Commercial Metals Co (CMC) 2009 Q4 法說會逐字稿

Welcome and thank you for standing by for the Commercial Metals fourth quarter and year end conference call.

Your line has been placed in a listen-only mode, until the question and answer session of today's conference.

Today's call is also being recorded, if you have any objections, you may disconnect at this time.

I would now turn the meeting over to the Chairman and CEO of Commercial Metals, Mr.

Murray McClean.

Sir, you may begin.

Good morning, and welcome to CMC's fourth quarter fiscal 2009 conference call.

With me is Bill Larson, our Chief Financial Officer.

I will begin the call with a reflection on our fiscal year 2009 and then provide an overview of the fourth quarter.

I will then ask Bill to provide details on the fourth quarter, and finally, I will comment on the outlook for our first quarter 2010.

Fiscal 2009, what a year.

We were faced with the worst global recession in over 30 years.

Unlike previous recessions, the falloff was dramatic, both in the speed and impact.

We had a good month in September, 2008, followed by the markets collapsing in October and November of last year.

A special mention to our people at CMC who performed tremendously under very difficult conditions during the year.

There were a few notable achievements in fiscal 2009.

First of all, we're profitable for the year and, in fact, have been profitable for the last 32 years.

We were again rated number one in safety for US mini mill.

The award had been given to CMC sTeel Alabama.

We have won this award every year since 2002, with some of our mills having won the award more than once.

All our operations, in fact, improved their safety.

Recycling, rebar fab, structural joist and deck, and internationally, CMC Zawiercie in Poland achieved over 1 million man hours without a lost time injury.

We continue the successful roll-out of SAP.

We completed CMC Steel Arizona, a world class facility, for rebar production.

We completed the wire rod block in Poland and are well on our way to completing other major projects, namely the new flexible mill in Poland and the melt shop, and the new bag house in Croatia.

These projects will be complete in the first half of fiscal 2010.

Now just talking about the fourth quarter, of fiscal 2009, as forecasted on our last call, seasonal factors and restocking, rather than pick up an end use demand influenced their results, in particular here in the US.

Ferrous scrap prices and steel prices moved up sharply in China during June and July of this year but corrected from mid-August.

Other Asian markets were influenced by China during the quarter.

Ferrous scrap prices in the US also jumped during the quarter with rebar and merchant bar prices increasing, but at a slower pace.

We saw no evidence of significant stimulus dollars being spent in the regions in which we operate here in the US.

Demand for rebar was relatively good in Poland but selling prices were low, impacting middle margins.

All our training operations were profitable by quarter end apart from our US steel trading business.

I will now ask Bill to provide details on the fourth quarter.

Thank you, Murray, and good morning.

Let me call your attention to the detailed Safe Harbor statement included in our press release, and it is in our both August 31, 2008 and soon-to-be filed 2009 10-Ks.

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 we think will happen always happens.

In addition, we have begin guidance regarding our outlook for the first quarter of 2010 in our press release.

Subsequent to this call we will not be under any obligation to update our outlook.

In accordance with those regulations via the Securities and Exchange Commission, non-GAAP financial measures some of these have derived from our financial statements or in common business use can be subject of our discussions today and our investor visits.

But there are other items that may be outside our ability for discussion.

You may need to be patient with us if we defer comment.

Our Web site has additional information at CMC.com and you may also hit Murray McClean's Facebook page.

As Murray mentioned, fiscal 2009 was knot not without its achievements but it will be difficult to look back on with any great nostalgia.

As he noted, we continue with our three decades of continued profitability.

Our record as the operator of the safest steel mills in America.

Our supply chain management group aggressively attacked costs and achieved tens of millions of cost savings this career and they will proceed into if future.

We successfully completed our SAP rollout and are poised to derive the benefits of process optimizations.

Our Americas mills and fabricators had strong if not record years.

Our raw materials operations had a stellar year and our Australian and Asian operations remained profitable.

In guiding the Company through these difficult times, our objective is to keep CMC strong and be positioned to take advantage of opportunities in the future.

But, we have had to make some tough calls.

Facilities have been closed, operations curtailed.

Expenses cut.

And most painfully, we have released employees.

These decisions are not made lightly, and more often than not, made later than they should have been as we sought every other option.

