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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. Now, 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. Now, after close of business yesterday, the company posted its earnings release, 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 the earnings presentation and 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 the behalf of US Steel, I like to extend our condolences to all. We stand united with the Tree of Life Synagogue, our friends and neighbors in this world health community, the people of Pittsburg 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 US Steel. Now for the six 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 faster than anticipated drop in selling prices over the last two 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 time and improved pricing.
Second, we issued a press release last night announcing the authorization to buy back $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 detail 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'll 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 roll 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 nine of the past ten quarters. Our European business continues to perform well and is a major contributor to the progress we are making across the enterprise. Our Tubular segments 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 the 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 up sized 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 2017. Debt reductions of $554 million, extended average maturities of over nine 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 two 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 you as we execute our disciplined and balanced capital allocation strategy.
With that I'll turn it back 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 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. Bratt, can you please queue line for questions.
[Operator Instructions]
And we'll go to the line of Chris Terry with Deutsche Bank. Please go ahead.
Chris Terry
Good morning, guys. A couple of questions for 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. That you are saying most of its price related or is there a little bit of volume impact there as well? That's the first question.
Dan Lesnak
Sure Chris. This is Dan. So we did reduce our full-year guidance, volume guidance for flat rolled from $1008 million to $10.6 million. The slowdown in order rates last longer than we anticipated, just the order rates didn't get in there in and time for us to get fourth quarter shipments in. We actually had a shortfall in October because of those higher order rates that's going to then trickle down into November, December. So about a 200,000 ton impact on what we expected for volumes.
And then the steep drop in prices you saw us see you 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 two big moving parts, couple 100,000 on the volume and then the impact is here you are dropping, it hits about 40% of our volumes.
Chris Terry
Okay, thanks Dan. Second question I had is on the CapEx. So it looks like there's of around $50 million increase in 2018 to $1 billion that's a revitalization spending remains unchanged 275 to 325. Can you just talked about that increase? And then I guess backing it out about $700 million is non asset revitalization. I know you don't want to talk fully around 2019, but can you just talk about the direction of that 700. Thanks.
Kevin Bradley
Yes. I'll comment. This is Kevin. Some of that increase from $952 million to $1 billion is really a timing of payables depending on, 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 a kind of peak year for revitalization in terms of CapEx. That remains to be the case, we will give a lot more details color on that in January. But we are expecting over all capital expenditures to be higher in 2019 than it is 2018.
And our next question will come from Matthew Korn with Goldman Sachs. Please go ahead.
Matthew Korn
Hey, good morning, everyone. Well done, the steps taken so far on capital allocation. First question, you've been first out of the gate with a substantial restart post the new tariff regime. And there have been a number of announced expansion since and 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 disruptive would you expect this to be to pricing? And then I guess last what your own plans are after finishing your capital revitalization program that you're going to start looking at growth.
David Burritt
This is David. 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.
Matthew Korn
Got it. You're loud and clear there.
David Burritt
Yes. 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.
Matthew Korn
Thanks. Let me follow up with this then, coal costs are rising some Appalachian producers are noting their contract price increases for the coming year. Now where do you stand right now on your coal sourcing for next year? How much of an increase can you - do your face if you can quantify that in any way? Thanks.
Dan Lesnak
Hey, Matt. This is Dan. We are traditionally negotiating with our suppliers. We take a lot of actions within our part blends to help minimize impact. We certainly are going to see a price increase, but we're not ready to quantify that yet. We'll certainly give you guys more color another in 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. Please go ahead.
Seth Rosenfeld
Good morning, Seth Rosenfeld from Jeffries. Thanks for taking the question. Two points I guess on the European operations please. With regard to the European inventory revaluation, can you give us a little bit more color on the drivers of that is it due to aspects or raw materials. Of course recognizing that facilities none vertically integrated, you've seen strength in both iron ore and coking coal somewhat surprised by that announcement.
And secondly the guidance for Q4 earnings be down Q over Q, another a bit of a surprise there given that you won't see a repeat of the realign from Q3. Also Q4 is only seasonally stronger. So should we think that that decline is primarily because of the revaluation or are there other headwinds such as autos? Thank you.
Dan Lesnak
Yes. This is Dan. So we called out that revaluation is the main reason that results to be down a little bit, so they on the commercial side, on the other moving parts of business pretty flat quarter. This is just a FIFO accounting inventory valuation. We have this on a regular basis. It tends to go back and forth third year and met itself out pretty well and in fact when you look at the net impact 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 fortunes close to 3Q. But there's really nothing more to it than that.
I said commercially things are just based on the European markets staying pretty stable, yet shortly lead pricing Europe pick up in 4Q more than we saw this year, but that's really the moving parts.
