Kaiser Aluminum Corp (KALU) 2012 Q1 法說會逐字稿

Good day and welcome to the Kaiser Aluminum First-Quarter 2012 Earnings Conference Call. Just a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Ms. Melinda Ellsworth. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Kaiser Aluminum's First-Quarter 2012 Earnings Conference Call. If you've not seen a copy of today's earnings release, please visit the Investor Relations page on our website at kaiseraluminum.com. We have also posted a PDF version of the slide presentation for this call.

Joining me on the call today are Chairman, President, and Chief Executive Officer, Jack Hockema; Senior Vice President and Chief Financial Officer, Dan Rinkenberger; and Vice President, Chief Accounting Officer, Neal West. Before we begin, I'd like to refer you to the first two slides of our presentation and remind you that the statements made by management and the information contained in this presentation that constitute forward-looking statements are based on management's current expectations.

For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the Company's earnings release and reports filed with the Securities and Exchange Commission, including the Company's Form 10-K for the full year ended December 31, 2011. The Company undertakes no duty to update any forward-looking statements to conform the statement to actual results or changes in the Company's expectations.

In addition, we've included non-GAAP financial information in our discussion. Reconciliations to the most comparable GAAP financial measures are included in the earnings release and in the appendix of this presentation. At the conclusion of the Company's presentation, we will open the call for questions. I'd now like to call over to Jack Hockema. Jack?

Thanks, Melinda, and welcome to everyone joining us on the call today. We were very pleased with our first quarter financial results, in which we saw records for value-added revenue, adjusted EBITDA, and EBITDA margin driven by higher volume and improved pricing. The higher volume was enabled by number of factors, including strong aerospace demand, improving automotive and industrial demand, service center restocking, seasonal demand strength, and good throughput execution in our plants.

We also benefited from a better pricing environment compared to bottom of the cycle prices experienced in 2011 and lower contained metal costs provided an additional boost for our high value-added products. The first-quarter results were a step change and reinforced the growth potential for our platform to achieve annual value-added revenue and EBITDA margins well beyond $800 million and 20%, respectively, under normal market conditions.

In addition to this growth potential, our platform is well-positioned for further expansion to meet future demand growth and we are currently in the process of expanding our capacity at two of our aerospace facilities. We will begin ramping up additional capacity in the second quarter for aerospace extrusions at our Alexco plant in Chandler, Arizona, and should the need arise for more aerospace extrusion capacity, we can respond with additional capital-efficient expansion.

At Trentwood, we are installing Phase 4 of the expansion of heat treat plate capacity that will begin ramping up in 2013. Beyond Phase 4, we have defined a Phase 5 expansion and we will be ready to initiate that phase when additional capacity is required to meet the needs of our customers. In addition, we envision Trentwood expansions beyond Phases 4 and 5, consistent with our expectations for significant long-term heat treat plate demand growth.

While aerospace is an important driver and focus for our growth, we also anticipate growth in custom automotive extrusions. We've often commented that Kalamazoo was built with additional capacity to support automotive growth and we expect to leverage that capacity with transition of certain automotive products into Kalamazoo in 2013 and 2014. This transition will free up capacity at our London, Ontario, plant, which will enable us to launch new automotive extrusion programs for bumper beams, chassis and other structural components.

Beyond the existing capacity in place at Kalamazoo, our extrusion platform is also positioned for additional capital-efficient expansions that will allow us to keep pace with anticipated automotive growth for many years into the future. All of these factors reinforce why we are very optimistic about our near-term and long-term prospects.

We've reaped significant benefit from our growth initiatives and investments and there's still significant benefit yet to come, as demand in our end markets continues to increase. In addition, we're well-positioned to support future capital-efficient expansions as needed to keep pace with the expected robust demand growth for aerospace and automotive products.

Shifting the focus back to 2012, we were pleased with the first-quarter results that illustrate the current potential for this business with the prospect for additional growth. While the remainder of 2012 may not reflect all of the favorable conditions that came together in the first quarter, we believe that we are well-positioned for step change improvements for the remainder of the year compared to the 2011 results. Dan will now provide some further insight into the first quarter and then I will discuss our near-term and long-term outlook.