As the recession wanes, we are in a position of strength.

Our earnings power now is greater than when we went into it, as we have successfully commissioned our Arizona micromill, our wire rod block in Poland, our caster in Croatia and we're nearing completion of our new rolling mill in Poland.

Our balance sheet is solid.

We have over $400 million in cash.

We're on LIFO with reserve of $242 million against inventory.

Our bad debt allowance is set at very cautionary levels.

Our good will and intangible assets are less than 4% of our balance sheet.

We are prepared for the future.

But there has been no past success, nor prospects of future success, without our dedicated employees, who carry this Company every day.

We owe them the greatest thanks.

When you look at the detailed numbers, any way you look at it is is an ugly comparison between this year's fourth quarter and last year's fourth quarter.

All comparisons by segment of sales versus operating profit are down.

One of the bright spots of the year, we generated substantial cash flow.

Cash flow from operating activities for the year generate well over $800 million.

I mentioned the LIFO reserve of 242 million August 31, that equates after taxes to $1.40 a share.

The LIFO effect interestingly for the year was just about the reverse of what happened last year.

We had incurred expense of $1.78 last year, when it reversed, it was $1.83 in income.

The difference essentially being the number of shares outstanding rather than the dollar amounts.

In the fourth quarter, we increased net earnings $24 million or $0.21 per share due to the effect of LIFO versus last year was $91 million of expense, or $0.78 a share.

Depreciation and amortization, including the writeoff of assets at South Carolina, and Croatia based upon impairment which otherwise would have gone into D&A totaled $163.147 million, during the year.

If I might speak to our income taxes for a moment, you probably followed with great interest the effect of tax rates for our second, third and fourth quarters.

They have ranged from the unconventional, we had tax expense when we had a loss, to the extraordinary.

We had tax income more than taxable income.

The real answer to focus on is the final effective tax rate for the year, it's a fairly normal 40%.

In periods of low taxable income, and when the sources of that come from high tax jurisdictions, you're going to get some strange answers on an interim basis as we attempt to estimate the rate for the year.

As the year unfolded, we undertook opportunities to minimize our taxes world wide and I think the yearly rate is reflective of this.

SG&A is down both for the quarter and for the year.

Predominantly, this deals with discretionary items such as our bonus and our profit sharing.

Also during the fourth quarter the effects of programs that we have been putting into play throughout the year to minimize salary expense, professional fees, travel and entertainment also hit in the fourth quarter, for the year, though, the largest single item in SG&A that fell was bonuses, notable items that went up, depreciation and amortization, mainly due to intangibles, but mainly the SAP rollout.

And we also increased as I mentioned earlier, our bad debt allowance, that would have been the largest item going the other way.

As we sit at August 31, we have a current ratio of 2.4.

Book value per share on a LIFO basis is $13.59.

During the fourth quarter, we spent $80 million in capital expenditures.

For the year, then, we had $370 million.

For the fiscal 2010 CapEx, first look at that, the budget is $152 million.

We have split this up into three areas, the first area would be those funds that are already committed, pretty much the remainder of Arizona, and the mill in Poland, that amount is about $80 million.

The second area is in safety, environmental and maintenance.

That totals roughly give or take about $30 million.

And the fourth, which is the remainder of the 40, I will label as discretionary, or subject to delay.

We are going to look at that on a pay as you go basis, the year is expected to start off slow, as the recession lingers, but then pick up in the second half where numerous factors we mentioned in the press release.

When the time comes, we will spend the other funds.

So of the $152 million, roughly $100 million are expected to be spent throughout the year and the other 50 we will see as we go.

Finally, we did not repurchase any stock, during the quarter.

Which leaves with us a remaining authorization of 8,259,647 shares.

Murray?

Thanks, Bill.

Just the outlook for the first quarter, fiscal year, 2010.

Ferrous scrap prices are declining due to slowdown in demand internationally and also, a cutback by US mills as we approach the winter months.

Rebar price in the US are likely to trend lower for similar reasons.

In China, steel prices appear to have stabilized after a correction from mid August.

Certainly on long products, within China, inventory levels of rebar and billets are relatively normal, while flat product inventories are high.

