Koppers Holdings Inc (KOP) 2010 Q1 法說會逐字稿

Ladies and gentlemen welcome to the Koppers Holdings First Quarter 2010 Earnings Call on the 6th of May 2010. Throughout today's recorded presentation all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions)

I will now hand the conference over to Mr. Michael Snyder. Please go ahead, sir.

Thanks [Stacy] and good morning everyone. Welcome to our first quarter conference call. My name is Mike Snyder and I'm the Director of Investor Relations for Koppers. At this time each of you should have received a copy of our press release. If you haven't one is available on our website or else you can call [Rose Salinsky] at 412-227-2444 and we can either fax or email you a copy.

Before we get started I would like to remind all of you that certain comments made during this conference call may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be affected by certain risks and uncertainties including risks described in the Company's filings with the SEC. In light of the significant uncertainties inherent in the forward-looking statements included in the Company's comments you should not regard the inclusion of such information as a representation that it's objectives, plans and projected results will be achieved. The Company's actual results could differ materially from such forward-looking statements. I'm joined on this morning's call by Walt Turner, President and CEO of Koppers and Brian McCurrie, Senior Vice President, Global Carbon Materials and Chemicals and until a replacement is named acting CFO.

At this time I'd like to turn the call over to Walt Turner. Walt?

Thank you, Mike. Welcome everyone to our 2010 first quarter conference call. I was pleased to see that our revenues for our Global Carbon Materials and Chemicals business increased by 19% over the previous quarter. Outside North America end markets for carbon materials and chemicals and Europe showed improved stability. And our Asian and Middle Eastern markets continued to show growth in our carbon pitch, carbon black feedstocks and naphthalene products.

Field production increased about 30% globally and about 60% in the US for the first quarter of 2010. It will provide relief on the raw material side. Tar supplies in most areas around the world are currently in excess of demand. Related increases and electric arc steel production should also help our carbon pitch and petroleum pitch volumes as both products are used in the manufacturing of the electrodes, which are consumed in the electric arc furnaces.

Our carbon pitch volumes were up 9% [over -- for] the previous quarter despite a small decline in global aluminum production. We have gained market share in the pitch market as a result of our acquisition in Europe and our new pitch volumes we are supplying in the Middle East. We continue to be encouraged with the recent economic news and are hopeful that this may ultimately lead to the restarting of some previously idled smelting capacity later this year. Recent projections continue to forecast average annual growth rates for global aluminum demand of around 10%, and global aluminum production of 7% through 2013.

Our projected increases in production through 2013 amount to about 10 million to 12 million tons of which about 3 million tons are expected to be supplied by the smelters in the Middle East.

Our expectation is that a substantial portion of this new production will come from restarting of idled capacity around the world. Our phthalic anhydride business, which normally reacts in line with the US economy, showed marked improvement over the previous quarter as signs of life in the US housing and other markets combined with higher market shares for Koppers resulted in higher volumes.

Additionally, prices for orthoxylene have increased more than 10% year-to-date as a result of higher oil pushing pthalic prices even higher. I was pleased that our new facility in The Netherlands we acquired on March 1 contributed nearly $5 million of revenues and was profitable for the month.

We continue to focus on immigrating this businesses into our European operations group and are looking forward to implementing our synergies that will be realized throughout the balance of the year. For our railroad and utility products business, our initial expectation of a difficult first quarter compared to last year's first quarter was further impacted by unfavorable weather conditions. The good news is that the railroad traffic continues to improve and going forward we believe the Class 1 railroads will be increasing their purchases and trying to catch up with some of the delays from the first and second quarters.

While crosstie procurement of the industry is expected to be down about 20% from last year, we expect treating and insertions to be similar to that of 2009. According to an industry publication, rail traffic for the week of April 17 was a 16-month high with 18 out of 19 commodity groups showing increases, in the same week in the prior-year. We have stepped up our procurement efforts and weekly tie purchases in April were up about 25% from March, with expectations that May purchase we will be up further.