Good morning. Slide 6 shows the quarterly and annual trends in value-added revenue, which represents our net sales minus the hedged cost of alloyed metal. The first quarter 2012 showed a step change in our total value-added revenue, setting a new quarterly record for the Company and establishing new records of value-added revenue for both aerospace and high-strength applications and our automotive extrusions.

Reviewing each of our end market applications, aerospace and high-strength value-added revenue in the first quarter increased 15% on a sequential basis and 35% compared to the first quarter of 2011. Strong demand coupled with strong execution in our facilities drove higher shipments across virtually all aerospace products.

In addition, we benefited from a more favorable pricing environment in the first quarter of 2012. Value-added revenue for automotive extrusions increased 37% sequentially and 22% compared to the first quarter of 2011, reflecting higher light vehicle build rates, further increases in Kaiser content per vehicle as we supply additional automotive aluminum extrusion programs, and a normal seasonal uptick from the fourth quarter.

A stronger mix in the fourth quarter, as well as improved pricing on certain products, led to higher average value-added revenue per pound for automotive extrusions. value-added revenue for general engineering products reflected normal seasonal strength, service center restocking, and the slow but steady growth in underlying industrial demand.

As a result, first-quarter value-added revenue improved 20% sequentially and 9% compared to the first quarter of 2011. Further detail in value-added revenue by sales application can be found in the appendix on slides 20 and 21.

Slide 7 shows adjusted consolidated EBITDA, which, for the first quarter, was also a step change compared to prior periods. At $44 million, first-quarter adjusted consolidated EBITDA was a 45% sequential improvement and nearly double our adjusted EBITDA in the first quarter of 2011. Stronger shipments in virtually all products and an improved pricing environment from the recessionary levels we've seen in the past few years drove the improvement.

On the last 12-months basis, we achieved a record adjusted consolidated EBITDA of $133 million, outpacing our previous record in 2007 when we had an exceptionally strong pricing environment. Our adjusted consolidated EBITDA margin as a percentage of value-added revenue was 22.7% for the quarter and 19.4% for the last 12 months; both significant improvements over virtually any of our historical periods.

The continued improvements in both adjusted EBITDA and EBITDA margin demonstrates the power of leveraging the capacity increases and efficiency improvements we've made over recent years as our end markets continue to grow.

On slide 8, we show key consolidated financial metrics. Consolidated operating income, as reported, of $46 million in the first quarter included approximately $8 million of non-run rate gains, which are detailed in the appendix on slides 22 and 23. Adjusted for these non-run rate gains, first-quarter consolidated operating income $38 million, up $14 million compared to the fourth quarter and more than double that of the first quarter of 2011; again, reflecting strong demand across all end use categories, solid throughput execution, and an improved pricing environment.

Reported net income for the first quarter was $27 million or earnings per diluted share of $1.38. Adjusting for non-run rate items, first quarter net income was $21 million or adjusted earnings per diluted share of $1.09, which compares to $0.52 for the fourth quarter of 2011 and $0.41 for the first quarter of 2011. Our effective tax rate for the quarter was approximately 38%; however, given our sizable net operating loss carry-forwards and other tax attributes, our cash tax rate remains in the low single-digit percentages.

Turning to slide 9, as result of strong earnings generated during the quarter, our cash balance increased by $27 million, after funding an increase in accounts receivable associated with the higher sales level and capital spending. Liquidity remained strong at quarter-end at nearly $350 million, comprised of $270 million of borrowing availability under our revolving credit facility and $77 million of cash. Now I'll turn the call back over to Jack to discuss current industry trends and our business outlook. Jack?

Thanks, Dan. Turning to slide 10, we continue to experience and to expect robust long-term aerospace demand growth for our products, driven by a very large order backlog for commercial airframe manufacturers, steadily increasing build rates, larger airframes, and continued conversion to monolithic design.

