Commercial Metals Co (CMC) 2004 Q2 法說會逐字稿

Welcome to the Commercial Metals Company's second-quarter 2004 earnings conference call.

This call is being recorded, and at this time for opening remarks and introductions, I'd like to turn the conference over to the Chairman, President, and Chief Executive Officer of Commercial Metals Company -- Mr. Stanley Rabin.

Mr. Rabin, please go ahead.

Good afternoon, everyone.

As usual, Bill Larson is here with me.

Bill will also, as usual, do most of the presentation.

I'll just make a few relatively brief comments -- more of an overview to begin the presentation and Bill will take it from there.

There are various words we could use to describe the quarter -- superb, outstanding, phenomenal.

It just was an excellent quarter in every respect.

I will emphasize that we are a LIFO reporting company.

I will also -- would like to comment that we, in our mill pricing, we have not employed a scrap search or (indiscernible) so in anticipation that might be a question, the answer to that question I just gave you.

First, I'd like to comment about the markets, specifically, the field scrap market because it's had such an impact and ramifications on all of our businesses.

But also on commodities in general.

What's happened, effectively, and I think this is true of many commodities is in dollar terms they've virtually all gone up in price significantly.

But what happened with steel scrap was if we use number 1, heavy metals in the international market as a barometer, the price went up $76 a metric ton over about a 15 month period which, in itself, is substantial.

Not to be outdone by a subsequent rally or further rally of an increase of $140 a metric ton additional in three months.

Similarly, copper which had actually has appeared to move more orderly but in fact copper went up 30 cents a pound over four months -- again a significant increase -- followed by a 25 cent a pound increase in one month.

So this has been the pattern.

And then, more recently what I think we're seeing is some correction to this last part of the move in field scrap and copper, aluminum, nickel -- in most commodities that we operate with.

And steel and the ramifications of I will get to now.

The remarkable thing I think about the second-quarter and about the market in which we operate is how quickly we've been able to get steel prices up.

I'm talking about mill prices.

Typically and we have still have had a lag -- but we always have a lag.

Scrap goes first either up or down and yet this has been a period in which we were able to increase the prices significantly and they still continue to go up, particularly our realized prices.

As we pointed out in the press release, where this is not the case in the short term but will be in the long term our downstream or fabricated prices which -- those of you who are familiar with us and our businesses know, those rise much more slowly.

So we're having more of a margin squeeze in the downstream businesses.

At the mill level similarly in copper, too, we've had success in getting our selling prices up in spite of if we want to use the term in spite of the significant increase in the underlying copper market.

Now just a comment about China, because it's obviously very important and I want to clarify the comment I made -- I don't normally comment on the way people interpret what we say in our releases but at least one of the organizations referred to the fact that we had warned about China moderating.

It was an observation not a warning and in fact I would consider it a positive for Commercial Metals if in fact what we get is some moderation of the Chinese economy.

Because -- like the markets I described a few minutes ago -- the specific prices, China, too, its growth has been too rapid and some moderation would be healthy.

And, certainly, would not be a negative for Commercial Metals Co.

Specifically in the quarter and then I'll turn it over to Bill, just about all of our businesses were characterized by higher prices, increased volume, excellent productivity.

And it's hard to argue with that.

And as we go forward and I'll talk about the outlook at the end of course the key issue in this quarter in going forward is the degree to which our prices have moved up, relative to our input cost.

But our mills are operating did operate, are operating extremely well.

Mill sales have been exceptional.

And (indiscernible) is a mixed picture for the reasons I gave you primarily because of the mixed construction market, the mixed pricing situation but, again, prices are coming up -- just more slowly.

A phenomenal quarter for recycling.

I'll leave it at that.

And marketing and distribution, another extremely good quarter and robust market.

And with that, Bill, you want to ... ?

Good afternoon a couple of housekeeping items.

Let me call to your attention the detailed Safe Harbor statement included in our press release and our August 31st 2003 10-K that in summary says that in spite of management good faith current opinions on various forward-looking matters circumstances can change and not everything that we think will happen always happens.

In addition we've given guidance regarding our outlook for our third-quarter fiscal 2004 in our press release and subsequent to this call and our meetings in New York City and Boston this week we won't be commenting further and not be entering obligation to update our outlook.

