Nucor Corp (NUE) 2001 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nucor conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If any one should require assistance during the conference, please press star (*) then "0", on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Dan DiMicco, CEO of Nucor. Mr. DiMicco you may begin your conference.

Thank you. Good afternoon and thank you for joining us today for Nucor's Conference Call. We will briefly review the results for the first quarter and then take your questions. But first, I would like to welcome and say "hi" to all the members of our Nucor family who will be listening to this conference call on the Nucor web site and especially to the newest members of our family at Nucor Steel, Auburn, New York. Terry Lisenby, Nucor CFO, and our EVP's Hamilton Lott, Michael Parrish, and Joseph Rutkowski are with me this afternoon and will be available to answer questions as well. For those of you new to Nucor Corporation, let me provide a brief description of our business. Nucor is in the steel products business. We are the United States largest recycler, currently recycling over 11 million tons per year. Nucor has 35 operating facilities in nine states and nearly 8,000 employees at these facilities. We are the most diversified steel producer in the United States, with products which range from reinforcing bar to motor lamination steel, to pre-engineered steel buildings. We are the nation's largest structural steel producer, the largest steel bar producer, the largest steel joist producer, and the largest steel deck producer. Other major products include hot rolled, cold rolled, and galvanized sheet steel, steel plates, cold finished steel in bar form, metal buildings, fasteners, and [409] stainless. Startup at our newest Greenfield facility, the steel plate mill in Hertford County, North Carolina, is preceding well. All of the equipment is running well, and our quality continues to be better than even our most optimistic expectations. More importantly, our customers are also very excited about the quality of the plate. They continue to comment, "that it is some of the best plate they have ever seen and worked with." Our earnings of $0.42 per share reflect a very difficult business conditions for some of our markets. We expect these difficult conditions to continue at least through the second quarter of 2001. Given these conditions, we expect the results of the second quarter to be similar to the first quarter. There is some good news in the sheet market. In December, the ITC returned a preliminary determination of illegal imports from 11 countries. Imports of hot band sheets, has decreased since then, mostly due to lower domestic pricing and a reaction to the trade suite. Just this week, the Commerce Department assessed subsidy duties against a number of these countries, ranging from 6% to almost 20% and a high of 35% for some individual companies, including rather new facilities. We expect, in addition, a large antidumping duty to follow next Tuesday for most, if not all, of the 11 countries named. Nucor is taking an active role in trade issues whenever it is obvious that the laws of our country are being violated. We expect to continue to be aggressive in this arena for all of our products as appropriate. We have recently met with Secretary Evans of the Department of Commerce and Robert Zoëlick, the US trade representative, and its top staff members on this trade issue. The meeting included other members of the Steel Manufacturer's Association and was very constructive. We will continue to work to resolve the trade problems with the support of both officials, the Steel Manufacturer's Association, as well as the American Iron and Steel Institute. As a result of lower imports and a decrease in sheet steel inventories and steel service centers, we have seen our orders and proved throughout the quarter. And our sheet mills are running well. We set new quarterly production and shipment records at our sheet mills in the first quarter. We see conditions favoring higher prices going forward. These conditions include the shutdown of approximately 5 million tons of hot rolled sheet capacity in the United States, with more likely to come. Lower interest rates, as seen yesterday, to stimulate growth continued favorable trade rulings by the ITC on existing suits and new ones to be filed soon. And we believe an opportunity to work with the Bush administration to once and for all fix our country's trade laws to promote free and fair trade. We continue to identify and pursue opportunities for sales and earnings growth, which include Greenfield sites, acquisitions, joint ventures, and the implementation of new technology such as cast [strip and icamil]. On March 31st, we completed the acquisition of the assets of all those deals, 430,000 tons per year, [merchant] steel bar, rebar, and [SPQ] facilities in Auburn, New York. This facility is an excellent strategic fit. Especially considering our new [Vulcraft] facility under construction about 80 miles away in Chemung, New York. The management team is in place at Auburn, and integration is going extremely well with no disruptions in production or service to customers. We are moving forward in several joint ventures, [cast strip with VHP and IHI, isamil with real pinto] and the rail project [with Alpine]. Construction has begun at project C, known as [Cast drip] at Crawfordsville. And this facility should start up in the second quarter of 2002. [An MOU has been signed with real tin tilt] for a [our isamil] facility to be built in Western Australia, this is a liquid iron-making technology. And we are finalizing an operating agreement with [Volsta Alpine] for our North-American rail venture. We also continue to make good headway and identifying and implementing, cost cutting, and quality improvement opportunities in our operations, to assure that Nucor continues to be among the lowest cost and highest quality producers worldwide. We are also initiating a standard marketing effort in our sheet business to pursue higher value-added products. This effort is being coordinated with each our fly roll sheet divisions as the sale teams work together with Bob Yarns, our Director of Marketing to fly roll sheet products. We continue to successfully identify and pursue new strategic direction for our sheet business. We are very optimistic about Nucor's prospects for the future. Our best years are ahead of us. At this time, I would like to ask Terry Lisenby, to review the results for the first quarter.