Our recent acquisition of the Barham-Sevier Tie procurement businesses has also benefited us in this regard and should continue to pay dividends as we ramp-up efforts to procure untreated ties over the rest of the year. We have seen some improvement in the commercial crosstie market and we are encouraged that our current backlog of orders for commercial ties is about 25% higher than it was last year at this time.

We do see this part of our business is having some potential upside for us if the economy continues to sustain this recovery. After Brian completes the financial review, I will give you a status update of our core end markets as well as provide some insight to what we are expecting as we move forward into 2010. Brian?

Thanks, Walt. On a consolidated basis, sales for the first quarter increased 1% compared to the prior year quarter as higher sales for carbon materials and chemicals were nearly offset by lower sales for railroad and utility products, as the railroad business declined as expected over the prior year quarter with the reduction being exaggerated by difficult weather condition.

Carbon materials and chemical sales were driven higher by increases in volumes for carbon pitch and carbon black and higher prices for products linked to oil. First quarter sales increased 19% to $173.3 million in carbon materials and chemicals compared to the prior year quarter, due to higher volumes for carbon pitch and carbon black and higher prices for carbon black feedstock and phthalic anhydride as well as the Cindu acquisition and the strength of the Australian dollar.

In the first quarter, we had a 1% or $1.5 million decrease in sales of carbon materials as higher volumes and higher foreign exchange translation rates were more than offset by lower carbon pitch prices. A 2% or $2.9 million increase in sales of distillates due to higher benchmark pricing for carbon black feedstock and 8% or $11.7 million increase in sales of coal tar chemical as naphthalene and phthalic volumes and prices improved and a 10% or $14.7 million increase in sales of other products, which include carbon black, petroleum pitch, fuels, freight and other products.

Sales of distillates, which include third party creosote sales and carbon black feedstock was positively impacted by higher prices amounting to $5.1 million, reflecting higher oil prices, which were partially offset by lower volumes amounting to $2.8 million. The lower volumes were driven by a 37% reduction in third party creosote volumes.

North American sales of phthalic anhydride experienced a 12% increase in first quarter volumes reflecting improved end-market demand as the automotive and housing markets in the US appear to be recovering, even if not as quickly as we would like.

The impact of higher average prices compared to the prior year quarter mainly driven by higher oil prices amounted to $6 million. Orthoxylene prices at the end of March were $0.47 compared to $0.44 at the end of 2009 and were at $0.49 for May. So, we see some opportunity for phthalic pricing in 2010, especially if housing and autos continue their improvement resulting increases in phthalic demand.

Carbon materials and chemicals adjusted operating profit for the quarter of $12.3 million increased 89% from $6.5 million in the first quarter of 2009. Operating profit margin dollars were positively impacted by higher prices for carbon black feedstock and higher prices and volumes for phthalic anhydride and naphthalene.

First quarter carbon pitch volumes from Chinese operations increased 37% from the first quarter of 2009, reflecting new volumes from our Chinese operations being delivered to new smelters in the Middle East. However, these expected higher volumes did not provide a significant profit contribution due to the high tar prices and excess supplies of carbon pitch in Asia that have depressed selling prices.

As the economic recovery continues, we expect this situation to normalize, until then we are managing this situation very carefully. Overall carbon materials and chemical sales in the first quarter were positively impacted by 9% or $13 million due to foreign currency exchange rates as compared to the prior year.

Average oil prices for the first quarter of 2010 were about $75 a barrel compared to about $42 a barrel in the first quarter of 2009. This has led to higher benchmark pricing for our carbon black feedstock, and should lead to improving price opportunities in 2010.

Although carbon black volumes are up year-on-year, beginning in early March our carbon black plant in Australia has been having operating issues related to its boiler that had about $0.5 million negative impact in the first quarter and could have a $1 million to $2 million negative impact on the second quarter as we move towards resolution of this problem.