We anticipate some production cutbacks at Chinese mills leading into the winter months.

Other Asian countries are in a wait and see mode, looking to China for market direction.

We would anticipate that from early calendar, 2010 and certainly after Chinese New Year, China and other Asian country steel markets will start to grow quite strongly again.

As mentioned in our press release, we anticipate a slow down as we approach the winter months here in the US.

We anticipate infrastructure and public work projects in the US and in Poland to be relatively strong.

Once the stimulus funded projects in the US are awarded, starting from early calendar 2010, this sector will gain further strength.

Unfortunately, however, the private sector remains very weak.

We see no signs of this changing any time soon.

We will now open up the conference for questions.

Operator, we will take questions now.

(Operator Instructions).

One moment for our first question.

Our first question comes from Michael Gambardella from JPMorgan.

Your line is now open.

Yes.

Good morning,.

Good morning, Michael.

I have two questions.

One, with the Arizona micromill, the rebar mill, do you have any licensing agreements, with the equipment manufacturer, that would prohibit other people from building the identical mill in the US?

Mike, are you still with us?

Yes.

Okay.

We heard it.

Mike, the answer on the licensing is no but we do have some protection in the area of where the mills are.

In terms that the radius action not just our mill in Arizona, but from some of our other mills, too.

But it wouldn't preclude someone from using the same technology and say, just arbitrarily saying putting a mill in the northwest?

That's correct.

Okay.

And then, okay.

And then second question, on the SAP, now that it is complete, how do you measure the benefits from that?

And will you be giving us an update on that?

It is measured actually in two ways.

One is in terms of processing efficiency, how many people can do how many transactions, the other, though, going to be harder to dislodge from our supply chain, initiatives because they are using SAP as the tool that enables them to get the information to negotiate with vendors, and our various operators get the information to be able to fine tune certain processes.

So, I the answer in terms of update is I will be talking about supply chain benefits.

In fact, I have slides on that that I will present, next week.

And that is how you will find out about the SAP benefits.

Okay.

Then just one last question on the Arizona mill.

What do you expect on volumes and rolling out for calendar 2010.

Yes, it has a name plate capacity of 284,000-tons of rebar, we would anticipate this year, rolling and shipping 145 to 150,000-tons.

So about half of its capacity.

Not so much that we're running it at half capacity by the end of the year it will probably be running flatout but we're doing trials right now and so it will start off slow and then pick up towards the second half of the year.

We were out there last week.

The bundles, the rebar bundles from this mill are superb.

By far the best in the industry.

So this will set a new standard in the market place in our view.

And what's the estimate on the conversion cost for the metallic charge?

I will have to get back with you on that.

They are trialing things I don't have real good data, because they are running, Mike, 10-tons here and 40-tons there.

And so the information we have is so far is obviously it is the worst conversion cost known to man kind.

Right right but I mean in terms of what you're expecting compared to your other rebar mills?

I will get that for you.

Okay.

There has been subsequent updates for that.

Subsequent to commissioning it so okay.

Our next question comes from Sal Tharani with Goldman Sachs.

Your line is now open.

Good morning, guys.

Just wanted to get some more color on Croatia.

You have a furnace which will be installed I think early next year.

Are the losses primarily because of the furnace or because it is now exacerbated with the market conditions, and also with Chinese now, diverting their attention to that market versus shut out of the US and EU, how does that look for the future of this mill?

The main reason is really the market situation, Sal.

You're right, the Chinese now are blocked from coming to the US market and from Europe because of anti-dumping.

So they are focusing ton Middle East and North Africa and dumping pipe in those markets.

So those prices there dropped dramatically.

That is obviously a nearby market for the Croatian mills, so that's influenced them over the last quarter.

But on the positive side, the Chinese are blocked coming here in the US, there is an opportunity for pipe from Croatia to come to this market and also, ironically, Croatia is starting to sell a little bit into the EU, even though there is a 29% anti-dumping duty on Croatia into the EU, we're able to sell pipe into that market in small quantities and pay the duty.

So clearly, Croatia will join the EU within 18 months and that anti-dumping situation will go away.

So, longer term, that looks good.

In terms of the CapEx we modified the caster earlier, in the fiscal year.

The furnace and the bag house will be completed by January.