Good afternoon and thanks, Sam. The first quarter of 2001 saw very difficult business conditions for the steel industry in the US, as our operating results reflect. Sales for the first quarter were $1,028,000,000, a decrease of more then 14% from the first quarter of last year. First quarter 2001 sales increased about 2% from the fourth quarter of 2000. Total steel sales of 2,980,000 tons in the first quarter of 2001 set a new record, up 3.6% from the first quarter of 2000. However, average pricing continued to decline in the first quarter of 2001. Our overall average sales price decreased 12% from $393 per ton in the fourth quarter to $345 per ton in the first quarter, and was $72, 17% less, than last year's first quarter average of $417 per ton. Earnings before Federal Income Tax was $19 per ton for the first quarter, compared to $49 per ton in the first quarter of 2000, and $53 per ton in the fourth quarter of 2000. Net earnings for the first quarter were $0.42 per share compared to $0.94 per share for the first quarter of last year. Deflecting the severe pricing environment our growth margin was slightly over 8% compared to 14% in the first quarter of 2000. The average cost of scrap decreased by $6 per ton from the fourth quarter and was down $23 per ton from the first quarter of 2000. A LIFO charge of $7.2 million for the first quarter of 2001 compares to a charge of $9.5 million for the year ago quarter. Pre-operating and startup costs were about double what we had expected in the first quarter at $20 million about $0.15 per share compared with $6.6 million in the first quarter of 2000. We now anticipate a total that is close to $50 million in pre-operating and startup cost for 2001 similar to the $51 million in 2000. Cash and short-term investments totaled about $332 million at the end of the quarter compared to $490 million at the end of 2000. Long-term depth remained unchanged from year-end at $460 million about 16% of total capital. Capital expenditures for the first quarter of 2001 were $62 million, and we project about $275 to $300 million for all of this year. The depreciation expense for the first quarter of 2001 was $69.1 million and should be about $310 million for all of 2001. Reviewing with numbers for the 13 weeks ended March 31, 2001 compared to 2000 where structural steel production was down 13%, shipments down 10%, net orders down 20%, and backlog down 55%. Steel bar production was down 4%, shipments up 2%, net orders up 25%, and backlog up 35%. The sheet steel production was up 4%, shipments up 6%, net orders up 37%, and backlog up 20%. The steel joist production was down 16%, quotes down 11%, and net orders were down 10%, and backlog down 1%. The steel deck production was down 5%, quotes and net orders were flat and backlog was up 11%. Structural steel pricing decreased about $23 per ton in the first quarter and was $24 below the first quarter of 2000 average. Structural demand is being impacted by high service center inventories resulting primarily from high levels of illegally dumped steel. Selling prices per joist and deck are down from last year's level to the first quarter of 2001 average price per ton for joist down about 4% from the first quarter of 2000, and decks current average price down about 7% from last year. The bar and shapes market has been under pressure and bar pricing was at the lowest level in 15 years, although demand remains fairly steady. Bar average sales prices per ton for the first quarter declined more then 15% year over year. The sheet steel market softened dramatically in the second half of 2000. The sheets average sales prices per ton in the first quarter of 2001 were down lower then 23% year over year. Pricing appears to have stabilized with a decrease in imports and decreasing inventories at steel service centers. We have been able to obtain the $20 per ton price increase on hot band in the second quarter and our second quarter bookings have been strong. We would now like to open this call open and take your questions. Thank you. If you have a question at this time, please press the "1" key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key (#). Our first question comes from Dwight Anderson.