Finally, in accordance with regulation G of the Securities and Exchange Commission you're aware of a category of discussion items known as non-GAAP financial measures.

Some of these if they're derived fairly straightforward from our financial statements or therein common business use can be the subject of our discussion today and in our investor business, our website has additional information at commercialmetals. com.

But there are other items that may be outside of our ability for discussion and you may need to be patient with us if we defer comment.

No doubt we brought it home this quarter.

Net earnings of over 21 million are 28 percent higher -- that's 28 percent higher -- than our previous best ever quarter and that was achieved in the fourth quarter of 1999.

And this is what is historically our weakest quarter of the year.

Our segments says Stan has overviewed our classic display of the effect of the geometric rise in scrap prices.

Our recycling division with its rapid inventory turnover reaps the immediate benefit of the margin expansion.

Our mills on a delayed basis are now enjoying higher metal margins; our fab operations with longer leadtimes for contract execution currently trail but should rebound as the backlog runs off in the months ahead and is replaced by higher price contracts.

And LIFO did did what it's supposed to do in periods of inflation -- it gave us significant expense.

You'll see from the press release this is our first billion dollar sales quarter with significant sales increases in all of our segments versus last year.

And you know, we are in unusual times when our recycling segment outearns our domestic mills in quarterly adjusted operating profit.

That includes our four steel meals and our copper tube meals.

LIFO reserve at the end of February was 28.2 million.

That means for the second-quarter, it decreased net earnings some 6.2 million or 21 cents a share and that stacks up against last year's second-quarter where there was a decrease of 1.9 million or seven cents a share so for the six months that ended February, LIFO has decreased net earnings 7 million or 24 cents per share.

Last year the fixed month number was 1.8 million decrease or 6 cents per share.

Gross margins are on a scale, ranging from historic highs at the recycling segment to recovering at the domestic mills to squeeze fab operations.

On depreciation and amortization for the second-quarter was taking 18,870,000.

That now means that year-to-date we're at 33,993,000 and I would anticipate for the year that depreciation would be about $75 million.

One statistic that someone undoubtedly will ask which is what did we pay per ton for the Polish mill.

If you gross up what we paid for our percentage of the equity in fact on the debt that we assumed -- in short tons, we paid about $108 per ton.

Our SG&A rose 27 million this quarter.

The largest two items are items that run with profitability which our incentive bonus plans or profit-sharing, other factors included salary expense -- just normal increases.

We have increased our bad debt reserves and the other items would be our professional fees.

I would note here that in terms of compliance with Sarbanes-Oxley, outside expenses which doesn't include the allocation of internal time, outside expenses have been 1.6 million on this project to date.

Interest for the quarter was 6,895,000.

I would anticipate that interest for the next quarter will be about $6.5 million and this led to rather substantial interest coverage.

The balance sheet increase in goodwill.

The Laughlin acquisition brought with it goodwill of not quite $25 million, which now means that on the balance sheet there's about $34.5 million of goodwill.

The balance sheet is in great shape.

We got net working capital of 483 million.

Current ratio is 1.8, our long-term debt to total cap ratio's at 37.4 and looking good.

Stockholders' equity statistics -- our average shares -- average diluted shares, that is -- for the second-quarter were 29,878 156.

Now for the six month the average diluted shares were 29,439,058 and the actual number of shares outstanding are 28,825,642.

Capital expenditures for the second-quarter were 7.4 million which means year-to-date we are at 14.6 and the budget would anticipate about 60 million but that of course does not include either the Poland acquisition or Laughlin.

We repurchased no shares during the second-quarter nor year-to-date which means our remaining authorization is a little over 1.1 million shares.

And the last statistic I'll give you is that year-to-date, because of the rise in the price of the stock we have had about $13 million in equity brought into the Company by way of our stock option/stock purchase price.

Okay.

Thanks, Bill.

We will open up for questions now.

[Operator Instructions].

Barry Vogel with Barry Vogel & Associates.

First of all, I must congratulate you.

After 25 years of telling you to segregate your operations so that we can understand what is going on, you finally did it.

What made you break it down so beautifully?

Was there anything in the SEC that made you do that or you just decided it was time?