And that will significantly lower the conversion costs.

So that will also place us in a better position.

During calendar 2010.

And

One other statistic, one of the reasons we're able to go into Europe, the Chinese have a 40%, anti-dumping duty, so, we are the lesser of two sinners and able to jump them in Europe.

Okay.

And what would the capacity once you are done with furnace, in terms of billets and also the finished product.

Well, the furnace will be able to make between 425 and 450,000-tons of they are almost balloon size.

These are big billets.

Big round billets.

Between the two seamless mills we have there is a little over 100,000 in capacity, between 100 to 110 thousand tons.

So clearly we're in the billet market.

And, the melt shop when it is completed in January of course will not be able to early on put out 450.

But we do anticipate sale of a fairly substantial amount, perhaps between 50 and 100-thousand tons of Billets in this fiscal year, 2010.

Okay.

And next question is on the US plate trading division, Dallas trading, how much you still have left which you need to get rid of, which you you have been taking charges constantly.

How much should be figured out for the next year?

Well, Sal, that will take us in our view most of this fiscal year.

Maybe by mid calendar of next year we will get through it.

It is just there is so much infantry apart, Chinese and other pipe, in the US market, with the collapse of the oil oil and gas industry with the rig counts, being half of what they were.

It is just going to take several more months to work its way through.

And we have dane our hits as far as lower cost or market.

There is a substantial LIFO reserve against that inventory.

I think there's a little over 100,000-tons all together.

Plus or minus.

That is not all pipe but the pipe is the major stumbling block right now.

Okay, thank you very much.

Okay, Sal.

Our next question comes from Leo Larkin with Standard and Poor's.

Your line is open.

Could you give us guidance for extra expense and DD&A for 2010?

Sure, I would look for the first quarter's interest expense to be in the neighborhood of about $19 million.

Plus or minus.

It will probably be a little higher, maybe go to 20 or so in subsequent quarters.

I would look for D&A to be in the range of between $175 million to $180 million.

I hedge a little bit because foreign exchange changes muck me up but that's a pretty good range.

Thank you.

Okay.

Our next question comes from Timna Tanners with UBS.

Your line is open.

Hi, good morning.

Sorry if I missed this SG&A, are we supposed to assume a run rate at recent levels.

I know you said there was some end of the year kind of compensation there but if SAP that is going forward kind of included then in the number?

It is included in the number.

Overall, we would expect just on the the SAP side of things, that the total incurred would drop well in the 30% range.

I mean, we still continued to rollout SAP to some units and we're going back to optimize its use in others.

The expectation, though, is that SG&A, for fiscal 2010 versus 2009 will drop.

Relatively significantly.

I would assume somewhere in the range of five million dollars to $100 million.

Mainly because there are a lot of charges that occurred in 2009 that are not recurring and there are initiatives that we undertook dollars had fourth quarter effect but now will have full-year effect, in 2010.

-- okay.

And then did I miss 2010 tax rate guidance?

No, you didn't miss it.

I suspect between 38 and 40% will be the going estimate.

Okay.

So back to SAP, I know we have talked in the past about the benefits to expect from that going forward once it is fully in place but there is there is anything you have further to quantify that.

Maybe better working capital management but how do we think about that in terms of quantifying it.

If I tell you now you don't have to come next week.

I will be there, I promise.

Okay.

During 2009 alone, with the combination of the information that came off of SAP and its use in supply chain management, I will have a slide that will break this out until greater detail, but there was in the $50 million to $75 million in savings

In broken out for your expectations for 2010.

No, that was 2009.

2009, all righty.

Okay.

I will wait to hear off to say on Monday.

Sounds like I guess something similar but escalating in terms of go-forward benefit.

Yes, but the areas will change obviously.

I mean, they direct their attention to various areas, but yes.

Okay, great, thank you.

Our next question comes from Chris Brown with Banc of America-Merrill Lynch.

Your line is now open.

Hey, good morning, guys.

Good morning, Chris.

Can you give us some additional color on fabrication back logs and the outlook for next year.

how much can volumes drop.

Given where back logs are currently trending.

Well, back logs are still declining.

Depends on which area.

Some areas like the highway work in Texas, you have 12 months back log.

That is likely to improve in calendar 2010.

