Nucor Corp (NUE) 2016 Q3 法說會逐字稿

Good day, everyone. Welcome to the Nucor Corporation third quarter of 2016 earnings call. As a reminder, today's call is being recorded.

(Operator Instructions)

Certain statements made during this conference call will be forward-looking statements, that involve risks and uncertainties. The words we expect, believe, anticipate, and variations of such words and similar expressions, are intended to identify those forward-looking statements, which are based on management's current expectations and information that is currently available. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy.

More information about the risks and uncertainties relating to these forward-looking statements may be found in Nucor's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and Nucor's website. The forward-looking statements made in this conference call, only as of this date, and Nucor does not assume any obligation to update them, either as a result of new information, future events or otherwise. For opening remarks and introductions, I would like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer and President of Nucor Corporation. Please go ahead, sir.

Good afternoon. Thank you for joining us for our conference call. We appreciate your interest in Nucor. With me for today's call are the other members of Nucor's senior management team: Chief Financial Officer, Jim Frias, and our other Executive Vice Presidents, Jim Darsey, Ladd Hall, Ray Napolitan, Joe Stratman, Dave Sumoski, and Chad Utermark.

In addition to his leadership of our raw material business, Joe Stratman has recently taken on additional responsibilities as Nucor's Chief Digital Officer. Joe's assignment is to lead the development and implementation of an enterprise-wide information system to collect, analyze, and distribute commercial, financial, and management data. The objectives are twofold: To drive continual improvement in our decision-making, and to provide our customers with world-class business-to-business tools, that increase the overall value proposition Nucor provides them.

The leadership team in Charlotte would like to thank everyone on our Nucor, Harris Steel, David J. Joseph, Duferdofin, NuMit Steel Technologies, and Skyline Steel teams for working together to build a safer, stronger, and more profitable Nucor. You are the reason our Company is thriving in these challenging steel market conditions, and will continue to thrive in the years ahead. Thank you.

Our teammates at Duferdofin Nucor, our long product steel making joint venture in Italy, provide a great example of how we respond to adverse market conditions. Leveraging significant improvements in cost and product mix, they have increased volume and market share in the very challenging and oversupplied European long product markets.

As a result, the Duferdofin Nucor team has achieved positive EBITDA for the past 12 consecutive months, and a positive operating profit for the last four months. They should feel very proud of their accomplishments, as they continue their unrelenting drive for continual improvement, and a brighter future. We are very grateful to have them as members of the Nucor team.

We also want to extend a very warm welcome to the newest members of the Nucor family, our Nucor Steel longview team at our recently acquired specialty plate mill in Texas. Nucor is very proud and very excited to have you on Board.

Our Chief Financial Officer, Jim Frias, will now review Nucor's third-quarter performance and financial position. Following those comments, I will update you on the execution of our strategy for long-term profitable growth. Jim?

Thanks, John. Third quarter of 2016 earnings of $0.84 per diluted share were just below our guidance range of $0.85 to $0.90 per diluted share; however, relative to our guidance, our third-quarter results included a larger than expected LIFO charge, that decreased our quarterly earnings by $0.08 per diluted share.

Third-quarter earnings were also reduced by approximately $0.04 per diluted share for the net impact of one-time items. These included expenses for settlement of legal issues, as well as a net gain related to asset valuation adjustments. The improvement in earnings in the third quarter, compared to the second quarter, was due to improved performance in our sheet mills and our direct reduced iron or DRI raw materials facilities.

The sheet mills experienced improved margins on their contract sales, which are priced on a lagged basis. The DRI plants experienced improved transfer pricing of the DRI they sold during the quarter to our steel mills.

Overall market conditions were very challenging during the third quarter. That was clearly evidenced by a decline in our steel mill segment's capacity utilization rate to 71% in the third quarter, from 83% in the second quarter. Third-quarter total steel mill tons shipped decreased by 12% from the second quarter of 2016.

