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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day and welcome to the Steel Dynamics Third Quarter 2020 Earnings Conference Call. [Operator Instructions] Please be advised this call is being recorded today, October 20, 2020 and your participation implies consent to our recording this call. If you do not agree to these terms, please disconnect.
At this time, I would like to turn the conference over to Tricia Meyers, Investor Relations Manager. Please go ahead.
Thank you, Shomali. Good morning and welcome to Steel Dynamics third quarter 2020 earnings conference call. As a reminder, today's call is being recorded and will be available on our website for replay later today. Leading today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer. The other members of our senior leadership team are joining us on the call individually, as we are all following appropriate social distancing guidelines.
Some of today's statements, which speak only as of this date may be forward-looking and predictive; typically preceded by believe, expect, anticipate or words of similar meaning. They are intended to be protected by the Private Securities Litigation Reform Act of 1995, should actual results turn out differently. Such statements involve risks and uncertainties related to our steel, metals recycling, and fabrication businesses, as well as the general business and economic conditions. Examples of these are described in the relating press release, as well as in our annually filed SEC Form 10-K under the heading Forward-Looking Statements and Risk Factors, found on the internet at www.sec.gov, and if applicable, in any later SEC Form 10-Q. You will also find any reference to non-GAAP financial measures reconciled to the most directly comparable GAAP measures in the press release issued yesterday entitled Steel Dynamics Reports Third Quarter 2020 Results.
And now, I'm pleased to turn the call over to Mark.
Well, thank you, Tricia. Good morning. Welcome to our third quarter 2020 earnings call. We appreciate your time and thanks for joining us today. We continue to operate safely and are still closely monitoring the COVID-19 situation. Protecting the health and welfare of our teams is our highest priority. I thank each of them for their continued diligence and commitment. I'm incredibly proud to work alongside each of them, especially during this unsettled time. They are a very special group, accomplishing extraordinary things. We are committed to them, their families and our communities, all while supporting our suppliers and meeting the needs of our customers.
So without further ado, I will hand the mike to Teresa to provide further insights into our strong third quarter performance.
Thank you, Mark. Good morning, everyone. Our third quarter 2020 net income was $100 million or $0.47 per diluted share above our guidance of $0.42 to $0.46 per share due to stronger than anticipated flat rolled steel shipments and metals recycling earnings. Our third quarter results were reduced by cost net of capitalized interest associated with the construction of our Sinton Texas Flat Roll Steel Mill of approximately $0.04 per diluted share. Excluding these construction costs, third quarter 2020 adjusted net income was $0.51 per diluted share, also above our adjusted guidance of $0.46 to $0.50 per share. One comment before proceeding, the compatibility of third quarter 2020 financial results to prior year amounts isn't favorable. But to achieve what our teams have achieved in this environment is simply incredible. And I want to add to Mark's comments and sincerely thank and congratulate them.
Our third quarter 2020 revenues were $2.3 billion, 11% higher than second quarter sequential results, as volumes improved across all three operating platforms. Our third quarter 2020 operating income was $156 million, fairly steady with the sequential second quarter, but 32% lower than prior year results due to lower steel prices resulting in metal spread compression. However, currently, we've experienced a very strong rebound in domestic steel demand from the second quarter sequential COVID-19 induced trough environment. Customers steel inventory levels were extremely low entering the second quarter, and then were drawn down even further based on market uncertainty. From an operating platform perspective, our steel operations delivered an outstanding performance during this challenging time. Third quarter steel shipments of 2.7 million ton were 7% higher than the sequential second quarter shipments, and on par with prior year's third quarter volume. Our steel mills operated at 85% of their capability, while the rest of the domestic industry operated at only 64%. Due to the momentum from our record first quarter volume, our year-to-date steel shipments are only 1% lower than in 2019.
