Nucor Corp (NUE) 2017 Q2 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation Second Quarter of 2017 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 speak 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 now 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; Chief Digital Officer, Joe Stratman; and our other Executive Vice Presidents, Jim Darsey, Ladd Hall, Ray Napolitan, Dave Sumoski, Chad Utermark and Nucor's newest EVP, Leon Topalian.

Leon is a 21-year veteran of our company and will be a strong addition to our executive team. He has responsibility for our beam and plate mills. Leon is a proven leader with experience in our sheet, raw materials, bar and beam businesses. Since 2014, he has served as General Manager of Nucor - Yamato Steel Company.

Thoughtful and orderly succession planning continues to be a significant strategic initiative throughout the Nucor organization. In addition to Leon's promotion, we shifted responsibilities among several of our Executive Vice presidents to broaden their experience. Chad Utermark is now responsible for our fabricated construction products. Ray Napolitan is leading our engineered bar products business. Joe Stratman is focused exclusively on his responsibilities as our Chief Digital Officer, while Jim Darsey assumes responsibility for raw materials. Dave Sumoski is leading our merchant and rebar products group. Ladd Hall continues to be responsible for our sheet mills.

The leadership team in Charlotte would like to thank all of our teammates throughout Nucor for their excellent work in the first half of 2017 to build a safer, stronger and more profitable Nucor. You are the reason our company's best years are still ahead of us. Thank you.

Our Chief Financial Officer, Jim Frias, will now review Nucor's second 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. Nucor reported second quarter of 2017 earnings of $1 per diluted share. These results were at the low end of our guidance range given in mid-June of $1 to $1.05 per diluted share. Nucor's second quarter performance represents a significant improvement compared to year-ago second quarter earnings of $0.76 per diluted share but a decline from first quarter of 2017 earnings of $1.11 per diluted share.

Our earnings for the first half of 2017 of $2.11 per diluted share represent Nucor's highest earnings for this period since the cyclical peak of 2008. This performance was achieved despite intensifying pressure from illegally traded steel imports. How we are able to do this is very easy to explain: Nucor's disciplined strategy for profitable growth is working. We are realizing significant returns from our growth investments made during the steel industry's protracted downturn.

Over the past 8 years, Nucor has invested more than $7 billion, capital spending of $5 billion and more than $2 billion of acquisitions. Continuing a long tradition of our company, we have invested aggressively to increase our capabilities for delivering value to our customers and profitable growth for our shareholders.

Compared with the first quarter of 2017, our second quarter earnings benefited from significantly improved performance at our direct reduced iron plate mill, rebar fabrication and metal buildings businesses. Although down somewhat from the first quarter level, our sheet mills delivered solid profitability, driven by their success in expanding their value-added product offerings and customer relationships. Compared against the year-ago quarter, profitability improved at our sheet, SBQ and plate mills as well as our raw material businesses.

The profitability of our downstream steel products segment declined significantly year-over-year due to margin compression resulting from a highly competitive market environment and higher steel prices. Surges of dumped and subsidized rebar imports dramatically reduced the performance at our rebar mills and rebar fabrication operations.

A quick comment about our tax rate, as it can be confusing due to the impact of profits from noncontrolling interests. Excluding profits belonging to our business partners, the effective tax rate was 34% for the second quarter and 33.2% for year-to-date 2017.

Nucor's financial position remains strong. With total debt outstanding of $4.4 billion, our gross debt to capital ratio was 33% at the end of the second quarter. Cash and short-term investments totaled approximately $1.6 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.

For 2017, we estimate capital spending of approximately $500 million and depreciation and amortization of about $730 million. Earnings in third quarter of 2017 are expected to be comparable to the range of the first half of 2017's quarterly earnings. This further supports our previously expressed view that full year 2017 profitability could significantly exceed the level achieved for 2016.

Our fabricated construction products order books continue to indicate a favorable outlook for the nonresidential construction market over the balance of 2017. We are also encouraged by the emergence of improving demand this year in other end-use markets, including energy and heavy equipment. Although automotive market demand is pulling back somewhat from historically high levels, we expect to continue Nucor's growth in this market as we gain share.