Well, I was tired of listening to you whine at us but, essentially, if you look at the technical literature regarding segments, we met the criteria for breaking out, certainly, Poland because of its geographic dispersion and various management characteristics and now that the fabrication operations have gotten larger and have a slightly different internal management structure, it also met the criteria for a separate segment.

I'm glad you agree too.

Now as far as metal margins, I know that there have been price increases in the industry announced by your major competition from rebar and [indiscernible] bar subsequent to the end of February.

Are you -- I would assume but tell me if you're following those price increases?

Sometimes we lead, Barry -- we don't always follow.

Well in this case, are you following or leading and what are you going to do?

We're doing both.

All right so are you going to be raising your prices for rebar merchant bar in April by about $50 a ton?

We have -- I don't give you perspective information but our last increase was another increase effective April 12.

Okay and as far as your strategy going forward now that you've made these two wonderful acquisitions, by stealing the Polish mill and buying Laughton (ph) as far as mill assets -- what is your attitude toward additional mill assets right now?

We paid a fair price for the Polish mill.

Our attitude is to look at the same price, Barry, that we've looked but particularly where do we see significant growth prospects as well as increased market share and that might or might not be in the United States.

I mean, we will continue to look at mills -- I mean, obviously we have two significant -- two important acquisitions to digest.

So in the near-term we're more likely to do smaller acquisitions.

Okay but you're still looking for more downstream acquisitions I'm sure.

Yes.

All, right, congratulations -- I could not believe that you would earn 17 million in the quarter from recycling.

Thank you.

Frank Danue from Adodge Capital.

Yeah, that was a pretty good quarter.

I got a couple questions.

There were some interesting comments on your press release.

You got this one "that while difficult to quantify cancellation and price negotiations by some suppliers including freight adjustments adjusted our operating profit by an estimated 2 million"?

Right.

What was that?

We pride ourselves as you know in dealing with reliable substantive companies in our marketing and distribution business and, overwhelmingly, that's the case.

What happens, Frank, is when you get these kinds of increases in price -- be it steel, be it freight, be it copper, some people want to renegotiate.

Is that happening in your fabrication business too?

Like some of your suppliers there.

There have been some mills, yes, that have wanted to renegotiate.

Okay, so from your side have you honored all the prices you quoted people or were you trying to do (MULTIPLE SPEAKERS)

Yes.

So how does it feel to be an honorable man when others aren't?

It's been that way for 34 years in my career.

I guess that's true, you know.

All right.

And then you have provision for contract losses and fabrication?

Is that -- you bid something and you assume prices would be somewhere in there or costs are higher?

What happened there?

That's exactly right.

You're like every other construction company in America who can't deal with these steel price increases?

We can deal with them more effectively [indiscernible] then they can [indiscernible] that is a real issue and it's not just in the U.S. that's a global phenomenon and of course not just in construction and manufacturing and various end uses.

And that's why we keep making the comments, some moderation would in fact be helpful.

The working capital seems to be building a bit and I know some of that may be seasonal and some is just a reflection of higher prices and some is also a reflection, I guess, of Poland coming on the balance sheet.

Yes if you'd added Laughlin you would've hit every one of the reasons.

So there wasn't any unusual buildup of actual physical inventory?

No, and I've traced the days outstanding in both inventory and receivables.

They are on a par with where they have been but the pricing is incredibly significant in the rise.

Now, we should as we go into the third quarter burn some of the inventory off because the third and fourth are always our best quarters.

That will cause a temporary rise in AR.

The irony of it is, you are in your best financial condition when business is weakest because you lower all your working capital items.

And Frank, as you would know, of course, also include significant market distribution and while there's been a lot of focus on the increase on steel scrap, other products or raw materials we handle like iron ore, coke, have also had dramatic price increases.

That's all the questions I had and I actually prefer you to act honorably because I think that's the long-term best way to act and if the market -- I hope the market would give you a higher PE for that.

That's the Commercial Metals way.

It's not just me, that's the Commercial Metals way.

Aldo Mazoferro with Goldman Sachs.

On your Poland mill I'm wondering about the profit per ton you put in the quarter.

Is there likely to be changes that you could tell us about in the spreads in that mill?

They seem quite a bit lower than your other mill in the U.S.?