While we expect the very strong demand to continue in the second quarter, we do not expect our value-added revenue to keep pace with the first-quarter level, as Trentwood's throughput will be inhibited by planned outages on key equipment related to the Phase 4 capacity expansion project. Most of the production interruptions related to the Trentwood expansion should be completed by the end of the second quarter and we expect the new capacity to begin ramping up in 2013.

Turning to slide 11, our value-added revenue for custom automotive extrusions was at record level in the first quarter, as result of growing build rates and increasing aluminum extrusion content per vehicle. We expect this record pace to continue, with industry analysts becoming increasingly optimistic regarding the short- and intermediate-term automotive build rate forecast.

The most recent consensus forecast has the 2012 build rate at 14.2 million vehicles, up approximately 12% from last year and the longer-term forecast has build rates returning to more than 16 million vehicles in the middle of the decade. In addition, the need for improved fuel economy continues to drive increasing aluminum extrusion content on vehicles. As result of these positive trends, we remain very bullish about our automotive growth potential over the next several years.

Turning our attention to general engineering applications, real demand continues to reflect a very slow but steady recovery in the general industrial economy. While our first-quarter demand included benefit from service center restocking to replenish inventories following several quarters of destocking, we do not expect this to continue in the second quarter. In fact, we see evidence of destocking by service centers for some general engineering and aerospace products.

Turning to slide 12 and a summary of our near-term outlook, we expect that second-quarter value-added revenue and adjusted EBITDA will be a step change compared to the second quarter 2011. However, second quarter value-added revenue is expected to be approximately 5% to 10% lower than the first quarter, as Trentwood's throughput will be inhibited by equipment outages related to work on the capacity expansion project.

In addition, we anticipate that service center order patterns will reflect modest destocking after restocking inventories in the first quarter. Although the second quarter is not expected to match the very strong first quarter results, we expect continued strength in market conditions and have raised our outlook for the first half value-added revenue to be up 15% to 20% from the first half 2011.

This marks a 5% increase from what we indicated during our February earnings call. We also expect that the adjusted EBITDA margin for the first half of 2012 will be in the low 20s.

Summarizing our remarks today, the first quarter was a very strong start to 2012. We're very optimistic about our near-term prospects as we expect to see continued demand strength for automotive and aerospace applications. Longer-term, we're very well-positioned to support these attractive growing markets and we have good organic investment opportunities to further expand capacity as needed.

With growing demand and the benefit from our investments yet to be fully realized, we believe we have excellent long-term earnings growth potential. We will now open the call for questions.

(Operator Instructions) Timna Tanners, Bank of America.

Just wanted to ask, so strong quarter and I guess you touched on this already, the sustainability of it. You hinted that it may not be sustainable throughout the year, and you talked about the restocking that may not continue into Q2 and Trentwood, but is there anything else that you can tell us about trends in the industry that can help us get a sense of how sustainable the very strong first quarter was?

Sure. I'd be glad to, Timna. Let me just take it sector by sector. From an aerospace standpoint, we expect very strong demand throughout the full year and frankly, we think that the second quarter would be very similar to the first quarter were it not for a little bit of the destocking that will affect it, but primarily, the equipment outages that we'll experience at Trentwood. We'll see a little bit of seasonality in the second half that's typical. It's more pronounced in automotive and GE, but we do get some seasonality, especially in some of the long products in Aerospace. But in summary, we think aerospace is going to be very, very strong throughout the year and continuing into future years. Similarly, with automotive, demand is very strong.

If these build rate forecasts hold up, which we expect that they will, a 14.7 build rate, we will see very strong shipments throughout the year with, again, expecting normal seasonality in the second half of the year. General engineering did have impact from restocking in the first quarter. We think we'll see a little bit of destocking and are seeing some already in the second quarter. We expect that we'll see normal seasonality in the second half of the year. We're really expecting, with normal seasonality and then the aberration of a little dip because the Trentwood equipment outage in the second quarter, we expect a very strong results through the year.