As you may recall, volumes in the first quarter of 2009 were lower than normal as this plant was closed for part of the quarter due to a lack of demand. Sales of railroad and utility products decreased $26.2 million or 21% to $101 million in the first quarter compared to the first quarter of 2009 due to expected lower volumes of untreated crossties and treating services for the Class 1 railroads combined with unfavorable weather condition.

As previously mentioned, in 2009 our railroad business was frontloaded into the first half of 2009 so the Class 1 railroads could take advantage of reduced rail traffic to maximize maintenance efficiencies and reduce cost. This resulted in an abnormally high sales and profitability for our railroad business in the first quarter of 2009 and we had indicated was not typical. This already tough comp for the first quarter this year was made more difficult by weather conditions that substantially impacted sales and profitability as adjusted operating profit declined from $12.7 million to $6.7 million with operating margins at 6.6% compared to 10% in the prior year despite strong results from our Australian coal business.

On a consolidated basis, first quarter adjusted EBITDA was flat at $24.9 million compared to the first quarter of 2009 adjusted EBITDA of $24.8 million, although we certainly took a very different route to get there. We remained very pleased with the fundamental improvement in our carbon materials and chemicals business, which offset what was expected to be a slow start in 2010 in our railroad and utility products business.

Adjusted EBITDA for the first quarter of 2010 excludes $1.6 million of pre-tax income for the gain on sale of land that resulted from the previous closure of wood treating facility in Thornton, Australia and excludes $1.6 million of expense acquisition costs related to Cindu. Adjusted EBITDA for the first quarter of 2009 excludes $400,000 for a co-gen plant outage.

Our SG&A cost for the first quarter were up $3 million from the prior year with $1.6 million of the increase being from acquisition cost related to the Cindu acquisition. About $1 million of foreign exchange impact and most of the remainder due to normal incentive accruals that were not recorded last year.

Adjusted net income for the first quarter of 2010 was $8.2 million or $0.40 per share, compared to adjusted net income for the first quarter of 2009 of $4.5 million or $0.22 per share and reflects improved results from $3.3 million of lower interest expense.

Company's effective tax-rate in the first quarter of 2010 decreased to 36%, compared to 41% in the prior year quarter due primarily to the expectation in the prior year quarter that we would repatriate earnings from Europe.

Our debt net of cash on hand at March 31, 2010, was $291 million after $22 million of acquisition expenditures for Cindu and Barham-Sevier compared to $277 million at December 31,2009.

Our leverage ratio at March 31 was 2.3 times compared to 2.2 times at the end of 2009. The end of the quarter was $24 million of cash on hand compared to $58 million at December 31 as the acquisitions to be completed were primarily paid for using cash on hand.

Before I turn it back over to Walt, I would like to emphasize that our business is seasonally impacted by demand for our products. Financial performance in the first and fourth quarters is historically lower than the second and third quarter. As we enter the second quarter, we are seeing seasonal increases in our businesses.

At this time I would like to turn it back over to Walt.

Thanks Brian. For the year 2009 our two business segments carbon materials and chemicals, railroad and utility products were 58% and 42% respectively of our total revenues. The carbon material and chemicals segment is closely tied to the production of steel and aluminum. As you may recall we use a by-product of the metallurgical coke making process, coal tar, as a raw material to produce carbon pitch for the Aluminum industry, carbon black feedstocks for the rubber market and naphthalene as feedstocks for concrete additives and also for further processing in phthalic anhydride for the plastics and resin markets.

Beginning in late 2009 and continuing into 2010, we have seen significant increases in global steel and coal production that has led to increases in coal tar availability. Due to the increases in coal tar supply in certain geographic regions where we operate we believe we will be able to achieve modest raw material reductions in 2010 that will ultimately be passed along to our customers in those regions.

As mentioned earlier the electric arc steel furnaces are increasing production, which not only helps our carbon pitch and petroleum pitch businesses but also will ultimately absorb some of the excess capacity from Asia and hopefully restore product pricing to more normalized levels in those areas.

