Commercial Metals Co (CMC) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

At this time, I would like to welcome everyone to the Commercial Metals Company's first quarter 2008 financial results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(OPERATOR INSTRUCTIONS).

Thank you.

I would now like to turn the conference over to Mr.

Murray McClean, Chief Executive Officer.

Please go ahead, sir.

Good morning and welcome to CMC's first quarter 2008 conference call.

With me is Stan Rabin, our Chairman, and Bill Larson, our Chief Financial Officer.

I will start with an overview of the first quarter and then Bill will follow with further details.

Previously we gave a range of $0.55 to $0.65 per share for the quarter and we achieved $0.50 -- $0.57 per share for the quarter.

This compared with last year at $0.71 per quarter per share for the first quarter.

The major factor was Poland and Croatia, where our operations and CMC Zawiercie the previous year achieved an operating profit of $25.9 million for the first quarter.

This year the first quarter combined with Croatia, you can see there was a small loss.

So this was the big swing factor.

We did mention on our previous call that Poland was subject to high levels of steel imports and declining prices, which impacted both shipments and margins, as world rising scrap prices further squeezed margins.

Clearly, the [Strongs Latti] limited exports and encouraged imports during this period.

Globally, when we look at the long steel products markets, certainly global infrastructure and non-residential construction activities remain strong.

In the U.S., non-residential construction activities overall remain very good, although there was some evidence of project delays and rebidding work following the subprime mortgage issues and ongoing credit squeeze and liquidity issues.

Global demand in general, particularly China, pushed iron ore prices -- that's the spot-on oil prices -- to record levels during this quarter.

International ferrous scrap prices also started to move up during November and bulk ocean freight rates peaked at all-time highs early in November before a modest decline.

China's focus on reducing steel exports through a combination of removing VAT tax rebates and increasing export taxes certainly resulted in significant reduction of steel exports.

We saw it during the quarter and we think this will continue through 2008.

Our estimations are that that there could be a 30% reduction in Chinese steel exports in calendar 2008.

In the U.S., rebar and merchant bar prices were fairly stable during this period, although discounting to large buyers was fairly commonplace.

(inaudible) ahead of foreign [fighter] discount on [24] length rebars, but by quarter end we witnessed a pickup in shipments, particularly merchant bar shipments by service centers.

We believe this is anticipation of future price increases as well as supply driven with the very low levels of steel imports and low infantry levels at the service centers.

Now we mentioned previously about rebar imports declining significantly in the U.S., and just to give you an idea, August to November figures averaged 84,000 metric tons a month.

As 2006, the average per month was 216,000 tons -- that's metric tons per month.

I will now call on Bill to provide some further details of the quarter.

Good morning, everyone.

Let me call to your attention the detailed Safe Harbor statement included in our press release and in our August 31, 2007 10-K that in summary says that in spite of management's 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 the second quarter of fiscal 2008 in our press release subsequent to this call will not be under any obligation to update that outlook.

Finally, in accordance with Regulation G and Securities and Exchange Commission, you are aware of non-GAAP financial measures.

Some of these have derived fairly straightforward [in] that financial statements or they're in common business use can be the subject of our discussions today and in our visits.

Our website has additional information at www.cmc.com, but inevitably there will be other items that may be outside of our ability for discussion and you may need to be patient with us if we defer comment.

Well, all right.

The way the stocks reacted this morning you would have thought that CMC management has been implicated in the Mitchell Report.

Toby Keith has a song.

It's titled "I want to talk about me," and the lyrics partly go "I want to talk about me, I want to talk about I, I want to talk about number one." You notice I'm not singing that song.

But the number one thing I want to talk about is our International Mills.

I think you can see as from the operating profit statistics as well as what Murray has pointed out, that most of our operating segments very pretty -- pretty dadgum well this quarter with the sole exception of Poland and the startup in Croatia.

Although the results of these two operations were disappointing, nonetheless they were not totally unexpected.

As Murray has indicated, the welcome sign had been turned on in Poland for imports with a strong in currency, a booming economy and a consequent very high steel prices attracted way too much product.

The country has been working off its binge for the last four or five months.

We believe the bottom has been touched and though we don't think there's a superball bounce coming, Poland has the largest upside to surprise in the coming quarter.

Of course, this is all dependent on the seasonal factors behaving, but we are hopeful.

As for Croatia, we knew it would be tough sledding early on and we unfortunately have not been disappointed.

We're making excellent progress in the area with the greatest payback, and that's our employees.

Now our efforts need to turn to the customer base where we have to win back the business, trial lot by trial lot.

We're confirmed that the product line is right.

The market is there.

Our production capability is up to the test.

We hope to report significant progress next quarter.

The quarterly profit swing is about the International Mills, but I'd be remiss if I did not mention the International Fab and Distribution's strong results with raw materials and excellent inter-regional market profits.

It's again a reflection of our market intelligence and the ability to take advantage of material dislocations in a world market.

Our LIFO reserve at the end of the quarter was 236 million.

During the quarter, LIFO increased net earnings $2.8 million, or $0.02 a share.

Last year was an expense of $6.6 million or $0.05 a share.

I had predicted it would be flat.

I almost want to declare vindication because this is about as close as you can get without actually knowing the numbers.

Let's move on.

Depreciation amortization during the quarter was [31 million 522].

I suspect for the year, depreciation and amortization is probably going to be about $126 million.

For those of you trying to track the purchase price of CMCS, the S stands for Sisak.

That's the town in Croatia where the mill is located.

We anticipate -- or at least the current purchase price, and that's subject to a couple of contingency payments yet, is around $77 million.

Most of that actually is assumed liabilities versus cash payments.

You note that SG&A rose almost $20 million during the quarter versus the last quarter of the first quarter of last year.

Half of that is related to our SAP implementation.

That's also the explanation of why corporate and eliminations has changed that we are housing all of the expenses regarding our rollout of SAP in there.

The other significant element in SG&A would be Sisak, Croatia's; makes up about 1.5 million of the SG&A change, and the rest is spread among a bunch of categories.

But also bear in mind that at August 31, a lot of our annual salary adjustments are made.

So the first quarter is always going to be a little bit higher.

Interest expense -- expect to be pretty constant in the first -- from the first quarter to the second quarter, probably about 13 million.

And our EBITDA to interest coverage is still very, very strong at over 11 times.

A balance sheet looking good; current ratio 2.2.

Our long-term debt to cap at 30.2 and our total debt to total cap and short-term debt at 32.2.

We're in an excellent leverage position.

The book value per share as we ended November 30 was [1369].

The average share is diluted as it indicates in the press release 120,372,272 -- the actual number of shares outstanding because obviously there are dilutive effect of equity awards, 116,921,377.

We spent $69 million in capital expenditures.