Okay, I didn't understand, you talked about Trentwood ramping up in 2013. If the second half is slower, why not take Trentwood down in H2 or is it starting to ramp up already in the second half of the as well?

No, Trentwood will be strong throughout the year. I said the only thing that will happen in H2, from a demand standpoint, there is, in aerospace there's some seasonality impact; most of that is related to long products rather than flat-rolled products.

Sorry. What I meant, with your added, you talked about how the ramp-up for 2013, would the ramp-up in the new capacity wouldn't be until 2013?

Yes.

Will there be any evidence of the new capacity in the second half?

A little bit of it could start coming on late in the second half, but the biggest impact will be in 2013.

Okay. I didn't hear any mention of Kalamazoo, so just wondered if there was any updates for us on the progress of that facility or how it's doing?

Sure. Kalamazoo continues to make good, solid, steady progress. I'd say we're maybe six to nine months behind the schedule that we originally anticipated going back a year and a half or so. But we're making good progress there. They had a lot of benefit in the first quarter from heavy restocking in their applications. We're seeing some of the destocking there. Really, at Kalamazoo, the biggest factor at this point is the very anemic recovery that we've seen in the general industrial economy. We're seeing slow and steady growth, but we're barely at 2004 levels in terms of the cycle. We are 15% or 20% where we should be in terms of normal demand, below normal demand.

Got it. Okay, thank you.

Steve Levenson, Stifel Nicolaus.

You've seen a pretty steady climb in the value added revenue per pound for aerospace material as well as others, but is there a limit on it, you think? Is it tied to capacity and utilization? Or is it more just related to general demand and the type of product you're delivering?

Some of what you see, that's for aerospace and high-strength products, there's a lot of mix involved there, so there can be mix changes that influence that. But that being said, we have seen steady improvement in our pricing in aerospace products, really since the prices bottomed out in the first quarter last year. There's been good, steady improvement. We think there continues to be good pricing power in those products and we think there's still room to grow. We don't think we'll get anywhere near where we were in the very abnormal favorable conditions we had in '07 and '08, but we think there still is plenty of upside for pricing growth as we go through the full aerospace cycle here.

Great. Thanks. I know you said you've got expansions beyond Phase 5 planned. Is that pretty much all to meet demand or is any of that being built speculatively?

Let me take a step back. We're installing Phase 4 now, and I know I went through it fairly quickly in our prepared remarks here, but what I said in the remarks is that we already envisioned Phase 5. When the customer needs are such that we see the need to implement that next expansion, we will do so. We anticipate with the long-term growth that we see in aerospace, that we'll need to expand beyond the current Phase 4 and the envisioned Phase 5, and we already have Phases 6 and 7 being developed, looking out two, three, four, five years, whenever that occurs that our customers need us to install more capacity. It may be somewhat speculative, but we'll only pull the trigger when we see a very clear need in the marketplace for that capacity.

Okay. Sounds good, thanks. In relation to autos, are you seeing the increases coming from more content from domestic builders or do you see foreign automakers who now have US or North American plants showing up to buy materials, too?

Both, but the biggest change in behavior is in the domestic manufacturers. The foreign manufacturers, both Japan and Europe, have been far advanced over the US in converting steel and iron applications to aluminum applications. It's really the domestic industry that's catching up. We're seeing a lot more content growth in the domestic manufacturers, and a lot has already been there in the foreign manufacturers.

Got it. Thank you thank you or much.

Lloyd O'Carroll, Davenport.

Within value added revenue for aerospace and high-strength, are some products up more than others or are they essentially up the same?

No, there are a million stories in the naked city there. The biggest change that we've seen in the last three to six months, frankly, has been in our sheet products. We've seen a lot of price growth there. In most of the rest of the sectors over the last three or four quarters, it's been relatively steady growth, a few cents at a time. But we've really seen a step change in the sheet portion.

Okay, I was thinking volume growth.

Volume, I thought you said price.

Yes, I meant to say volume, but I'll take price, too.