Middle East aluminum production continues to come online as scheduled. Currently, the Sohar smelter in Oman is at full capacity and the EMAL smelter in Abu Dhabi and the Qatalum smelter in Qatar have announced that they expect to be at full capacity by the end of this year.

As mentioned on our last call, during 2009 we took advantage of market conditions and expanded our market shares for carbon pitch in the Middle East and in the Europe, as well with petroleum pitch and phthalic anhydride in North America. We continue to be the global leader in tar distillation and related products and believe this increase in market shares will be beneficial to us in 2010 and beyond.

We are confident in the longer-term growth of global aluminum production and believe that we will emerge in a stronger position to capitalize on this growth. For example, recent projections indicate that global aluminum consumption will increase by 10% in 2010, 9% in 2011 and another 9% in 2012. While aluminum production is projected to increase by an average of 7% annually through 2013. Ultimately leading to reduced inventories and a better balance between supply and demand.

Our position in China has provided a base from which we are capturing business from increased smelting in the Middle East.

In late 2009 we began our initial shipments of carbon pitch to the new smelters in Qatar and Abu Dhabi, and this has continued in 2010, boosting our carbon pitch volumes to the point that they more than make up to the lost volumes in North America and Europe during 2009.

Unfortunately, as noted earlier, an extremely competitive pricing environment in Asia and the Middle East has negatively impacted the near-term margins. We expect this situation to improve as restarts of electric arc furnaces and aluminum smelters occur in this region [and we start] to increase in demand.

In Europe the acquisition of Cindu will improve our market share in Europe as well as provide us with synergies to better access the continental markets and provide easier access to export markets as well. We are focusing on optimizing our European production as a part of our synergies and we also anticipate savings from logistics efficiencies and shared services spend.

Expectations for the railroad and utility products for the remainder of 2010 are that the second quarter will be impacted by the weather due to the lag time from the sawmills to our plants. But the second half of the year should be stronger than last year as the railroads try to catch up from the weather related issues and unfavorable lumber market conditions impacting much of the first half of the year.

While we are seeing some signs that there may be potential upside for the commercial side of the business as stimulus spending and economic recovery come to fruition in 2010. We will have a better sense of where the commercial market is going, as we get further along in the second quarter when the spending of this market typically ramps up.

To conclude, we continue to see increased stability and growth in our end markets and we remain very positive about the long-term strength of our primary end markets, aluminum and railroads. We will continue to focus on cash flows, retaining expense reductions, reducing raw material costs and growing our market shares to position the Company as the global economy continues to rebound.

At this time, I would like to open up the call for any questions that anyone may have.

Thank you sir. (Operator Instructions) The first question comes from Kristen McDuffy from Goldman Sachs. Please go ahead.

Good morning.

Good morning. Do you view plastic or composite ties as a potential threat to the traditional wood crossties?

Not really, there has been over the last several years alternative ties, they have been talked about plastic ties, which you referred to as well as pressed wood and other types of alternative applications. But really that's not been very successful in the past. I think as we stated many times before, the wood tie with the huge natural resources that we have here in the hardwood industry, I think the traditional wood tie treated with creosote will continue to be the most economical, durable tie for the North American railroad industry.

Okay, great. I know in the past you have mentioned possibly being a consolidator in the European coal tar distillation areas and maybe increasing your product offerings in your rail business. Do you have any updates on where you might be on the M&A front in either of those regards?

Well, obviously, I can comment on the consolidation of the Europe, which we are looking at opportunities everyday just like we have looked at in other parts of the world. The Cindu acquisition that we completed back on March 1, I think is a good indicator of where we would like to be, and I think everyone in the tar distillation business globally understands that we would like to continue to grow and then like to consolidate where it makes sense. And really consolidation more so for efficiencies, and in assisting our customers and looking at their requirements going forward.

Okay, great. And just one last question, when you look at the aluminum end market, do you think there's a risk that we might see some production curtailments just because of the high inventory levels or do you think that aluminum producers will continue to produce?

Well, I am not sure I can answer that question but the projections that we are seeing out there on the consumption side of aluminum, as well as the production side must follow eventually depending on how quickly inventories are depleted, but on the consumption side, from primarily automotive and trucking as well as packaging and maybe even somewhat on aerospace. But all indications are, as we've said that consumption should go up globally about 10% this year and continuing forward. So the indications are good.

That's great. Thanks so much.

Thank you. The next question comes from Laurence Alexander from Jefferies. Please go ahead.

Good morning, Laurence.

Hi this is Lucy in for Laurence today.

All right Lucy. (inaudible).

You mentioned that the commercial crosstie backlog was up about 25% year-over-year. Do you have a figure for what the sequential improvement might have been?

Sequential improvement on the commercial ties. Okay. I mean obviously, last year, 2009, the entire year was a very depressed area for us on the commercial side with a lot of the short lines and contractors really like being very frightened as to what was going to happen with the economy. So last year was a very low year; in fact, I think when you look at 2009 versus 2008, we were off at least 40% or so on our revenues, but looking at the specific answer, I think Brian was looking for a number.

Yes, I think Lucy I am not sure that you are seeing much sequential improvement in the first quarter of 2010 compared to the first quarter of 2009. I think what we are really seeing in the commercial business is that's going to provide some growth here into the second and third quarter.

[If we all play] that based on what happened last year, and some stimulus money now becoming available that the indications are that it should be continuing to be an improvement based on what we saw in the first quarter.

Right. So I mean if you look at the actual commercial tie sales in the first quarter of 2010 compared to the first quarter of 2009, it is actually down about $5 million.

Okay. Thank you. And would you be able to possibly quantify the weather impact on railroad and utility products in Q1? And then I guess as a follow-up to that, if we exclude the weather impact from Q1, I know you are expecting further pressure in Q2 in that segment, do you expect sales and profits to be up sequentially in Q2?

First of all on the procurement side, it's not very fair to compare first quarter this year to the first quarter last year only because it was just abnormally much higher last year with the large demand for cross ties and so forth. But I think when you look at it, we were probably off a good 20% or so just because of the saw mills not being able to receive the logs under the woods, if you will, with the snow and what have you. From a profit point of view --

And I think Lucy maybe a way to look that, if you look at the overall profit decline in that business from $12.7 million to $6.7 million, I'd say the lion's share that is not really being driven by the weather. I mean there was obliviously a weather impact in the first quarter, but I don't think that's really driving the fundamental change in the business.

I think as far as your question in the second quarter, we would expect to see sequential improvement in the business, and I think Walt mentioned that actual procurement volumes are moving up through the month of March and April and into May. And we also have the seasonal aspects of that business. So we would expect that the second quarter would be better than the first quarter.

And then another I think situation that did happen in the first quarter which is I think fading away rather quickly, and so we had some very high competition with the hard woods from the pulp demand on their raw materials side where they were also having issues and offering very, very high prices for certain pieces that we would have -- eventually would have gotten. So I think that has now disappeared, and so things are improving each week as Brian says.

Thank you and just one last one, would you be able to provide any comments on the outlook for any more JVs in China?

Like as we've been saying for, many long months and maybe over the last couple of years, China is a very important resource for us for the coal tar and as we see these projections of carbon pitch demand going forward associated with these smelter projections on consumption and production, obviously we continue to look very hard at potential joint ventures and acquisitions in China. And again it's not just a pitch, it's also the demand for carbon black feedstocks as well as naphthalene, which makes it much easier to look at when you are looking at a JV or any other type of growth project we have there.

Thank you.

The next question comes from Steve Schwartz from First Analysis. Please go ahead sir.

Good morning.

Good morning Steve.

Good morning, guys. I am going to miss you on these calls Brian.

No you are not, no you are not.

You know, you guys noted that [white ties] would probably be down 20% in 2010 but insertions likely flat, did I get that right?

Exactly, I think even looking at the last year and even the year before 2008, the tie insertions by the railroads continue to be in that $20 million, perhaps even $20.5 million range, and we continue to see that happening this year.

I think that reduction is probably going to be more heavily weighted into the first half of the year. It's probably going to trend back up to more normalized patterns as we get into the second, third and fourth quarters.

Okay. So do you guys have an internal estimate for what your white tie inventories might be by the end of 2010. I think they were at 7.2 million at the end of '09?

They were at 7.2 million as you are saying and I think at the end of March, we were at 6.9 million, so we didn't feel there's a decline there as far as ties

being [air stacked] in our plants, which sort of that's what we experienced in the first quarter. But beyond that I would not want to comment.

Okay.

The important part of the comment though is that the tie insertion rates of the railroads are maintaining at what levels were pretty much in the prior years. The fact that the white tie procurement is down is an inventory reduction restocking issue for them. So I mean they are going to have to increase their purchases, if they are going to meet those insertion rates in the second half of the year.

Okay and then just as my follow-up, Walt it was interesting you commented that the Middle East shipments have pretty much made up for volume loss in North America and Europe in 2009. How much of a ramp up effect is there as they build their inventories of anodes for those facilities?

They really don't build anode inventories. I mean each especially for the EMAL plant and the Qatalum operation. They are right now ramping up to full capacity, which will take them into the fourth quarter timeframe. So what they are doing is they are producing more anodes each week, each month, as more plants come online for operation. So that's where the increase has come from, it's not building inventories, it's really manufacturing more anodes as more plants come online to get to their full capacity.

We might see some small sort of [power wave] as they build, pitch inventory to produce the anodes but I don't think it's terribly dramatic, when you look at quarter-on-quarter performance from a 2010 perspective.

Okay, that's helpful and somebody please send me a picture of Brian in a pitch [stay in Mill-Max] with a hard hat on.

He already has (inaudible), so --

Yeah. Good luck in your new position.

Thanks, thanks Steve.

Thank you. Your next question comes from [Saul Ludwig from Northgate Research]. Please go ahead.

Hey, good morning.

Good morning Saul. How are you?

Hi, Saul.

Little cold here but okay. Brian could you repeat just focusing on pitch volume, what happened in the first quarter to volume and prices?

Sure, I mean I think maybe as a backdrop, just underlying I think if you go back to the first quarter of last year, smelters in North America were actually idling in the first and second quarter of last year. So there is still a bit of a volume reduction compared to the first quarter of last year and sequentially, the volumes have stayed pretty stable in the markets. But if you look at sort of carbon pitch volumes quarter-on-quarter regionally, you can see the volumes in China were up about 37% over the first quarter of the prior year. If you take US and Australia and our European operation and exclude The Netherlands because The Netherlands had about little less than 5000 ton of extra volume for us, overall volume was pretty flat.

So your total volume was actually up a little bit?

9%.

Our total volume is up 9% year-over-year and that's actually with a pretty tough comp in the first quarter with US volumes.

Right. And your pricing was down how much?

Pricing was down about 17%.

Okay and your profits would have been down because of that?

Well, there is some -- it's a combination. I think in China certainly the profits were down because of the price pressure. In other parts of the world, the prices were actually following the raw material cost.

Maybe also have the carbon black feedstocks (inaudible).

Well, that was good. I was just focusing on the pitch business. Okay, what are your financial numbers? What do you think [half] spending tax rate has got to be for the year or D&A?

I think tax rate roughly say 38%, so a little lower in I think the first quarter just because of some of the mix in earnings between foreign and domestic, but I think if you use 38%. For CapEx I think maybe probably a little higher. We underspent CapEx last year, so I think it's a $26 million, $27 million number, it's probably reasonable.

And do you think you will be a cash generator, I mean ex what you spent for the acquisition? You will have free cash flow after dividends everything?