Our tax rate can be confusing, due to the impact of profits from non-controlling interests. Excluding profits belonging to our business partners, the effective tax rate was approximately 32.8% for the third quarter, and 32.9% for the first nine months of 2016.

Nucor's financial position remains strong. Our gross debt-to-capital ratio was 35% at the close of the third quarter. Cash and short-term investments totaled approximately $2.3 billion, which compares with total debt outstanding of $4.4 billion.

Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving credit facility, which remains undrawn. The facility does not mature until April 2021. Nucor holds the highest credit ratings of any North American headquartered steel producer.

During the third quarter, we restructured our natural gas supply agreements with Encana. Low cost natural gas is critical to the long-term success of Nucor's raw material strategy. The restructuring ensures that our Louisiana DRI plant has a secure and low-cost supply of natural gas for decades into the future. In turn, DRI gives Nucor the flexibility to optimize the mix, and most importantly, our metallic input costs.

Iron units represent more than half of the total costs of our steel making operations. Just as important, a secure and low cost supply of high quality iron units such as DRI supports our growth strategy of moving up the value chain, into more demanding steel applications. We expect constraints in supply and cost of higher quality scrap to grow in the years ahead.

Here is a recap of the major elements of the restructuring: Nucor purchased 49% of Encana's lease hold interest, covering approximately 54,000-acres in the South Piceance basin. Nucor and Encana terminated two carry and earning drilling agreements, entered into in 2010 and 2012. Nucor also sold to Encana its 50% equity interest in the Hunter Ridge gas gathering and processing assets located in the North Piceance basin.

The benefits of the new structure are significant. I will outline the top four. First, the leasehold interest provides Nucor full discretion on its participation, in all future capital investment. Our decision to invest in any drilling is independent of other leasehold partners.

Second, by canceling the carry and earning drilling agreements, Nucor has eliminated all future carry cost premiums, and contingent liabilities associated with these contracts. That improves Nucor's capital flexibility, and should result in lower future drilling costs. Three, Nucor owns a tangible asset, the acreage interest, rather than contractual rights.

Four, Nucor's acreage interest is expected to be able to meet the current gas usage for all of our steel mills, and our DRI facility in Louisiana, for decades into the future. The net result of these transactions is a lower-cost and more flexible hedge against higher natural gas costs for our Louisiana DRI facility, and our core steel making operations.

Earnings in the fourth quarter of 2016 are expected to decrease notably, compared to the third quarter. The two most significant challenges are expected to be downward contract pricing resets at our sheet mills, and the impact of lower iron units pricing at our raw materials segment.

Beyond these near-term issues, we see a number of positive factors that should benefit the steel markets moving into 2017. Steel service center inventories are low. Residential construction is robust, while non-residential construction activity is expected to continue its slow but steady pace of improvement.

Trends in US employment and consumer spending remain healthy. More vigorous enforcement of trade laws has begun to reduce the flow of illegally traded imports into the US. We are confident that Nucor's significant competitive advantages, and highly flexible business model, will allow our team to continue to execute on our proven strategies for delivering profitable long-term growth, and attractive returns to Nucor shareholders.

Thank you for your interest in our Company. John?

Thanks, Jim. Nucor's strategy for profitable growth is working. We can see the payoff even in the challenging markets of the current prolonged downturn. It is evident in our strong cash flow generation, and our industry-leading returns on capital.

Most importantly, it is positioning Nucor to deliver higher highs, and profitability during the inevitable cyclical upturn. We are executing our long-term growth strategy by leveraging Nucor's five drivers to profitable growth.

The five drivers are one, strengthen our position as a low cost producer; two, achieve market leadership positions in every product line in our portfolio; three, move up the value chain by expanding our capabilities to produce higher quality, higher margin products; four, expand and leverage our downstream channels to market, to increase our steel mill's base load volume, especially in weak markets. And five, achieve commercial excellence to complement our traditional operational strength.