I won't belabor that the budget for the year, which is $494 million.

If you all have questions, by all means ask.

Finally, the stock repurchases for the quarter, we bought back 1,745,145.

That's 1,745,145 at an average purchase price of $29.33.

In our remaining authorization you recall that we re-upped another 5 million during the quarter.

At quarter end we have 4,479,640 -- 4479640.

Finally, I would want to mention this season has special significance for those of us of the Catholic faith and other Christian religions; other religious traditions also have reason to celebrate at this time of year regardless of your path.

Those of us at CMC wish you well this holiday season and express the hope that next year will continue to bring you and your families joy.

Thanks, Bill.

I'll just continue with the outlook for the second quarter fiscal 2008 and maybe a couple of comments about calendar 2008 as we see it.

The second quarter is our winter quarter.

That's December through to the end of February for those in the Northern Hemisphere; obviously for those who come from Down Under, it's summer.

Even then it's pretty slow because they all just go to the beach and drink beer.

But anyway -- but typically, as I mentioned, it is our slowest quarter.

The swing factor will be Poland's performance.

A hard winter will impact shipments there, though we're seeing positive signs.

I mean, the mill at this stage is fully booked -- the melt shop and the rolling mills, which is obviously a good sign.

We are seeing signs in Central and eastern Europe that the market is turning.

Prices are starting to move up, which is very positive going into next year.

Turkey is out of that market.

They were a big factor in the last few months importing into not just southern Europe but into Northern Europe and into Poland.

They're out of that market now and Turkey is mainly concentrating on nearby markets.

Their own domestic market is very strong and particularly the Middle East and Gulf countries are very, very strong and North Africa is also a booming area.

In the U.S., we anticipate increased steel shipments.

We're already seeing that.

These are stimulated by rising steel prices which, as you know, Nucor announced a $25.00 price increase effective January 1 for rebar, much of our products.

So we see shipments are picking up.

Ferrous scrap jumped in December about $35.00 a gross ton -- that was for shredded -- and most likely will increase again in January.

Iron ore contract prices for 2008 have yet to be settled, and this may not occur until after the effective date which is always -- for the contract price is April 1.

We think this may be [an] after April 1, could be May or June.

That indicates a strong likelihood of very large increases.

We would think more like 30 to 50% at this stage and obviously that's having an impact on global scrap prices.

2008, in some ways is shaping up to be more like 2004, with global demand led by China driving our prices of iron ore coal and other raw materials as well as energy.

And freight rates we believe will continue at these very high levels.

The freight rates are higher than the 2004 levels.

Clearly, the U.S.

economy is different from 2004 and we are concerned about the slowdown in the economy here and any further impact of the credit squeeze on liquidity issues, as well as rising inflation.

These are concerns and -- but assuming there are no other major shocks, we anticipate a reacceleration after Chinese New Year.

That's typically late February.

Globally, it will be demand-driven and the U.S.

will be more supply-driven based on the low levels of inventory and also the very low import levels for steel.

So, with those comments, I'll open up the conference for questions.

(OPERATOR INSTRUCTIONS).

Michelle Applebaum, Michelle Applebaum Research.

Thank you for the season's greetings and also in advance, happy Valentine's Day, because we won't be talking to you until after that.

So I had a couple of questions to ask you.

The first thing I wanted to talk about is that you said pretty specifically that the -- Poland has the largest upside to surprise in the coming quarter.

In your guidance, the commentary you made about things are looking better, is that incorporated in your guidance?

Or what does your guidance assume for Poland for the February quarter?

No.

It's not assumed in there.

We're assuming better than the first quarter, Michelle, but not this acceleration that could happen if the weather holds and things turn around.

Okay.

So, better but not a lot better, and it looks like it could be -- potentially there'd be upside, then.

Okay.

And then another question.

In terms of your thoughts about China -- and you make the interesting point about '08 being driven by China, with a 30% decline in exports.

First, just for clarification, the 30% decline, is that net exports or --?

I presume you're talking about net exports, right?

Yes, we're talking about net exports.

I mean, our estimation of net exports for 2007 calendar year has been over 50 million, about maybe 52 million, 53 million.

We believe that figure will fall below 40 million net next year.

So then what do you think is going on in -- China seems to -- you're talking about exports being down because of these macro levels, but the other side of the coin, speaking as a market analyst, is that prices have run up and things have gotten crazy again in China as far as the home market.

So, there's [that] other reasons why exports have declined as well.

Why do you think the home market is as strong as it's been?

And do you think -- what do you think the outlook is?

And one issue is there's been production cuts, do you think there's risks of stuff turning back on?

We think the -- if you look, particularly on the long product side, the rate of capacity increase is reducing and demand there is just so strong.

I mean, with their GDP around 11, 11.5%, their steel consumption, certainly for long products, is more like 15% plus.

And you look at the capacity increase, it's dropping 15% and less.

So, we think it's demand driven within China and also, you're right -- some of those smaller mills are shutting down.

I mean they're finding it difficult to compete and also the government is tagging them on environmental issues.

So, it's a combination of factors.

But they do have a very strong -- and we believe unless there's some outside shock, will continue in 2008.

And the other thing, Michelle, is their costs, of course, just keep going up, up, up and their currency continues to creep higher.

And so the reality is it's getting tougher and tougher for them to operate and export.

Like Murray said, they're really -- our view is they're really cracking down on the environmental [mail].

Okay.

So you don't see -- so you see kind of more market forces in addition to the government's efforts and things that will get worse for their production before they get better.

So where would you say the risk to your forecast on China's export cut next year?

Is the risk to being -- is it more likely to be lower or higher?

Well, we think it could be -- [their complex] in terms of exports could be higher, particularly if the Chinese as are rumored to do impose further export taxes, particularly on billets and slabs and rebar merchant products, wire rod, et cetera.

They're watching, we understand, the exports monthly very closely what those figures are, but the chances are -- I mean it was rumored for January 1, we think that's unlikely now, but it could happen sometime during the first half of calendar 2008.

That would certainly have a big impact -- a further impact on steel exports from China.

Okay, great.

Well, listen.

Thanks.

Kuni Chen, Banc of America Securities.

It's actually Chris Brown filling in for Kuni Chen.

Good morning.

What is your sensitivity to state infrastructure spending?

As the (inaudible) environment in tax receipts flow, how long will this take to flow through your business?

It would take awhile.

Most -- whether it's public infrastructure work or whether it's large commercial work, you probably have the better part of the 12-month lag before it would start showing up in the statistics.

However, the actual tonnage sales statistics, but we would see it earlier on in our backlog statistics.

And so far, in the states where we're largest -- of course, you have to always bear in mind that as the Sunbelt Company, you know, California, Texas, Florida, those are the big markets for us.

