not looking at '19 as CapEx as a way to make room for additional share return -- capital return.

Got it.

And then a quick one on Granite City.

What are the main end markets for the products that you make at this plant?

Historically, Granite City has served service center construction in the energy tubulars, the world of pipe makers.

But it also helps us balance our loads on the other plants by having that facility running.

We have the opportunity then to put the aged plant of products it's best at making.

But Granite City's primary markets as a standalone will be construction service centers and the world of pipe makers.

And we'll go to the line of Matthew Fields with Bank of America Merrill Lynch.

I'd like to echo the comments on the capital allocation.

Just a clarification, I think Kevin said, did you say EUR 220 million borrowed on the European revolver?

No.

220 million was the USD repatriation.

We drew down EUR 200 million, and we brought back to the U.S. 220 million in dollars.

Okay.

Great.

So basically, just -- I guess my question is, net-net for the cash actually spent, your total sort of total debt will be down to about $2.4 billion, is that...

A little less than that, but close.

And sort of given, I guess, where we're at in for next year with prices kind of at the 2018 average.

Currently, more downtime predicted and more CapEx predicted for next year.

Is the intention to have some of that prepayable debt in Europe paid down over the course of the year?

Or are you comfortable with that a little less than $2.4 billion amount currently?

I think we're comfortable where we are right now.

So again, obviously, it's a revolver.

There's no frictional clause to change that up or down.

But right now, we're thinking keeping that drawn at roughly to EUR 200 million.

That's the plan.

If that changes, certainly, you'll know about it.

Our next question will come from the line of Derek Hernandez with Seaport Global Securities.

Congratulations again on the buyback announcement.

I think that's very positive.

On the shift in the capital allocation strategy, I know you've spoken a little bit about your allocation methodology.

But how -- if you could give us a little more color on the priorities between this and CapEx and other options, that will be much appreciated.

Yes.

So -- and Dave kind of laid it out, right?

Obviously, we're nearing the midpoint on revitalization, and it's still a big commitment.

And we fully intend to follow through on that, especially given the stability, the predictability of our assets and the improved yield and performance.

So that's a big deal for us, and that's going to stay a high priority.

But we said on the last call, we want to make sure that we've got an equity-friendly approach to capital allocation.

And given where we are with the CBA, as Dave said, our feeling about the strength of the industry and all the other attributes, we felt like this is the right time to introduce direct capital return.

And so we're happy to do that.

And again, we think it's something that we can continue going forward, especially given the strength of the balance sheet.

I see.

If I may, as well.

I was just wondering if you had a ballpark idea on the scale of the inventory revaluation adjustments this following quarter?

For the following quarter?

Q4.

Everything else in Europe was basically flat quarter-over-quarter.

When we call out to kind of why there's a change, you have to talk about what's the large fees but, frankly, no pieces there was shifting at all.

That happen to be the largest one.

Like I said, the fact is that we had actually benefits earlier in the year, so the net effect on the year is immaterial.

And our next question will come from the line of Alex Hacking with Citi.

Can you please remind us if you have an estimate for how much revitalization expense that you're going to incur in 2018?

So that's kind of expense through the income statement separate from the CapEx piece.

I guess I'm just trying to figure out like how that $1.8 billion EBITDA number looks, potentially on a more normalized basis in these market conditions.

Yes, Alex.

So the expense related specifically to asset revitalization project is about $150 million this year.

We said it would be $500 million over 4 years.

It was about $150 million last year.

So we expect that asset revitalization expense just related to specific to projects will actually tick down a little bit in '19 and '20 from where it was in '17 and '18.

That's real helpful.

And let me just add my congratulations on the buyback.

And our next question will come from Nick Jarmoszuk with Stifel.

I was hoping you could talk about the thought process behind using the Košice facility for the debt pay down as opposed to using the U.S.-based revolver.

Yes, it's Kevin.

A lot of it was about efficiency.

We were very comfortable having a higher level of debt in Europe given our presence in Košice.

The pricing on this debt is your LIBOR plus 170 basis points, with a 0 floor.

So at today's negative LIBOR, we're talking about borrowing at 1.7%.

So effectively, we're taking out 7.375% debt with 1.7% interest debt.

And we can bring it back frictionless, so tax-free bringing it back to the U.S. So it was really economics that drove it and a nice play from an efficiency standpoint, we think.

Okay.

And then could you provide any comments on the Granite City restarts?

How the ramp has looked and whether you experienced any issues?

This is David.

Granite City has done very, very well at both.

The B furnace and the A furnace started on time and are delivering what it was intended to.

We're very pleased with the progress, and we intend to keep them open because that's a good value.

As we look into next year, of course, we are going to be doing more revitalization of assets, so that if things do go wrong, we do have Granite City as a backup to be able to provide the type of volumes that our customers need.

So we feel good about opening it up, and we expect it to continue.

And our next question will come from John Tumazos -- and I'm not positive on the conference -- company.

Is it John Tumazos Very?

John Tumazos Very Independent Research.

Congratulations on the progresses.

Could you give us an update on the status of the Fairfield electric furnace shop?

Could you explain the complexities or flexibility if you chose to run that plant at its former full semifinished capacity to sell slabs?

And could you talk about tubular market share?

The oil price got almost normal, and you have the import protection.

In the good old days, the tubular volumes were 2, 3x the current levels.

I'm a little disappointed they haven't rebounded better.

Well, thanks for the question.

I would say Tubular is coming back.

We did have a very small profit here in the third quarter.

We expect that trend to continue, and we do feel a lot better about the Tubular business in terms of its strength.

As far as the electric arc furnace and what it's purposed for, certainly, we could have the capability to run the slabs.

We're really -- we've said many times now that it's not a question of if but when.