I didn't hit the "1" key.

I will ask you the question anyway Dwight. Go ahead. Our next question comes from John [Tomozos].

Hey, Dan. Congratulations on the record volume. You know, given how much prices fell, if you would've sold 300, 000 tons of less steel in the first quarter, to cut your prices a little bit less, and taken a few fewer orders, do you think you would have earned less money, the same or more money?

Yes. I could just say yes, but basically we would have earned less money if we had not taken as many orders.

I know you went through your change in price for a number of major product categories. If we just looked at sheet as an example, if you wanted a 100, 000 tons more sheet business, for hot rolled or cold rolled, or hot just galvanized, what would be the contribution margins been at current prices? In other words, is the contribution margin $25 for a hot band and $35 for cold rolled and $50 for galvanized or something like that?

John, we've never really disclosed contribution margins by product.

If you averaged the three of those products, you won't be telling me very much. I wondering if you cut $5 to get a 100,000 tons more orders is it worth is?

Well, we don't actually need to cut it now. We're substantially full in hot bands for the second quarter at the $20 a ton higher price level.

Roughly, how much shipment should we be expecting with these upward trends in orders for the second quarter? Is it possible your production could be three and a quarter million tons or more?

It is too early, to really forecast that kind overall increase.

) We were fairly high utilization rates for the first quarter in terms of production.

What was your utilization rate?

Overall, I would guess it was 94%.

So, we should not be arithmetically adding up the capacity as the North Carolina plate as only your total.

No, I'm not sure I understand your question.

Well, after I read your annual, I thought your capacity is 14.3 including Auburn.

You're probably right.

Which would imply the ability to do 3.5 million tons, if the plate mill is utilized and you get the last squeal out of all the different locations.

We're not forecasting the full utilization on our plate mill for the year. In terms of total times, we are forecasting somewhere around a half a million tons versus the 1.2 that it's rated for.

Okay, thank you very much. Our next question comes from Michael Johnston of Steel Head Partners.

Hello, Michael.

Hi there. Just wanted to talk about... you said there's 5 million ton of hot rolled sheets come out of the market or has been shut down. Wanted to know if you thought that was permanent and you said that there was more likely to be more to come. Wanted to get an idea of how much more you thought was possible, and I also want to discuss, get an idea, of what the basis of total hot rolled sheet out there? What percentage of the total capacity in the industry this would represent?

As far as the 5 million tons that have already come out and whether it is going to be permanent. It depends how much sanity that there is in our business. I am not sure there is enough to go around. It is a tough question to answer. The way things are today it all should stay shut down, but to be quite honest with you, the major impact on our pricing situations and volume situation in this country aren't the domestic operations. They still are the import levels. We're sure at extremes and continue to be at extremes, even though they have slacked off. As far as future shut downs, how much more will happen? The shut down issue of capacity really is a global one. Again, and we really can't forecast how much more is likely to happen, just that with current market conditions know there will be more and what was your last question again?

Well, I just want to know what percentage of the total hot rolled out there this represents, if it were to stay closed.

Well, this is Joseph Rutkowski. First of all, one plant that we certainly do not expect to stay closed is (inaudible) and depending [on the need of] running it 1.2 to 1.3 million and we certainly have a capacity of 1.8 million. The total hot band to production is probably in the 65 to 70 million-ton ranges because you have all the cold rolled and galvanized were made out of that as well. The actual hot band market is about half of that. Those are the numbers I would use to project the percentages.

Okay. Can I ask one more question?

Sure.

It sounds like by your comments that with orders starting to improve, that volume should actually be up in the second quarter, and it's looking like pricing should also be up. Just wondering why it looks like second quarter will be flat to this quarter.

Well, first off you have to take a look at our complete product lines and not just one product line. Pricing realizations will be down in our bar and beam businesses in the second quarter over the first quarter because there were additional price decreases that took place during the quarter. And the increases that we see on the flat rolled side we believe will be probably equally balanced out by the decreases on the bar structural side. Our next question comes from Michael [Gambideli] of JP Morgan.

Yes, good afternoon.

Hello, Mike.