I will now update you on highlights of the recent progress implementing our strategy for profitable growth. In August, we completed the acquisition of Joy Global's steel plate mill in Longview, Texas for approximately $29 million. Annual melting capacity is 180,000 tons.

The mill produces specialty plate products, ranging from 1 to 12 inches thick, and up to 138 inches wide. That expands Nucor's plate product portfolio, as the capabilities of our North Carolina and Alabama plate mills reach up to 3 inches thick and 120 inches wide. Customer interest in our broadened plate offerings is very strong.

Nucor Steel Longview is booking orders at levels exceeding our expectations. The mill has already doubled its production rate, since completion of the acquisition. We are very excited about the opportunities for profitable, long-term growth Nucor Steel Longview offers our plate business.

In September, we announced an agreement to acquire Independence Tube Corporation. Independence Tube is the second-largest US producer of hollow structural section, or HSS, steel tubing. Annual production is about 600,000 tons from four facilities in Illinois and Alabama.

HSS steel tubing is predominantly used in non-residential construction. The purchase price is $435 million, or approximately 6 times average EBITDA over the 2013 to 2015 period. Independence Tube is a natural fit with Nucor, and our strategy for profitable growth.

Our companies' cultures are very similar, sharing key values such as continual improvement, pay for performance, and the way we value our team members. Two other very important criteria we apply in evaluating acquisition opportunities are being a low-cost producer, and holding a market leadership position. And like Nucor, they operate efficient manufacturing facilities, with a highly variable cost structure.

Independence Tube will also be a value-added channel to market for Nucor's hot rolled sheet steel. It's worth noting that the Independence Tube plants are located in close proximity to Nucor's sheet mills in Alabama, Indiana and Kentucky.

Nucor is already North America's most comprehensive supplier of steel solutions to the construction and infrastructure markets. We hold leadership positions in beams, bar, plate, steel H-piling and pipe piling manufacturing and distribution, as well as joists, decking, metal buildings, and rebar fabrication. The addition of HSS steel tubing to our product portfolio will further differentiate Nucor from our steel competitors, and our ability to take care of our customers.

We are looking forward to welcoming the Independence Tube team to the Nucor family, as our newest growth platform. Closing of this acquisition is expected around the end of October.

A second major growth initiative was announced in September, plans to build a specialty cold rolling complex at our Arkansas sheet steel mill. This facility will cost an estimated $230 million. It is expected to be operational in about two years. Annual capacity will be approximately 500,000 tons.

This investment supports our strategy of moving up the value chain, and growing our participation in the automotive market. The Arkansas specialty cold mill complex will expand our sheet mill group's capabilities to include products that we are currently unable to manufacture. The flexible, cold mill reduction mill will allow us to cold reduce to both lighter gauge and much higher strength levels, to meet our customers' light-weighting goals.

The upgraded batch anneal shop will include the ultra high temperature capability required from production of motor lamination steels, with electrical properties previously only obtainable by non-oriented silicon steels. The specialty cold mill complex will also broaden the automotive capability of our galvanizing lines at our Alabama and South Carolina sheet mills.

Our Nucor-Yamato structural steel mill team is on track, with the expansion of their value-added product offerings. Shipments of the recently-introduced wider sheet piling sections have increased 2.5-fold through the first nine months of 2016, compared to the year-ago period. Two of the four new sections have been commercialized, with the remaining two sections to be commissioned by the end of the first quarter of 2017.

Nucor-Yamato has also begun trial production of its new high strength, low alloy beams, utilizing the recently installed quench and self-tempering technology. We expect to complete trials across the entire range of ASTM Grade A913 structural sections, during the first half of 2017. Nucor will be the sole North American producer of high strength, low alloy beams.