And I thought the product mix would be a little more like the U.S. mix, although I saw you did (indiscernible) a lot of billets in the quarter.

Yes, Aldo, particularly in the winter and of course we talk about seasonal effects it's really -- Poland is a much more dramatic situation and first time in fact we've operated a mill in the North.

So to speak.

And so, what happens in general is is in those December February quarter we would -- and the history of the Polish mill is still about 70 percent domestic, 30 percent export.

During the winter months, it would tend to be more like 50-50.

And with the strong global demand that one's been particularly the case recently and of course, there's been strong demand for billets (ph) so that, in fact, has been helpful.

But it would in terms of average price of course -- it would bring down the average price.

The -- but in general, historically, while that mill has been profitable six -- (indiscernible) 6 years before we bought it, the spreads have tended to be a little bit lower but we have been able to raise prices in Poland, as effectively as we have in the U.S. and elsewhere.

So those spreads should widen as well.

I see, so the mix change wouldn't necessarily change your scrap costs at all I would think, right?

No.

And the other question I have was there anything in the fab division that might have related to extra cost related to the Laughlin acquisition.

There is the amortization of certain intangibles as well as -- although not directly related to the acquisition -- the question earlier about job loss reserves.

You know there were some reserves taken on their contracts as well.

That was a onetime adjustment?

I hope so, Aldo, it's all dependent on what the price of the Finished Goods...

No, I mean the amortization of the intangibles (MULTIPLE SPEAKERS)

No, it will be continuing amortization through a period of years.

So how big a number was that adjustment you took for the employees -- I mean, for the contract?

It was upwards for all the fabrication of $1 million.

Okay.

And Stan, I wanted to ask you what do you think is -- your comments on the China market, you know possibly slowing and things, I mean I didn't take that as a warning either but I wondered way you think about the scrap market in the U.S. and the ability of the bar market to continue to see some price increases if scrap were to stop going up?

If it were to stop going up?

Yeah.

It has at least temporarily stopped going up and in fact our comment about a correction this quarter is -- April prices certainly are looking down.

Domestic prices.

And in the international market using that same barometer that I used I think it's gone down about $40 a metric ton.

Would be about -- from the peak -- of course, international prices were higher but look we think our strategy of not employing surcharges is the right one and in the long run it will benefit us.

Thanks Stan.

Mike Kristaduler (ph).

Just a question on your scrap I manage your ferrous scrap costs 147 both domestically and in Poland and up 118, sequentially, first quarter to second quarter.

And yet you know your realized ferrous scrap price on the recycling side, up almost 50 percent.

What are you seeing there in the trends and remind us again what's your percentage of integration or self-sufficiency between your mills and the recycling?

The answer to the last question is between our own captive secondary metals plants as well as that of the recycling segment, about one-fourth of the requirements of the mills are supplied internally.

But if you look at total tonnage, Mike, you could say it's down -- not quite with the Polish acquisition but it's fairly close to being balanced.

Right -- have you gotten ... did you get a little bit more long scrap it looks like, three or four months ago, in anticipation of some of these trends we're seeing?

We haven't built -- we've been buying ahead and of course, as a processor, we are in many cases buying what we call unprepared scrap which certainly has been an advantage in this market, compared with buying prepared scrap.

Because to the degree that we're buying scrap on the outside, we're like everybody else in terms of paying the market price.

Right right.

And over to your Polish mill, that's pretty technologically sophisticated, right, in terms of its production capacity?

Is it comparable to the quality and efficiency of your four mills here?

It's quite good -- it's not quite -- in some ways it's not quite but some of the areas of improvement are not so much technical as they are things like scheduling and just giving, we've been pleasantly surprised at how good they are operationally.

Savvy and commercial aspects.

And so with only a limited number of people, a few high-quality people from our Company.

But, yes, we kept the management and so we just tried to help them in some where to us were fairly obvious areas, say, things like scheduling, the way we do -- some of the way we do the marketing but it's a good operation.

And notwithstanding your comments or clarification you feel you paid a fair price?

It does look like that's what 25 to 40 cents on the dollar versus what perhaps replacement capacity would be here in the States?

Well, we're not going to say we got taken to the cleaners on this.