Volume is across the board as well. We're running strong in virtually all the categories and I'm just thinking off the top of my head without looking at the numbers here, but virtually every product line is doing better and is up substantially.

Okay. Within zero engineering, some feel for extrusions versus general engineering plates, any other deconstruction? Again, volume and/or price.

Yes, when we look at real service center demand on rod and bar, how much the service centers are shipping, as I said in answer to one of the other questions, the service centers are basically at a 2004 pace right now. We got a boost in the first half. In fact, the restocking in rod and bar, in the first quarter, I mean, restocking and rod and bar actually was the second highest quarter that we've seen since 2001, so there was a lot of rod and bar destocking. Some of that was cold finish, but most of it was extruded rod and bar. We saw significant restocking there and some improvement in real demand. Sheet and plate has been pretty steady. It's growing slowly, but not as markedly as the restocking impact that we saw on rod and bar.

Are you seeing much in the way of imports into the market of general engineering plate?

I wouldn't say that there's more than what we've seen, but there's a lot there, from an import standpoint in general engineering. Yes, that is a factor in that market. While we've seen some improvement in prices and they're reasonable, I guess, at this stage of the cycle, we think that there should be more price potential in those products, but there's a lot of import pressure.

Yes. Worrying a little bit about European mills and the ever present South Africa.

Exactly. South Africa is a big presence and we've seen more presence from Europe here in the past few months.

Okay, thank you.

Phil Gibbs, KeyBanc Capital Markets.

Jack, can you describe the commentary around the lower contained metal costs? It's always tough for us to differentiate between that, because I know you try to lock in that value added revenue on a per pound basis, but any sense of how much that may have benefited you in the quarter?

It depends what you compare it to, but if you compare to where we were in the fourth quarter, the metal prices were similar. They're lower than where they were when we got hammered. If you remember a year ago first quarter, we were complaining about how much we got squeezed.

Part of the pricing improvement that we've seen over the past four quarters really has been that there's been some regression in the contained metal cost. On our many of our high-value added products, we don't move prices directly with metal, as we do on some of the lower valued addeds. There's some impact in there, but it's hard to measure how much that would have been. It is been a steady improvement over the last four quarters.

In that view, you call it strong end demand for you and relatively subdued LME is a good environment as far as that relationship?

Slow, steady declines in the LME are good for us.

Okay. That's what I was getting at. Has the volatility in the service center order entry over the last three, four months surprised you at all?

To some extent. We expected some restocking in the first quarter, but it was greater than what we anticipated in the first quarter. The destocking that we're seeing isn't a surprise, but the reports I'm getting from the field, really around the country and virtually all service centers that our people are talking to indicate they've seen a decline in their orders over the last three or four weeks. We know that some of the service centers are also destocking, so we are getting a little bit of the reverse effect here early in the second quarter, but it's still very early. It's difficult to determine how it will turn out for the whole second quarter.

Okay, I have a couple more if I could. The more favorable pricing environment you talked about in the release, I know it's already been discussed on the call in the aerospace side. It looks at GE pricing's still relatively weak. Automotive, have you seen a pickup in contract pricing there with your customers given the demand?

Let me go back to GE plate pricing. I wouldn't characterize it as weak. What I think I said in answer to that question earlier is that it's about where it should be, maybe a little bit less than what we would expect at this phase of the economic cycle or the business cycle. We think there's room for improvement there, but it could be better. But it's not really weak, it's not terrible substantially from where we were first quarter a year ago. Automotive, most of those contracts are three-year contracts and we haven't seen substantial changes in terms of our longer-term contracts there.

Okay. In your equipment planned outage at Trentwood in the second quarter, any way to quantify that impact on a linked quarter basis? Are we talking $3 million, $4 million, something like that as far as an impact on the business?

In terms of value added revenue, it's probably in the 3% to 5% in terms of the total for the Company. It probably has an impact of 3% to 5% versus the first quarter.

Okay. I was just thinking more along the lines of your overhead absorption and the costs you may be running through, not absorbing because of that downtime, because you just characterized it in value added revenue, not cost impact.