Other areas, the next there is no doubt this next quarter and the winter quarter, again, will be tough, but there is some hope at the the end of the tunnel.

We have seen some major projects, in markets that have been very weak, like Florida, are likely to come through, early calendar, 2010.

There is bidding activity on a couple of nuclear plants coming through, so some very large projects coming through.

And obviously if stimulus dollars which we have hardly seen anything of, that will definitely start plowing through in 2010.

So the back log should start to improve.

I would say, in the next four or five months, the main problem is, is pricing.

The pricing of these new jobs are low and that puts obviously a margin squeeze on, so, we see that situation, being here for the next two or three quarters at least.

Okay.

And then secondly when you look at metal margins and rebar it has been trending at about $300 to $400 per ton since into 2004.

Given your vows on construction do you see that metal margin declining over the next few quarters or a couple years or do you see it sort before staying flat?

Well, we think it will decline further.

All right.

There is no doubt the the setting aside the regular spread between bid prices and price of finished steel, what you have is rather fierce competition, there are a lot of desperate fabricators out there, Chris, and they are bidding jobs at desperately low prices.

I would say until that shakeout occurs you are going to see squeeze margins.

Okay, great, thank you.

Our next question comes from Luke Folta with Longbow Research.

Your line is open.

Good morning, guys.

Firstly on your utilization guidance for the mill's segment had are you use as your total capacity number for the first quarter.

Well, in the United States, in fact, you will see this, just as reference there is up on the Web site, an overview, slide, Luke, that has all of the tonnages in it.

But, in the United States, we're not counting Arizona in that because obviously it is just in the ramp up but essentially plus or minus, about 2.5 million would be name plate.

Okay.

And, just kind of refer back to Chris' question, with this sort of utilization and metal margins under pressure, do you think you're going to be profitable next quarter in the mill business.

The mill business should be profitable.

We're talking about the year or the quarter?

I guess I was referring to the quarter but if I would like to give guidance on the year that would be great, too.

Well, I think we will be the mills will be profitable for the quarter.

We normally don't give out the year but we did indicate that we anticipate a weak first half of our fiscal year and picking up strength in the second half.

We firmly believe that to be true.

Okay.

And then just on the recycling business, you have guided up there, just, curious on what might be driving your optimism that results are going to improve that significantly quarter over quarter.

Well, September was profitable for us.

We think we're going to have our costs in line now, clearly recycling like on the ferrous side the prices are dropping.

We think they will drop through November but then start to pick up in December and certainly early next year again.

The reason for that is that, flows start to slow over the winter month and then the mills with the seasonal factor in spring, their requirements start to pick up, December, January, period and also internationally there has been a China and the Asian markets have been relate relatively quiet except week.

The Turks have bought a little bit.

But we think the Asian markets will come back quite strongly December and January period so looking out, we think, recycling, should be okay.

Okay.

And thanks a lot, guys, appreciate the color.

Thank you.

Our next question comes from Tim Hayes with Davenport and Company.

Your line is open.

Question on the micromill, will that supply all or some of your rebar needs on the west coast or will you be net long on the rebar side once that is fully ramped up?

The it is anticipated, that, 60% of what Arizona will roll in 2010, will go to our sister fabricators.

we could sends it all, but there still is an advantage, we do have a large rebar fabricator that I mean, not figuratively, literally shares a fence line with Tamco.

And the freight charges are essentially what it takes to throw it over the fence.

So we could utilize all of it but there is an economics in still using a few other suppliers.

Also, the mill doesn't produce 90-foot length and there is a market, particularly in California, for 90-foot length rebar spring that we would need to buy in for our fabricators.

Okay.

And then with the other mill in Arizona, restarting, any concerns about oversupply there, with with the new capacity?

Well, our understanding there is that that mill is going to be commissioned and basically idle until the market comes back but certainly there could be overcapacity if that mill was operated at full capacity.

Bear in mind our understanding is, it is a it is basically a rolling mill, Billets will have to be tracked or rolled into that mill and then rolled into rebar so then competitively there is a cost, obviously to that, so we think the markets will definitely recover in that part of the world and we think, we're only concerned about ourselves with our capacity, we think that the market is big enough for for others.