Seth Rosenfeld
Thank you. And just to follow up with some of your customer contracts going into 2019. I know that you have some longer term sales exposed to like autos and some other white goods end markets. Some of your peers in the Central European market have talked down pricing expectations into 2019. Do you have any view on the potential outlook there?
Dan Lesnak
I would say since we're negotiating with our customers we tend to respect the confidentially of that, and we really think that commercially sensitive information that we don't want to get into.
And we'll go to the line of Michael Gambardella with JPMorgan. Please go ahead.
Michael Gambardella
Yes, good morning and congratulations on the capital allocation transformation and especially on the buyback this morning, the equity buyback. I have a question you mentioned the buyers 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 this is a temporary phenomenon going into 2019?
David Burritt
Sure, order rates, lead times those are things that we're seeing, a greater sense of urgency particularly with service centers to fill orders. So clearly US scrap prices seem 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 has more stabilized and headed in the opposite direction. So clearly to us that was a temporary slowdown and we do things think things are coming back and setting a good stage for another strong year in 2019.
And we'll go to line of David Gagliano with BMO Capital Markets. Please go ahead.
David Gagliano
Okay, great thanks for taking my questions. 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 70 million tons that disclosed in this quarter specially?
Dan Lesnak
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 get out of your main play 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 reliably. So our expectation is that that we're going to get more production out of that same footprint. So it's not increasing capacity, it's just better utilization of our existing capacity.
David Gagliano
Okay, thanks for clarifying. And then just a question for Dave, last quarter you indicated at least on the call it sound to me like your main message was you've earned the right to grow, you indicated you at least from my perspective you're focusing on growth rather than capital returns near-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's change versus that is the comments in August?
David Burritt
Well, I don't know that anything we 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 that 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. 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 interests 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 we again would like to continue to make this a priority because it is a very valuable way for us to return value to stockholders.
David Gagliano
And that's helpful. Just one more quick question. looks like for the asset revitalization program obviously you spent about $550 million so far. There's another $1 billion left for 2019 and 2020. My question is for 2019 what some of the key larger projects are and what's the timing of those projects during 2019?
Dan Lesnak
Hi, Dave, this is Dan. I think I said we designed this to be a series of smaller projects, so it's less disruptive to operations we take care of our customers. So I would say there aren't any big one-off projects. It is just a series of smaller discipline project to guess where we need to be. The pace and timing over the course of the year, well, we're moving it pretty much as fast as we can. So it should be a pretty steady pace force.
David Burritt
I just say this outage at Great Lakes works. This is a big deal for us. This is an extended outage to make sure that we're able to put things. In fact, the outage lasted a bit longer than we had originally planned, but we're able to get more things done through that outage. So as we 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.
And we'll go to line of Timna Tanners with Bank of America. Please go ahead.
Timna Tanners
Hey, good morning. Thank you for the detail and the comments on last weekend's tragedy. Why don't you just start out and kind of probe a bit more on tubular? And so nice turnout in profits there. What does it take for US 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 of import stayed so high if you could talk a little bit about tubular?
Dan Lesnak
Yes, Timna, this is Dan. I mean imports, the import it was, they certainly trust some of the more damaging players I would say, but it's still --they are still supplies, still competitive market. We are seeing our shipment move up, we are four two weeks we expect to be our highest shipments that we've seen since probably being 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. I know the customers real going to dictate whether that is --that products and those facilities is needed.
Certainly just like where our flat roll we are responsive to our customers, but the customers were really determined you know 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.
Timna Tanners
They're not a big capital investment required to get this back up and running you are saying.
Dan Lesnak
Shouldn't be, no, there --tubular mills are more finishing mills. They don't have nearly the complexity of a blast furnace steelmaking operation.
Timna Tanners
Okay. And if I could just try to follow up on 2019 outlook a little bit. I know you said you're going to provide more detail next quarter, but if you're 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 do --we're running all furnaces as I understand in Q4 right. So Granite City second furnace ramped up. I mean do you expect that to for utilization to be sustained it through 2019. Can you give us any more color on what kind of disruption or utilization we should expect to see for next year?
Dan Lesnak
Actually I mean we talked about this on the call last quarter. I think I made for one of questions but we are going to take more downtime at Gary, Great Lakes Mon Valley than we did this year do the answer of rotation work. The trade-off is that we do have grand city online for a full year and right now our expectation is that we're going to need those furnaces. That's what's demands telling us or at least our forward look.
We're running like that we expect to run at about 80% of our nameplate utilization in 4Q. When you take we-- when you adjust that for impact our mix have, our utilization impacts our outage utilization. We're running north at 90% in 4Q. So we're running pretty hard. Is the market that 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 expected job of matching our production to what the customers need.