It'll have the incremental margin impact on that 3% to 5% decline in value added revenue.

Okay. I really appreciate it, guys. Great results.

Edward Marshall, Sidoti and Company.

The outages that you're talking about hitting as we move forward into later quarters, do you think there any pull forward from future demand as customers are going to want to get the metal before you have outages or is it not outages to that point?

No. Our order book at Trentwood from an aerospace standpoint, especially on plate, is pretty clear with both our OEM customers, as well as our service center customers. We don't see any pull ahead there and frankly, we've been running pretty much as much throughput as we can get through there in the last three or four months. There hasn't been a lot of pull forward in the aerospace plate.

We'll have this outage and frankly, we have some interference from the capacity expansion in the first quarter, so had we not been expanding, we probably could have a little more throughput even in the first quarter than we did. We'll have a dip here in the second quarter related to the outage, but then we think it'll be pretty much clear sailing with the existing capacity through the second half of the year and then begin ramping up in 2013 with the incremental capacity expansion if that clarifies it.

Sure. When I look at Kalamazoo and you gave a good commentary on it already, but I was wondering if we can quantify the EBITDA margin competition there, incremental, I guess, change due to Kalamazoo. I imagine it's going to larger year-over-year, but I was thinking more sequentially from the fourth quarter to the first quarter? How much of that improvement that we actually saw show up on the EBITDA line?

I'm not going to get that granular in terms of EBITDA. We're making steady improvement at Kalamazoo. Fourth quarter is a very weak quarter in terms of seasonal demand, because virtually everything that Kalamazoo produces goes to service centers. The fourth quarter is always really weak quarter and then we see stronger demand in the first quarter and then that got further exacerbated by the restocking.

There was a fairly significant swing in value added revenue. I'll go back to the same answer that we've given many times, it doesn't matter that much what product it is, in terms of value added revenue dollars, our incremental contribution's virtually the same throughout our mix of products. It's really just a function of the change in volume quarter-to-quarter and that'll fluctuate up and down.

One of the things that really sticks out as I look through page 20 of the appendix, the automotive extrusion value added revenue per pound. Is that mix? I don't know if we addressed that yet. It is $0.94 versus $0.80.

I commented in my comments that it was both mix and also some price improvement in a few of other products.

Okay. That's the highest we've seen in I don't know, maybe even ever, but is that a sustainable level?

Probably not at that level, because the mix will probably change a little adversely as we continue through the year, but it will probably be higher than where it had been historically.

Trending higher, good. Remind me you grow faster than the automotive build rate, what is that rate?

What is the build rate?

I know what the build rate is, but you grow faster than the build rate. There's a little bit of additional, let's say, the standards moving in your favor, so you're going to grow faster than the overall build rate as you take share, so to speak, from other heavier components. What is that rate? Do you grow 1.2, 1.3 times the build rate, something like that?

Over the last 10 or 11 years, our compound annual growth rate in terms of dollar content per vehicle has been growing at roughly an 8% rate.

Okay.

It would be 1.08 if we continue that pace in terms of our content. Industry content's been growing 4% order magnitude, we've been growing 8% order magnitude.

Perfect. Thanks, guys.

Let me correct one other comment. Somebody asked me the question about automotive contracts. Generally, we've seen no change in pricing there. We did have one contract on a specific application, where we did have some price improvement that did take effect in the first quarter, so that did have a little bit of impact on our results.

Tony Rizzuto, Dahlman Rose.

First, I wanted to make sure, with regard to the outage at Trentwood, are there any other planned outages overall in the Company for the remainder of the year outside of the Phase 4?

There are always major maintenance items going on, those kinds of things, but there's nothing that I know of that will have a material impact like this Trentwood outage will.

All right. Even with that, Jack, it sounds like you're not really looking for any substantial operational disruption or anything of that magnitude?

No, this is actually, a furnace will just be down. We're extending one of the furnaces, adding a couple of zones, so it will be down for a few weeks while we put those new zones in service on that furnace.