No, no, no -- I was suggesting the other way around -- looks like you bought (MULTIPLE SPEAKERS), I understand.

Fair enough last any ability to implement surcharges on your fabrication side given that you're dealing with a lot of some of the big box retailers and if reversed, having to take some contract losses -- any flexibility there on the fab side?

No.

We're just letting all contracts run off and replace them with new sales.

The good news is the current prices are significantly higher.

So that's good.

Nice quarter again -- thanks.

[indiscernible] Chad McCurdy with First Dallas Security.

Ivan here.

Congratulation, guys, wonderful quarter.

Just in terms of just clarifying one thing.

Did you say that this particular quarter was better or your weakest quarter and that you beat your best quarter in 1999?

Correct.

The second quarter, historically, you run the numbers out it's always our weakest and the best quarter we ever had was the fourth quarter of '99.

And you were 28 percent better in terms of profit.

Yes.

The key question that's probably on a lot of our minds and maybe [indiscernible] in your comments, Stan, was that the people are talking in terms of the peak, do you think the cycle will still run the same way as before just in terms of like employment and then construction like six consecutive months of employment increases?

And then construction following peaking, that's when you guys would peak?

You think that's the same [indiscernible] this time around?

I don't see anything different in this -- taking the politics out of everything, I don't see anything different in this cycle in that sense, than we've seen in previous cycles.

And of course, you know we also have to look globally and, certainly, Asia overall -- not just China -- is a very bright light and continues to show significant strength.

And so, assuming that continues to be the case, we would expect to have a good cycle.

Are you seeing any -- like, I know we're always talking of China and most of the world is talking about China but are you seeing any interest from let's say, a country like India that seemed to get a lot more money coming into it?

Yes.

Yes.

We certainly have a sense that a country like India has begun to make some of the necessary reforms, is becoming much more entrepreneurial, private -- you know, loosening the government restraints and constraints.

So yes.

The answer is yes.

Do you know like there's a guy by the name of Ivan Sachs and there's a company by the name of Goldman Sachs -- do they both have buy recommendations or you don't know?

Thank you so much guys and well done.

Ivan Sachs not Goldman Sachs.

Michelle Appelbaum.

Great-looking quarter and lot of good color in the conference call.

Wanted to ask your view, there's a school of thought out there in the marketplace that the surcharge mechanism has actually fueled the runoff in (indiscernible) prices because it's sort of -- given the mills kind of free range to test these higher set prices which is then event given the [indiscernible] guys free rein to pass through higher cost etc. etc. and it sounds like the color coming from the mills is that they're going to be moving away from surcharges in the third quarter and the second half of the year.

Do you think that that would play out in any way on the scrap side of your business and do you get a sense if that's true?

Michelle, I've heard the same comment.

I don't know.

I mean, I can't comment, really, on -- in terms of whether our competitors have been flat if you will in resisting scrap price increases because of the surcharges.

I mean, the fact is a lot of the drive in this particular market for the rise in prices came from overseas not just China but all along until I'd say the last month or two, the impetus for higher prices came from abroad.

And there was more of a catch up domestically.

And I think that's what happened which probably hasn't -- certainly didn't hurt us in terms of our recycling profitability in the second quarter where I think there haven't actually compared the numbers specifically domestic versus export.

But, intuitively, I have a feel that there was some of that was a catch up in domestic pricing during the second quarter.

But (MULTIPLE SPEAKERS)

So you don't think the surcharge mechanism really

We have re-dopted (ph) it so I think that gives you our opinion about it -- so.

Michelle Appelbaum That's true that's true.

Well, that is a different way to answer the same question.

So you wouldn't be surprised to see the mills walk away from the surcharges?

You think that's where it's going to go?

Well scrap goes down -- I wouldn't be shocked.

But only if scrap goes down?

I don't know.

Related question -- if we had a mini-cycle in '95, '96 that was very China driven that looked almost exactly like this cycle, except for the amplitude of the curve was you know a quarter of what we've seen.

Since then, you recall I'm sure.

And what we saw then was a huge amount of dollars put into [indiscernible] substitutes and it created what fascinated me at the time was that he created a two-tier cost structure for higher units if you will for an electric furnace and these heavily capital intensive DRI type facilities would turn on and then wouldn't turn off and when scrap prices got to cyclical lows this cycle they hit new cyclical lows.