We are confident that Nucor's significant competitive advantages, highly adaptable business model and proven strategies will allow our team to continue to deliver profitable, long-term growth and attractive returns to Nucor's shareholders. It all begins with making sound capital allocation decisions. Nucor's capital allocation priorities are clear, and they have been consistently practiced over many years.

Our first priority is to invest for profitable, long-term growth. This strategy is simple and flexible. We are leveraging Nucor's 5 drivers to profitable growth.

Our second priority is to return cash to our shareholders, primarily with cash dividends, consistent with our success in delivering long-term earnings growth. Nucor has increased its base dividend for 44 consecutive years. We believe that record is strong evidence of both the sustainability of our business and our disciplined approach to capital allocation. Our third priority is to opportunistically repurchase our stock when our cash position is strong and our shares are attractively priced.

Thank you for your interest in our company. John?

Thanks, Jim. Nucor's disciplined strategy for profitable growth is working. As Jim noted, our second quarter and first half of 2017 earnings represent Nucor's best performances since the cyclical peak year of 2008. In fact, our second quarter of 2017 earnings of $323 million are more than double Nucor's average second quarter earnings of $150 million achieved during the 2010 to 2016 time period.

Our first half of 2017 earnings of $680 million are nearly triple Nucor's average first half earnings of $246 million reported over the 2010 to 2016 period. But what pleases me the most is that the more than 24,000 men and women on the Nucor team are delivering profitable growth despite a renewed flood of illegally traded imports into the United States.

Here are the numbers that demonstrate the severity of this headwind. Through the first 6 months of 2017, finished steel imports have increased an estimated 15% compared to the same period last year. The estimated finished steel import market share in the month of June 2017 was 29%, matching the record annual level set in 2015. The year-to-date market share for finished steel imports stands at approximately 27%. This is further evidence that traditional trade cases are very often too slow to keep up with the shifting tactics of nations that are abusing the rules of trade.

Nucor continues to believe significant work remains to be done to achieve truly effective and timely enforcement of U.S. trade laws. It is time for comprehensive and broad-based remedies that address years of illegal foreign trade practices that have weakened our nation's economic vitality and our national security. We recommend remedies be targeted to measurable goals for steel import share of U.S. market and our industry's capacity utilization.

It is also critical that appropriate adjustments be made to the remedies if policy targets are not reached. While it may require a trial-and-error process to determine what remedies are effective, we are confident that our nation's leaders will stay the course until there is free and fair trade in our steel markets.

The Nucor team's advocacy for trade law enforcement is absolutely critical to our mission of taking care of our customers, our employees and our shareholders. Effective trade law enforcement is required for free and fair competition or trade free from the market-distorting practices of some governments. Nucor always thrives in a marketplace where winners are determined by real economic advantages earned by efficiency and innovation. Truly free trade is the only path to global prosperity and rising standards of living for everyone.

In the current challenging environment, we are encouraged, but not satisfied, by our second quarter and first half of 2017 performance. The Nucor team remains ready and eager to realize the significant pent-up earnings power we have built with the more than $7 billion invested during the steel industry's lengthy downturn.

To that goal, our focus remains on what is under our control: the execution of our disciplined strategy for long-term, profitable growth. The strategy is simple and flexible. We are leveraging Nucor's 5 drivers to profitable growth. The 5 drivers are: strengthen our position as a low-cost producer; achieve market leadership positions in every product line in our portfolio; move up the value chain by expanding our capabilities to produce higher-quality, higher-margined products; expand and leverage our downstream channels to market to increase our steel mills' baseload volume for sustained results; and achieve commercial excellence to complement our traditional operational strength.

I will now update you on highlights of our team's recent progress implementing our strategy for profitable growth. During the second quarter, we announced a $176 million investment to build a hot band galvanizing line at our sheet mill in Kentucky. This will expand Nucor Steel Gallatin's product capabilities and have an annual capacity of approximately 500,000 tons. The 72-inch galvanizing line will be the widest hot-rolled galvanizing line in North America. This project will allow us to expand into segments of the automotive market we currently do not serve, growing applications of hot band galvanized for frames, control arms, supports and brackets. It will also create synergies with Nucor's other sheet mills.

Acquired in October of 2014, our Gallatin sheet mill has proven to be an excellent platform for profitable growth, thanks to the hard work of our Gallatin team members. Thank you, and please keep it going.