And so far we have not seen in the major markets that -- and I'm talking not geography, but in the major product markets that we're in -- much of a decrease at all.

You also have to assume the states won't find -- which they've started to do -- alternative ways of funding infrastructure, including private investment.

I think that's a trend you'll see becoming more prominent.

And how are the backlogs in fabrication?

Are you seeing any contraction leadtimes given?

Sort of a slower non-resident environment this year?

On the rebar [furb], it's pretty similar to last year too.

It's very good.

The one that we're seeing a decline as marginal at this stage is Joist, and you'd probably anticipate that because they're big end-use customers of the big box retailers, you know, Wal-Mart reducing their stores.

They peaked, I think, at 275 stores in 2005 and the run rate of this year about 175 stores.

Target has actually gone the other way, which is interesting.

They're going from 90-odd stores, new openings, up to 120 next year.

But basically the Joist side is where we are seeing a slight contraction.

Okay, great.

Well, thanks a lot.

I appreciate it.

Michael Willemse, CIBC World Market.

First of all, Murray, could you just give us your sense of when do you think we'll see any decent relief in shipping rates, as far as shipping rate prices coming down?

Good question.

I mean they obviously came off their peaks 5 to 10% from early November, but we -- I mean our view is that bulk ocean freight rates will remain at these pretty high levels, certainly through the first half of 2008.

We don't see any great relief.

And most -- and that's all demand driven from China and these other countries.

Okay.

And also, you mentioned higher electrode costs and alloy costs at the domestic mills.

Should we expect these costs to go up again next quarter?

Or have we kind of seen the most of the jump?

No, I think because the electrode contracts are done on an annual calendar year, annual basis, I think the comparisons versus the prior quarters are going to be unfavorable here for another quarter or two.

Okay.

So we should see some higher prices there.

Another -- I think you say your alloy costs were up 90%.

Could it be up another 90% next quarter?

Certainly not over the first quarter, no.

But versus the second -- actually I haven't done the calculation, but it will be substantial.

That's one of the impetuses why we think sales prices are going to stay high if not go higher.

People focus on the ferrous scrap prices because that happens to be the benchmark on which the surcharge mechanism is based, but you could easily justify higher prices based upon these two elements as well -- utilities less so.

That is kind of a non-factor right now in the comparisons, but certainly in -- sorry, there was just a big bang here in the building.

We are -- you could justify it based upon the alloys and the graphite electrodes.

Which alloys in particular are you exposed to?

Well, I mean the ferro alloys that we use in our steel mills now, those prices -- Bill commented -- I don't think we'll see the big jumps we've seen in recent times, but they will trend up next year, based on the demand in China.

Also, China is cutting down even on those areas on its exports and raising export taxes and having quotas on certain products.

So those products are reasonably tight supply and that will push up prices, although it should trend up here in 2008.

I might add that it's not all bad news here.

We do have a trading division that [beakles in] raw materials and I mentioned in my remarks they've done very well.

This is obviously the corollary to that.

Okay.

And then -- it's actually on the trading division at first to look at the way you're segmenting your results now, domestic fabrication and distribution was at almost 650 million.

That's up about 100 million versus the prior quarter.

Is it safe to assume that the distribution operations in the U.S.

are about $100 million in sales a quarter?

Well, that's the -- that was what we call our CMC Dallas Trading House Steel Import business.

That yet at the run rate now, that would be I guess reasonable.

It's well down than what it was several months ago.

Okay.

And then in your international fabrication and distribution business, the sales there, they're about 760 million this quarter.

How much of that would be fabrication and how much of that would be trading?

Not much in terms of fabrication.

I would say I don't have that exact statistic, but right now it just represents the one fab shop in Zawiercie and the one in East Germany.

It does include, like in Australia, our service centers in that group as well, but you build, I would say, [90.10] maybe [95.5] in that range.

Okay.

And then last question just on the Croatian tube mill to follow-up.

Maybe you've mentioned this already, when do you think that the mill could be earnings accretive?

The anticipation is that we hope to break even for the year.

We hope to break even on an accumulative basis for the year so we're hopeful that the corner gets turned in the third quarter and then comes on and makes up the deficit in the fourth.

Which major regions or countries are you shipping the tubular products to?

Is it the Middle East?

Yes.

Okay.

Thank you very much.

Barry Vogel, Barry Vogel and Associates.

Good morning, gentlemen.

Barry, you're not as fast as you used to be.

You're losing it in your age.

You're becoming a real Southerner.

You guys are really attacking me.

Stanley Rabin, I have two questions which we've discussed over the years and I'm willing to take, if you can tell me, about the continuation of consolidation that is incredibly consistent.

And obviously a very short time ago, [Verdow] S.A.

stepped up to buy the max steel engineered bar assets.

Where do you think we are in the process going forward?

So I'd like your take on that.

That's the first question.

You want me to answer the first before you ask me the second or --?

Yes.

All right.

It will continue, Barry.

It will continue globally including the U.S.

and the acquirers could continue to be non-U.S.

companies.

Well, obviously that's occurred in the last 12 months significantly from (technical difficulties).

Yes.

And certainly the currency there plays -- is a factor.

Well, I'm wondering -- and of course you can't tell us on this call -- I'm a little surprised that (multiple speakers) --

I can't tell you, period.

I'm anticipating your question.

Okay.

Let's change the subject.

You stepped up and bought $51 million worth of stock in a very narrow window, because I know you always have blackout periods.

You paid an average price of [29.33].

That's the highest average price that you have paid for your shares forever.

What made you step up to pay that price?

The value of the Company just keeps going up and up and up.

How do you measure that?

Well, there are a lot of different ways, including of course, at the end of the day it has to be our earnings -- long-term earnings power.

All right, so you're very confident in your long-term earnings power?

Extremely.

Now, as far as Europe is concerned, I have to commend you again on your foray into Poland.

We all know how successful that's been, notwithstanding short-term trends that had you have to -- occurred and had this big turnaround in earnings year-to-year.

Are you likely to continue expanding in Eastern Europe?

Yes.

I'll let Murray -- can I go back to Murray and Bill?

Sure.

Barry, we are and we are all the time.

Certainly upstream in Poland with recycling and downstream with fabrication and we're looking not just a rebar fabrication, but a mesh.

Croatia, yes, that's a launching pad, as Bill mentioned earlier.

That's really a turnaround and we want another 12 months there to really turn that around nicely and then to use that as a launching pad.

Now, you primarily -- I know you're in Croatia on this turnaround and I know you're in Poland.

Would you -- is part of your plan to go into another country?

Yes, in that area.

Okay.

Thanks very much.

Continue the good work.

Michael Gambardella, JPMorgan.