Nucor's SBQ bar mill group achieved significant new value-added product milestones in the third quarter. Our Memphis SBQ mill shipped its first annealed, and quench and tempered bars, utilizing the heat treating equipment installed earlier this year. With this new value-added capability, Memphis aims to grow its participation in a number of markets, including energy, agriculture, and mining.

Our Nebraska SBQ mill started up its new coil conveyor system, that yields significant quality improvements. This will allow Nebraska to move up the value chain in coil applications for such markets as automotive fasteners and oil and gas. These are just some of the exciting initiatives being taken throughout Nucor, to drive profitable growth.

Let me conclude with some comments on the greatest challenge facing the steel industry. Global steel over-capacity, resulting from the trade distorting practices of some governments. The message is simple. Significant progress is being made, but there is still a tremendous amount of work to be done.

The recent affirmative final determinations in the three flat-rolled steel anti-dumping duty and countervailing duty cases were an important step forward; however, many other products require trade enforcement action, including pending cases addressing illegally traded imports of rebar, and cut to length plate. At the same time, decisive action is needed to deal with efforts by foreign producers to circumvent duties, by routing products through third-party countries.

One notable example is China circumventing cold rolled and coated flat-rolled steel duties, by shipping product through Vietnam. Nucor embraces free and fair competition. With our culture's focus on continual improvement and technological innovation, Nucor thrives in a marketplace where winners are determined by real economic advantage, not advantages derived by artificial or illegal means.

For this reason, Nucor will continue to be proactive and aggressive, in pursuing effective and timely enforcement of our nation's trade laws. We owe nothing less than that to our customers, our employees, and our shareholders.

Challenges clearly remain for the global steel industry, but for a Company such as Nucor, one that is in a unique position of strength, and has a proven ability to execute its strategy for profitable growth, these are also times of great opportunity. That is why I'm absolutely confident that Nucor's best years are still ahead of us. We would now be happy to answer your questions.

(Operator Instructions)

We'll take our first question from Matthew Korn with Barclays.

So looking and understanding your expectations for the fourth quarter, as you laid out in this morning's release, how would you characterize just today your inbound order rates versus say two weeks ago or even last month. Are there any signs of buyers' appetites increasing or their willingness to pay higher prices starting to emerge even on the margin?

Well if you look at the order entry rates, particularly in our sheet products over the last couple of weeks, we have seen an uptick. This is not unexpected, it's typical annual order rate entry patterns that we see. Towards end of the third quarter and towards the middle of the third quarter, you'll start to see order entries slack, people are beginning to look at year-end inventories.

This year, when you looked at the third quarter and people saw scrap pricing starting to decline, that also caused a slow down on their order entry rates. But then as they get into the latter part of the third quarter, the end of the quarter going to the beginning of the fourth quarter, we would expect we see order entry rate picking up, in anticipation of receiving the tonnage in the beginning of the New Year.

Thanks, that's very helpful. Let me ask then, you've been very active on the M&A and the investment front, as you went over. Should we expect more from you as we look over the next six months? Is this the current price decline in steel, has that dislodged any assets as you've been interested in? And barring that, what would be your sense of the potential for any substantial buyback or a lift in the dividend? Thanks.

Well you know, as we always say, we don't comment on anything specific, but clearly our financial position is very strong, our cash generation from operations are very strong. We have the ability to go after targets that we think will bring long term profitable growth to our Company, and a great return to our shareholders. So we're always on the look out for opportunities.

And then of course, as we said many times in the past, if we don't see any opportunities that are out there that we think will bring value to our Company, and we have an excess of cash on hand, we always look at the possibility of share buyback, or in one form or another returning the cash to our shareholders. But of course, our first priority is always long-term profitable growth through investment, when the opportunities present themselves.

Thanks very much.

We'll take our next question from Curt Woodworth with Credit Suisse.

John when you look at your volume performance in the sheet mill this quarter, it was fairly similar from a utilization rate basis as last quarter. I'm sorry, in the year-ago quarter when you were facing pretty severe import pressure, as well as a relatively choppy non-res market.

