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United States Steel Corp  (NYSE:X)
Q3 2018 Earnings Conference Call
Nov. 02, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 been recorded. On the call this morning will be US Steel's President and CEO, Dave Burritt; Executive Vice President and CFO Kevin Bradley; and Dan Lesnak, General Manager of Investor Relations. After the close of business yesterday the company posted its earnings release and earnings presentation under the Investor section of its website.

Today's conference call contains forward-looking statements and future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced at the end of the company's earnings release and in the earnings presentation and are included in US 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 US Steel, President and CEO, Dave Burritt.

David B. Burritt -- President & Chief Executive Officer

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 Senegal on Saturday. On behalf of US Steel, I'd like extend our condolences to all. We stand united with the Tree of Life Senegal. Our friends and neighbors in this World Health Community, the people of Pittsburgh and all of those impacted by the 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 a faster-than-anticipated drop in selling prices over the last two months.

We view this as just the timing difference as steel demand has remained strong and we are now seeing higher daily order rates, longer lead times and improved pricing. Second, we issued a press release last night announcing the authorization to buyback $300 million of stock and our plans to redeem our 2020 bonds.

Third, on asset revitalization. Our $2 billion investment plan continues and everything is on track. Fourth, related to the labor. We have a tentative agreement with our represented employees that could be approved by mid-November so we will hold off on detailed comments until ratification is complete. Again we're going to hold off on detailed comments until ratification is complete. Fifth, on trade, we remained 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?

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

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 in the prior year quarter. Adjustments in the period were $30 million with the vast majority related to the Granite City start-up costs. North American flat-rolled generated 14. 7% EBITDA margins in Q3 a 200 basis point expansion over Q2. Europe generated EBITDA margins of 12.3% in the quarter.

This segment has generated EBITDA margins over 12% in nine of the past 10 quarters. Our European business continues to perform well and is a major contributor to the progress we are making across the enterprise. Our Tubular segment returned to profitability delivering $18 million of EBITDA in the quarter as we began to see the impact of pricing actions initiated earlier in the year. Now turning to guidance.

We expect adjusted EBITDA for the fourth quarter to be approximately $575 million which would result in full-year adjusted EBITDA of approximately $1.8 billion. We continue to seek consistent and strong end-user consumption in our North American flat-rolled markets. We did see applause in order rates and a decline index pricing beginning in Q3. Impacts of these 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 as we execute our disciplined and balanced capital allocation strategy.

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

David B. Burritt -- President & Chief Executive Officer

Thank you Kevin. Before we move to Q&A here's a quick recap. We have worked hard to strengthen our balance sheet and credit profile to create a solid foundation to support our business. We are making progress on our strategy to create value by one, focusing on our most attractive markets by investing in our customers with a focus on creating differentiated solutions that will help our customers succeed; two, moving down the cost curve through the investments we are making in our facilities to increase productivity; three, moving up the talent curve by providing our employees with the training and resources they need to succeed.

Effectively executing our strategy will secure our long-term position as an industry leader. We are making progress and see many opportunities for our future. As we create value we must make sure the value we create translates into rewards for our stockholders. We believe we are now making progress in this very important area. Dan, let's move to Q&A.

Dan Lesnak -- General Manager of Investor Relations

Thanks Dave. Brad, can you please queue the lines for questions.

Questions and Answers:

Operator

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

Chris Terry -- Deutsche Bank Securities, Inc -- Analyst

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 the -- 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, but 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 -- General Manager of Investor Relations

Yeah, sure Chris. This is Dan. So, we did reduce our full-year guidance -- volume guidance for flat-rolled from 10.8 million to 10.6 million. The slowdown in order rates lasted longer than we anticipated. Just the order rates didn't get in there -- in time for us to get both our shipments in. We actually had a short fall in October because it had order rates that's going -- then tripled down in the November, December. So lot a 200,000 ton impact on what we expected for volumes. And then the steep(ph) drop in prices you saw CRU dip $90 in a pretty quick run that's going to flow through into our five times(ph) in our monthly adjustables tons for the most part. So, those are the two (inaudible) moving parts couple 100,000 on the volume and then -- the impact of CRU drop in -- it hits about 40% of our volumes.