Our ability to maintain higher steel volumes is a result of our value added highly diversified product offerings, our supply chain differentiation and our internal downstream manufacturing businesses. However, based on timing and the impact of flat roll contract related sales, our average quarterly realized steel price per ton declined sequentially, more than offsetting the benefit of lower scrap costs and higher volumes. Our average quarterly realized external steel sales price decreased $21 per ton sequentially to $734 in the third quarter, an average scrap costs only declined $7 per ton, resulting in steel metal margin compression. The result was third quarter 2020 operating income of $144 million for our steel operation, 17% lower than the sequential second quarter.
As states began reopening and domestic manufacturing improved, scrap supply and collection increased. This in combination with higher domestic steel production drove significantly higher ferrous scrap volume. Our operating income from our mills recycling operations was $15 million in the third quarter of 2020 compared to a $6 million loss in the sequential second quarter. We also are benefiting from the addition of Zimmer, our newly acquired Mexican metals recycling business. The acquisition was completed in August. It's a key cog in our ongoing raw material strategy for our new Texas Steel Mill.
Our Metals Recycling Operations provide a competitive advantage for sourcing ferrous scrap or steel mills allowing for increased scrap quality; melt efficiency and reduction of company wide working capital. Our vertically connected operating model benefits both platforms. Our Steel Fabrication business had a record operating income of $39 million in the third quarter, compared to sequential results of $27 million due to record shipments and margin expansion as product pricing increased while steel input costs declined. We continue to experience a strong order backlog and customers remain positive concerning our non residential construction projects. In fact, the Steel and Joist Institute recorded one of its strongest historical booking months this last September. Our cash generation continues to be strong based on our differentiated business model and highly variable cost structure.
During the third quarter of 2020, we generated $152 million of cash flow from operations and $849 million during the first nine months of the year. We also invested $855 million in fixed assets, of which $640 million was invested in our new Texas Flat Rolls Steel Mill. For the fourth quarter of 2020, we believe capital investments will be roughly $400 million, of which our new Texas Steel Mill represents $360 million. We currently estimate capital investments for the full year of 2021 to be in the range of $850 million, with the Texas Steel Mill representing about $700 million of that amount as their operations are still expected to begin mid year 2021.
In addition, I've been getting a lot of questions about our effective tax rate. For 2020, the effective cash tax rate will be approximately 20% for the year. However, based on credits we expect to receive due to the certain Sinton Texas Mill, we would expect 2020 cash taxes to only be approximately 3%. Regarding shareholder distributions, we maintained our quarterly cash dividend at $0.25 per common share after increasing at 4% in the first quarter of this year. Since 2016, we've also invested $1.3 billion in our common stock, representing over 15% of our outstanding shares, and $444 million remains authorized for repurchase at the end of the third quarter.
Additionally, we opportunistically access the investment grade capital markets in both June and October of this year, extending our debt maturity profile and significantly reducing our effective interest rate. We're thrilled with the differentiation our investment grade bond investors recognize that Steel Dynamics provides in our fundamental free cash flow generation capability on a through cycle basis. As evident in October, we issued $350 million of 1.65%, seven year paper, and $400 million as 3.25% 30 year paper with proceeds intended to refinance our existing 2025 notes, and other general corporate purposes.
These actions reflect the strength of our capital foundation, consistent cash flow capability and strong liquidity profile, demonstrating our confidence and our sustainable through cash strong generation. We enter 2020 in a position of strength with ample cash and available liquidity of $2.8 billion. And at the end of the third quarter, we maintain strong liquidity of $2.5 billion comprised of cash of $1.3 billion and our fully available revolving unsecured credit facility of $1.2 billion. Pro forma our October financing activities, our liquidity would have been $2.8 billion. As a reminder, you're seeing this is our performance in the current market environment. And you can look historically at our financial performance to determine either a future trough or peak, we've grown significantly transformed our Columbus Flat Roll division, further diversified our steel product offerings and incorporated even more levers to increase our through cycles financial performance.