In late June, Nucor and JFE Steel Corporation of Japan began construction of our equally owned joint venture galvanizing facility located in Mexico. Nucor has been doing business in Mexico for more than a decade and is excited by this opportunity to expand our participation in that country's growing automotive market. At the same time, we are extremely pleased to partner with a premier supplier of high-quality steel products to the global automotive market.

The plant will cost approximately $270 million and have an annual capacity of 400,000 tons. Nucor will supply half of the substrate requirements from our sheet mills. Operations are expected to begin in the second half of 2019.

The automotive market is an attractive, long-term growth opportunity for Nucor. Our automotive shipments grew by 50% over the 3-year period ended in 2016 to 1.4 million tons. With our current mid-single-digits percentage share of the automotive sheet steel market, there is still plenty of room for us to grow. In a slowing automotive environment, Nucor continues to take market share from our competitors.

After receiving additional customer awards this year for future model year 2017, '18 and '19, Nucor is on pace to achieve our 2 million ton automotive annual shipment rate goal by the end of 2018. Demonstrating that our automotive growth strategy is working, we recently received recognition from Volkswagen with an award given to their best suppliers. The award criteria are: innovative strength, product quality, development competency, sustainability and professional project management. Volkswagen recognized a total of 19 suppliers. Nucor was the only steel supplier and 1 of only 2 U.S.-based suppliers to receive this prestigious award.

Our newest growth platform, Nucor Tubular Products, continues to deliver strong profitability. Acquired in late 2016 and early 2017, these producers serve the hollow structural sections, or HSS, and electrical conduit niches of the pipe and tube market. These value-added businesses squarely hit the target on all 5 of Nucor's strategic drivers to profitable growth. Representing an attractive channel to market for Nucor's hot-rolled sheet steel, they are on track to source nearly 100% of their steel substrate from Nucor sheet mills in the fourth quarter of this year. Congratulations, and thank you to our tubular products and sheet mill teammates for your excellent work. Please keep it going.

These are just some of the exciting initiatives we are implementing to drive profitable growth. We continue to make excellent progress on a number of other projects across our steelmaking, downstream and raw material businesses. For a company such as Nucor, with its unique position of strength and proven ability to execute its strategy for profitable growth, this is a time of great opportunity. That's why the Nucor team is both ready and eager to unleash the pent-up earnings power that we have built into our company during the industry downturn. I am absolutely confident that Nucor's best years are still ahead of us.

We appreciate your interest in Nucor, and we would now be happy to answer your questions.

(Operator Instructions) And our first question comes from Novid Rassouli with Cowen and Company.

On the long products side, given the import pressure that we're seeing on long products and with scrap looking maybe potentially stable, how do you guys think about margins going into the back half of the year for long products?

Now long products are definitely challenged due to the import surge that we've seen, most notably in our rebar business but certainly also in our merchant business. And you're correct, we do see scrap pricing going out for the next couple of months to be somewhat stable, maybe softening a little bit, but pretty stable. Now having said that, we've got trade cases going on today on rebar, and we fully expect to have successful outcomes on that we believe will help deal with the import surge over the next few months. We're hoping that to be the case. If it is, we should see a reduction in the imports and with that, improvement in the market and demand for rebar in the United States.

And then my second question, just to follow-up on that. In your opinion, what long product or products do you think are most likely to be included in a Section 232 proposal?

It's really difficult to say that. What we are looking to have happen and what we are advocating in Washington and, frankly, what we are hopeful we will get is a very broad-based 232 ruling that will include, firstly, all of the products. It will not be targeted to any one particular product or to any one particular geographical area or region of the world. So based on that, our expectations, certainly, our hope and with some degree of confidence, we believe that we will get a 232 that is inclusive of all of the products.

Your next question comes from Jorge Beristain with Deutsche Bank.

It's Jorge Beristain with Deutsche Bank. My question was on the guidance or color you've given for second half. It does seem light. You're kind of saying that 3Q should be similar to what we saw in the first half, but we've just seen a $25 price hike that seems to be followed by your industry peers. And you'd mentioned scrap prices are probably going to be stable to down, and you might see some volume pickup in the second half due to 232. So trying to understand why you would be cautious on the second half outlook.