Chris Terry -- Deutsche Bank Securities, Inc -- Analyst

Okay. Thanks Dan. Second question, I had is on the CapEx. So, it looks like this are out of $50 million increase in 2018 to $1 billion. That's revitalization spending remains unchanged at 275 to 325. Can you just talk 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 P. Bradley -- Executive Vice President & Chief Financial Officer

Yes, I'll comment. This is Kevin. Some of that increase from $950 million to $1 billion is really 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 the kind of the peak year for revitalization in terms of CapEx and that remains to be the case. We'll give a lot more detailed color on that in January. But we are expecting overall capital expenditures to be higher in 2019 than 2018.

Chris Terry -- Deutsche Bank Securities, Inc -- Analyst

Okay. Thanks. I'll leave it there.

Operator

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

Matthew Korn -- Goldman Sachs & Co. -- Analyst

Hey, good morning everyone.

Dan Lesnak -- General Manager of Investor Relations

Good morning Matt.

Matthew Korn -- Goldman Sachs & Co. -- Analyst

Well, done on the steps taken so far in capital allocation. First question. You've been first out of the gate with the substantial restart post the new tariff region. Have there been a number of announced expansion since then some of the steel companies. Do you believe that it's realistic that most of these are going to build as planned over the next couple of years? How destructive would you expect this to be the pricing? And then I guess last what are your own plans here after finishing your capital revitalization program that you're going to along start looking at growth?

David B. Burritt -- President & Chief Executive Officer

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 the bunch of capacity that's not going to happen. We're going to run assets that we have exceptionally well and do our best to return value to our stockholders especially over the longer term.

Matthew Korn -- Goldman Sachs & Co. -- Analyst

Got it. Heard you loud and clear there.

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

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 -- Goldman Sachs & Co. -- Analyst

Thanks. Your follow-up with this then. Coal costs are rising , (inaudible) producers know it, in their contract price increases for the coming year. Where you stand right now on your coal sourcing for next year? How much of an increase can you -- do you face if you can quantify that in any way? Thanks.

Dan Lesnak -- General Manager of Investor Relations

Hey, Matthews. This is Dan. We are traditionally negotiating with our suppliers. We take a lot of actions within our plans to help minimize the impact. We certainly are going to see a price increase, but we're not ready to quantify yet. We'll certainly give you guys more color on -- on our January call. But actually, they're going of up. We are still selectively thinking about what we can do to try maybe offset that by shipping our blends around. So that's just where we are right now.

Matthew Korn -- Goldman Sachs & Co. -- Analyst

I appreciate it guys. Good luck.

Operator

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

Seth Rosenfeld -- Jefferies & Co. -- Analyst

Seth Rosenfeld from Jefferies. Thanks for taking the question. Two points, I guess, on the European operations please. With regards to the European inventory revaluation. Can you just give a little bit more color on the drivers of that -- is it due to aspects or raw materials. Of course, recognizing that's fully non-vertically integrated you seen strength in both iron-ore and coke and coa. So, I'm surprised by that announcement?

And secondly, the guidance for Q4 earnings be down Q-over-Q another bit of a surprise there given that you won't see a repeat of the realign from Q3. Also Q4, is seasonally stronger. So, should we think that the decline is primarily because of the revaluation? Or are there other headwinds such as orders?Thank you.

Dan Lesnak -- General Manager of Investor Relations

Yes, yes. This is Dan. So we called out that evaluation as the main reason that results to be down a little bit. So, on the commercial side, on the other moving parts of the business pretty flat quarter-to-quarter. This is just a FIFO accounting inventory evaluation. We have this on a regular basis. It tends to go back and forth during the year and that itself are 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 4Q supposed to 3Q. But there's nothing more to it than that. Like I said, commercially things are just basically European market staying pretty stable. Yes, total pricing Europe picked up in 4Q more than we saw this year, but that's really the moving parts.

Seth Rosenfeld -- Jefferies & Co. -- Analyst

Thank you. And just a follow up with some of your customer contracts going into 2019. I know that you had some longer-term sales exposed to -- like auto and some of their (inaudible) 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 -- General Manager of Investor Relations

I would say this -- since when it goes to our customers, we tend to respect them -- the countdown will show(ph) you that and we really think that's commercially sensitive information that we don't want to get into.