Hi. I've got a question on the startup cost. You mentioned that you had $20 million in the first quarter and that was about double your guidance. What was the reason for the extra startup cost and what kind of progression do you see from the first quarter out into the second quarter on startup cost?

The biggest difference was that Nucor Steel Hertford. They're producing fairly well down there but didn't ship extremely well in the first quarter. So, of the 20 million that is 13.9 million of the total, and it is going to taper off as their shipments come up. [Cast dripping will] tend to increase along as the year goes on, so it can be heavier weighed to the first half and then taper probably third and fourth quarter the year.

Mike, one additional thing on the [cash drip] permitting went well. It was actually charged to expenses in the first quarter to cash drip that originally we didn't project charging.

How much of that was in this first quarter?

We had about 1.7 million in startup in [cast drip] in the first quarter.

Okay and was there much of a product mix, you know, hit to the average pricing in the first quarter with doing more plates.

Currently there was only 80, 000 tone of shipments.

So the price realization that you saw was pretty much a constant mix.

Yeah, the decrease was pretty much across the board. As you remember, Mike, in our February 2nd conference call, we indicated that on flat rolls for the first quarter prices would be down compared to the fourth quarter, and during this first quarter we saw bar structural prices continue to erode. So that really, if you take a look at pricing in general, right know, we would say we are at the bottom. First quarter results reflect the bottom on sheets for sure, and we do believe we're at or near to bottom on the structural as well as the bar. There has actually been some price increases on re-bar at three of our four bar mills.

Any thoughts on scrap going out in the second quarter, what you're expecting there?

Scrap is probably slightly down the sideways.

Okay. Our next question comes from Scott Morrison of CSSB.

Hi good afternoon.

) Hello, Scott.

Hello, Dan. Two questions. One, you didn't mention energy, which I remember from the fourth quarter call; you said your natural gas costs were going to be up a lot. I was wondering if you tell us what impact that had on Q1, and what the outlook in that area is going forward.

Q1 was somewhat mixed in the pricing trend. The first part of the quarter started out extremely high. Tapered down in terms of what was out in the market place through the first quarter, but as we tied up gas contracts and experienced few ladders on our electrical bills it amounted to probably in the vicinity of $8 to $10 a ton. As far as going forward, prices for natural gas now are in the $5 - $5.25 range. A number of our divisions have locked up pricing in those ranges for the next 12 months. Some are exploring whether to do that right now. So overall, we should have less exposure to the high cost that we experienced in the first quarter. It will still be higher that what it was back in the third quarter.

And just general order magnitude of those $8 to $10 bucks a ton in Q1. Is it going to be two-thirds with that going forward would that being a reasonable guess?

Half to two-thirds.

Okay, and then the second question. Usually when order intake is strong and the order book's filling up, it's usually a time when you guys raise prices. I'm just wondering what do you think the appetite of the market is right now to accept price increases in bar and, I guess, sheet products as we get closer to the third quarter?

I think we believe the appetite is improving, but other than that, we wouldn't want to be more specific.

Okay. Thanks guys.

Our next question comes from Wayne Atwell of Morgan Stanley.

Good afternoon, and congratulations on a good quarter in a tough environment.

It's tough to think even as a good quarter but we appreciate the compliment. Thanks.

Can you give us all your thoughts on the rail mill? Where you stand, timing, and most likely location, capital cost. How long it'll take to permit. How long it will take to construct?

Well, as far as the rail mill itself goes, the main issue for us to put to bed now is a definitive operating agreement with [? Peanut]. We are in the midst of trial negotiations on that as we speak. It's taking longer than we thought. Any time you get New York lawyers involved anything can happen. As far as the location goes, it will be in the vicinity of Blytheville plant either in Arkansas or somewhere close nearby. As far as the permitting goes, things are well along on the permitting if we put it in Arkansas and also the packages are also in place. We have not announced the final locations though yet.

Would you specifically not put this on the Blytheville property and would you move hot metal say 5 miles or 10miles.

It's possible that we will not put it on the Blytheville property. As far as moving hot metal five or ten miles, that is not likely.

I assume the hot metal for this would come from Blytheville.

Yes. Yes. It would, if we put it at that site.

Okay and do you own 100 percent of this mill?