Well, I'd say that we're optimistically cautious, okay? Of course, just be optimistic as we look out into the quarter. There's always a great deal of uncertainty in our business. We're a cyclical business, and we're not sure exactly what's going to happen out there. Over the next couple of months, we'll certainly learn what's going to happen with 232. That could have a very significant impact. My take on it, frankly, right now is it's probably not going to be everything we'd hope it to be, but it's certainly going to be more than what we have right now. So as I look out into the third quarter and I see pricing seeming to be holding and improving in flat-rolled products, stability in our other businesses in terms of demand, a scrap number that is stable going forward and potentially some help on 232, and even failing that, I do expect to have continued success, as we've seen over the last 12 months, on the ongoing cases, the ongoing trade cases, particularly as they apply to long products. We've seen some success with plate. We expect to have some more success in plate. And as we look out into the quarter, you got to remember that a lot of the book, these are already in place. A lot of our sheet businesses is under contract. That's predicated upon CRU numbers from the previous quarter. So when we factor all of that into what we see, at least at the beginning of the third quarter, relatively same performance as in the first half of the year. As you go out further into the year, as I said before, we are cautiously optimistic that we'll see improvement, both in demand and in some outcomes out of Washington.

Okay. Sorry. If I could just squeak another question in for Jim just on corporate/eliminations. We saw them jump about $40 million sequentially. I was just wondering if you could comment on that. I thought we were going to see a lot lower impact from these kind of eliminations going forward, and they actually went up.

Yes. That's a great question. And the biggest change was related to intercompany profit eliminations related to our DRI raw materials business. We have more DRI inventory at the end of the second half than we had at the beginning of the first half. And the margins on that product were increased, and we have to eliminate the profits until it comes out at the end as a finished product. And that means not just as a finished steel product but as a finished piece of decking, if it goes to a deck plant; or some part of another steel thing that we fabricate, piping tube, et cetera. But overall, if we look at that number, if we look on a year-to-date basis, it's $410 million versus $286 million last year. There's 2 big things that have driven it up year-over-year: One is profitability and how that affects profit sharing. Profit sharing for our non-officer employees is higher than it was last year by almost $53 million, and intercompany profit eliminations are higher by $68 million. And you're right, sequentially, quarter-to-quarter, there is a jump. And most of that was intercompany profit related to all of our products, but mainly DRI.

Your next question comes from Matthew Korn with Barclays.

Another question on trade and imports, if I could. If policy relief on imports, that you'd talked about, for whatever reason doesn't materialize in the near term, and say the rebar market continues to suffer under import pressure it has been, does that change the calculus for you at all on say, the investment in Marion? And then bigger picture, would any of the investment plans that you're currently forming, would any of them be predicated on your getting trade reliefs? Could you see yourself in a position of saying, "Look, we have to adapt parts of our long-held strategy for growth in the domestic market unless we get more assurance from the government on this really important topic."

Well, let me start by saying absolutely not. We work on what we can control. We focus on what we have under our control, and that's what we predicate our business plans upon and our investment strategies upon. And that is what we have built them upon. We know what we can control. We know what we can influence. We can influence what happens in Washington. We cannot control them. So our focus has always been on what we can control: the investment strategies that we've made, the plans that we've laid out. I'd be happy to talk about them if you want more detail on them. But it's been part of our strategy since our company began to invest for the long term. We're long-term-focused company. The investments we make are for the long term. The things that happen over the next couple of months in terms of what comes out of Washington, and I understand there's a lot of focus on that, to me, that's icing on the cake. That's gravy. That's something that whatever comes out -- and I'm sure that there'll be something coming out that's beneficial, at what level remains to be seen, but it will be beneficial. Whatever does come out will be a positive to the plans that we've already laid out that we're confident will continue to focus on long-term, profitable growth. Does that answer your question?

Yes, sir. I appreciate that. It does. Let me then take you up on your offer and if you could give me any latest update on the progress say, at the Specialty Cold Mill there in Arkansas. How that's coming along?