Yes, absolutely.

And I think that is it. Thank you very much.

Thank you.

Thanks, Saul.

(Operator Instructions). We have a question from [Chris Shaw from Winnis Christy]. Please go ahead.

Hey good morning guys, how are you doing?

Good morning, Chris. How are you doing.

Pretty good. I was just curious the end margins in the carbon business sequentially. What is their LIFO impacts in the fourth quarter? So I thought they would be up a little bit. And I guess they are basically flat. But I thought they will be up sequentially?

I don't have the margins sequentially, but I think certainly the margins in China are probably having an impact on that.

Okay.

They are low. But I think you are right, I think if you look elsewhere on our businesses particularly compared with the prior year first quarter, margins in Europe and Australia where we had a lot of [LCM] write down impact in the early part of '09 have moved up.

Most of the negative impact was probably China. But did you make profit in the Chinese JVs in the first quarter?

A slight profit, yes.

That's it. Thanks a lot.

Thank you, Chris.

Thank you. (Operator Instructions) And we have a follow-up question from Saul Ludwig. Please go ahead.

Yeah, I forgot to ask about this problem you are having in Australia. That obviously wasn't considered a special item, which it shouldn't be. Could you just elaborate a little more on what's going on there and how long it might take to get it resolved? And it does sounds like a big deal, when you are talking millions of dollars.

I guess this goes back to I guess 2006, 2007, where we expanded the facility, increasing our production to about 57,000 tons and at that time there was a little boiler installed by a very reputable boiler manufacturer. And we've had some issues with that which [are needed and want to] have some repairs completed here in the next couple of months. But it's basically operational from a boiler point of view.

I mean it's a replacement of a part that's got a couple of months lead-time to it, Saul. And I think the issues with the plant is really it's not running at full capacity.

So it's going to cost you $2 million or thereabouts in the second quarter and then should be nothing in the third quarter?

Exactly.

Got you. Thank you.

Hopefully it gets resolved sooner in the second quarter, but it could still have a $1 million to $2 million impact.

Thanks.

Thank you, the next question comes from [Rick Miller] from [Jacob Consultancy]. Please go ahead.

Good morning guys.

Good morning.

Hey do you see by any chance Koppers growing in India either physically by a JV as we see steel production growing as well as aluminum in the foreseeable future?

Absolutely, and for the reasons you just mentioned -- the four to five years, I don't remember the exact numbers but both steel and aluminum production are going to be increasing substantially, I want to say double but I forget exactly. But for those reasons we currently are participating in the aluminum carbon pitch demand there and we will continue to look at opportunities to grow that through importing into India and/or looking at some type of JV or other facilities.

Thank you very much.

Thank you. (Operator Instructions). There appears to be no further questions at this time, sir. I will now hand the call back over to Mr. Walter Turner, please continue.

Thank you Stacy. So we thank you for your participation in today's call and appreciate your continued interest in our Company. In 2010, our expectation is that our carbon materials and chemicals business will improve over 2009, while our railroad business will likely be down a bit due to weather and lumbar availability issues that we've been experiencing in the first half of 2010. Although some of our markets remain impacted, we do continue to see signs of stability in growth in our aluminum and steel markets as well as growth in demand for our down stream products in China and the Middle East.

We see continued strong demand in our end-markets in the long-term, particularly based on the committed aluminum capacity additions coming online in the Middle East in 2010 and beyond. And we are very well positioned given capacity additions in China. Our balance sheet strength continues to provide potential opportunities to stimulate growth as well as create shareholder value. We will continue to operate the businesses and manage our capital structure in a prudent manner and we do believe strongly in the long-term strength of our end markets and our position as a market leader in our businesses.

Finally, we remain firmly committed to enhancing shareholder value by executing our strategy and providing our customers the highest quality products and services, while continuing to focus on our safety health and environmental initiatives. Thank you very much.

This concludes today's Koppers Holding conference call. Thank you for participating, you may now disconnect.