Can you talk about the potential for you to export your steel products in the coming year?

From the U.S., Mike?

Yes, from the U.S.

Sorry.

Well, we are exporting billets; not finished goods at this stage.

We believe, just based on the pickup of shipments starting the end of November and through December, this could be short-lived.

Because clearly we want to sell more finished goods in the U.S.

market rather than exporting billets.

So we'll wait and see.

But the billet prices are so attractive overseas and we are selling to nearby countries at very attractive prices.

But it depends on what happens in international prices.

It could continue for some time because billets from China are being cut back so much that rolling mills in Asia and other parts of the world that were buying Chinese billets really have to look for alternative sources.

At this point in time with the weak dollar, U.S.

and in low scrap prices, comparatively speaking, in the U.S., billets out of the U.S.

look pretty attractive.

I know there are a lot of cost variables, scrap freight rates and everything, but say over the next nine, 12 months, you do see a continued decrease in demand from some of the non-residential construction markets.

Do you think you can offset that loss of earnings with exports?

I would not think so.

I mean we -- to get it out in any great bulk you'd have to be a little bit closer to the water than we are, and we're just not ideally suited for that.

Okay.

And then last question.

With some of the news on Rio Tinto and some others looking to put more iron ore into the spot market in 2008, can you take advantage of that on the trading side at all?

Maybe could you give us a breakdown of the trading side?

How much -- just ballpark percentages how much do you do of iron ore, scrap, steel and things like that; nonferrous.

Well, clearly, steel is our major product line and that's very significant.

You know, we've been trading well over 3 million tons a year of steel, but iron ore we trade less than 2 million tons a year.

We don't think that will increase in the coming year.

Even with the increase in the spot market trade?

Right.

It's more about sourcing, which is a difficult thing.

We have a good source out of Brazil and this is small miners, basically.

And out of Mexico, we do buy some from there, but we're limited as to where we can source it.

I mean the big guys, Rio, CBRD, BHP Billiton, as you know, dominate that market.

There are not too many independent international sources of iron ore, and clearly you can buy Indian spot but that's controlled by Indian producers or a trading company.

Just a side question.

How high do you think iron ore prices would have to go in '08 to make it economical to get iron ore out of the Great Lakes?

Don't know.

I don't think we know that.

Okay, guys.

Thanks a lot.

Mike, let me just [say] the one phenomena we've mentioned before recent that we've seen a result of what's happening of these shipments of ferrous scrap in containers, and we don't have a good handle on what that tonnage is from the U.S.

We're trying to get that.

But it seems to be fairly significant and certainly has affected the flow of scrap.

Now, containers are getting tighter because of this and container rates have gone up, but they're still relatively attractive compared with bulk shipping.

But that is a new phenomenon and you may see other things develop that we don't pinpoint right now as a result of these tremendously high raw material prices.

Yes, that's, as Stan mentioned, that's opened up a new market.

We think some of those markets will stick because some of these smaller countries like Bangladesh, even Vietnam, they can't take very large ships.

So they are limited with their port facilities.

So scrap in containers is a viable option for some of these mills, particularly the smaller mills.

And with scrap now going over $400 a ton [CNF] Turkey, we think this will continue.

As Stan mentioned, the main problem is to get enough containers and container rates are starting to rise.

We think this could continue for a few months, if not on a smaller scale indefinitely.

Sanil Daptardar, Sentinel Investment.

I just wanted to know in China what is your take?

Is China likely to slow down after the Olympics?

What do you see in there in that market going forward there?

No, we think the Olympics is a non-event.

I mean, it's obviously a great event, big Olympic games, but in terms of steel, we think it'll have no impact.

It's not like Sydney in Australia or Athens in Greece.

Both countries with small populations and 1 or 2 million tons of rebar means a lot to those smaller countries.

But 2 million tons of rebar, say in the Beijing market or in China, is nothing.

I mean, China is consuming close to 100 million tons of rebar a year.

So, 2% we don't think will have any effect at all going forward.

Okay.

You talked about 30% decrease in the main exports from China, which means that in greater supply of steel products in the domestic market.

Do you think that would compress the prices?

Or do you think because of the high cost of the raw materials, the prices are likely to remain where they are?

Well, we think the last part.

We think prices remain where they are, if not go higher.

That, as we mentioned earlier in the call, is putting tremendous pressure on the smaller producers and some of those are either reducing production or shutting down completely.

Some of that is environmentally driven, but we think prices will continue to rise or will remain at elevated levels in China.

We don't see -- unless there's a major downturn on their economy, which we don't see at this point in time, we don't see prices dropping.

Okay.

A few more questions.

In your guidance you talked about the margin squeeze.

Do you see that continuing in the third quarter, fourth quarter?

Or you see that there might -- the scrap prices may pull back and probably might seek a margin improvement in the third, fourth quarter?

And also on the [light] prices, do you think that may also pull back?

Well, you always see it starts obviously with recycling.

You see a bit of a margin squeeze initially at the mills because it takes them awhile to increase their prices to pick that up.

That normally allows two months maybe and then you see it obviously at the fabricators.

They have a margin squeeze with higher steel prices; that could last for a quarter or two.

Our average contracts for the fab guys are six to eight months so that could last a little bit longer.

Okay.

One last question.

You talked about in Poland that mill shop and rolling mill looks like fully booked going into the second quarter.

What do you see in the U.S.

market, your mill shops and the rolling mills are fairly booked or they are not?

Well, they are fully booked now.

We've seen a big turnaround the last few weeks.

So, both on melt and rolling side, they're really gearing up.

So this is very positive going into 2008 calendar year.

The only area that if you had to be pessimistic, which we're not, and that is we probably wouldn't roll all the merchant capacity that we had because as you know, the service centers are still playing hard to get.

But the anticipation is that they're going to have to come back and maybe they're going to wait until -- well, they almost have to, given the date today, the 2008 -- but they will be back.

And even that part of the capacity will.

But a lot of the mills that we have, as to our competitors, can be flexible in the rolling schedule and if rebar is the hot product, then we'll roll rebar.

We had one mill that's probably the merchant bar mill, as Bill mentioned, that hasn't been at full capacity, but their inventory levels are much less than what they used to be.

We only hold about 45,000 tons of inventory there now.

We used to hold 70,000 tons.

So we think the pickup and we saw it happening at the end of November by service centers starting to buy more and certainly happening through December with prices rising.

We think that mill will also be at full capacity pretty shortly.

And I think, as Murray said earlier, the global markets are quite strong.

We're talking now about steel, steel prices, and I think we're a little pleasantly surprised ourselves at how strong particularly the rebar market is.

And of course a lot of this relates to Turkey, which is such a fact of Russia, China.

I mean there's -- we're talking very high prices in dollars now for rebar.