Okay, thank you.

Our next question comes from Chuck Bradford with Affiliated Research Group.

Your line is open.

Good morning,.

Good morning, Chuck.

Hey, could you talk about a bit for about the fabricating side of the business.

Any signs of life in joists, or what have you?

In joists?

In joists and other fabricated products?

I would say joists it has a pulse but that would be about it.

You have seen the stats, Chuck, I mean, the entire industry in the United States, might, might ship out, 550,000-tons this year.

When you have a high water mark of more like, what, 1.4 or 1.5 a few years back.

So that's that's clearly tied to, larger commercial projects which just are not going right now.

In terms of signs of life, clearly infrastructure, where we're very strong in the in the Texas and the southwest markets, is a great market for us and we continue to dominate in the areas, where we do have our mills so, there is I very good work there.

But we're seeing some signs Chuck I mentioned Florida in the east.

Some markets there.

With were we have seen some signs that some of the afternoon shots are starting to fill up and certainly they will early next calendar year.

Once that happens, obviously obviously then they can they can come on command higher price bus at the moment there is just a lot of competition for the jobs that are out there, so, the next few months, next three or four months will be tough that's for sure.

I understand the price of needle coke for next year has moved up quite a bit of.

What are you hearing from the graphite electrode manufacturers as far as pricing for 2010.

Anticipating you would ask me that, Chuck, the most recent response I got within the last couple of days is, we are currently in negotiations, to set that price.

I would tell you that, in calendar 2009, we will probably end up purchasing only about 20% of what our anticipated spend was going to be, as we started the year.

For a couple reasons, one, knowing that prices were going to go up, we laid in a lot electrodes in the end of 2008 and obviously not running the melt shops anywhere near capacity throughout 2009.

We didn't need the electrodes.

So the pricing for the few electrodes we will buy during 2009 is kind of spotty in terms of pulling any trend, to it, I can tell you that the negotiations are ongoing, and I just don't have a price for you right now.

Does it make any sense to pre-buy some of next year's electrodes before the price goes up.

Same as you did a year-ago?

That it is an interesting question from this dynamic standpoint, the question of contractual prices, for 2009 versus spot prices, it is not an obvious answer, Chuck.

Okay.

What also, are you seeing on the refractory side, with aluminum prices pricing up a bit and I assume alumina has picked up.

Most of your refractories are alumina-based.

Are you seeing better pricing, or is that still a pretty weak business?

Still relatively weak, Chuck.

That depends on steel mills and foundries.

While their utilization rates have increased but when you're running your furnaces, you're at lower, utilization rates, you're not getting the same wear and tear at high utilization rates, so assuming that the capacities, keep it 70%, and higher, after the winter months, you would expect refractory prices to increase sometime after 2010.

Thank you very much.

See you on Monday.

Good.

Okay, Chuck.

Our next question comes from Evan Kurtz with Morgan Stanley.

Your line is open.

Hi, good morning, gentlemen.

Good morning,.

Just a couple of questions here's.

One on OCTG.

You mentioned you had a lot of OCTG sitting around some of your import yards.

There is chatter we have seen recently in the trade presses about how some distributors here in the US instead of paying the cost to refurbish some of this older carbon OCTG they have been selling it as piling.

Just trying to get a sense of how widespread this dynamic is and could it actually have any impact on lowering inventories a little faster than we might think.

I haven't heard that one, but we can check that out.

Okay.

We certainly have not sold any of ours as pilings so we will have to look at it.

All right.

Doesn't sound too widespread then.

Well, I mean, we have there is line pipe and other types of pipe as well so

Okay.

In inventory.

All right then moving on next question I had on the recycling business.

So it seems like volumes and prices are up a pretty good amount this quarter.

LIFO was maybe a $10 million drag quarter on quarter.

I am guessing that the decline in operating is mostly due to higher scrap acquisition costs and tighter metal margins.

Just hoping you can comment on that dynamic and where you see the spread kind of going over the next few quarters and what are really the supply demand factors out there on the scrap acquisition part of the equation.

Well, in terms of the cost structure you're right about the LIFO expenses when these scrap prices increase, but we also, we're still reducing costs in that segment, and, so the significant costs that impacted on the operating profit.