And I think that you should expect us to continue that way.
And we'll go to the next question come from Phil Gibbs of KeyBanc. Please go ahead.
Philip Gibbs
Hey, good morning. So Dave it looks like the shipment guidance for flat-roll has 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 that the right read and why do I build inventory into in the next year?
Dan Lesnak
Hey, so this is Dan. And that's actually a normal process for us. The two options you have when you think about the winter conditions and in the Great Lakes, we know we were going to have to stop shipping pellets period of time. So how we prepare for that stock 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 in store. So we combine that with semi-finished steel to make sure we're all prepared for the Great Lakes locks outages and what their duration could be.
Philip Gibbs
Okay and Kevin, there's some good prodding of the debt and maturity extension that's taken place over the last couple 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?
Kevin Bradley
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 that's €200million draw on the European revolver which it's got a five year duration on it. Everything else is really out when 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 books below $150 million.
And we'll little line of Paretosh Misra with Berenberg. Please go ahead.
Paretosh Misra
Good morning, thanks for taking the question. So I have one on your capital allocation plans. Is there any CapEx level where you might max out on capital spending next year to allow share buyback especially if the stock looks cheap like it is right now?
Kevin Bradley
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 a 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 said, it's going to be up next year due to the peak year end but we don't really think of it as putting a cap to allow room for a return of capital.
Again, we're really pleased to be able to do this $300 million, it's 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 2019 as a CapEx as a way to make room for additional share return capital return.
Paretosh Misra
Got it and then a quick one on Granite City. What are the main end markets for the product that you make at those plants?
Dan Lesnak
Historically Granite City has served service center, construction and the energy tubulars, the welded pipe makers, but it also helps us balance our loads on other plants by having a facility running. We have the opportunity then to put at each plant the products it's best at making. The Granite City's primary markets as a standalone will be construction service centers and the water pipe makers.
And we go to line of Matthew Fields with Bank of America Merrill Lynch. Please go ahead.
Matthew Fields
Hey, everyone. Like to echo the comments on the capital allocation. Just a clarification I think Kevin said, did you say €220 million borrowed on the European revolver?
Kevin Bradley
No, $220 million was the USD repatriation we drew down €200 million and we brought back to the US $220 million in dollars.
Matthew Fields
Okay, great, thank you. So basically just that 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 -
Kevin Bradley
Little less
Matthew Fields
Sorry
Kevin Bradley
A little less than that but close.
Matthew Fields
And sort of given I guess where we're at in for next year with prices kind of at the 2018 average currently more down time predicted and more CapEx predicted for next year. Is the intention to have some of that pre-payable 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?
Kevin Bradley
Now we're --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 the € 200. That's the plan and if that changes certainly you'll know about it.
Our next question will come from the line of Derek Hernandez with Seaport Global Securities. Please go ahead.
Derek Hernandez
Hi, good morning and congratulations again on the buyback announcement. I think that's very positive. On this 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'd be much appreciated.
Kevin Bradley
Yes. So Dave kind of laid it out right, obviously, we're nearing the midpoint on revitalization, and still a big commitment and we fully intend to follow through on that. And 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 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.
Derek Hernandez
I see. Thank you for that. And if I may as well I was just wondering if you had a ballpark idea on the scale of the inventory revaluation adjustments from the following quarter?
Kevin Bradley
For the following quarter?
Derek Hernandez
Q4
Dan Lesnak
And we said everything else in Europe was basically flat quarter-over-quarter and when we call out kind of why there's a change, yes, we talk about what's the largest piece but none , no, frankly no pieces there were shifting all that happen to be the largest one like that the fact is we had actually benefits earlier in a year or so the net effect on the year is immaterial.
And our next question will come from line of up Alex Hacking with Citi. Please go ahead.
Alexander Hacking
Yes, thanks, good morning. 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 for 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. Thanks.
Dan Lesnak
Yes. So the expense related specifically to ask revitalization project, it's about 150 this year. We said it would be 500 for over four years. It was about 150 last year. So we expected asset revitalization expense just related to specific the project will actually kick down a little bit in 2019 and 2020 from where it was in 2017 and 2018.
And our next question will come from Nick Jarmoszuk with Stifel. Please go ahead.
Nick Jarmoszuk
Hi, good morning. I was hoping you could talk about the thought process behind using Kosice facility for the debt pay down as opposed to using the US base revolver?