Okay.

And just last question on this phenomenon that you're seeing about those service centers stocking back because of prices increasing.

They are doing that because the prices are increasing?

Or they are seeing from their point of view that the demand is also improving and that's why they want to restock it basically, [how] the demand is improving?

Well, I don't know if the demand -- depending what area, we think demand is probably flattish.

But the low level of imports coming in with the service centers having very low inventory levels themselves and the mills, their inventory level is declining because bear in mind the service centers rely a lot on the mill's inventory levels.

They're really forced to, whether they like it or not, just out buying.

And certainly they traditionally like to buy in a rising market.

So we think it's more supply driven here in the U.S.

than demand driven.

Okay.

So it's more restocking in that case.

Right.

Bob Richard, Longbow Research.

Good morning and thanks for taking my call.

Question on the domestic mills, similar to my question last quarter, only -- I'm impressed with your operating margin on a percentage basis.

I mean, quarter-over-quarter sales price declined $6 and your rebar mix is the highest in what we have over two years.

Are we looking at that the correct way?

Should we see operating margins decline on a percentage basis when we have a higher mix of rebar?

And if that is the case, can any guidance on what caused this pretty significantly good result, I think, on an operating margin percent basis?

You've thrown two different -- you mentioned decline and then you mentioned the increase.

(multiple speakers) I don't have the specifics for you, Bob, but it is clear that if the mill -- if the rolling mill superintendent had his way, he'd just roll rebar the entire time.

It rolls faster and we do get greater economies of scale and more tonnage when a run-in rebar.

I don't know necessarily that I would read a lot into that.

It may be a product mix issue for this quarter, but I don't have the specifics on it.

Well, we did have a bit of a margin squeeze because rebar merchant bar prices have basically been pretty stable since May.

The scrap prices from June through the November period have crept up by 30-odd dollars a ton.

So that means there was a bit of a margin squeeze during that period.

Point well taken.

And I guess I was impressed with your operating margin coming up quarter-over-quarter, taking that into consideration.

Oh, well, yes.

I'm sorry.

I totally misunderstood your question.

Yes, well, that's because the fourth quarter, we had a lot of -- I mean that the tonnages were down.

It was a totally uncharacteristic fourth quarter, though, from a tonnage standpoint, late July (multiple speakers) --

A lot of downtime.

Yes.

A lot of downtime.

Okay, thanks.

And one last quick question.

I believe, Murray, you threw out the number $400 [CIS] scrap to Turkey right now, (multiple speakers) --

We have heard as high as 414 just booked for a January load.

Have you guys done any sensitivity analysis to see, hey, if iron ore prices went up X percent, that scrap price that you mentioned would go up Y percent?

No, it's difficult to track.

We do track closely pig iron prices because pig iron, of course, comes from iron ore.

And when you see that trending up, you track that with shredded scrap or No.

1 [ITMS].

And there's always a premium for pig iron, of course, but they do track up together.

There's sometimes a lull of one or two months, but those two you can track.

And the text report provides data, that's a Japanese report going back several years.

But you go back to 2003 and track what it's done, it's very interesting to see the correlation there.

And of course on the margin, the integrated mills will use -- can use more scrap and the Japanese mills in particular have been using probably about 13% scrap.

They're integrated mills and that's on a higher side.

I think the other thing I would say qualitatively is in the U.S., we don't compete against -- everyone we compete against essentially uses scrap.

But internationally, specifically Europe, we do compete against some integrated producers and that could be very helpful for Poland, especially.

A high -- an iron ore increase, significant increase.

But you have to add on oil plus coking coke as well.

You have to weigh those two components and track what's happening with coke prices, not just iron ore, to compare it with scrap.

Okay.

Thank you very much and best of luck.

Andrew O'Conor, Millennium Partners.

Good morning, guys.

In light of your prior comments, I wanted to know can you elaborate on the domestic availability of ferrous scrap and how you see availability trending in '08?

And in particular, any comments about the availability of high-quality scrap and shifts in scrap availability would be appreciated.

Thanks so much.

Well, we fill -- I mean these high prices, there's no doubt it attracts more flow of scrap.

Scrap in the U.S.

is in three major categories -- obsolete, which is about 50%; the industrial scrap coming from manufacturing, et cetera, is about 37%; and the balance 13% is demolition scrap.

So the one that really moves with the flows is the obsolete scrap, the 50%, and with higher prices it certainly flows stronger.

So there's also a seasonal factor this time of year.

The winter months, you get a lower flow because it's difficult to obviously collect scrap at this time of the year.

We think the U.S.

market is interesting.

I was looking at the export figures the other day, year-to-date October, it's at over 13 million tons of export.

So at the run rate of [15] million tons this year of exports from the U.S.

-- that's all ferrous scrap -- and the domestic market or consumption is around about 65.

So you're talking about 80 million ton market of scrap that's processed -- or collected and processed in the U.S.

Will that rise 5% next year?

It's doubtful.

It may increase slightly, but with these, as I say, with these elevated scrap prices -- and we believe they're going to move much higher in the early part of 2008 -- you can imagine that 2008 figures will be similar to 2007, maybe even higher; but only slightly higher.

Thanks for that, Murray.

And then secondly, do you guys actually make a projection of scrap supply and demand?

And if so, what balance do you estimate for 2008?

No, we haven't.

I mean our experience in the scrap industry is that shortages are always compensated by pricing mechanism.

It's not a case that you could never get what you needed.

As long as you were willing to pay the price, you've always been able to get it.

It's interesting in scrap, you just look at shredded scrap here in the US.

December's price is $315 a long ton.

Last year December was $230 a ton, in December of last year.

It peaked this year in March/April period at 360.

So you can see at 315 where we are now, the chances are of going to the mid-300's and beyond in the first part of next year are fairly strong, based on overseas demand plus the pickup in demand here on the mill side.

Appreciate that.

Thanks very much for your comments.

Good luck, guys.

Aldo Mazzaferro, Goldman Sachs.

This is Sal Tharani sitting in for Aldo.

How you doing, guys?

Sal, you don't have to sit in for Aldo.

You're welcome with your own seat at the table.

No, what happened was, I had a problem with my lines.

I was dialing in on his line.

I guess actually I was listening on one of his lines.

Any way, here is -- I just wanted to get some clarification on Croatia.

You said it lost 4.5 million this quarter.

I think you had a little bit of loss last quarter also.

You may lose another, let's say, a couple of million next, but the quarter after that you're hoping to recapture all of it.

So you're talking about 6 million, 7 million ton of quarterly profit.

Is that correct to assume?

No, we will recoup all of it by the end of the third and fourth quarter, Sal.