Do you think that there's risk when you hear Keith Bose (ph) talking about Misabi Nugget (ph) and Newcor (ph) talking about the three or four different projects that they're looking into...

Do you think that the scrap industry ends up shooting themselves in the foot because of creating this substitute which enhances the cyclicality or is it inevitable that because of the structure of the industry and the mismatch between Chinese electric furnaces and scrap demand in their indigenous supply that this has to happen?

I don't think the scrap industry is shooting itself in the foot, I think people in the scrap industry would tell you they suffered terribly for three years and so if you look at sort of in kind of a maybe bizarre or more extreme way of what a five-year often a five-year cycle, this one was just much more extreme in the lows and the highs.

But I think one thing to keep in mind in the last several years, almost all of the increase in global steel production has been China.

Not the only increase but a good part of it.

China in contrast with a lot of countries is [inaudible] something like 85 percent blast furnace based.

So a lot of its growth has been in the non-electric furnace orientation, which at least is -- probably sounds crazy to say has moderated what could even been more extreme had China gone more like 40 percent electric furnace.

I'd argue China shouldn't have 1 electric furnace -- you can't make (indiscernible) (MULTIPLE SPEAKERS) bicycles --

and I wouldn't disagree with you -- in fact China's got a real issue with electrical power so (MULTIPLE SPEAKERS) which, hopefully, will also moderate its production growth not it's obviously from my vantage point I'd like to see China continue to grow in those areas which you feel but cutback their pellmell expansion in production of steel and other metals and I think the government sees it the same way.

They clearly are trying to moderate the growth.

So does it make sense to think about your Company expanding participation in the iron units business and getting involved in some of these CRI type facilities?

Since you're already in the iron unit delivery business?

It might.

Up until this cycle, the returns were so low that any time we looked at it, we didn't really show much interest.

So we have to reevaluate whether we think now iron units will over a cycle bring higher prices and a higher return.

I guess there's going to be parts of the cycle where -- I guess my concern is because you have a different cost structure and direct reduced iron vs. scrap which is much more fixed, does that exacerbate the cyclicality -- is that why we've seen new lows and new highs over the last 10 years in every cycle, in the scrap business?

Is it because of the modest growth [inaudible]?

I don't think so.

I just think cycles in general are more -- whether it's currency or any -- just more -- things are just more volatile in the lows and highs and more extreme.

John Waldenstock (ph).

Paradigm Capital Management.

Good afternoon -- I was wondering with regard to the Polish mills, obviously this is a difficult period of time.

What would we anticipate average production in the quarter being from that mill?

Could you clarify what you mean by a difficult ... ?

You say this is a seasonally low period of time [Multiple Speakers]

(MULTIPLE SPEAKERS)

In spite of that we've been able to operate at very high production levels and, again, our ability to export has significantly helped that situation.

But we've had in fact record couple of months of record production.

That's great and when I do some back of the envelope calculations, it appears to me that the operating cost excluding scrap cost are lowering your Polish notes and domestic note by maybe 20 percent.

Is that a valid observation?

Yes.

Good.

Thank you very much.

Ironbridge Financial -- Allen Jay.

I have a few questions.

About the energy costs to run the mills.

You have that hedged?

We -- depending upon location in the United States might go into a forward purchase contract of anywhere from 25 percent to perhaps half of our natural gas usage for anywhere from 3 to no more than six months.

We never take a 100 percent position as to which way the gas is going to go -- electricity not at all.

And the only parameter we use in natural gas is whether we feel that the absolute price that we can lock in is consistent with our business plan in the current state of the finished goods pricing and if it's attractive we will lock it in for a little while but it's never 100 percent.

Which we've -- for those of you familiar with us know this, that the cost per ton for electricity is significantly higher than the natural gas costs but the volatility is much greater in the natural gas.

Okay.

So you mentioned about -- you think the reason why the inventory turnover has gotten worse, is it because of the rising price of inventory?

The turnover has not -- the turnover is good.

It's just the prices are higher.

It's because of LIFO counting, is that it?

Well no.

Really you have to separate kind of two ways to calculate it.