Kevin Bradley
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 Kosice. The pricing on this debt is your LIBOR plus 170 basis points with a zero floor. So, at today is negative your LIBOR, we're talking about borrowing at 1.7%. So effectively we're taking out seven and three-eighths debt with 1.7% interest debt and we can bring it back frictionless. So tax-free bringing it back to the US. So it was really economics that drove it and a nice play from an efficiency standpoint we think.
Nick Jarmoszuk
Okay and then could you provide any comments on the Granite City restarts. How the ramp has looked and whether you experienced any issues?
David Burritt
Hi, Nick. This is David. I think Granite City has done very well at both the B furnace and the A furnace started on time and are delivering what was intended. So 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's --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 open it up, and we expect it to continue.
And our next question will come from John Tumazos from John Tumazos Very Independent Research.
John Tumazos
Thank you, 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 it is former full semi-finished capacity to sell slabs? And could you talk about tubular market share and the oil price got almost normal and you have the import protection and the good old days the tubular volumes were two three times the current levels and well disappoint, they haven't rebounded better.
David Burritt
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 its purpose for, certainly we could have the capability to run the slabs or really we said many times now 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 the AF. 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.
Dan Lesnak
And, John, we do up 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 Fairfield pipe mill in the number three mill Lorain. So the first is more capacity than we need to run through a 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 line up Karl Blunden with Goldman Sachs. Please go ahead.
Karl Blunden
Hi, good morning, guys. And understand the comments about Granite City and being able to potentially pick up some volumes there if there are shortfalls and the rest of the network next year. One thing I was curious on was what the cost profile is like for that asset today? And it was one of the higher cost assets one there was 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 a temporary shortfall elsewhere.
David Burritt
Well, I'm not --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 our positive community 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 trade. So these are good assets and they're going to get better.
Karl Blunden
Just enough no material impact if you have to shift volumes, it sounds like is one way to summarize.
Dan Lesnak
Yes, Karl, this is Dan. Yes. I mean the cost structure of that plant is the same as that we're sort of all same materials, our pellets flowing over all of our coal, so we're all out of our coal. So as Dave said that facility was able because its primary markets for the most severely hit in the downturn. So it wasn't about cost; it was about markets that there's no reason that plant has any different cost structure than the rest of our system.
Karl Blunden
Okay, 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 month as you seen it over the last two months or so while the quarter has been operating? Is there any sign that it's abating?
Dan Lesnak
We're seeing it over each block. So we're seeing the turn in the other direction now. Our daily order rates have been growing the last couple of weeks.
And our last question in queue will come from a follow-up from Phil Gibbs with KeyBanc. Please go ahead.
Philip Gibbs
Thanks very much. Just a question in terms of how much maintenance and outage expense we should expect in Q4 relative to Q3? So maybe just the directionally maybe some color there.
Dan Lesnak
Yes. It wasn't a real factor and are you talk about flat rolled?
Philip Gibbs
Yes.
Dan Lesnak
Nothing material, it's not a material change that we would call out now.
Philip Gibbs
So fourth quarter versus third quarter should be pretty similar maintenance expense.
Dan Lesnak
It looks that way. Third, certainly third quarter we had a big, big project D4 but fourth quarter we have a lot of other projects going on. And typically fourth quarter you see seasonal downturns in customer demands for some of the more contracts, for some a bigger contract customer. So we take it opportunity that to do work on facilities when it matches demand patterns. So nothing, no big projects in 4Q but a lot that could be going on still.
Philip Gibbs
And Kevin why they increase in full-year pension expense and contributions.
Kevin Bradley
Exactly, so we just had --we had some settlement charges based on retiree rights based on patterns or 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 costs. The basic cost or service cost plus contributors to contributions such as pension cost. Just depends on who retires and when.
And we do have a question comes from the line of Paul Cleary with AIG. Please go ahead.
Paul Cleary
Good morning, folks. I think a bunch of mine were asked and answered already but just one on the CapEx. So you guys increased that, is that and you guys reaching kind of peak CapEx at midpoint next year? Is --are you guys pulling forward some CapEx there or you just increasing in a pretty overall revitalization plan?
Kevin Bradley
I am sorry. Can you say that, we didn't come through clear, can you say that again?
Paul Cleary
Yes, sure. So you guys are reaching peak 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?
Dan Lesnak
It's really not about the authorization spending. We always have smaller attractive growth projects on our books that if they don't make it into the original capital plan for a year, we have a flexibility as businesses evolve to greenlight some of those projects when it makes sense. And it's just those types 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.
Paul Cleary
And what I mean may ask what are the kind of --the couple of smaller projects you guys are looking at?
Dan Lesnak
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 today with some comments about our safety performance. Safety is and always has been our top priority. US 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 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 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 context 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 and 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.
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