I would think the third quarter should -- and I know all the guys in Croatia are listening to this and they're going to kill me afterwards, but hey, you've got to stretch -- we think the third quarter will be profitable and the fourth even more so, and make up for the deficits in the first two quarters.

Now, if you compare this mill to your Polish mill possibly in terms of product, this is a totally different product.

In a normal environment once you are able to fix all the loose ends over there, do you think it is a better margin product than Poland?

Second, is it more -- I believe you're exporting more out of Croatia, this product, so how would currency impact your -- would be feeling the similar impact if currency goes wayward in future?

Can you give us some color on that?

Yes, this is definitely a higher end product than what Poland -- Poland is moving towards some higher value products on the merchant side, but right now it is very much a commodity market mill.

This is not a case in Croatia.

Their seamless or the welded are much higher value products and the profile will be totally different from what we've got in Poland.

In terms of exports, very little of it stays in Croatia.

Whereas Poland is -- I think we've mention in the press release -- an [8020], Croatia I think is probably [1090].

Most of it is exported.

We mentioned earlier in the call that the Middle Eastern markets are the number one for the highest value products.

But Europe also has been a destination for some as well.

And oh, the currency.

Yes, I wish I had a little bit more to be able to help you on that.

I've become an expert in this loti, but the kuna isn't -- I'm not quite good enough on that one, Sal.

I don't think we're going to have quite the same challenges we had in Poland.

The kuna is even less traded and illiquid and I don't think it's going to move on as quite as substantially as this loti has.

And also, if it's a stronger currency, it doesn't impact you negatively because you are exporting.

I mean it doesn't attract too much importing and then floods the market because they sort of (multiple speakers).

That's right.

There's not much of local market there anyway.

But you're right.

The main thing is to track it against the euro because most of the competition is in euros.

When do you think you can reach the past deal closer to the capacity weight of 330,000 tons or something?

I would think that by the fourth quarter of this year we might be at about 50% of capacity.

Early look and we've only owned this thing two and one-half months, but early looks would be to get closer to about 80% capacity in our fiscal 2009.

We still have, I think -- to answer your question is I think we're a couple of years away for -- unless of course the markets start booming, but based on our early projections it will be a couple years to get all the way up there.

We have to sell -- spend quite a bit of capital expenditure.

You know, the time you order equipment and install it, you're talking 12 months to 18 months.

So Bill is right.

It's two years away, I would think before we reach full capacity.

And is that a probability of having a mix change but in the mill that you can go to as more value added seamless pipes and the welded as we go forward?

Right.

Right.

And we're also looking at modifying the caster and we could produce round looms there and you get very good prices in the European market for these specialized blooms.

At the moment, the caster can only produce hexagonal blooms; there's no real market outside the mill for those.

So modification is not so expensive.

It doesn't take so long.

So we are looking closely at that as well.

Just for purposes of clarification, the mills, there are four or five different lines in Croatia and one mill is dedicated basically -- there is no ability to shift the various product lines among the mills.

Each mill is pretty much a dedicated one-sell.

I'm learning this as I go along, but unlike our rolling mills in the United States or in Poland, the mills are dedicated to that specific product line.

Got you.

Now switching back to the U.S., scrap prices, the benchmark rate was up $35.

Newport announced and I guess everybody followed it, a $25 price increase of these fields.

Do you think that market was strong enough to take the whole $35?

Or you think -- or you believe that your position was -- or let's put it this way, you can't comment on Newport, but do you think market was [really $35]?

We would say yes.

To give Newport credit, that dropped the foreign fighter discounts and they were up to $40 a ton.

So you add that to the $25.

That's a $65 turnaround there.

So we are seeing discounts to volume buyers is starting to be reduced as well.

So there's more to it than just the $25 a ton price increase.

Got you.

And on the scrap, you made the comment that and in your press release that you went to the quarter at a low inventory.

How does it look for the current quarter and was that because it's difficult to source scrap nowadays?

No, it was -- that comment was specifically in our domestic recycling segment and they had emptied the shelves in August to ship everything they could.

They were on a real bent to lower their inventories to the lowest levels they could get.

So that the point would be that in the early weeks of September they didn't have a whole lot to be able to sell.

How much volume of scrap came out of the restructuring or reclassification from the mill side?

How much should we add so that they are on an ongoing basis on those scrapyards?

I will find out for you.

Practically nothing from the nonferrous side, but I will have to do some homework and find out the level that's in there.

Okay.

In the last quarter you mentioned that the container shipping cost for scrap was about $50 lower.

Has this come down now that Delta --?

Yes, it's dropping.

I don't know exactly what it is today, but it is about 10% less than what it was and they're still attractive to shipping containers providing you can get them from shipping point.

We still have -- at this point in time, it's about $25 a ton advantage to shipping containers from shipping point over selling domestic.

That's from shipping point from your scrapyard?

Right.

So that includes the inland freight when you put it on the rail to be shipped to the port?

Right, yes.

We don't include the ocean freight obviously with that, but so there's still an advantage to put it in containers.

The main problem is getting enough containers and it's fairly limited.

I think we mentioned we did about 17,000 tons for the quarter.

Lastly for the SAP cost going forward, what should we model in for the next couple of quarters?

I think it is going to look like this quarter.

We're pretty much high tide right now.

The -- I didn't mention in the press release, but the anticipation is that during this next quarter, the first units will go on to SAP.

So hopefully I will have a success story for you the next call.

So we should [translate] about $9 million, $10 million for next quarter also?

No, I think it's a little higher than that.

Okay.

Thank you very much.

Michelle Applebaum, Michelle Applebaum Research.

Let me see if I can pick up my handset.

I didn't hear mention of what is going on in Arizona.

Did you provide any updates?

No, other than the cost factor that was -- I think that was in the press release.

Things are progressing as expected rather than as hoped.

I think we are probably a couple of months delayed from our most optimistic.

So if we felt that it was May of 2009, we may be shoved back to the middle or end of the summer now.

Any particular reasons?

It's just the bureaucracy and the need to get permits.

It's nothing particularly evil or conspiratorial.

It's just it takes a little bit longer to work the political process and to get the necessary permits.

Particularly, as Bill mentioned, Michelle, the air permit is going to take two months, maybe three months longer than we anticipated.

But we still believe we can cold commission in March 2009, hot commission in June 2009, and as Bill said, have it up and running a month or two after that.

At what point would we expect you guys to say hey, this is great.

We are going to another one?

We don't know yet.

I mean, has that been brought up or is some benchmark we should -- we are starting to hear more domestic players talk about the U.S.

being still short.

Yes, well, let me put it in a -- let me answer a different question and that is, we are anticipating that this thing is successful and we are already doing whatever homework might be necessary to find locations where numbers 23456789 or wherever, and I think you have to pick out the entire globe as to where those locations might be.