Well, I'll go a little bit broader, if I can, right? We can talk about that one specifically. It's well -- going extremely well. It's right on -- it's early in the process, but certainly, it's right on track. And we have that cold mill going in at Hickman. That is going to do wonders to advance us even higher than we are currently in the value-added automotive market. This is a very specialized mill. It's a third-generation, ultrahigh strengths that will allow us to continue the progress that we've made, the outstanding progress that we've made in penetrating automotive. That will then be further supplemented by our automotive-quality galv line in Mexico with our partners at JFE. As you know, those guys are premier automotive suppliers known on a global basis. For them to be partners with us is just a credit to what our team has done in terms of advancing in to automotive, the quality and service that we have been able to deliver. You add that to another investment we're making at our Gallatin facility, another galv line. This will be a very -- this is a hot band galv line that's ultrawide. It'll be the widest in North America. It's extremely heavy gauged. Frankly, it's just about twice as heavy as the -- and produced currently today in the Midwest, which is a great market for galvanized, a growing market. So you add all of this together, we've got a very well-focused -- and I'm -- it's too early to share some of the other plans that we have on our long products side. But I can assure you that we are really developing a long-term strategy to deal with some of the issues that are happening today in long products. So altogether, answering your question, we've got a definitive plan for long-term profitable growth. We're executing on it well, and it's not influenced by what's coming out of Washington. It's influenced by what we can control. And whatever comes out of Washington will be gravy for us as we go forward.

And next up, you'll hear from Seth Rosenfeld with Jefferies.

Two questions. Starting out on the hot-rolled coil market, you earlier referenced increased competition in HRC as being a key drag in the second quarter. Would you attribute this behavior principally to importers? Are you also seeing more aggressive behavior from domestic peers, being it from the new entrants, like Big River and Mingo? And in more recent weeks, as pricing has begun to stabilize and actually recover, are you seeing any notable shift in that competitor behavior? I'll start there, please.

Sure. Well, we always worry more about the imports. Frankly, there's new competition coming on, domestic competition. We've been living with that for the last 40 or 50 years. We're going to live with it for more years going forward. And frankly, we welcome that competition. We enjoy good competition on a fair, level playing field. We do not fear competition on a level playing field. We are confident in our team's ability, given a level playing field, to be successful without a doubt. So more of those comments are focused on the import situation. And when I look at the different markets that we are participating in and the advantages that we have in some of those markets, automotive, construction, energy just being a bunch -- just a couple of names to put out there. We're very confident in our ability to compete extremely well against domestic competitors on a level playing field. The challenge that we have, that we will continue to fight, and I know that we will continue to have more success on, is with the imported products.

And I had a second question on the rebar fabrication side. Your comment seemed quite dire, I suppose, in terms of where you see profitability for that business. Following the recently announced antidumping duties earlier in the year, has that, at all, changed your competitor behavior and the level of margins that you're seeing in the fab side?

Well, I certainly didn't use the word dire, okay? Challenged, maybe, okay, but not dire. And once again, you're spot on with your follow-up comment. We are having success with rebar on imports -- on trade cases. We will continue to have success. It's a little bit of a whack-a-mole game. You've heard me use that term before. You fight different countries. You fight different companies. But I will say, as I've said several times before, I think we're actually seeing some of this coming to fruition as we talk about more holistic solutions like 232. My comment being that Washington is beginning to understand -- our elected officials, the administration, beginning to have a better understanding of the consequences of imports, not only on our economy but on our national security. And as a result, we are seeing more and more support for trade cases and for more holistic solutions. But particularly on the trade cases, we're seeing much greater success than we have in the past. Quicker turnarounds. There's been several things that have come to -- into effect in terms of enforcement that are now supporting the trade cases as they get successfully prosecuted. So yes, I'm confident that we're getting the handle, getting our hands around imports. It's always going to be a battle, but I continue to see more and more success, and with that, a better competitive situation on rebar, rebar fabrication and, frankly, on all of our products.

And your next question comes from Timna Tanners with Bank of America.

So I've just wanted to recycle, you guys are green, so let's recycle a question I asked earlier today. If we believe Section 232 results in any sort of reduction in imports, the domestic industry is running really hard on flat rolled overall. And assumingly with OCTG, if it gets hit as well, you would need to produce that domestically. So assumingly, you would get pretty tight. And you and Steel Dynamics are looking downstream but not adding more sheet capacity. So I was just wondering, are you considering also adding any flat-rolled capacity? Is there any flex in your system? Or are you more focused on galvanized? And if so, are we not worried about, given auto weakening, any excess galvanized in the market?