In terms of looking ahead for recycling, a lot depends on the international markets.

As I mentioned earlier we think they will pick up, early next calendar year.

And then you will obviously get better margins.

And we think certainly, on the minimill side, long product side, with public infrastructure work picking up, if mills go back to 70%, plus, some time, first half of calendar 2010, obviously, there will be a greater demand for, products like shredded scrap, so margins could improve there as well.

So we we quietly optimistic that recycling in our fiscal 2010 will be better than the last six months.

You have to discount the first six months of fiscal 2009, where we were devastated by the rapid collapse of markets we had high inventories and high costs, quite frankly,.

We worked our way through that so.

As I mentioned early, we were quietly confident that recycling will be a good profitable business this fiscal year.

Okay.

Specifically on the generation side, do you foresee any or have you seen many issues recently with the availability of scrap for purchase?

Mainly, obsolete as being okay.

Obviously the higher the price for ferrous scrap the more flow there is.

The main area is in industrial, our manufactured generated scrap obviously with the downturn, across the US with the recession, the flows are impacted there.

Okay, great, thank you.

Our next question comes from Sanil Daptardar with Sentinel Investments.

Your line is open.

Thanks.

Have you seen any kind of improvement in the credit flow-through to your stock distributors.

No.

So they are just buying on cash so just in time buying.

Yes, and we also see that in terms of the limits that the credit insurers are allowing our customer base.

They are not freeing up.

Okay.

Is it possible to give an early proof of LIFO income expense in 2010 given that you are --

Sanil?

Yes?

You know how good I am at this.

Absolutely.

Yes.

No, I I have embarrassed myself enough.

Okay.

The other question on Chinese I think Murray talked about the winter months basically might be a little bit difficult but you expect recovery in the steel market after Chinese New Year, but, do you think that the recovery in the Chinese steel markets would be delayed by the stimulus program that China has in place or is it kind of that you see that kind of restraint may not continue after strength may not consider into the new year.

The kind of strength we have seen in 2009.

Clearly China has had outstanding success with its stimulus package in complete contrast of the failure in the US in our view.

We think the Chinese government will start to pull back during 2010.

But the main objective will be to reach a GDP growth rate next year of we think it could be 9 to 10%.

Clearly the private sector and other sectors and their economy, where we will take over from the government.

The government stimulus package, will still be very significant, into next year, and will linger in, we would think into 2011 even.

They will clearly watch inflation and other factors and as they feel the economy is over heating at some stage it seems incredible we could be talking about an economy that is overheating, but then they may pull back and then they will look at other things obviously interest rates.

I may even eventually obviously look at their currency, that we think China is going to be very strong in 2010.

Particularly on long products and demand for scrap and iron or is still going to be strong.

Okay.

Just one last question on the commentary that you have in the press release about the Croatia and the Poland side you were impacted by cheaper imports in those countries in neighboring areas.

Do you think that might still continue into 2010 and the margins of maybe continue to be impacted for some time to come?

We think so about we think but know we're optimistic that we can sell some more pipe here in the US because, even though there is a lot of inventory on the ground, a lot of customers here want long term relationships with overseas mills and the Chinese are completely out.

We're optimistic we wouldn't have to sell much in the US market.

Maybe 3,000 or 4,000-tons a month which a would make a difference.

As he said we're making some headway into the EU now.

But we would expect the Chinese competition to hang around.

Okay, thanks.

Our next question comes from Wayne Atwell with Casimir Capital.

Your line is now open.

Good morning,.

Could you share your thoughts on M&A.

A lot of your projects seem to be close to getting over the goal line, Arizona, Croatia, SAP.

You have $400 million in cash.

You have a lot of debt but what can we expect you have been you have a lot of projects you have been working on and now you will have a lot of time on your hands.

What should we look for?

Well, we will play play it safe, Wayne, in the short term.

I mean we we want to protect our Company number one and as we mentioned in the brief we're facing a couple of tough quarters so I don't think you will see much in the way of M&A activity at least for the next one or two quarters, but we're doing our homework, at the same time, preparing for the futures so when the time is right, and when we think the asset valuations are right, we will be back on the market.

Great, thank you.

(Operator Instructions).

One moment, please.