Seth Rosenfeld -- Jefferies & Co. -- Analyst

Okay. Thank you very much.

Operator

And we'll go to the line of Michael Gambardella with JP Morgan. Please go ahead.

Michael Gambardella -- JP Morgan Securities -- Analyst

Yes. Good morning. And congratulation on the capital allocation and transformation and especially on the buyback this morning the equity buyback. I have a question. You mentioned the buyer strike and how you think it's temporary and you said demand remains strong, but could you give us some other indications why you're so confident this is a temporary phenomenon going into '19?

David B. Burritt -- President & Chief Executive Officer

Sure. Order rates, lead times those are things that we're seeing a greater sense of urgency particularly with service centers to steel(ph) orders. So clearly scrap prices seemed to be coming up. And so, we feel that things are coming back in line. In fact, I guess in the last couple of weeks, we've seen some price drop is in a more stabilized and headed in the opposite direction. So, clearly to us that was a temporary slowdown and we do think -- things are coming back and setting a good stage for another strong year in 2019.

Michael Gambardella -- JP Morgan Securities -- Analyst

Okay. Thanks a lot. I'll pass the line.

Operator

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

David Gagliano -- BMO Capital Markets -- Analyst

Hey, great. Thanks for taking my question. 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's disclosed in this quarter especially?

David B. Burritt -- President & Chief Executive Officer

The capacity is not changing. It's going to be our ability to get more productivity out of that. There's also limitations on how much you can get out of your nameplate capacity based on scheduled maintenance and then unplanned downtime along the way. So our objective is we're going to make these operations run better, run more efficiently, run more lively. So our expectation is that we're going to get more production out of that same footprint. So its going to increase in capacity, its just a better utilization of our existing capacity.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. Thanks for clarifying and then just a question for Dave. Last quarter, you indicated at least on the call it sounded like your main message was you earned the right to grow. You indicated at least from my perspective you're focusing on growth rather than capital returns in your term. Now, this quarter you're saying you can grow through profitability rather than adding capacity and obviously you've got this buyback authorization which I agree is a good step in the right direction. I'm just kind of curious. Whats -- What changed versus the comments in August?

David B. Burritt -- President & Chief Executive Officer

We'll, I don't know that anything be really changed. You have to realize where we were, at what point in time. We've always said that we want to grow profitably and that's our top priority. We're finding the appropriate balance. You have to realize where we were and the things that we were thinking about. We are 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 have to see if the labor agreement get signed or optimistic that it will get signed and this positions is 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 isn't the best long-term interest of our stockholders. And when we position ourselves in a good position like we are right now we're happy to return to stockholders and we again we'd like to continue to make this priority because it is a very valuable way for us to return value to stockholders.

David Gagliano -- BMO Capital Markets -- Analyst

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 '19 and '20. My question is for 2019, what are some of the key larger projects? And what's the timing of those projects during 2019?

Dan Lesnak -- General Manager of Investor Relations

Hi David. This is Dan. I think -- I said we designed this to be a series of smaller projects so it's less disruptive to operations when taking care of our customers. So I would say there aren't any big one-off projects. It is just a series of smaller disciplined projects to guess where we need to be. The pace and timing of 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 for us.

David B. Burritt -- President & Chief Executive Officer

I'd say this D4(ph) outage, at Great Lakes were this is a big deal for us. This is an extended outage to make sure that we're able to put things like 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. 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.

David Gagliano -- BMO Capital Markets -- Analyst

Okay. Got it. Thanks. That's it for me.

Operator

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

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Yeah. Hey, good morning. Thank you for the detail on the comments on last weekends tragedy.

Dan Lesnak -- General Manager of Investor Relations

You're welcome Timna.

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Thank you. Wanted to just start out and kind of probe a bit more in Tubular? So nice turnaround 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 know, you have in the past -- its been a larger player there. What do you see for that market? Why have import state so high? If you could talk a little bit about tubular.

Dan Lesnak -- General Manager of Investor Relations

Yes. This is Dan. In imports -- the import, the quarters, they've certainly address some of the more damaging players I would say. But it's still -- there's still supply, still competitive market. We are seeing our shipments move up. We are 4Q expecting our highest shipments that we've seen since probably May 2015. So we are making progress there.