No Nucor Yamato will own 85%, [Walsh] will own 15%, and Nucor will own 51% of the 85%.

Okay.

It's all tied to our original agreement with Yamato on the production of rail.

And this should be a million-ton mill.

This mill will be looking to produce somewhere between five and six hundred thousand tons of rail.

That's your ultimate size or that is your initial size?

Well, you never put limits on yourself, Wayne, but that is what we are projecting is the capacity of that plant at the present time.

Capital costs might be $150 million?

No, for the rail project would be on the order of $220 million.

Okay, and construction might be 18 months?

Probably less.

Fifteen months?

Well, I'd be disappointed if we didn't set a new record when we do it which would be on the order of 12 to 13 months, but certainly no longer than 15 months.

The operating assumptions that you are going to build this mill, do you assume you knocked out both of your competitors, or do you think part of their volume or what are you thoughts?

We'll leave that decision up to the customers as to who they buy from. We believe that on the marketing side we're offering something that no one else in the world is offering, which is a 100 meter, 320 foot long rail which reduces the number of rails by 75%, which is the most common [place of failure] in the field. And we believe because of our low cost structure, which will enable us to offer the products while still making an excellent profit at very good prices to the railroads, they will also benefit from the safety and performance of the rail service compared to what they have available to them today. And those will be the main drivers. It will be up to the railroads what happens to our competition.

Is this breakthrough technology or is there a rail mill somewhere else in the world like this?

Well, the technology currently exists it is utilized regularly daily at both [Finnish Tal] and [Donnavitch] Austria and that's what they are bringing to the table. They are bringing that technology, which they have patented.

But this would be the second mill of this type?

Yes, it will be the second mill capable of doing the head hardening of 100 meter rail.

Thanks very much.

Thank you.

Our next question comes from Barry Vogle of Barry Vogel and Associates.

Good afternoon, gentleman.

Good afternoon, Barry.

One little thing I missed the cash and mark up for securities that [Talia] announced before. Can you give me that at end of the quarter?

Three hundred and thirty two million.

Okay, now could you give us an idea of where your average price is for your main steel segments are today versus what the average was for the first quarter, approximately.

[For the sheet hot band] on the average somewhere around $20 a ton on the hot band.

That is from the average in the first quarter?

It should be, yes.

Okay. And bar?

You know we're in a process of realizing those increases that we produced and shipped.

How about bar?

Bar prices will probably be down slightly, and I don't have a number in front of you. Mike, do you want a comment on that?

Well, the number we send out was $288 average bar pricing for the first quarter, which is down from fourth quarter of 2000 at $302.

Is it lower than that now?

Two x two angle, Barry, is running around $270 a ton.

Okay. And structural, all-inclusive?

That's probably down, to what, Mike, somewhere around $360 now?

No, I have got an average for the quarter was at $380. I'd say that's down from the fourth quarter $403. I'd say that's probably down, and that you're right, about $360 range.

Now, I've noticed the plate pricing is $269. That sounds like a low price. Is that a low price trying to get business, initially?

This, Barry, I'd say that right now that's the market price FOB the mill for carbon [discrete] price.

Okay. And as far as acquisitions are concerned, do you think there is likelihood that we'll see another acquisition before the end of the year?

We're working hard on it. Well, there's a lot of likelihood. I guess, you know, it's like fishing, Barry, you have a lot of hooks out there and you've got bait on some and some the bait gets stripped off and some you get bites, and getting the one in the boat is the difficult part.

Okay. Thank you very much.

You're welcome, Barry. Our next question comes from Aldo [Magasero] of Goldman Sax.

Hi, Dan.

Hello, Aldo.

Is your mix of hot rolled within the sheet sector.... That's still about 50% or has the high value added increased a little?

Aldo, it's probably...it has increased it has moved more and more towards cold rolled and galvanized. The galvanized market is still down quite a bit, but we'll be bringing up our second cold mill at Berkley in the next couple of weeks, and we'll continue to move that way.

Great. What if you're beyond the plate mill and beyond the cold roll at Berkley? Are their other facilities in your mix that you are bringing on, you know, new equipment within the facility that could grow your volume further?