So it's -- I don't think it's a case of waiting for the success which we believe will come.

We are already anticipating that will happen and looking forward to the next few.

So the next announcement is not at all a function of how this goes?

Oh, I think it has to be.

But that doesn't mean that in the interim we don't do anything.

Yes, it goes back to the lead times and whether it's acquisition of land or whether it's permitting, I mean, or even ordering of equipment.

I mean these things nowadays have lead times of 12 and 18 and 24 months.

And so I don't think it would be fair to characterize it that we're not doing anything, waiting the first heat to come out of Arizona.

Okay.

So I guess you are already scoping out other places to put another one, but then you've also got to figure out if this one is working.

Can you give me from the outside some idea of what's going to be kind of critical in the process to determine when you start getting serious enough to announce a number two?

How do I anticipate that from the outside?

Because I know you are not going to tell me what month it is.

So what do I look for in terms of sign posts?

I think you wait until we make an announcement.

Seriously.

All right.

That's fine.

If I have to, I'll settle for that.

Thank you.

Timothy Hayes, Davenport.

Just a couple of questions.

On the -- just to clarify your comment about rebar and did you say that the fab rebar inventories are starting to build up during your quarter?

The fab rebar inventories build up?

No.

What the fab rebar, they -- or our fabricators were buying up until recent times substantial imports, imported rebar as well as from a domestic mills.

But they have basically been buying from our domestic mills for the last three or four months or so.

So that's the big change.

In terms of buildup of inventory, no.

They would be maintaining fairly constant inventory levels depending on the bits of the work that they have in hand.

So I'm not speculating or building up inventory on the basis of higher prices to come.

And would that do you think hold true for the rest of the industry?

Is the industry not building up rebar inventories?

I can't speak for the rest of the industry but I would imagine, I mean, I've been mainly buying from domestic mills in recent months and that will continue.

Now, with these price increases, that will obviously stimulate some buying activity.

And I think most would be cautious.

I'd look at the level of their backlog and bidding work on hand and take a view of the inventory from there.

Okay.

We heard yesterday that CVRD had a port issue out of Brazil.

I'm assuming that has almost trivial -- or maybe a small impact on you guys, but nothing major?

Right.

Yes.

All right.

Then finally the detail or the 8-K on the restatements.

When we get the full detail on that, when do you expect to publish that?

Well, we're due to file to 10-Q for this quarter in first January 8 -- 4th, 5th, something like that.

So we will do it before that.

It may only be a couple of hours before that, but it will be before it.

Eddie Sharpe, Sharpe Associates.

I have two questions.

One is pertaining to the copper tubing.

On page three, you indicate as residential housing remains weak, we continue to emphasize HVAC products.

Could you give us more color on what all you are doing?

And I'm not sure I really understand what HVAC products means.

Yes, it's a matter of air conditioning uses versus straight water tubing.

So --

Just air conditioning?

Yes.

It's the unit we --

It's heating, ventilating and air conditioning.

Yes, and particularly for us, the product is known as a line set.

It's the connector between the condensing unit that sits outside -- well, at least it sits outside here in Texas -- and the main water lines.

That's what it is.

And the thought there is that whether you have residential construction or not, the replacement market is still pretty strong for AC units.

And that is more the air conditioning units that are pretty year-round?

It's not really seasonal?

For construction, for (multiple speakers) non-residential?

There is a seasonal factor.

I mean, they -- normally that period March through to May/June is a big period for -- demand-wise for those units.

Okay.

I realize I've got a simple question concerning steel price is still a very complex matter of trying to mathematically determine it, but I think you indicated that iron ore, they're negotiating and maybe prices there are going to go up 30% to 40%.

Roughly, what does iron ore represent as a percent of cost of goods sold?

Is it half, two-thirds or what and what with that mean, therefore in general, that would require price increases?

Are we talking about 15 to 20% or more or less?

I realize it depends on the type of operation here, your mix.

We don't know for sure obviously what those are in and oil price increases will be, but everything we've heard is 30% to 50% in that range.

We do know the spot-on ore prices are 100% -- roughly 100% higher.

This is (technical difficulty) to [favor] this time last year.

In terms of the cost structure, omitting iron ore and coke combined represent around about 70%.

And coke, yes.

And coke.

Compared with the minimill operation ferrous scrap represents roughly 53, 55% of your costs mainly.

What about coke prices?

What are they running at?

Well, they've gone up tremendously too.

They are well over $400 a ton now.

Oh, my God.

What is that percentage-wise?

Roughly?

Doubled.

I think they've doubled.

Doubled?

Doubled.

(multiple speakers)

Street market has doubled (multiple speakers).

In recent months, yes.

Is that likely to go up another 10, 20% in '08?

It's quite possible.

2004, they peaked about $450 a ton.

So it's (technical difficulties) that level.

Okay.

Thank you very much.

I hope you're not short coke.

I'm getting out of commodity place.

Sal Tharani, Goldman Sachs.

Just a quick question.

You are now baking of the Dallas Trading out of your -- into what they call our international fabrication and distribution.

(multiple speakers) international -- hello?

It's in the domestic fabrication distribution.

Yes, so then, so the international division is primarily the same as what you had trading business before except it balances out.

Is that correct to say?

Yes, that's correct.

Now the Dallas Trading business is mostly steel and some ferro alloys.

International had, besides the service centers, you had -- I know what you do, you do other stuff.

Is the margin different or was the margin the same, is that 3% total margin you guys were (multiple speakers)?

Just to clarify.

Dallas Trading trading was predominantly steel, steel imports.

They had a little bit of aluminium products in markets.

Some markets will have actually got out of that business or getting out of that business.

So Dallas Trading is just really steel, steel import business, whereas in the international side, you've got the raw material business which includes ferro alloys.

Now, the steel business -- and if you're shipping something from country A to country B, excluding U.S., it still comes into the Dallas Trading line, like if you're sending something from China to Korea?

That would come into international.

International.

I'm just saying that on the terms of margin, remember you used to have about -- you have about 3% ex likely impact margin on that business.

Should we think of it as the same or is this going to change because of this reporting changes?

No, it's not going to change.

The only thing it will change will be strictly market conditions.

And for instance the steel import business in the United States right now is -- it's a little week.

Yes.

Great.

Thank you very much, guys.

[Wayne Hatwell], [Pontus Capital Management].

Can you talk about Croatia a little bit more?

Most of my questions have been asked, but could you talk about your operating rate there, your ability to hire people, and what is restricting you from ramping up to a higher operating rate?

What your potential is there eventually?

The constraints right now, Wayne, are customer acceptance.

We have pretty much tested all of the machinery.

We've the workforce in line.

I don't think there's a problem about headcount.

We've got sufficient numbers there.