Our next question is from Bob Thompson with Advantus Capital.

Your line is open.

Hi, guys.

Most of mine have been answered but have you spoken with the rating agencies at all in terms of keeping your ratings at mid BBB?

We meet with them next week.

Okay.

Have they given you any any forward thoughts on leverage levels and different things or --

No.

Okay.

Not going to tell you that ahead of the meeting, they are listening to this call.

I am -- Bob, please.

Okay.

On your plant utilization rates, I missed where are what is the tip what is the average rate now.

We were in the upper 60s for the fourth quarter.

And, we anticipate mainly due to seasonal downturn.

Not because demand is particularly shrunk because it always shrinks as we head to late fall.

To be in the low 60s.

Low-to-mid 60s.

60s great.

Thank you very much.

Very good, thank you.

Our next question is from Nick Stukas with Citadel, your line is open.

Hi, Good morning.

Most of my questions have been answered but just a few quick ones.

Maybe you can give a little more color on the fabrication backlog replacement rates?

As I mentioned it depends what area.

We tend to look at the back log in terms of months, so in the weaker areas the back logs on rebar fabrication has been reducing and we think this will continue, to probably around January of next year and then start to pick back up again.

The highway back log has remained very steady and that will we believe also get stronger early next calendar year.

You I think the the area by area, the back logs are a little bit lower to about stable.

But the pricing is a lot lower.

Right.

Is there a sense of back log replacement on a dollar basis?

That its clearly down isn't it?

Yes that is down.

Some jobs are at cost or even under cost.

So you have you make the margin at the mill.

That is the beauty of our being vertically integrated.

We look at our fabrications operations in Poland, a back log there which is pretty good.

You look at joist is four months but they are at very low operating levels, and tech is about 5 months.

Structural is about five months.

Rebar fab overall is about six to seven months back log on average overall.

So enough to get through the winter but you also want to be booking business during this period.

So it is important the next one or two quarters that some of these projects are awarded.

Right.

And then on the recycling side, so, you said scrap prices are softening.

As far as for scrap flows and the costs of unprocessed scrap maybe a little comment on that and what effect you see that having on scrap spreads.

I think the spreads will definitely come in in the short run.

Then we expect as demand picks up as Murray mentioned once the year turns over, that it will pick up but it is pretty competitive out there right now.

Right.

Okay then just last question on the international mills.

Just wondering what you're seeing on our rebar pricing and wire rod pricing and on the cost side, if scrap pricing is coming in the European mills.

Well, we have to say the fourth quarter in Poland, the volumes are quite good for rebar but the prices were lousy.

They started to move up a bit August-September period but are now starting to decline again, in this quarter.

So you're heading towards the winter.

So, they have haven't been good.

That's for rebar.

Wire rod not so bad.

We're optimistic particularly with the Morgan wire rod block mill with higher quality wire rod products we get better margins.

And the wire rod products in general improving, but we probably won't see evidence of that for the next one to two quarters.

The wire rod certainly would be more optimistic of that but rebar into 2010, calendar year, in Poland, should be quite good.

Certainly the volumes will be good.

The infrastructure work there is very significant, they have a positive GDP.

Residential is very weak in Poland and maybe that will come back next year.

But the infrastructure and the public sector work and the building for the stadiums, et cetera, for 2012, that is starting to happen and will accelerate next year.

So, hopefully, volumes for rebar in Poland, well we know they will remain goodbye the prices, hopefully, will move up and then the margins.

Right now if you take shredded scrap as your benchmark across the world, pricing is fairly consistent.

It is probably in the 235 range a gross ton.

Right.

So are you seeing at least scrap prices weakening in Poland near your mills?

Yes they have, and they will probably weaken bean even into November and then by December they will start to actually increase because the flow in Poland gets a lot of snow obviously and really impacts collections.

So scrap prices will start to move up we would think in December.

In Poland.

Great.

Great, that was all, so thanks again for your time.

Thank you.

I am showing no further questions.

I would like to now turn the meeting back over to Mr.

Murray McClean for closing results.

Okay.

Next week, Bill and I will be on investor visits and we look forward to answering further questions at that time.

So I just like to thank you for your attendance and your interest in CMC.

This concludes today's conference call.

You may disconnect at this time.