In addition, collectively, our primary reason and plan strategic growth investments provide an estimated incremental annual future EBITDA of over $425 million on a through cycle historical spread basis. This estimate includes our Texas Steel Mill and third Columbus Metallic Coating line, as well as our two operational rebar expansions. We are simply even more agile today than ever before. We more than doubled our annual free cash flow from operations to $1.1 billion from 2015 to 2019, compared to 2010 to 2014. We are dedicated to preserving our investment grade credit rating, our capital allocation strategy prioritizes responsible strategic growth with appropriate shareholder distributions comprised of a base positive dividend profile that is complemented with a variable share repurchase program. We are squarely positioned for the continuation of the sustainable optimized long-term value creation. Some of you also use some more detailed information for flat roll operations. I'll give you the third quarter shipment profile now; our hot roll coiled shipments for the third quarter were 803,000 tons. Our cold rolled shipments were 144,000 tons. And our coated shipments were 1,013,000 tons for a total of 1,960,000 tons. And on a personal note, I really do want to thank our teams for their passion and their generosity, and really the care they're showing for each other's health and safety. Mark?
Thank you, Teresa. Thank you for clearly articulating the differentiation of SDI amongst its competition, I think we've just navigated just navigated to an incredible cycle, then turn and then recovery and the performance that our team is turned in is just the beyond words, it's humbling. And speaking of them, in the end, nothing really is more important than the safety of our team. Safety is and always will be our number one value. Our safety performance continues to be significantly better than industry averages, but our continued goal is to have no injuries among our people. Our safety performance is further improved from a severity perspective. However, among some of the operating platforms, our third quarter safety results were not what we would like to see for our teams. We all must be continuous aware of our surroundings, and our fellow team members, I asked all of us to keep safety top of mind to control safety, we can take charge of safety, both in the traditional sense as it relates to keeping one another in good health.
Steel Fabrication platform delivered a remarkable third quarter performance with record quarterly volume and earnings. Our fabrication order backlog remains strong is higher than it was this time last year, and in fact higher than 2018. Customers remain positive concerning non residential construction projects. We anticipate the strength remaining through the rest of this year and into 2021. The metals recycling volumes and earnings also meaningfully improved in the third quarter. As states rescinded shelter in place mandates, and the automotive supply chain restarted, scrap flows dramatically improved through the third quarter. The same time domestic steel production utilization increased from an average 56% to an estimated 64% and first scraps demand significantly improved. As flows continue to increase and steel production remains steady. We believe scrap prices should remain fairly stable through the remainder of the year, with likely seasonal price appreciation in December, January timeframe.
We also welcome the Zimmer team into the Steel Dynamics family. The addition of this Mexican metals recycling business is a meaningful step in our raw material sourcing strategy for our Texas Flat Roll Steel Mill. The combination of Zimmer with our existing operations has already resulted in new business, and we're excited for the continued growth. The steel team continues to achieve an outstanding performance, especially considering the environment and a sincere thank you to all involved, especially our customers for helping us achieve volumes that only modestly less than record shipments achieved in the first quarter of this year. As a result of COVID-19 related implications, a considerable number of high cost blast furnaces flat roll steel operations were idled earlier this year, potentially as much as 15 million tons. Since that timeframe, as steel demand and pricing has improved, an estimated 5 to 6 million tons has been brought back online. Although some additional volume may return, we don't believe all of it will come back. The cost of restart along with through cycle market pricing not supporting ongoing profitability will likely keep significant volume curtailed, offsetting the new capacity increases to be seen over the next 24 months.
While the overall domestic industry operated only 64%; the strength of our differentiated business model, coupled with the passion of our people drove SDI steel mill production utilization to 85%. Even more remarkable, our flat roll steel mills achieve utilization 99%. In tough environments, the strength of our people and our superior business model become even more evident. As demonstrated this year, during periods of market inflection we maintain higher volumes compared to our steel peers and gain market share. And uninterrupted low cost operations provide the greatest customer optionality. Our broad product portfolio and end market diversification within value added market niches drives flexibility for our commercial teams.