Today you have the trade case victories, you have non-res improving, autos relatively more resilient, and you have the fact a lot of the US blast furnaces exceeded a fair amount of hot band market share to the EAF. So I'm just curious, what is your take on that? And I guess from a macro basis, what are you seeing that maybe is particularly weaker than you thought at the exit of last quarter?

Well let me start by making a few comments on your question. When we look at automotive, we see it about the same as last year. We don't see it significantly better. In terms of non-residential construction, we really don't see it much more improved than last year. In fact, if you go through the course of the year, particularly towards the middle of 2016, there was a decrease in the activity on non-residential construction. So we don't see much of a pop from that side, either.

And although we have been very successful in our trade cases, particularly on sheet, we're really just beginning to see the impact of that. And frankly we do see imports going down, but still they represent a very large portion of our total market share. That's why we continue to fight the battle, and we will continue to fight and be successful in the battle against illegal imports. So we're just beginning to see some of that impact.

But let me address another point of the capacity utilization, particularly as it applies here at Nucor. We've talked many types about our commitment to pursuing higher-value products, and we're going to continue to do that. We believe that having improved margins and profitability is more important than utilization.

And as we said in the past, as you move, as you change your product mix to those higher-valued, higher quality products, that usually has an impact on your run rates in the mills. A great example would be either the wide light project at our Berkeley facility, or the wider piling sections at our Nucor-Yamato facility. Both of those have reduced the run rate significantly, although they are much more profitable products. So we don't get so hung up on utilization.

We mentioned on the last call and I'll mention it again that we intend to, at the end of the year, take a hard look at how our product mix has shifted over the last several years, and its been forever since we adjusted the denominator in this calculation, and we will take a hard look at how our product mix shift has impacted our capacity, and as a result, influenced our capacity utilization. So that's how I would answer your question. We are looking more at the products that we're producing and we feel good about the way that we are shifting our product mix.

Okay, that makes sense. And just with respect to trade and the Vietnam petition, it seems like there's a prevalent view that processing or cold rolling material in Vietnam doesn't fundamentally change the nature, or does fundamentally change what the product is. Can you just comment on the nuance of that, and how you think the Department of Commerce is going to treat that issue specifically?

I'm not going to go into too much detail, as this is an ongoing investigation, and there has not a final determination on this. We feel strongly, very strongly, that our position is a strong one. It's clear to us, our opinion is it's clearly an issue of circumvention.

You can look at the percentage of imports of cold rolled product from China into Vietnam, and seeing the tremendous jump over the last six months. It's clear what's going on, and we think particularly when you look at the political environment today, where on both sides of the aisle, there's a recognition of what's going on around the world, with illegal trade. I feel and our team feels very confident that we'll be successful in the circumvention case.

Great, thank you.

We'll take our next question from Jorge Beristain with Deutsche Bank.

Maybe John, if you could comment about the current pricing that you're seeing in -- sorry, in the heavy plate market, we've just noticed that plate prices have fallen, and are basically now below HRC. And you recently announced a price hike, so if you could just talk about what you're seeing in that market? That's my first question.

Well I'll start off and I'll hand it over to Chad, Executive Vice President in charge of our plate business. But just as a general comment, obviously we aren't going to speak about any pricing specific, but the plate market has been very challenging, its been a tough year on plate. Doesn't look like it's getting much better towards the end of the year. We can go market by market, but there's no strong market right now that we would point to, to say that we're going to see a big pop in pricing. I would make one comment, and Chad, you can build on this. When you look at the pricing levels in plate today, personally I feel it's not sustainable over the long term. But Chad, would you like to add anything to that?

Thanks, John. I agree, the plate market is very challenged currently. Your assessment of where plate prices are, compared to hot roll is true, that being below hot rolled prices which they are now, according to CRU is something that we have rarely seen over the history of pricing, so I do not believe that's sustainable long term. There is some fundamental demand challenges out there in the plate market right now, and we did announce recently a plate price increase, that was late last week, and we are monitoring that situation at this time.