Okay. A bunch of questions there. Okay, wondering -- let me see if I can handle them one at a time here. I'll start with the question about -- if we get a good ruling on 232, I would have to -- do we have concerns about being able to meet the needs in the marketplace. And my first answer to that is absolutely not. You asked do we have any flex. I believe what you meant by that was the ability to produce more steel in our existing facilities. Nucor's known for doing that. We've been doing that forever. We'll continue to do that. We will find ways to get product out that we need to meet our customers' demand. As I made the comment in Washington a couple of weeks ago when I was asked a similar question, I said, "Bring it on. Give us the chance. Let us show you what we can do. We will take care of it." Now for the longer-term answer to that though on the 232, what -- why we're pushing so hard for 232 and more holistic solution is that it provides an environment of sustainability so that we can continue to invest for the future. You have to create an environment where you get the right returns for the investments, where you know that you'll have certain operating utilization rates based upon being able to have a reasonable limit on the market penetration of imports. Once that's accomplished, there's no doubt in my mind that Nucor will continue to invest. Let's look at it this way. We invested $7 billion without having that, okay. What do you think we would do if we had a sustainable environment, that we could be confident on getting the returns? There's no doubt in my mind and there's no limit to -- I'm looking over at Mr. Frias, and I'm absolutely confident that there's no limit to our build -- there's always a limit, but we've got a pretty high limit to our ability to raise the capital that we would need to be able to make significant investments to meet the future needs of our customers. And that's in, of course, all of our products: rebar, merchants, plates, sheets, you name it, our HSS. As I've said at Washington, give us -- give our industry the opportunity to show you what we could do by providing a sustainable environment in which the industry can operate in. And I'm confident we will meet the needs, both militarily and commercially and economically. Now is there another question I missed? I think you asked about galvanized.

Yes, I did, in light of auto weakening and so on. Yes.

Well, auto weakening is taking place. There's no doubt that it's plateaued. I'm hearing numbers around 7.1 units versus 7.5 units, okay? There's no doubt in my mind that there's some weakening going to be occurring. It's only to be expected. So I would tell you this, at the end of the day, our part, our market share of automotive continues to grow. So when you look at how we've grown over the last several years and how we anticipate growing over the next couple of years, we will be getting a bigger piece of a smaller pie. So in terms of our growth in automotive, we're confident we're going to continue to grow in automotive. And in terms of more general comments on the galvanizing line, if you look at Nucor, we tend to be underweighted in galvanized. Where the galvanized represents about 18% of our product today, of our sheet products today, most of our competitors have numbers closer to 30% to 35%. You look at our existing coating lines, Timna, we've been running at full capacity, full utilization since 2014 on our galvanizing lines. So it only makes sense for us to continue to grow that business. I'd also point out that the galvanized consumption in the U.S. is growing. It's expected to grow pretty significantly between now and 2020. And as that -- as a further comment, the 2 lines that we are building, I touched upon this earlier but I will reiterate, the 2 lines that we're building are not your traditional lines. Our line at Gallatin is ultrawide. It's going to be a wide, heavy gauge, goes up to 0.25 inch. Our current capacity, I think, is 0.125 maybe. So it's about twice of what we can currently produce. It's going to be located in the Midwest, which is the largest galvanized-consuming region in the country. So we're confident that there'll be room for us there, because it is more of a niche. It's not just another galv line. And the same is true in our mill -- galvanizing facility we're building in Mexico. It's not just another coating line. It's a very specialized, automotive-grade, very-high-spec galvanizing line that we feel will meet the needs of advanced steels that are coming down the road here. I'll point out one more thing quickly, and that is the location of it in Mexico is perfect. We're surrounded by automotive companies that have been relocating there. We've got a great Japanese partner, that will help us get into some other companies that we haven't been able to get into yet.

Okay. If I could, I'll ask an easy follow-up. Or are you still talking, sir?

So far, it's easier asking them, but go ahead.

One easy follow-up, I promise. Just if you could update us on where you think we are in the construction cycle. I know in the past, you've mentioned that this time around, you expect it to cap out lower than last environment what we experienced. Just want to get your latest thoughts on the cycle, please.