Superior Supply Chain Solutions create additional value for our customers, making us a preferred place to shop. Furthermore, a powerful driver is the optionality of internal steel sourcing from our captive manufacturing businesses, what we call pull through volume. To put this in perspective, our steel fabrication platform and steel processing locations purchased 2.3 million tons of steel in 2019. Only about half of this volume is typically sourced from SDI own steel mills, but in difficult markets, where the option to direct the higher proportion of these orders internally. As states continue to reopen to varying degrees, many steel consuming businesses have resumed operations. At the same time, customer inventory levels have been reduced to extremely low levels. This combination of increasing demand coupled with low inventory reserves has resulted in a tight flat roll steel supply environment. As a result, lead times stretched out and flat roll steel pricing has significantly improved. The hot rolled coil CIU Price Index increased almost $160 per ton from the beginning of August to September, and has since increased another $40 to $50 per ton.
The automotive supply chain has experienced the most significant recovery, attending production levels of either close to or in some cases more than pre-COVID levels of concern. Our construction sector remains resilient and related steel demand has been steady as evidenced by our structural rail division volume, and our record steel fabrication shipments and strong customer backlog. The order activity from our construction sector customers combined with strength in our steel fabrication order backlog support our optimism for continued strength through the rest of this year, heading into 2021.
Residential Construction has also been surprisingly strong, generating high demand for HVAC and appliance products. The energy sector though continues to be structurally weak and will likely require long than recovery period. Related to our growth, we have a summary update of recent investments in our most recently investor deck. In the last 12 to 24 months, we've executed several strategic investments that have already or will meaningfully benefit our through cycle earnings and free cash flow position. We expanded two steel mills by the combined addition of 440,000 tons of annual steel rebar production capability, providing product diversification and a differentiated customer supply chain. This end market diversification is providing for hire through cycle utilization for our structural and Roanoke steel divisions.
We continue to expand capacity at Harlan. It is an 800,000 ton value added flat roll steel processor. The team has been operating at record levels, providing additional internal production support and operational flexibility for our Butler Flat Roll division, increasing the utilization of our steel assets and broadening our value added product portfolio. The acquisition of 75% of United Steel Supply has also been an excellent investment in addition to our portfolio. As a local distributor of pre painted construction products, it has provided meaningful channels and new more diversified customers. United Steel Supply continues to break shipping records. Since the acquisition of Columbus Flat Roll division in 2014, we have meaningfully increased it through cycling and its capability. We've transformed its product portfolio with the expansion of its value added steel capabilities and the diversification of its customer base.
The team achieved another milestone in July with a startup of a new 400,000 ton of value add coating line. Columbus now has four higher margin coating lines there. The investment both reduces Columbus' hot roll coil exposure and provides a ready Southern hot band consumer base for our Sinton Texas Steel Mill. We remain incredibly excited about the new generation of flat rolled steel mill, is significant contribution to our growth and future earnings capability. As Theresa explained, we purposefully ended 2020 from a point of financial strength, providing ample liquidity for the required investment associated with this transformational project. Our team has incredible depth of experience in the construction, startup and operation of large steel manufacturing assets. Collectively, we believe they have more experience than exists in any other company in our industry. The Texas' team's performance and momentum continues to be absolutely remarkable.
Construction is going extremely well. We're still on track for a mid year 2021 start date. We're having frequent conversations with equipment suppliers regarding the impact of COVID-19 and currently don't believe our planned schedule has been meaningfully impacted. The new state of the art 3 million tons steel mill will include two value added coating lines, comprised of 550,000 tons of galvanizing and 250,000 tons of prepaint. We'll follow the same stringent sustainability model as either steel making facilities with state of the art environmental controls and processes. Our existing steel mills have a fraction of the greenhouse gas emission and energy intensity of average traditional steel making technology. With an 84-inch coil width and up to one inch thick, 100 KSI products; the Texas mill will have capabilities beyond the existing electric arc furnace produces competing even more effectively with the integrated steel model and foreign competition. The Steel Mill is strategically located in Central Texas, near Corpus Christi. We have three target regional sales markets for the Sinton Mill, representing over 27 million tons of relevant flat roll steel consumption.