I just might mention too, Chad that we did have a successful plate trade case against a violator who was dumping a significant amount of plate into the country, and that was from China. And we had a very positive out come on that case.

And there's a very important date coming up in November, where we will get the AD rulings from Commerce on the remaining eight countries. So those are some of the things that we're monitoring closely in the plate market.

Thank you.

Great, and sorry, I had a second question if possible. Just housekeeping, on Independence Tube, would you be segmenting that under your steel products, or your structural steel tube segment? Or just -- sorry your steel mill segment. Just trying to understand sort of how you view that operation in terms of value add.

Jim?

Right now, we're probably going to put it in steel products. We haven't made a final determination, but we're thinking it belongs to steel products.

Great, thank you.

We'll go next to Timna Tanners with Bank of America Merrill Lynch.

In light of the fact that met coal is all of a sudden back to the reason you started to invest in DRI, I wanted to get a sense of, if we were to believe that scrap moves with met, are we looking at it again returning to that advantage that you were hoping for in DRI? And how are you thinking about what hedge that might offer you in a strong met coal environment into 2017?

Well clearly there are several things that scrap tends to be, scrap pricing tends to be linked to. Certainly, one of the most important is volume, and as the mill business picks up, and people have a greater demand for scrap, the price for scrap goes up. There is also a linkage, as you mentioned to coking coal, and we expect to see some small increase as a result of that. But as we see scrap right now, scrap is a pretty low number, we think it's probably at the bottom. As we look out for the rest of the year, we might see a small incremental increase but nothing substantial. Joe, anything you want to add to that?

I think you really covered it John. As we head into the winter, there's always a seasonality issue, or potential scrap flow, northern scrap yards need to close down or slow down et cetera. but any strength that gives us is probably just seasonal, and ultimately, it will follow the demand of the steel mills.

Now I will take it away from scrap for a minute, and say that as you look at what's going to happen, as these companies are going into next year's contract for buying coking coal, that we believe there will be an increase based on the current spot price. And obviously on final product, we see that's going to put us in a more competitive position than we were when coking coal was at half the price it is today.

And DRI versus pig iron, same story, maybe a little more explicit connection to the met coal price?

Yes, Timna, this is Joe Stratman. Clearly that's true. Obviously, one of the major cost components of either pig iron or DRI is what form of reductant do you use, and what reductant -- what cost that reductant is at. So if you compare the cost of coking coal as your reductant in a big iron environment, versus natural gas in the DRI environment, you can clearly see some cost differential, depending on where those two commodities are moving.

And if I could just add something quickly, and that is, this is exactly why we moved forward with the DRI strategy. We look at it, as we talked about many times, this is a hedge. It gives us the flexibility, gives us balance, and as a cost of raw materials changes, the cost of raw materials in steel making represent more than 50% of the cost of the product, this gives us a tremendous advantage as things shift. And given our DRI and our DJ Joseph Company the ability to buy pig iron or HB iron when it makes sense, our DRI facilities will be able to buy scrap internationally, these are the things when you have these movements as we see them today in coking coal that really point to the value of our long term raw material strategy.

Sure, that's why I asked about it, because we're back to those met coal prices at market, so here we are again.

You asked for me to brag on it.

Oh, okay, I'll ask a tougher question, I'll try. I know you talked about -- Oh, I guess I'll ask about Big River, to ask a tougher question. By at the end of the year we're expecting Big River volumes to come on, that is a little bit in your geographic sweet spot. I know that Nucor has been moving away from commodity steels, and to more value add products, but can you give us a little bit more color on how you're thinking about the arrival of Big River volume and what that means for Nucor?