Well, if we use 2007 as kind of the peak market, I would say we're somewhere around 65% of where we were back in 2007. So it's getting better. It's continuing to improve. But as I've said in the past, it's a slow rate of improvement. When I look at this particular year, it's kind of -- I think it's going to be an interesting year. So RG originally projected a growth of about 4%, 5% over the course of the year. If you look at the first half of this year, you had to have some negative growth somewhere in the neighborhood of about 3% to 4% negative. So for them to come out and hit 5%, I think is probably unrealistic. I would put the number today maybe closer to overall flat for the year or up 1%, 2017 over 2016. But even with that small differential, what that does bode well for is a second half of the year in construction. When we look at -- and that's supported by some things we do see. The Dodge has this thing they call the momentum indicator. That's positive. The ABI is positive. We always looked to our downstream businesses, to our order entry rate to get an indicator of construction markets going forward. And that's also a positive. When we look in particular areas, we see one area of nonresidential construction that has been somewhat positive. It has been infrastructure, particularly on the bridges. For us, that's good news with our structural business, and particularly with some of the investments we made recently with wide piling and the QST. So -- and we are still hoping for some news on an infrastructure bill, which would prolong the cycle. And I've spoken a lot about the nonresidential construction, but I will point out that residential construction's having a good year. That's up about 4%, 5%. And while it doesn't have the same impact on steel consumption, you do have some impact in terms of white goods, appliances and some of those other kinds of things. So overall, second half of 2017, I think, will be better than the first half on construction. And at the end of the day, we'll be up maybe 1% year-over-year.

(Operator Instructions) We'll next move to Dave Gagliano with BMO Capital Markets.

I just had a couple of short-term, specific questions, just on the "things that were a little different than what we're expecting" side of it. Pricing in sheet had bounced up quite a bit in the quarter. I was wondering if you could just explain a little more as to what happened there. And also, historically, plate volumes, which have been very strong the last 2 quarters, historically, when we have strong plate volumes in a couple of quarters, the next quarter's a big drop-off. I just want to make sure there's no reason to expect a similar drop-off in the third quarter.

I'm going to address the sheet question, and then I'm going to ask you to repeat the second question. I didn't quite hear the word you were asking about. So first of all, let's talk about sheet pricing. For us, it's a couple of things. Number one, some portion of it can be attributed to mix. Also, as I've said a couple of times on the call and in the past, we continue to move up the value chain on our sheet products. So that has helped us on our pricing. In terms of the general increases that you've seen, we had a $30 increase a couple of weeks ago. That's been well supported by the marketplace. We're collecting that well. And the most recent $25 one that we went out with last night, as I've said in the past, we don't go out with price increases unless that we are very confident that we're able to collect some of the things that we look at. We look at the demand, which as I've said, continues to look strong. We look at service center inventories, which continue to be very low. One of the other things that helped us at Nucor with our pricing, frankly, on our flat-rolled product is the addition of our new business in HSS. A lot of our spot -- what was spot funds are now going downstream into our own businesses. So that gives us a little bit more flexibility. It evens out our mix a little bit better between hot band and cold because we -- the hot band is not going out into the marketplace. So I've given you several reasons and hopefully, that answers your question. Could you repeat the second part of the question, because I didn't catch that one word?

Sure, that's helpful, by the way. I was asking about your plate volumes, which have been obviously very strong the last 2 quarters. And I just wanted to make sure there's no reason to expect those to come down at all in the next few quarters.

I apologize. I was putting those 2 words together and I couldn't figure out what the word was. Okay. Plate volumes continue to be strong. There's several reasons we can give for that. One that I will point out is our Hertford County plate -- plate mill with its heat treating; new longer plate that we're able to produce there with some military applications. That's been good for us. Our new addition mill in Longview, Texas, although that's still coming online, it's -- we've been able to introduce a lot of new grades there. That's helped us there. And we've had a positive outcome on the trade case. So there's a -- again, I mentioned earlier, bridges. That's -- obviously, a lot of plate goes into bridges, so that's been good for us. I got to tell you then, this is a shout out to our teams on the plate side. They've done a great job, not only on new grades that they've developed, but new applications that they're going into, new customers and frankly, the team down in Longview. Tell you what, guys, you're doing a great job. Please keep it up. Just keep doing it safely, okay? So no, I don't expect to see any significant change in our plate volumes. And again, if we get the kind of results we're hoping out of Washington, not only would I not expect to see a decrease, I would absolutely expect to see an increase in volumes and other aspects of our plate business.