We are still going to be in a position of realizing increased production from equipment changes and upgrades that we've made through most of our plants in Darlington, South Carolina. As you know, a year and half ago, I think it was, we put our new [melt] shop in Nebraska. We still have the opportunity to realize several 100, 000 tons more production capability out of that plant. And, of course, with a [cast drip] under construction probably not this year but next year, we will be realizing the potential for half a million tons more there. Berkley has increased its production capability and so has [Hickman] just by learning how to run the equipment they have even better. So there are opportunities for our production capability to increase from our existing operation. Exactly how much remains to be seen. Over next two years it could be as much as three quarters of a million tons to a million tons.

Great. And how big are the [joist] plants. I mean, the joist plant in New York going to be?

We've got it originally slated to be somewhere between 60,000 and 80,000 tons.

Okay, and when does that start?

Probably late third quarter.

Okay and then, Dan, how about a question on the meeting you had at the trade representative. I mean, were they discussing in terms of...you made a comment about the long-term solutions were they discussing the problem some of the companies have regarding the cost structure, you know, pensions and their inability to work together and things like that? Well, rather than just blocking imports. I mean, I know that was probably part of it, but think about the long-term solution part.

The long-term solution part refers to the trade laws, as they exist on our books today. The fact that they take two years to have any impact once you initiate or once the profits start to evidence themselves. Our trade laws are very easily circumvented by the trading companies to product and country switching and so the long-term fix had to do with just getting our trade laws to the point where they effectively dealt with the problem, so that we don't have to keep going through these cycles of illegal dumping activity that the trading companies and the steel mills around the world have been able to perpetrate on us because they can get around our existing trade laws. As far as things as legacy costs go, and bail outs and loan guarantees, our take was that was not something that they were in favor of, and certainly, as you all know, that's not something that we are in favor of. What we're in favor of is the creation of a fair, level, playing field for us to compete on, whether it's for domestic or foreign suppliers. And the only way to effectively do that, we believe, is to have a time-out period, up to four years, so that we can get our trade laws re-written so that they are fair, effective, and prevent the illegal circumvention of those laws on a regular basis, as they are now. And, I might add, we'll be WTL compliant.

And what do you think if they block these slab imports also?

Slab imports that were in Austin was issue that we also discussed and, as you well know, we're not in favor of allowing dumped, illegally traded slab to come in out of it. And they understood that. We had some very good discussions on all those issues.

Then this is the meeting that included just the [(inaudible) executives]

That's right. It was The Steel Manufacturer's Association, Tom [Dancheck], the Chairman, Chuck [Sineda] from [ITSCO], John Corinth from Birmingham, Phil Casey from Ameristeel, myself, and Clyde Selig from Commercial Metals. Marvin Selig actually orchestrated it, but he was sick so he wasn't able to be there. And also Terry Lisenby, our CFO, and Jim Fritch the strategic planner from Commercial Metals and both Secretary Evans and [Baster Zelich], had a number of their top department staff there with them. So, it was a very good meeting. Originally we were going to have about 45 minutes. We ended up being in there at hour and half.

Well, thanks Dan

Thank you Aldo.

Our next question comes from Jeff [Arens] of Elmira Star Gazette.

Good afternoon, gentlemen.

Good afternoon, Jeff.

I have three quick questions for you. On the first one, I'm trying to gauge the impact the startup cost had on Q1 areas.

The total impact from startup costs in the first quarter where about $0.10 a share.

Second question. Can one of you guys explain to me how the illegal dumping phenomenon occurred? And, I guess, I'll take the short answer on that one, please.

People have total disregard for our trade laws and they try to generate currency that is a usable currency like the American dollar, and there's worldwide overcapacity on the order of two to three hundred tons, a lot of it subsidized by the government to keep it running or to build them to begin with and the driving force is they can't sell all their steel in their own markets. The only truly open and free market in the world is the US and North American markets. The rest of the world has barriers up of one type or another that prevents the shipment of large tonnages into the marketplace. Plus, we have at the current time an error shortfall on the flat rolled in particular of somewhere around fifteen to twenty million tons, which...if it would stay at those levels on imports would be fine, but the problem is they try shipping them in on the order of twice that.

Okay. Now, without these illegally dumped steels, what sort of rate projections are you guys giving on your earnings?

Well, right now that's not a realistic situation for us to project into. We don't have the assumption that you made that's there no illegally traded material.