It's another competitor, and we've never shied away from competition, as long as it's fair and legal, we love it. And we're confident that we can take it on, and without having an impact upon our business. Certainly, it's going to hurt the market, certainly it's going to have an influence on the market, but given what we've been doing, particularly in the southeast and the markets that we have been targeting, as we move up the value chain, certainly it's going to be a while before they can move up into the same areas of products that we're producing, particularly the high strengths, band size lengths, and the automotive markets that we're moving into.

So you're right. As we move away from -- more and more away from the more commodity grades, we will have less of an impact. I'll also point out to you, Timna, you heard in our script about our specialty cold mill complex that's going into Hickman, I might point out that Hickman is, I don't know how many miles, but not that many miles away from Big River Steel, and we are confident that the unique mill equipment that we're putting in there is going to give us an ability to produce products that we can't produce today, are products that certainly Big River can't produce today, and we think that will give us another edge over them, as they come up with their more commoditized products.

Okay, great and if I could slip one last one in on that same vein, if we expect, let's say hypothetically auto is flat going forward from here, is there a case to be made that Nucor could continue to increase its share there, and can you quantify that?

Listen, we're very confident. We, first of all, just to comment on your statement, we agree. We think that going into 2017, orders will be basically flat. We don't see it going up. It might go down a little bit, but we don't see it changing significantly.

And even in that environment, we will continue to grow our market share, not only in the types of products that we can produce that go into automotive, but frankly, in the number of automotive companies that have an interest in doing business with us. As we've said many times, our target is to reach our 2 million tons by 2018. Today, we're somewhere around 1.4 million, 1.45 million, in that range, and the team here will tell you that our next target is 3 million tons by 2021.

I will tell you that our next target is 3 million tons by 2020. And frankly, the JV that you heard us talk about in the script, the JV with JFE, is going to be a big boost, not only in that particular project, or on the galvanizing side. But frankly the recognition that Nucor has achieved by being picked as a partner with JFE, clearly the premier automotive steel producer in the world, will put to bed finally this argument about whether or not automotive grade steel can be made in a electric arc current shop, particularly one that has Nucor name on the front of the facility.

Okay, fantastic, thanks.

We'll go next to Evan Kurtz with Morgan Stanley.

I have a question for you on CRU minus contracts. I guess, a few years back we started hearing about these for the first time, and I know they caused a lot of problems in the market because they created a negative feedback loop, with pricing. And I thought they went away, but then I was actually talking to steel buyers in the last few months, and they were talking about having to compete with CRU minus again.

So I was just wondering if you could give an update, like are these a big factor in the market again? Has that changed much over the last few years? And how is that influencing things right now?

Clearly, CRU minus drifts in and drifts out, depending upon how the market conditions are. And right now, we've heard the same things that you have heard, that there are some companies out there offering CRU minus contracts again, but I want to be real clear about this. We do not do that. We don't think it's a good business practice, and we take a different approach to it. We think that we sell our product based on quality, service, on time delivery, and we do what we need to do in these competitive situations but we do not offer CRU minus on our sheet business.

Great, thanks. Good to hear. And then maybe one other on rebar trade case. So I know the industry tried a trade case on rebar a few years back against Turkey, and the numbers weren't really -- they were de minimus. So what about the case is different this time? I know there's been some trade laws passed between now and then? How is that going to influence the outcome this go around?

Well we feel very positive about the outcome, frankly we were disappointed in the outcome last time, but you're right. The recent changes in the trade laws that we had put into effect last year, they leveled the playing field, gave us more tools that we can better argue these cases, and we believe more successfully argue these cases. And I will tell you on rebar in particular, we think that we have a strong case to be made.

Frankly, when you look at the results that came out of the last trade case, particularly as they related to Turkey, there were commitments made during those hearings, where Turkey said that they would not increase their inputs into the United States, and you talk about a classic hockey stick, these things went off the charts. And the fact that the way the country acted with their imports into the United States on rebar after the trade cases last time, we think provide tremendous ammunition for us in this case, and we're anxious to prosecute it.