And your next question comes from Phil Gibbs with KeyBanc Capital Markets.

I had a question, John, on the bar shipments in the quarter, I think almost 1.5 million tons, the best from a quarterly perspective we've seen, I think, in 3 years or more. Just curious in terms of what drove that relative to last several quarters? Is it efforts to regain market share? Is it a pickup in SBQ, rebar? Don't want to be too leading here, but just want to understand here the strength in the quarter.

I'd be happy to answer it. Fully stable on rebar and merchant bar. That's been pretty stable. We really are focused on our SQB (sic) [SBQ] business, excuse me, okay, and particularly out of our Memphis facility and our Norfork facility in terms of new grades. In Memphis, we've added the heat treating, which has really helped our business. Our cold finished business is getting better all the time, and that's another downstream outlet for our SBQ. So our billet business, out of -- our SBQ billet business has been strong the last couple of quarters. So what's really grown, driven the change over the last couple of quarters has been our SBQ business. And of course, that means also our cold finished business beyond that. So that's what really drove -- what drove the business. One of the things you can't have more volume coming out of SBQ if you're not getting more approvals and qualifications from automotive customers or heavy equipment customers, specialty customers. And as I've said in all of our products, as we continue to drive up the value chain, become higher value, more specialized, we're able to pick up, not only more volume, but better pricing that goes along with it. So hats off to the team at SBQ and cold finished. Thanks for the job you're doing, and keep it going.

I appreciate that. And as a second question here, for the third quarter, are you anticipating your volumes will be pretty similar to where they've been in the second quarter? Or should we expect some seasonality? And then an adjunct is, on the corporate and eliminations, I know we heard some of the explanations earlier, but should we expect that to taper down a bit versus the second quarter?

I'll tackle the first part then throw it over to Jim, okay. In terms of our volumes, I would say that we certainly see stability going forward with a fairly positive view that they'll go up if we see [spots]. Positive view coming out of Washington will have an impact on our volumes, and it will be a positive impact without a doubt. So without anything coming out of Washington, pretty stable going forward, maybe a slight uptick. But with any help coming out of Washington, which we do expect -- President Trump has made some commitments to us, and we expect him to stand behind those commitments. We're certainly working to make that happen. If it does, we could see some volume and as well as other parts of our business. Jim?

So Phil, if you may recall in my comments, as part of our script last quarter, I said that I expected intercompany eliminations to be lower in the second quarter, and I was wrong. So I'll caveat my statement with that we had about $32 million of the total in Q1 profit limit or -- corporate/eliminations was profit -- intercompany profit related. The second quarter's about $57 million. I think it's going to be down in the third quarter compared to what it was in the second, maybe closer to first quarter. But it depends on how much inventory we have and depends on how high margins we have. If intercompany inventories get higher and if margins get higher, then we could have a bigger expense. If inventories stay flat and margins stay flat, it will be close to 0.

Okay, that's really helpful. And should we anticipate that DRI can see another leg of upside here in the third quarter as you may begin -- can eat a little bit into some lower-cost inventory and have a full complement of assets up and running?

You mean relative to intercompany eliminations, is that your question?

No, just relative to itself and the [raw] material (inaudible)

I'll let John answer that.

There -- our plants in Louisiana and Trinidad have been running very, very well, running full volume, high quality, great yields, good product. And we fully expect them to run that way throughout the third quarter and the rest of the year, 2018, 2019, 2020 and beyond.

It appears we have no further questions at this time. I'd like to turn the conference back over to Mr. John Ferriola for any additional or closing remarks.

Well, let me just conclude by saying thank you to our shareholders. We really appreciate your confidence and your support. As always, thank you to our customers. We appreciate your business. Without you, we're not around. So thank you for your business. I want to say a special thank you to my Nucor teammates for creating value for our customers, generating attractive returns for our shareholders and building a sustainable future for all of us. And most importantly, thank you for doing it safely. Thanks for your interest in Nucor. Have a great day.

And once again, that does conclude today's conference call. We thank you for joining us. You may now disconnect.