Okay.

Without them, we believe our earnings would be stellar.

Okay. And the third and final question. The Chemung plant, the one in Chemung NY, what is the schedule for that, and how are things going? And will the Q1 earnings have any impact on your schedule for that particular plant? I know that's a lot.

The last question is no, the startup won't have any effect on the Q1 earnings. We expect the joist plant and the deck plant to start up late third quarter of this year.

Okay.

) The plant has gone with the exception of a pretty tough winter for trying to build a plant in New York State.

I'm experienced in that, yes.

Our plans done very well. All of the management is in place and that management and supervisors are currently interviewing potential employees. So, we're getting ready to put a number of people to work.

Okay. Will the projected level of employment be made the same in spite of the first quarter's depressed earnings?

Yes. We never intended to have that many people on day one. We'll ramp both of them up, but we certainly intend to be to the level we talked about in 12 months.

We certainly would not fall off the construction or start up at the facility, because of our earning situation in the first quarter. If that's what you're asking?

Yes. Okay. Thank you very much, gentlemen.

Thank you Jeff.

Our next question comes from Mark [Potter] of McDonald's.

Hey, Dan.

Hello, Mark.

Congratulations on a good quarter. Others have asked most of the questions that I was going to ask already. There is one issue, though. I was wondering if you could kind of provide an update on what the activity with [BHP], the high-smelt operation, and also, maybe a little bit about your vision of what impact you might expect that to contribute to Nucor over the next three to five years.

Well Mark, this is Joe. First of all it is with [Rio Tinto] on high smelt.

I'm sorry. I'm sorry. [Rio Tinto] Excuse me.

We are concluding a definitive agreement on a participation of 25% on the project in Quintana. Using local orders and coals, we are right now going to back into a definitive cost study just to make sure we have detailed the cost properly and we don't get any surprises. We've done sensitivities against it. It's going to be roughly in the neighbor total capital under $200,000,000. It's probably going to be in the $170,000,000 range, and we're not...basically, we'll own 25% of the production of that facility and we'll be able to either take that product or sell that product, or whatever. But, that's kind of the way it's going to work. We don't necessarily...we haven't really projected it out as far as earnings. Our real investment here is in further licensing of the technology and possibly use by Nucor in the future, and we've secured rights to that respect.

Okay. Will you have exclusive rights to that technology or being able to license it in North America?

We will actually join [Rio tinto] high smelt in a licensing company and no; we do not necessarily have exclusivity. We don't know that that's in the interests of that particular licensing company.

What we will have, is there'll not be nay royalties charged to us on any of the plants that we put it in.

) Yeah. Nucor owned operations.

And we will share in the royalties worldwide. As far as what the implications with technology are, it's certainly has the potential. It all has to be realized to successful commercialization. But, it certainly has the potential to lessen our demand and our needs on energy. Also, it has the potential to lower significantly the emissions that are involved in producing liquid iron and some steel products. I know you've heard people here talk about this before. Coupling the technology with cast-drip and having a sheet producing facility, particularly for cold rolled that allows the product to be produced at significantly lower cost than conventional cold rolled and significantly lower energy and environmental implications. So, that's the long-term potential benefits. Okay. Thanks, Dan. Our next question comes from Denise Frazier of Morgan Stanley.

All of my questions have been answered with the exception of share re-purchases. Have you done any in the quarter, and if so, what's the authorization on that?

None in this quarter, Denise, and the authorization is unchanged, and the same applies. Thank you. Our next question comes from Waldo Best of Morgan Stanley.

Question on kind of a longer-term outlook for the time when the company was very interested in building a plant on the West Coast and, we haven't heard anything about that in some time. I'm sure you're aware that the [Hiltom X] operation in Latin America has been, you know, let's just say available. Wondering if that is something that could sit into Nucor longer term, seeing as though there's a very comparable technology there.

Hey, Wally. This is Joe. First of all, we gave up on the West Coast from a hot band perspective a few years ago. We never could find a site, and we were worried a little about metallics. The quit frankly, we just could never find a site, but are you saying we have looked at some opportunities further down stream from hot band over the last couple of years. We didn't really include anything because we didn't get very far. And in respect to Hiltsa, Nucor has had a long relationship with Hiltsa it was very positive. Almost all the (inaudible) people in their (inaudible) plant trained at our Hickman plant during their startup. We've had a lot of technical exchanges both ways, and things like that. We respect those people very much. They're good from a technology perspective. They're good people, good operators. We do understand their plight, but that's pretty much all we can talk about.