As far as the facilities we shut down they were very in good condition. When we shut them down. You know the customers are going to dictate whether that is -- that products and those facilities as needed. Certainly, just like our flat-roll will responsive to our customers, but the customers were really determined all those facilities -- due to those facilities long 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 -- Bank of America Merrill Lynch -- Analyst

They are not a big capital investment, prior to get those backup and running, I think?

Dan Lesnak -- General Manager of Investor Relations

Shouldn't be no. There are 2 billion rolls are more finishing rolls. They don't have nearly the complexity of, a blaster steel making operation.

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Okay. And then, 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 we're running all furnaces as I understand in Q4, right? So Granite City, second furnace ramped up. I mean do you expect that Q4 utilization to be sustained through 2019? Can you give us any more color on what kind of disruption or utilization we should expect to see for next year?

Dan Lesnak -- General Manager of Investor Relations

Actually we talked a little bit about this on the call last quarter. I think, I may answer to one, to Curtis question. But we are going to take more downtime at year, at Gray, Great Lake to Mon Valley that we did this year as due to (inaudible) rotation work. The trade-off is, as we do have Granite City on line for a full-year. And right now, our expectation is that we're going to need those furnaces. That's what demand is telling us or at least our forward look. We are running like -- that we expect running about 80% of our nameplate utilization in 4Q. When you take -- when you adjust that for impact or mix -- a utilization impact or outage utilization we're running north at 90% in 4Q. So, we're running pretty hard -- as a market, are you 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 effective job of matching our production to what customers need. And I think that expect us to continue that way.

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you.

Operator

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

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

Hi, good morning.

Dan Lesnak -- General Manager of Investor Relations

Good morning, Phil.

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

So, Dave it looks like the shipment guidance for flat-rolled is taken down just a bit to 10.6 million from 11 million. But the 4Q utilization, I think you've noted going to 80%. So that implies some building of inventory in the fourth quarter heading into the 2019 question is that the right read? And why build inventory into next year?

David B. Burritt -- President & Chief Executive Officer

So, this -- they must have -- actually normal process for us. The two options you have when you think about the winter conditions in the Great Lakes we know we are going to stop shipping pallets for a period of time. So how we prepare for that is stock a certain amount of (inaudible) 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 pallets, how many pallets we can bring down here in the store. So we can buy that semi-finished steel to make sure we're well prepared for the Great Lakes loss outages and what's their duration could be.

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

Okay. And Kevin, there's some good pruning of debt and maturity extension that's taking place over the last couple of years which is to be applauded. That's great. Question is just what we should be anticipating after this recent redemption in December for interest expense moving forward?

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

Yes. So we're going to be below $150 million going forward. And again the only thing we had between now and 2025 is that EUR200 million draw on the European revolver which has got a five-year duration on it. Everything else is really out beyond 20 -- out to and beyond 2025. So we are feeling really good still in terms of kind of clearing the runway for us to continue to improve this company without anything really coming out us anytime soon. So below $150 million.

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

Thank you.

Operator

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

Paretosh Misra -- Berenberg Bank -- Analyst

Good morning. Thanks for taking the question. So, I have one on your capital allocation plans. Is there any CapEx levels where you might max out on capital spending next year just to allow share buyback especially if the stock looks cheap like this right now?

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

So, the way we do our capital forecasting obviously a very kind of elaborate and detailed process. And we're always considering the needs of the market to make sure that -- I would say that's the toggle point. We want to make sure we're able to serve our customers. But we don't put a specific cap on it. As I said it's going to be up next year due to the peak year (inaudible). But we don't really think of it as putting a cap to allow room for return of capital. Again we're really pleased to be able to do this 300 million. It's a first step. As David said we see this as a permanent part of our allocation methodology going forward. But we're not looking at '19 as CapEx is a way to make room for additional share return -- capital return.

Paretosh Misra -- Berenberg Bank -- Analyst

Got it. And then a quick one on Granite City. What are the main end markets for the products that you make at those plants?