But with respect to the labor ratification process and some of the details, once we have that ratified, we'll be able to talk more fully about what we intend to do about EAF.

But we want to respect that ratification process, and then mid-November, we expect it to be signed.

And we can have some more details after that.

John, we do have a smaller Tubular footprint than we did have several years ago.

That furnace is about a 1.6-million-ton furnace.

Right now, we would need rounds to feed the Fairfield pipe mill and the #3 mill at Lorain.

So the furnace has more capacity than what we need it for our round caster.

We still have slab caster at Fairfield.

So we would have the option of making slabs if we needed them either to convert in our own operations or for sale.

And we'll go to the line of Karl Blunden with Goldman Sachs.

I understand the comments about Granite City and being able to potentially pick up some volumes there if there are shortfalls in the rest of the network next year.

One thing I was curious on was what the cost profile is like for that asset today.

I noticed one of the higher-cost assets when it was shut down initially.

So what kind of an EBITDA impact could we see if we did have to shift some volumes over there to fill the temporary shortfall elsewhere?

Well, I'm not -- and this is Dave.

I'm not sure why you think that would be the high-cost asset.

Actually, those assets are in good shape, running well and are a positive contributor to our business.

The reason they were shut down before is simply related to absence of volumes and driven, in large part, by unfair trades.

So these are good assets, and they're going to get better.

There are just no material impact if you have to shift volumes, it sounds like it's one way to summarize?

Yes, Karl.

This is Dan.

Yes.

I mean, the cost structure of that plant is the same.

Well, first of all, the same materials, our pellets flowing over all of our coal.

So as Dave said, that facility was idled because its primary markets were the most of severely hit in the downturn.

So it wasn't about costs, it was about markets.

There is no reason that plant has a different cost structure than the rest of our system.

Okay.

Got you.

That's very helpful clarification.

And then just on the destocking intensity.

Maybe this is very hard to figure out.

But has there been any change, an acceleration, deceleration by months as you've seen it over the last 2 months or so, while the quarter has been operating?

Is there any sign that it's abating?

We're seeing it overreach blocks.

So we're seeing the turn in the other direction now.

Our daily order rates have been growing the last couple weeks.

And currently, our last question in queue will come from -- a follow-up from Phil Gibbs with KeyBanc.

Just a question in terms of how much maintenance and outage expense we should expect in Q4 relative to Q3?

So maybe just directionally, maybe some color there.

It wasn't a real factor.

You're talking about Flat-Rolled?

Yes.

Nothing material.

It's not a material change that we would call out, no.

So fourth quarter versus third quarter should be pretty similar maintenance expense?

It looks that way.

During third quarter, we had a big, big project with D4.

But fourth quarter, we have a lot of other projects going on.

And typically in fourth quarter, you'll see seasonal downturns in customer demand, well, for some of the more contracts -- some of the bigger contract customers.

So we think about the opportunity to do work on the facilities when it matches demand patterns.

So nothing -- no big projects in 4Q, but a lot of activity going on still.

And Kevin, why the increase in full year pension expense and contributions?

Actually, Phil, we had some settlement charges based on retiree, right, based on patterns of retirements.

It just depends on who retires when and where they fall in the plan.

Those are like one-off settlement charges that go on top of your normal cost.

The basic cost or service cost plus contributors -- contributions such as pension cost, just depends on who retires and when.

And we do have a question that comes from the line of Paul Cleary with AIG.

I think a bunch of mine were asked and answered already, but just one on the CapEx.

So you guys increased that.

Is that a -- and then you guys are reaching kind of peaked CapEx at midpoint next year.

Are you guys pulling forward from CapEx there or are you just increasing them for the overall revitalization plan?

Can you say that again?

It didn't come through all clear.

Can you say that again?

Yes, sure.

So you guys are reaching peaked CapEx midpoint next year on the whole revitalization plan.

I'm just wondering if you guys are increasing spending there.

I'm just wondering if it's a pull forward or if it's an increase for the overall plan.

It's really not about the asset realization spending.

We always have smaller, attractive growth projects on our books.

But if they don't make it into the original capital plan for the year, we have some flexibility as business needs evolve to green light some of those projects when it makes sense.

And it's just those type of small projects that are attractive projects that didn't make it into the original budget for the year.

Based on where we thought the business was going to be, certainly, we've seen the business be much stronger than we thought.

And what -- I mean, may I ask what are the couple of smaller projects that you guys are looking at?

These are just different growth projects embedded throughout the business.

No one of any size that really is worth calling out.

And that does conclude the questions for today.

Dave, some final remarks for us?

Yes.

I'd like to end the day with some comments about our safety performance.

Safety is and always has been our top priority.

U.S. Steel has a long and proud safety legacy, including being a founding member of the National Safety Council in 1913.

We continue this legacy today as well as our partnership with the National Safety Council, sharing our mission of eliminating preventable deaths.

Last week, I was honored to join the National Safety Council Board of Directors.

Additionally, our company was accepted into the Campbell Institute, the National Safety Council's center of excellence.

These partnerships complement our regular benchmarking efforts to continuously improve our safety process.

As we drive to reduce injuries, we create value for our employees and customers.

I'm proud to say that since the beginning of the year, we have reduced our days away from work injury frequency by over 17%.

For contacts, we are 80% better than Bureau of Labor Statistics for iron and steel and 46% better than the American Iron and Steel Institute when it comes to days away from work injury frequency.

Safety remains our most important core value.

And I'd like to personally thank each of our employees for their hard work and dedication in driving continuous improvement in our safety performance.

We believe our intense focus on our operations and improving safety, quality, delivery and cost will result in more reliable and consistent results and create value for all of our stakeholders, our stockholders, our customers, our employees and the communities where we operate.

Thank you.

It's time to get back to work.

Thank you.

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