If you look at the tonnage turnover in that respect we're turning it over as fast as we always have.

But because prices are on the rise the statistics will always in dollar terms make it look like you're slipping a little bit.

But the underlying tonnage is certainly being turned at our historical rates.

Okay, I see that operating margin for marketing and distribution has gone up.

How much of that was due to foreign exchange rates?

I would say that depending upon, of course, country that you could've had anywhere from a 10 to 30 percent effect on realized prices.

One more question.

I did a rough calculation on the organic sales growth.

Is it 43 percent?

Quarter to quarter?

I didn't do calculation -- I apologize.

All right, good quarter.

Thank you.

[Operator Instructions].

Eric Fell with Taza Capital.

Just wondered if you wanted to quantify, sort of talk about lower scrap prices going into your Q2.

Domestically I think you quantified internationally (indiscernible) prices down $40 from the peak -- where do you see scrap prices going to -- comment at all (inaudible)?

I would only quantify what's happened.

There's no way I'm going to predict publicly what is going to happen with scrap prices.

Other than what I know has happened and, domestically, scrap prices were, in fact, up again in March.

But pretty clearly will be lower in April but we will just have to see how much lower that they will be.

Greg McCosco with Lord Abbott.

Nice quarter.

Could you talk a little bit just about the orders by your customers and do you have much sense of the inventory that they hold and how can you track that?

That's the hardest thing to track, Greg, and this issue -- you know, when you get in these very strong markets the degree to which there's double ordering or what has been clear to me for some time -- you've heard me say it -- is that we went into this cycle with very low inventories and user inventories were low, distributor inventories were low.

And this was generally true globally.

And when the market started to turn, I think some of these moves that exacerbated because the buyers of steel and copper and other products that we handled didn't believe the turn had occurred and therefore -- to some degree -- got caught, I think.

So the whole thing started with low inventories.

I think inventories are still relatively low, that people have not had a chance to rebuild.

But this is a hard thing to track and of course this is why one barometer I still use and that's just the price of copper itself in terms of what's going on in the world.

And I'm reassured by the fact that copper -- well, it closed today on (indiscernible) orders so forth that so forth historically always been a reflection of what's going on.

I think that's certainly a positive factor.

In fact, price of copper as an indicator, sort of across the board for demand for kind of all of your products or all your metals?

Correct.

If it's wrong it will be the first time.

And the point being the price of copper will start -- we'll see that start to weaken or turn as an early indicator?

Yes.

I think so.

Michael Kristaduler with Inwood Capital.

On the area of graphite electrodes.

Are you expecting any more antitrust payments or did you get the last of it last year?

It's been over with for some time, Mike.

And how far are you contracted out for your purchases for '04 and what's the longest you've ever gone out in a period where clearly electric prices are heading upward?

Annual.

You're talking about graphite electrodes?

Yes -- purchase of graphite electrodes for your minimills.

I would have to look that up, Mike.

Certainly we do not simply rely on the spot market whether we go out -- we have got out a substantial number of months.

I'm sure it's at least six but whether we buy our annual allotment at once I will have to do some homework.

Okay, I've just seen the pricing go up the last two or three years 2100 to 2300 to 2500 and it's -- spots high 2000 right now.

I do know that for one of our mills because we checked this about a month ago year-to-date and this is our fiscal year to date, it was up 18 percent.

Gotcha and what's your minimill (indiscernible) right now for the four domestic facilities?

Capacity.

Goldman Sachs, Aldo Mazoferro

Sorry to keep harping on the Poland mill.

Just wondering, the volume in the February quarter was pretty strong.

Wondering -- are you expecting that kind of volume in each of the quarters I know seasonally, it might be better?

Yes we would -- yes, we would expect at least that volume and I think hopefully, more -- a higher proportion of finished product.

Great.

Thanks, Stan, great quarter.

There are no further questions in our queue at this time.

I will turn the conference back over to you for any additional or closing remarks.

Just thanks for everyone participating.

Bill and I will be in New York the next two days and then Boston and we are planning what we need to fix the dates for another trip to the West Coast and if you want to request us coming somewhere else we will get out there as well.

And that finishes our conference call.

Thanks.

Once again, that does conclude today's conference call.

Thank you, everyone, for your participation.