David B. Burritt -- President & Chief Executive Officer

Historically, Granite City has served service center construction in the energy tubulars, the world of pipe makers. But it also helps us balance our loads on other plans by having that facility running. We have the opportunity then to put, each plant the products is best at making. The Granite Citys' primary market is stand-alone be it construction service centers and the world of pipe makers.

Paretosh Misra -- Berenberg Bank -- Analyst

Got it. Thanks everyone.

Operator

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

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Hey, everyone. As I look at that -- the comments on the capital allocation. Just a clarification, I think, Kevin said, did you say EUR220 million borrowed on the European revolver?

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

No, 220 million was the USD repatriation. We drew down EUR200 million and we brought back to the US, 220 million in dollars.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

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

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

A little less than that, but close.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

And sort of give in -- I guess where we are at, in for next year with prices kind of at the 2018 average currently more downtime predicted and more CapEx expenditure for next year. Is the intention to have some of that pre-payable debt in Europe, pay down over the course of the year? Or are you comfortable with that little less than 2.4 billion amount currently?

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

I think we're comfortable where we are right now. So, again obviously it's a revolver. There's no frictional costs to change that up or down, but right now we're thinking keeping that drawn at roughly EUR200 million. That's the plan. That changes certainly you'll know about that.

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

All right. Thanks very much.

Operator

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

Derek Hernandez -- Seaport Global Securities -- Analyst

Hi, good morning and congratulations again on the buyback announcement. I think that's a very positive. On the shift in the capital allocation strategy. I know you have spoken a little bit about your allocation methodology, but how if you could give us a little more color on the priorities between this and CapEx and other options that will be much appreciated.

Dan Lesnak -- General Manager of Investor Relations

Yes. So -- and Dave, kind of laid it out, right. Obviously, we're nearing the midpoint on revitalization. It's still a big commitment and we fully intend to follow through on that especially given the stability the predictability of our assets and the improved yield and performance. So, that's a big deal for us and that's going to stay a high priority. 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(ph) 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 I'm 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 -- Seaport Global Securities -- Analyst

I see. Thank you for that. 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 P. Bradley -- Executive Vice President & Chief Financial Officer

For the following quarter?

Derek Hernandez -- Seaport Global Securities -- Analyst

Q4.

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

I mean, its -- everything else in Europe was basically flat quarter-over-quarter. When we call out kind of why does it change, yet to talk about what's the large piece, but none -- frankly no pieces that was taken all that -- have to be the largest one. Like that -- the fact as if -- we had actually benefits earlier in the year so the net effect on the year is immaterial.

Derek Hernandez -- Seaport Global Securities -- Analyst

Thank you very much. And good luck.

Operator

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

Alexander Hacking -- Citigroup Global Markets, Inc. -- Analyst

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 the 1.8 billion EBITDA number looks potentially on a more normalized basis in these market conditions. Thanks.

Dan Lesnak -- General Manager of Investor Relations

Yes. So the expense related specifically to active revitalization project is about 150 this year. We said it would be 500 for -- over four years. It was about 150 last year. So we expect asset revitalization expense just related to specific projects. We actually take down a little bit in '19 and '20 from where it was in '17 and '18.

Alexander Hacking -- Citigroup Global Markets, Inc. -- Analyst

Okay, Thanks Dan. That's really helpful. And let me just have my congratulations on the buyback. Thanks.

Operator

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

Nicholas Jarmoszuk -- Stifel Financial Corp -- Analyst

Hi, good morning. I was hoping you could talk about the though process behind using the (inaudible) facilities for the debt paid down as opposed to using the US based revolver?

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

Yes. Kevin. A lot of it was about efficiency. We were very comfortable having a higher level of debt in Europe even our presence in (inaudible). The pricing on this debt is your LIBOR plus 170 basis points with a zero floor(ph). So, at today's negative LIBOR, we're talking about borrowing at 1.7%. So effectively we're taking out 7.38(ph) debt with 1.7% interest debt. And we can bring it back frictionless so tax bring it back to the US. So it was really economics that drove it and a nice place from an efficiency standpoint we think.

Nicholas Jarmoszuk -- Stifel Financial Corp -- Analyst

Get it. And then could you provide any comments on the Granite City restarts, how the wrap has looked and whether you experienced any issues?

David B. Burritt -- President & Chief Executive Officer

This is David. Granite City has done very very well at both the B furnace and the A furnace started on time and are delivering what was intended. So we are 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 -- as thing do go wrong we do have Granite City as a backup to be able to provide the type of items that our customers need. So we feel good about opening it up and we expect it to continue.

Nicholas Jarmoszuk -- Stifel Financial Corp -- Analyst

All right. Thank you.

Operator

And our next question will come from John Tumazos -- is it positive on the conference company. Is that John Tumazos vary.

John Tumazos -- John Tumazos Very Independent Research LLC -- Analyst

John Tumazos, Very Independent Research. 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? 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 -- well its disappoint that they haven't rebounded better.

David B. Burritt -- President & Chief Executive Officer

Thanks for the question. I'd 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 car furnace and what it's purpose for. Certainly we could have the capability to run the slabs. We're really, we said many times it's not the question of if, but when, that 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 in mid-November we expected it to be signed and we can have some more details after that.

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

And to John. We do have a smaller tubular footprint that we did have several years ago. That furnace is about a 1.6 million tons furnace. Right now we would need rounds to feed Fairfield pipe mill and number three mill Lorain. So, the furnace is a more capacity than what we needed it around to our round casters, we still have slab cast or -- at Fairfield so we would have the option of making slabs if we needed them either to convert in our all operations or for sale.

John Tumazos -- John Tumazos Very Independent Research LLC -- Analyst

Thank you.

Operator

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

Karl Blunden -- Goldman Sachs Group Inc. -- Analyst

Hi. Good morning, guys. And if to understand the comments about Granite City and be able to financially pick up some volumes there if there are shortfalls in the rest of the network next year. One thing, I was curious on was what's the cost profile is like for that asset today and it was just one of the higher cost assets when 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 feel the temporary shortfall elsewhere?

David B. Burritt -- President & Chief Executive Officer

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 contributor to our business. The reason they were shut down before is simply related to absence of volumes and driven in large part by unfair trades. So, these are good assets and they're going to get better.

Karl Blunden -- Goldman Sachs & Co. LLC -- Analyst

No, material impact if you had to shift volumes. It sounds like just one way to summarize?

Dan Lesnak -- General Manager of Investor Relations

Yeah, Karl. This is Dan. I mean the cost structure that the plant is same -- the more source of all same materials, or pellets are all under coal. So as Dave said, that facility was idle because its primary markets where the most of severely hit in the downturn. So it wasn't about cost. It was about markets. There's no reason that plant have any different cost structure than (inaudible) system.

Karl Blunden -- Goldman Sachs & Co. LLC -- Analyst

Okay. Got you. That's very helpful clarification and then just on the de-stocking intensity. Maybe this is very hard to figure out but has there been any change and acceleration, deceleration by months as you've seen over the last two months or so while the quarter has been operating? Is there any sign that it's waiting?

Dan Lesnak -- General Manager of Investor Relations

We have seen able to reach swap. So are seeing the term, in the other direction now. Our daily order rates have been growing the last couple of weeks.

Karl Blunden -- Goldman Sachs Group Inc. -- Analyst

Okay. Got you. Thanks guys. Appreciate it.

Operator

And currently your last question in queue will come from -- follow-up from Phil Gibbs with KeyBanc. Please go ahead.

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

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 directionally -- maybe some color there?

Dan Lesnak -- General Manager of Investor Relations

It wasn't a real factor. And you talk about flat-rolled.

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

Yes.

Dan Lesnak -- General Manager of Investor Relations

Nothing material. It's a not a material change that we would call out. No.

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

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

Dan Lesnak -- General Manager of Investor Relations

It looks that way. Is there third quarter we had a big, big project before. But fourth quarter we have a lot of other projects going on. And typically, fourth quarter you see -- seasonal downturns in customer demand while for some of the more contract -- some of their contract -- that mostly we have taken up to do -- to do work on the facilities when it matches demand patterns. So nothing, no big projects in 4Q, but a lot of activity going on still.

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

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

Dan Lesnak -- General Manager of Investor Relations

Exactly. We just had -- we had some settlement charges based on the retiring -- right based on patterns of retirements. Just depends on who retires when and where they fall in the plan. Those are like one-off settlement charges that are going pop on your normal cost. The basic cost or service cost plus the contributors -- contribution to some of the pension trust. This depends on who retires and when.

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

Thank you.

Operator

And we do have a question that comes from the line of Paul Kerry with AIG. Please go ahead.

Paul Kerry -- AIG -- Analyst

Good morning, folks. I think a bunch of mine were answered already, but just one on the CapEx. So you guys increased that. Is that -- and you guys reach in kind of peak CapEx at midpoint next year? Is the -- are you guys pulling forward some CapEx there or you're just increasing them for the overall revitalization plan?

Dan Lesnak -- General Manager of Investor Relations

Sorry. Can you say it again? We didn't come it very clear. Can you say that again.

Paul Kerry -- AIG -- Analyst

Yes, sure. So you guys are reaching peak CapEx mid-point next year on the whole revitalization plan. I'm just wondering if you guys. You guys are increasing. So, I need to -- I'm just wondering if it's pulled forward or if it's an increase for the overall plan?

Dan Lesnak -- General Manager of Investor Relations

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 the year, we have some flexibility as business in this is involved. To green light, some of those projects would make sense. And it's just -- it's just those type of small projects that are attractive projects that didn't make it into the original budget for the year based on where we thought business was going to be. Certainly, we've seen the business to be much stronger than we thought.

Paul Kerry -- AIG -- Analyst

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

Dan Lesnak -- General Manager of Investor Relations

These are just different growth projects and better throughout the business. No one of any size that really is worth calling out.

Paul Kerry -- AIG -- Analyst

Okay. Thank you.

Operator

And that does conclude the questions for today.

Dan Lesnak -- General Manager of Investor Relations

Dave some final remarks for us?

David B. Burritt -- President & Chief Executive Officer

Yes. I'd like to end the day 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 the National Safety Council sharing our mission of eliminating preventable deaths. Last week, I was honored to join the National Safety Council Board of Directors. Additionally, our company was accepted into that 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 contacts, we are 80% better than Bureau of Labor Statistics for Iron and Steel and 46% better than the American Iron and Steel Institute when it comes to days away from work injury frequency.

Safety remains our most important core value and I'd like to personally thank each of our employees for their hard work and dedication in driving continuous improvement in our safety performance. We believe our intense focus on our operations and improving safety, quality and 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.

Dan Lesnak -- General Manager of Investor Relations

Thank you. Ladies and gentlemen, the conference will be made available for replay after 10:30 this morning and running through November 16th, 2018 at midnight. You may access the AT&T Executive Playback Service at any time by dialing 1800-475-6701 and enter your access code 455200. International parties may dial 1320-365-3844. Those numbers again 1800-475-6701 or 1320-365-3844 with the access code 455200. That does conclude our conference for today. Thanks for your participation for using AT&T teleconference. You may now disconnect.

Duration: 46 minutes

Call participants:

David B. Burritt -- President & Chief Executive Officer

Kevin P. Bradley -- Executive Vice President & Chief Financial Officer

Dan Lesnak -- General Manager of Investor Relations

Chris Terry -- Deutsche Bank Securities, Inc -- Analyst

Matthew Korn -- Goldman Sachs & Co. -- Analyst

Seth Rosenfeld -- Jefferies & Co. -- Analyst

Michael Gambardella -- JP Morgan Securities -- Analyst

David Gagliano -- BMO Capital Markets -- Analyst

Timna Tanners -- Bank of America Merrill Lynch -- Analyst

Philip Gibbs -- KeyBanc Capital Markets Inc. -- Analyst

Paretosh Misra -- Berenberg Bank -- Analyst

Matthew Fields -- Bank of America Merrill Lynch -- Analyst

Derek Hernandez -- Seaport Global Securities -- Analyst

Alexander Hacking -- Citigroup Global Markets, Inc. -- Analyst

Nicholas Jarmoszuk -- Stifel Financial Corp -- Analyst

John Tumazos -- John Tumazos Very Independent Research LLC -- Analyst

Karl Blunden -- Goldman Sachs Group Inc. -- Analyst

Karl Blunden -- Goldman Sachs & Co. LLC -- Analyst

Paul Kerry -- AIG -- Analyst

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