The major concern early on is the fact that we're getting a lot of inquiries from customers and customers that have been customers of the mill in past years; but because of its almost zero operating rate over the last year or so, they want to make sure that the quality is what they've had in the past.

So instead of getting 100, 200, 300 ton orders, we are getting 25 and 50 ton quarters.

And we are getting a lot of them.

We are getting a lot of inquiries.

And as soon as that passes their technical tests, we anticipate that these trial lots will turn into full orders.

The other think that is hampering us early on is a lot of seamless pipe contracts are done on an annual basis and some of the customers have already fulfilled their buying requirements for 2007.

And so we had to wait until the 2008 contract year rolled around.

So basically you have to prove yourself, is what it boils down to?

Yes, or reprove that the mill can do what it has done in the past.

That's exactly right.

And what kind of operating rate are you running at?

10 to 15%.

Wow.

Just thinking about that, you've paid very little for the capacity.

The wage rate there is probably very low.

The infrastructure in Croatia is pretty awful.

So you'll probably have trouble getting [out], but my guess is your cost structure is pretty good?

We believe so.

Now, the one caveat I will have to hold off, although I'm optimistic it will be, is that we haven't run the mills at a high enough utilization rate to be able to tell you what it really could look like.

And same way with our melt shop.

And there are some CapEx projects that are going to go on this year that should significantly influence our cost structure positively.

So right now it's all anticipation and I really can't come to you with a lot of facts.

Will you be able to get enough scrap and is the structure a problem?

Not a problem.

The scrap -- actually the largest scrap provider there is [Schultz], and we've dealt with them in Poland and in other markets.

So we are comfortable that the scraps should not be a problem.

The infrastructure, we are pretty close to the water.

If we needed transportation that way, we can do it.

Yes, the roads aren't -- they're certainly not up to U.S.

quality, but at least in my -- and I haven't toured the entire country, but they certainly are as good as Poland.

One last question.

How does this stack up on the global cross structure scale?

Would it be bottom, middle, low?

I don't know.

I am becoming an expert in pipe and tubular, but I'm not very (inaudible).

Honestly, I could not tell you.

Okay, and then lastly, I think the Croatia is going on the euro in a year or two.

So I guess that will have somewhat of an impact.

Yes, maybe a little bit longer than that.

While I was there, I read the speech that the new -- the newly elected -- was it President or Prime Minister?

President, I guess -- and he's hopeful, but I think they're talking at least 2011 right now.

Okay, great.

Thank you.

They are going to join the EU first.

Right.

There is one constraint seamless into European markets.

There's an anti-dumping that will go away when they join the EU in a couple of years.

And that was actually because there are Russian owners of the mill before us and they allegedly produced the seamless in Russia stamp that Croatia sold into the European markets.

But the mill unfortunately has got that constraint until such time as they join the EU.

And Wayne, just one other thing.

The raw material for the welded pipe is hot row coil.

Okay.

Great, thank you.

[Brian Lofter], Abernathy Group.

Bill, real quick question.

Are you guys interested in any additional scrap business purchases?

I missed a little bit of the first of the call and I'm sorry if this is a redundant question.

No, nobody's asked it.

But somebody is on a speaker phone.

Brian, you might want to mute that.

Yes, this is [Stephen], but that's okay.

Oh, I'm sorry, [Stephen].

The answer is that in the United States, we certainly want to look at it strategically and we will have a tuck-in acquisition in our recycling.

But we'd be more aggressive in Poland than we would anywhere else.

So my question really comes at, are you seeing less competition or more competition for -- meaning, has the middle management amalgamation with [Simms], has that thrown the advantage to the buyer or to the seller of scrap?

Well, the private companies, they all want pretty high valuations for their assets.

So we would have to say the advantage may be with the seller at this point in time.

It depends if you are a strategic buyer or what your strategy is.

If you are talking about the market itself, the scrap market has no impact.

It's still very fragmented.

So let me come at this one more angle.

Are you seeing more or less competition for scrap aggregation as of this last quarter?

No, we haven't.

It's all about the same?

Right.

Nate Carruthers, Applebaum Research.

You guys have mentioned that container rates are increasing, and I also understand that at the Port of Los Angeles they might put a $35 per container tariff on at that port.

First of all, do you know if the container tariff was approved?

Second, what impact do you expect this to have on both ferrous and nonferrous containerized shipments going forward?

Well first part, we don't know.

The second part, for us, no impact.

We don't ship out of that part of the world.

So you would need to probably address that question to scrap companies in California.

I don't think it would have much impact in any event.

I think the bigger issue now is the availability of the containers.

Can you give us an idea of where rebar prices are currently in the U.S., Poland, Turkey and Asia?

Yes, in the U.S.

at this point in time, before the price increases, they are around about $570 to $580.

That's the short-term.

These are transactional prices.

In Poland, they are about $630; that's a metric ton.

Turkish prices around $650 FOB.

Central and Eastern Europe, similar to Poland, $620, $630 in U.S.

dollars.

The Middle East, as high as $700 there a metric ton.

Did you say what Asia was?

Asian prices -- I don't know.

Have we got that, Bill?

I think that's (multiple speakers) $660 to $680 a metric ton.

Yes, $660 to $680.

Bob Richards, Longbow Research.

Electricity power rates in Arizona -- I'm sure this was discussed before I was in this game, but are you comfortable with what you have?

Are those been set up or can you give some color on that?

We are comfortable.

Your point is well taken, in that the West is clearly a higher market for power than anywhere else that we are, and even within Arizona there are different territories, and so the Mesa area seemed to be to us, putting all the factors together in terms of scrap procurement and land acquisition costs and power costs, to be the most reasonable.

It will be higher than our other mills, though.

On the other hand, the offset to that is the desert Southwest has the best steel prices and the best margins, and that's obviously what makes it more attractive.

Thanks very much and again, best of luck.

We have no further questions at this time.

Gentlemen, do you have any closing remarks?

Just a final comment would be we view the market as changing.

We see the signs with the increase in scrap boxes prices -- obviously, iron ore prices, spot prices and steel prices moving up here from January the 1st.

So we remain pretty positive about what is going to happen in the first part in 2008 and here in the U.S.

as we mentioned, we believe it will be more supply-driven, based on the low level of steel imports and inventory situation.

Globally, the demand is still there.

So we remain fully positive going forward, and we certainly hope for a good turnaround in Poland, and we believe our second quarter, which we mentioned is normally our weakest quarter, should be pretty good as things unfold.

Certainly, we'll be in a good position for the third and fourth quarters of this fiscal year.

Thank you for joining in on the call, and Merry Christmas, Happy Hannukah and Happy New Year.

Ladies and gentlemen, this does conclude today's teleconference.

You may all disconnect.