All right, great. I'm also trying to get a better handle, I think you made the comment that you were also looking for the second quarter to be a step change, although you indicated because of what's going on, it would likely be lower. But you also said the step change in the first quarter versus year ago and it was up 91%, so how are we to, just to try to not read too much into it, but to get a better sense in looking at 2Q with the step change and looking at a year ago?

That's a good question. What I was trying to communicate with those comments is that second quarter is not going to be as strong as the first quarter, in part because of the Trentwood outage, which is a planned outage. That's explainable, that has nothing to do with the marketplace. We don't think we're going to have, in fact, we're pretty certain we're not going to have the restocking benefits, service center restocking benefit that we had in the first order, have that in the second quarter.

It'll be a little bit of a decline second quarter compared to first quarter. But if you look at the second quarter of '12 versus the second quarter of '11, that's going to be a step change. Really, we see a very, very strong second quarter and if we didn't have the outage at Trentwood, frankly, we'd be talking about a minor change in value added revenue quarter-to-quarter and probably be looking at similar results, maybe a little bit weaker in the second quarter than the first, but very similar result in the second quarter.

That's very helpful. I appreciate that. Then one further question if I may, I thought the comments you made about general engineering, the second strongest quarter since 2001 and granted, some of that was restocking. But that's a pretty powerful statement, and I'm wondering which end markets do you think that are really driving that strengthening trend there? Further on that, just imports, just a rough idea of how much imports are taking of that market at present?

Okay, good. I'm glad you asked, because apparently my answer on rod and the bar wasn't clear. When I said the second best quarter since 2001, that was the amount of inventory restocking. It was the heaviest restocking by service centers of rod and bar, second heaviest. There's only other quarter since 2001 that had more restocking than that.

But the real demand, what service centers shipped, with they're shipping at right now is around a 2004 pace. The general industrial economy continues to be very anemic. As far as I'm concerned, we're a couple years or year and a half behind where we should be in this economic recovery. Or more demand should be 10% or 15% higher in rod and bar than it is right now, if we were having anything close to a normal recovery.

Okay. Just generally, on the imports --

From an import standpoint, I don't have the share numbers at my fingertips, but we are the largest domestic supplier, by a significant amount, in terms of general engineering. The imports have become a significant portion of that share. Most of the domestic mills, going back even six or seven years since the aerospace plate impact took over, there's been very little domestic supply, other than Kaiser, in terms of general engineering. The imports have a significant portion of the share there and have had for, going back to the '04, '05, '06 timeframe when we got into the global plate shortage.

Okay. All right. Great. I appreciate that. Thank you very much. Congrats on all the progress.

Phil Gibbs, KeyBanc Capital Markets.

Jack, just a quick question about the other shipments to meaning the billet or some of the lower value products that you sell. Should we expect you to continue to be moving away from that as automotive gets more visible and stronger going forward?

Not just on motive, but in general, although automotive has an impact there. But yes, as the general industrial economy picks up more rod and bar and more automotive, you'll see those continue to decline.

Okay. Then just real quick, natural gas, obviously, is in the tank which is good for this country as producers at this point, but I know you have some of it locked up in hedges. Is there a point where we will see an appreciable kind of incremental benefit from lower costs here on the natural gas side?

It'll take a while because we do have probably 70% or greater of our 2012 requirements already in locking positions that were put in place probably on balance a year ago. Probably about half of our 2013 is also locked up. We're going to be lagging the improvement that you would see in the spot market, just because of the practice that we have making sure we've insured a reasonable price on gas.

Okay. Great, thanks a lot.

That does conclude the question and answer session. I'll now turn the conference back over to Mr. Hockema for any additional or closing remarks.

Okay, thanks, everyone, for joining us on the call today and we look forward to updating you again on our second quarter call in July. Thank you.

Thank you. That does conclude today's conference. You can find the webcast archive at Kaiser Aluminum's Investor Relations website. The website address is investors.kaiseraluminum.com. Again, thank you for your patience today and that does conclude the call.