In the Southern and West Coast, United States and Mexico. We also plan to effectively compete with heavy imports in Houston and the West Coast. Our customers are excited to have a regional flat roll steel supplier. We now have three customers committed to locate on site representing between 800,000 and a million tons of annual processing and consumption capacity; we're still speaking with several other interested parties. The Sinton location provides a significant freight benefit to most of our intended customers relative to the current supply chain options. This trade advantage coupled with much shorter lead times; provides a superior customer supply chain, allowing us to be the preferred domestic steel supplier in the South and Western US. It also allows us to effectively compete with imports, which inherently have long lead times and speculative price risk. We've also made considerable progress concerning our raw material strategy for Sinton. As I mentioned, we completed the acquisition of a Mexican scrap company in August. This is a critical step in our strategy; the acquisition complements our current metals recycling business in both the US and Mexico, and Zimmer's operations are strategically located near high volume industrial scrap sources throughout Central and Northern Mexico. Prior to our ownership, they shipped approximately 500,000 gross tons of scrap annually, but they have an estimated annual processing capability of almost 2 million gross tons a year, we plan to ramp up that volume quickly.
We believe our performance based operating culture, coupled with our consumer experience in successfully constructing and operating highly profitable steel mills positions is incredibly well to successfully execute the transformational Texas growth investment. We're not simply adding the flat roll production capacity. We have a differentiated product offering, a unique regional supply chain solution, a significant geographic freight and lead time advantage and offer an important import alternative to a region in need of options. Our unique culture and the execution of a long-term strategy continue to strengthen our financial position through consistent, strong cash flow generation and long-term value creation. Clearly differentiates us from our competition and demonstrating our sustainability.
This is clearly been demonstrated during the past two quarters. Again, our commitment is to the health and safety of our people, our families and our communities, all while supporting our vendors serving our customers, and sustaining our value creation journey. Our team is extraordinary. And I would like to thank each of them for their patience, resilience and commitment during these uncharted times. They have an indomitable spirit that drives us to excellent. Additionally, a sincere and heartfelt thank you to the healthcare providers and their families within steel Nanites and those serving individuals across the world.
Thank you, be safe, and be well. So Shomali, please open the call for questions. Thank you.
[Operator Instructions]
Our first question is from Seth Rosenfeld with Exane BNP Paribas.
Good morning. Thank you for taking our questions today. If I can kick off please just with a question on kind of the near to medium term outlook for demand. In your prepared remarks you presented quite an optimistic outlook on steel demand highlighting both autos and construction. Can you just speak with regards to the outlook for Q4? How should we expect the trade off between the kinds of post COVID real demand recovery to potentially offset by normal seasonality that we've seen in the years past? What should we expect per shipments in your mills and fab businesses over that time period? And then just a follow up on that with regards to construction in particular, your comments with regards to the backlog in particular can be much more positive, we heard last week from one of your peers. Can you speak a bit about the regions or maybe the private versus public sector mix that's contributing to the optimism? Thank you.
Certainly, I would carry my comments that, as I've said in the past, you can, I think always clearly see what's happening in the marketplace through one's order book. And I think our order books across our space are in pretty good shape. But generally, obviously, fat roll demand is going to cutting probably strong momentum. There's a robust market recovery there, inventories are at almost a starkly low levels. We have low import activity, there's a -- although is diminishing, the arbitrage is still somewhat unattractive. So the supply side is very, very tight; lead times, as you see are extending; mills are -- some mills anyway have late deliveries. And all-in-all, that's driving market pricing up significantly, quite helpfully.
That being said, obviously, our third quarter results were impacted by sort of contract pricing lag. And that will revert obviously in Q4, but just specifically to the market times up in automotive, the US producers have I think achieved their anticipated 90% run rate, pre-COVID run rates. And I would say that the European producers actually are exceeding that. They're more than 100% of pre-COVID for sure. And that's being supported, obviously by low inventory levels in the dealerships. Dealerships that I talked to are struggling to get product. And I think if you look at just the automotive market in general, it's supports that; used car prices are extremely high today. And interestingly, that's somehow an impact on the scrap market. Because hoaxer, the pickup guys are keeping their cars longer.
And it's given a little tightness to the scrap supply. But nonetheless, it's a good market environment. And we believe that's going to continue. The low interest rate environment is obviously a positive as our low gas prices. I saw just yesterday, our gas prices dropped to $1 95. And so that tends to help certainly the truck sales. And I think generally, that's going to continue, the sort of urban desertion of people moving out of the cities. Rideshare sharing and Uber and most not necessarily as available. And people are needing cars. And I think automotives will remain strong. It's not just a sort of a two month three month replenishment of inventory. In that environment, we've been fortunate, we've been gaining market share. And I think both in flat roll and in MSPQ, just generally manufacturing is strong. We see residential construction, incredibly strong. And I think that's having an impact both the new construction and HVAC and appliance and garage door products, but also kind of the do-it-yourself renovation projects. There's been a change, I think, in consumer spending, people are not going out as much; they see themselves not going on vacations. And so they are actually I think spending that cash closer to home. And I think that's a positive going to next year for sure. Energy, low gas prices, low energy prices; global demand is there. So I think that's going to be weak for some time to come. A very, very strong positive is non residential construction. It's been in all honesty, incredibly resilient.
We see that in sort of heavy structural products demand fabricators are busy. Service center processes are buying stock off of our floor. And so I think there's generally low inventory through the supply chain there. And if you look at the Steel Joist Institute information, I think is incredibly persuasive. In September, Steel Joist Institute bookings were its third highest month in history; bookings are about 10% year-over-year. And it's largely driven by warehouse expansion and you keep seeing the e- commerce increasing; e-commerce in the first quarter at 11%, last quarter is about 16%. So the Amazons of the world are the distribution channel is going to remain strong. I think just yesterday, on Bloomberg, you saw Amazon reporting that they're going to be constructing about a 1,000 warehouses in the next year or two. So that business is going to be incredibly, incredibly positive, going forward. And that's translating into sort of a record backlog for new millennium, and is obviously [Indiscernible] into strong building products on the flat roll side of our business. It's HVAC pre paint is very, very strong. So I think, generally, it's a very, very positive environment, and we're very bullish. Again, you can tell what may happen as the pandemic continue to unravel. But through our eyes, through our order book today, is an incredibly solid, positive upward momentum.
So, Seth, your other questions related to the mix between private and public sector on the construction side, I would tell you that it's very heavily weighted at this point to private sector. Hopefully, if maybe some things happen in Washington, it could get more into the public sector eventually. But we're not seeing that at this point to Mark's earlier comments. And from a seasonality perspective as it relates to volumes. And we did come off record volumes for the fabrication, I'm not sure that will stay as strong, but we'd expect to see very strong shipments heading into the fourth quarter. And the split on the steel side, you really I think need to look at a split between long products and flat products. It's our estimation that given the strong demand that is existing today for the flat rolled products, I doubt you're going to see a lot of seasonality, or at least much less than you would see typically. And the long product, you're likely to see some but again, I think coming off of the very weak second quarter, we would expect to see some momentum carry into the fourth quarter environment and meet that seasonality impact.
Our next question is from Chris Terry with Deutsche Bank.
Hi, Mark and Theresa. And a quick question for me, your utilization rate is about 20% above the industry, I think you said you had market share gains in autos, just wanted if you could elaborate on other product basis or end markets where you're getting those market gains from. Thanks.
I think from automotive perspective, we are, the fact that we remain running, gave customer base optionality and just the availability of product for one thing, but secondly, the whole ESG sustainability story, I think is planning incredibly well for us and for electric arc furnace produces, particularly with the Europeans in all honesty and as they see their North American options. The fact that we have a wonderful sort of recycling ESG story is helping us now. So I think in the market share automotive is strong, also SPQ in auto, obviously, we constructed and ramped up the smaller diameter mill there some years ago. We're seeing some positive market share gains there as well.
And, I guess, the other component I would add is that with the advent of having reinforcing bar as a product set as we enter the market, we've been seeing some positive momentum from that as well.
Our next question is from Timna Tanners from with Bank of America.
Hey, good morning, guys. I wanted to dive in a little bit more if you could on the recycling and fabricated. I think my question that was maybe answered a bit but just those were really strong rebounds sequentially and even strong from a trend basis. So I was hoping that you could tell us how sustainable those might be and fab may have had a bit margin expansion on the low steel price maybe that reverses, but just in general terms like is that a good new run rate or what to think about going forward in those areas?
Well, certainly for scrapped, Timna, we would see that going forward. Obviously in that business, it's kind of an inventory flow. You buy one month and you sell the next month. So when you have a stable pricing environment, one tends to do a lot better, as opposed to the periods where you just see progressive downward pricing trends month over month, and obviously volume played a big role in recycling.
Yes, from a recycling perspective, I'd say that remember we did close on the Mexican scrap company in the first part of August, which was actually very beneficial; we find that the Mexican market is a little bit different than domestic market. So it might be a natural hedge going forward as well. In addition to that, to Mark's point, if domestic steel productions phase very strong, which we expected to stay strong in the fourth quarter, you're going to see that volume come to metal recycling arena. So we would expect it to be very steady as not improving. And I think for the fabrication, you really kind of hit it a bit too in that with the low raw material input costs it had, it really did benefit from where the steel mills sort of suffered in the second quarter. So you will see that sustainable for a little while. But as steel prices continue to increase, it's not likely that you're going to get dollar for dollar margin expansion in fabrication, but we do expect to see still very strong volumes and good results.
Got you. Okay. Thanks. And then my second question was if you could just discuss a little bit more the outlook for CapEx as a couple things I wanted to follow up on. So one is that you talk about a little higher number than possibly the $850 million compares to $700 million, $750 million in last quarters. So is that just kind of a drag from this year maybe a little lighter spending next year catching up? And how do we think about further capital allocation beyond if you could start to give us some thoughts on what you're looking at that?
Well, from the CapEx perspective, it's not more capital, Timna, but to your comment, it's actually a transfer. So we're expecting to probably spend about $100 million less in 2020. As it relates to Sinton Mill, it's just hard to project, it's when equipment arrives, et cetera, nothing is delaying the project, it's just we believe that probably about $100 million will shift from the fourth quarter into 2021. So that's why 2021 total capital estimate today is $850 million versus a $750 million. It's simply related to timing. Mark, did you want to talk about the capital allocation or -?
Well, I think Timna, our strategy is not going to change; we've always been somewhat conservative relative to the balance sheet and liquidity. We still remain very comfortable with our dividend profile, it's very manageable through cycle and it will remain intact. And during periods of excess cash flow we will continue to share repurchase program to complement that dividend policy. But right now, we see immediate strength and momentum in the markets. And I think things are good. But we'd like to see how things unravel for next three, four months, before we reinitiate any repurchase program.
And I would just add to that as a quick reminder that our sustaining capital is only $150 million per year. So as we get on the other side of the Texas Steel Mill, there'll be considerable cash generation, which we can use to Mark's point for continued growth, both organic and inorganic.
Our next question is from Andreas Bokkenheuser with UBS.
Thank you very much. Just a follow up question for you. I mean, you obviously mentioned the Texas Mill and you've talked about it before and in terms of where you intend to kind of capture market share. But in particularly now with a lot of integrated capacity down and for your point, Mark, you guys don't expect all of it to come back. Are there any particular products where you see the new Texas Mill base capturing market share namely on the auto side, products that you weren't able to produce before, but you will be able to produce with the new mills, will you effectively could just continue that market share capturing trend as well?
I think we can gone on market share on several different fronts obviously just pure economics, the geographic location of that facility, and freight savings to the customer will be very, very persuasive. Number one, number two, we will be able to be very strong option for imports that floats through Houston. So just general economics or pricing or value to the customer will be massive. And, again, as we see a 27 million ton market between Southwest, the West Coast import market and, and Mexico. But also the technology is going to allow us to produce combinations of grade, strength and dimensional characteristics that are totally unavailable today in the US. It's an 84-inch mill, although a -- let me rephrase that, it's going to make a real 84 -inch wide coil, the current 84-inch mills in the US are just the width of the row itself, and so cannot make 84-inch true width, and you need 84-inch width to get into 26 inch diameter pipe.
And so that is a very differentiating commodity, particularly when you can go to one inch thick, 100 KSI steel. The technology, as we've said in past calls, it's a thicker slab. So it's going to allow a much, much superior surface condition. And if there was a technology or minimal technology to get into, exposed automotive, this would be it. We're not advertising that, but certainly would hope we get that one day. But higher toughness, highest strength steel will certainly differentiate the product portfolio compared to what's available in the States today.
And I think from an end market perspective, what you'll see is that this will take market share along the lines, especially because we're starting with a paint line and a galvanizing metal coating line will be in the appliance arena, especially in Mexico, automotive in Mexico, HVAC, metal buildings will be a big focus point as well, then obviously, when the energy market comes back, we'll be right in the middle of that arena.
That's very clear. And in terms of sourcing of raw materials, I mean, you're obviously you've got pig iron coming in, and you have scrap from Mexico and so on. Any thoughts on HPI? I mean, we're obviously seeing some HPI capacity coming online in the US. Some of it might all be spoken for. But any thoughts on HPI that's going to be part of your product makes it a great deal going forward?
Well, we would contemplate all raw materials in honestly, I think you have obviously Nucor has been ramping up and is doing well now there. You have Cliffs will be starting their facility that likely would be ineffective from a freight perspective to go all the way down into Sinton. But certainly will find its way into the Midwest market. And just by association, they help the raw material pricing environment. Voest has a DRI or HBI facility in Corpus Christi. And I would imagine the Sinton mill would be a natural home for someone that material and so again, if the value is right, we would be consuming some of that material.
Our next question is from Chris Olin with Tier4.
Yes, sorry about that. Hey, I wanted to first see if I can get a clarification. Theresa, did you say the cash tax was 3% for 2021? And then I guess I had a mini follow up question regarding this whole market share issue. I guess my question is there were some outages, I guess unplanned if you will, at some of the steel assets or coating lines for your competitors and I guess I wanted to make sure there wasn't some type of volume or mixed benefit in the Quarter that potentially goes away or we need to think about going forward. Thanks.
I'll answer the first question, Chris. And yes, our cash, our effective cash tax rate for 2021 is likely to only be around 3%. And that's just reflective of state taxes. Because at least currently with the tax code, with Sinton actually starting in 2021, we're able to, from a tax perspective, take the immediate depreciation impact for that. And it's quite significant. So we would expect that to take care of all the cash requirements from a federal basis for 2021. And likely that would roll into having some protection into 2022 as well; we just don't have that estimate at this point.
Yes and regarding the ban, yes. There's some shifting of products here and there between the different players. But the market strength, and our results are; it's just the underlying demand profile there, which is going to remain in place for some time to come.
That concludes our question-and-answer session; I'd like to turn the call back over to Mr. Millett for any closing remarks.
Thank you. And for those remaining on the call seriously, thank you for your support and your time today to listen to our perspectives. To the customers that may be listening, sincere thank you on my behalf. And on behalf of every one of the 9,000 SDI employees and their families; you helped us through a challenging time. And we will hopefully continue to earn your business and to all our team members on the call. Again, one shout out regarding safety, please double down on safety. It wasn't a disastrous quarter in any respect, severity continues to improve. But nonetheless, we need to continue our improving trend there. And just thank you for your passion, your commitment through this challenging quarter. It's been a crazy time. But you folks have come through as always shining like superstars. So thank you, you guys. Be safe. Have a great day. Bye-bye.
Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation and have a great and safe day.