Great, and good luck. Thanks, everyone.

We'll take our next question from Phil Gibbs with KeyBanc Capital Markets.

You mentioned a lot of these organic growth projects that you've got going on, over the next couple of years. Any sense in terms of the size, Jim, of the CapEx budget this year and next year, just to help us with that?

Yes, we've been saying $500 million for this year, but that's actually now going to be up to $635 million on a gross basis, because of the reallocation or resetting of our agreements with Encana. But we're also disposing of $135 million of assets, so the net increase is still $500 million in our total PP&E. Next year budget has not been set, but I know that there's a fairly big ask on the table coming in from the divisions. So I would think it's going to probably be at least as strong as this year, in that $500 million range.

Okay, perfect. That's all I got. Thanks so much.

We'll take our next question from Aldo Mazzaferro with Macquarie.

A question for Jim on the LIFO, I would have guessed with scrap down, and some of the other commodities down, that you would be going the other way toward LIFO income. Can you comment on what you might expect for the full year, or what drove the higher than expected LIFO this quarter?

Yes. So if you look at where we're at the end of the half, we had $46.5 million of expense on a gross basis, and we are targeting $93 million for the year. And based on what we did in the third quarter we are now targeting $141 million for the year, which means we are going to have, somewhere in the neighborhood, if our estimates today are accurate, in the neighborhood of $35 million of LIFO expense in the fourth quarter.

The reason we bumped up the pace is because of the timing of how -- mainly how the timing how DRI and pig iron affect us. We buy pig iron on a lagging quarter basis and it influences our overall cost of DRI as well. And so those two commodities came in deliveries, in the third quarter, and it influenced our inventory overall position to a greater extent than we were expecting. So that's changed our outlook for the balance will be at the end of the year.

Thank you, and John, the question on -- might be a little political, but given both candidates are out there which is pretty massive comments on infrastructure, one bigger than the other, and I know Trump has D'Amico on his team, and I'm wondering whether you view one candidate or the other as more beneficial between infrastructure spending, and whether you also would expect either candidate to come out with something that could be significant early in their tenure?

Well I'll just make a general comment, and say we are really pleased at both sides of the aisle, both candidates, and both political parties are finally understanding the importance of fair and balanced trade. And we're really excited about that, and whichever candidate that gets in, we hope that they live up to the campaign promises they made, to recognize the importance of enforcing our trade laws.

I'll also build on the second part of your question. Both candidates have spoken about the need for infrastructure in the United States, and I will tell you to me, personally, because you know I come from New York, I was in New York a few weeks ago, and the conditions of the highways and bridges in New York are deplorable. It's an embarrassment to the United States of America.

And when you look at some of the estimates that are out there today by different agencies that rate the bridges, rate the roads, they're talking about a need of spending almost $3 trillion over the next five years, just to get them up to a B, or B-plus level. Think about that amount. That's tremendous.

It's long overdue. I hope both candidates, or whichever candidate -- each of the candidates, whichever one gets in, lives up to their commitments, both on infrastructure, and on maintaining the strong enforcement of our trade laws.

Great and--

That goes not only for the presidency. but for Congress also.

And John, of the assets that you have not operating today, the utilization rate not at 100%, would you say it's fair that the ones that are not at full capacity are mostly the construction-related steels?

As a general statement, yes.

Great. Thank you, John. Take care.

Ladies and gentlemen that does conclude our question-and-answer session. At this time I'd like to turn it back over to Mr. John Ferriola, for any additional or closing remarks.

Well let me just conclude by saying to our Nucor family, our customers, our shareholders and our teammates, thank you. Thank you for your business, thank you for your support. For our teammates, thank you for your hard work that you do every day. Your contributions have led us to the position of strength that we enjoy today, and ensure a bright future for all of us. And most importantly for my teammates, thank you for doing it safely. Thanks for your interest in Nucor. Have a great day.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect.