Operator: Ladies and gentlemen, thank you for standing by and welcome to the Schnitzer Steel's First Quarter 2021 Earnings Release Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. . Please be advised that today's conference is being recorded.

. I would now like to hand the conference over to your speaker today, Michael Bennett, Investor Relations. Thank you. Please go ahead, sir.

Michael Bennett: Thank you and good morning.

I am Michael Bennett, the company's Senior Director of Investor Relations. I am happy to welcome you to Schnitzer Steel's earnings presentation for the first quarter of fiscal year 2021. In addition to today's audio comments, we have issued our press release and posted a set of slides, both of which you can access on our website at schnitzersteel.com or schn.com.

Tamara Lundgren: Thank you, Michael. Good morning, everyone, and Happy New Year.

I hope you all had a good holiday break and like me are looking forward to a healthier, safer and stronger 2021. The beginning of our calendar year always coincides with the announcement of our fiscal first quarter results. This year, we are reporting our first quarter results under our new One Schnitzer operating model. The efficiencies from this model, combined with a supportive market environment, contributed to the strong results that we announced this morning. On our call today, I will review our quarterly financial results and the market and macroeconomic trends affecting our business.

I will also provide an update on the strategic initiatives and investments we have underway to address evolving industry dynamics and create long-term value through the cycle. Richard will then provide more detail on our financial performance, CapEx investments and capital structure. I will wrap up and then we will take your questions. But before we get started on this review, I would like to make two comments about the performance of our team. These past 10 months have been full of changes and challenges for all of us due to COVID-19.

The operational and financial results that I am about to discuss would not be possible without all our employees, from our frontline workers to those who have been working remotely, living our core values of safety, sustainability and integrity. Our success is the direct result of how each of you has embraced these values.

Richard Peach: Thank you Tamara and good morning. I will begin with an update on our advanced metal recovery technology strategy. Construction is steadily progressing on two major new non-ferrous processing systems on the West and East Coasts and the new Zorba separation system in the South Eastern U.S., being built to serve our East Coast operations.

Planning is also well advanced for an additional Zorba separation system in the western U.S. While we continue to move forward with great focus, we have experienced COVID-related delays to equipment delivery, permitting and construction. Subject to no further delays, we are now targeting the completion of our new installations by the end of fiscal year 2021. Once implemented, we expect the benefit to EBITDA to be at least $10 per ferrous ton, which equates to operating income per ferrous ton of $8. We also expect the new technology to increase the volume of non-ferrous recovered from shredding by approximately 20%, which equates to around 15 million pounds per annum.

Based on our planned rollout, we anticipate a quarter of these benefits in fiscal 2021.

Tamara Lundgren: Thank you, Richard. Our strong first quarter results reflect the resiliency of our operations and the agility of our team in leveraging positive market conditions while delivering on our productivity and operational efficiency initiatives and executing on our longer strategic initiatives. We have a strong balance sheet with low net leverage and interest expense, a strong track record of delivering positive through the cycle operating cash flows, an ability to invest in the growth and productivity of our company and an uninterrupted record of returning capital to our shareholders through our dividend. Our performance can be attributed to the steps we have taken over the past several years and steps which are currently underway to continually improve our business performance.

With the construction of our advanced metal recovery project expected to be completed in this fiscal year, the greater emphasis on recycling, the continued growth in global EAF steelmaking capacity and the increased metal intensity of lower carbon-based economies, the future for our business and industry is bright. In closing, I would like to thank our employees for their extraordinary efforts. It is your contributions and performance that demonstrate why we have continued to be a leader in our communities and the recycling industry for over a century. Thank you for everything that you are doing to remain safe, to keep your families and friends safe and to support your colleagues, your communities, your country and our company. Now operator, let's open the call for questions.

Operator: Thank you. . Our first question comes from Tyler Kenyon with Cowen. Your line is open.

Tyler Kenyon: Hey, good morning, and Happy New Year.

Tamara Lundgren: Happy New Year.

Tyler Kenyon: Thank you. Just with respect to Chinese relaxation of their ferrous import ban, I mean, we’ve been hearing of some cautious behavior on behalf of both buyers and sellers in the near-term, I mean, perhaps the absence of some arbitrage, given current price levels and maybe some uncertainty around regulations and quality specifications, et cetera. Kind of wondering if you were hearing the same and maybe how big you think the intermediate term opportunity is for Schnitzer and other U.S. exporters to supply ferrous material to China?

Tamara Lundgren: Well, thanks, Tyler, for that question.

And it's a very good one right now, because this is a big move to have China reemerge as a buyer of ferrous scrap in the global markets. In the last 10 years or so or let's us say 2010, yes, last 10 years or so until they banned non-ferrous imports in 2018, they were importing probably around 2 million tons – 2 million ferrous tons a year, in that range. But their buying was really underpinned by raw material pricing arbitrage. I think today and it's early on, obviously, this change was effective January 1. It's January 7 right now.

So it's very early times. But their decision, as they have articulated it and as it's been reported, is to – is driven not by pricing arbitrage, but by their goal to lower steelmaking emissions as they move to decarbonize their economy. So I think that this is impactful to the global market. I think I am sure it will take time to ramp up. But we, as a company, have dealt with China on the ferrous and non-ferrous sides for decades.

And I anticipate that they will come back and be a meaningful player in the global markets going forward.

Tyler Kenyon: Thanks for that. And yes, to your point, I mean, as China marches ahead with these longer-term plans to increase EAF steel production within their borders, I mean, do you have any expectations or any thoughts around any potential additional forthcoming shifts in economic policies to address kind of the constraints that we are seeing in scrap collection? I mean, it really seems that that's where it is just in the collection phase. The processing infrastructure seems relatively decent. But yes, curious as to how you see them resolving this problem, particularly at such high levels of Chinese steel demand right now?

Tamara Lundgren: Well, I think it's driven very much as its driven in the rest of the world by where your mills are processing and where your scrap is being generated, because no matter who you are, scrap doesn't travel long distances efficiently over land.

And so I think that their scrap collection process is going to be a function of that proximity.

Tyler Kenyon: Got it. Okay. And then just a question just on kind of the scrap flows. I think, Richard, you may have made mention to this just in your comments.

But yes, I mean I am curious if you could comment exactly where flows are now, call it versus pre-pandemic levels, and if there's kind of a significant variance pulled across grades and/or across input sources?

Richard Peach: Yes. Hi, Tyler. It's Richard. The supply volumes are still running below our fiscal 2018 average quarterly run rates by something around 10% in terms of the flow. So as the economy continues to recover, we should see volumes increase.

And as you know, we get an operating leverage benefit as the volumes go up. I think we have previously established that for every 100,000 tons, our volumes go up, we get an operating leverage benefit of around $1 per ton across all tons. In terms of your question regarding where we are seeing strength versus weakness, we have seen some increases in dealer and payload flows and a bit of a pickup in manufacturing, but also it's still lagging with less miles being driven and the generally low inventories being held by suppliers as they manage the market risk. So this is something that we are very focused on from a commercial point of view. I think we are doing very well.

But we see benefits to our volumes and our margins as supply picks up with economic improvement.

Tyler Kenyon: Thank you. And just one last one and I will turn it over. Did you enhance the per ton target from your new advanced metal recovery technology investments? Or maybe you mentioned $8 a ton of EBIT previously, $10 a ton of EBITDA, is that right to some extent?

Richard Peach: You are absolutely - you are correct there, Tyler. The – at least $8 per ton of EBIT per ferrous ton is equivalent to $10 per ton of EBITDA, so we have mentioned them both.

We’ve not enhanced the target, but we gave today both an EBIT measure and an operating income measure, but they are equivalent in nature, $10 and $8.

Tyler Kenyon: Thanks very much for that clarification.

Operator: Thank you. Our next question comes from Michael Leshock with KeyBanc Capital Markets. Your line is open.

Michael Leshock: Hey, good morning.

Tamara Lundgren: Good morning.

Richard Peach: Good morning.

Michael Leshock: So first on the steel side. I am just wondering if you are seeing better pricing power, now that one of your competitors recently left the California market?

Tamara Lundgren: I think that the pricing activity, the level of demand is really driven broadly by the market.

And so we haven't seen any significant difference or – on the pricing levels.

Michael Leshock: Okay. And then within CSS, they benefited from strong West Coast construction markets in FY 2020. I am just – I’m wondering if you could provide some more detail on kind of what you are seeing there within construction? We have seen some of the construction spending data points decelerate a bit. But just wondering if there is some pent-up demand or has that been largely worked through at this point?

Tamara Lundgren: I think that the West Coast market construction demand is being driven by both public demand that is still more wait and see, but it’s definitely needed.

And in the current environment, the new administration may well be unleashed with more power, with more acceleration. And then on the private side, the non-residential and industrial construction has remained very strong. The other thing that we are looking at is just overall change in terms of emphasis on construction and infrastructure-oriented stimulus. And in light of yesterday's certification of the new administration and the determination on the Senate, one of the things that we were looking at is Senator Schumer's comments in October of 2019 when he was – when he introduced and he was very supportive of an EV transition plan. And I think that, that, the infrastructure that will support the transition to electric vehicles is one that is also very relevant on the West Coast and is something that there may be a higher probability for it these days.

Michael Leshock: Great. And then how much would you bake in for net working capital headwinds this year?

Richard Peach: Hi, Michael, it's Richard. Well, we are not giving a projection on net working capital headwinds, but you are correct to point out that in a rising, I think, what underlies your question is in the rising price environment, you have – you generally have a build of working capital. So we aim to have our profitability, our increases in profitability more than offset any buildup in working capital. And I did say in our prepared remarks that we expect a positive operating cash flow in the second quarter and underlying that is a view that we aim for with our profitability to more than offset any build in working capital during the second quarter subject to the timing of shipments.

So that's certainly our target, higher profits offsetting working capital build.

Michael Leshock: Okay. So maybe more specifically, if I – on your internal inventory directionally, if I could ask, what your plans are over the next couple of quarters?

Richard Peach: Well, we don't speculate on inventory. We continue to turn our inventory regularly. So it's a question of buy, process and sale there.

And Michael, our inventories, they are within historical norms but they are at relatively low levels because of the tight supply market as you would expect. So we will look to see economic improvement and grow our supply and therefore grow our inventories. We hope to translate that into higher sales volumes as well. So I think all I can say at this stage is, we certainly aim for increased profitability to more than offset working capital build and lead to positive operating cash flow. I mean I think, as you look back, as I know you do, you will see that over the last several years, we have averaged positive operating cash flow on an annual basis of an excess of $100 million.

And we would certainly go into the year aiming for that type of performance. But we will have to see.

Michael Leshock: Got it. Appreciate the detail.

Operator: Thank you.

And this concludes the question-and-answer session. I would like to now turn the call back over to Tamara Lundgren for closing remarks.

Tamara Lundgren: Thanks Shannon. Before concluding our call today, I want to take a moment to share my perspective about the violent events that unfolded at the Capitol yesterday. The United States serves as a beacon of democracy around the world.

And what happened yesterday were destructive acts against our cherished democratic principle of a peaceful transition of power. It's time for us to move forward as one nation, peacefully and respectfully and to rebuild our country as we recover from the devastating impacts of the pandemic. So as we begin a new year, let's commit to finding common ground on the issues that divide us and unite behind the shared values on which our democracy was founded. I look forward to speaking with you again in April when we report our second quarter results. In the interim, stay safe and stay well.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.