As far as the one additional thing on the West Coast, one of the things that we were concerned about was the size of the market out there and putting a $2,000,000 a year flat rolled facility out there didn't make a whole lot of sense considering the other issues that Joe had mentioned. We might look at putting a cast-drip operation on the West Coast that would produce five to six hundred thousand tons a year of flat rolled product. That would fit better with the market place and until that technology is commercialized, anything on the West Coast, other than a possible acquisition, is on hold.

What about the other, I guess, flat rolled mill out there that's in [estedas trico]. What are your thoughts on that as something sitting into Nucor at sometime?

Well, I mean, certainly there's a lot of sense to that. We understand pretty much the markets that they were in and competed against them. And we know some of the folks. Some of the technology they were using is different than ours. We're not totally comfortable with that.

Talking about the [DC furnace]?

Oh no...well, that's one thing that I think is fairly easily fixed because...I mean, we don't know enough as to whether it would have to be fixed. But, they also use a different rolling technology than we do. But, I'm sure that, you know, it's solvable because they have some [shape] problems with that. But, you, know, right now it's...they were supposed to hire an investment banker, and I don't know that they've even done that yet. Do you know that?

Well, if I did, I couldn't share on conference calls.

(laughter) We can't share with you either, then.

Thanks, guys.

You're welcome, Walt.

Our next question comes from J. P. Benson of Merrill Lynch.

Good afternoon. I've got a question about Hertford. If I heard you correctly, did you say you shipped about 80,000 tons in the first quarter?

Yes.

And how much of that...the amount you shipped, I mean, is that a function of your ability to produce or is it a function of the market's ability to take the tons at this point?

our production level does absolutely not encumber it. It was slightly encumbered by our shipment ability. We had two things when we started up the plant, and we're pretty much getting out of them. Number one, we had a problem with our systems and how we built orders and how we applied product orders. That really ended up being quite a problem in trying to get shipments out, but we've pretty much corrected all that, and we apologized to customers for any inconvenience because of that. Secondly, we just had a basic misunderstanding of what logistics were really going to have to take place in order to ship plate. And that just comes from naivety. And we are learning very, very quickly. Our folks out there are just doing a great job of correcting these situations. We're learning how to set up the schedules that we should know, where to put material so that we're able to get shipments out better. But, quite frankly, the market is a tough market where we've got a reasonable backlog now. We're able to produce, and when we produce what we're doing is running for a particular week all the tons and the slugs. When we are running, we are running above design plat capacity, design capacity. Everything in our plant is already run above design capacity, and does whenever we run. Our major problem right now is orders and getting shipments out.

Are the orders picking up as they are on sheet products?

Yes, they are. I wouldn't say quite the same way. Sheet demand it very strong. Plate demand is just kind of there. So we're breaking into a market which is kind of there.

Okay. Thank you very much.

You're welcome.

Our next question comes from Peter Marcus of World Steel Dynamics.

Hi, gentlemen.

Hello, Peter.

I wonder if we could discuss a little about cast-drip. Could you tell us, for example, how wide the product might be and how thin gauge it might be coming off the directly or after you do a rolling pass?

Are you talking about our Crawfordsville project, Peter?

Yes.

When we planning on at Crawfordsville, we're moving what's called the commercial module. We have moved, I should say, from the (inaudible) plant to Crawfordsville. That was the new design of the roll technology that's sold basically in a cassette where you can pick one up and take it out and put another one in. And that was designed for, I believe, 66 inches.

Okay.

And so we're putting that in. We would have the ability. We're also putting in the mill stand that was a project then, but I think that's 80" wide, 2 meters. So, if we are successful, or when we are successful I should say, with getting that commercial module, we could go wider because the restriction would not be restricted downstream. The down flow]. So, in that respect, we're only limited by the initial module we put in. And as far as the gauge, our initial goal...first of all, we believe that it was proven that [at 056], and our first goal, which was with completing the goal as project [M] which was the first to get down to 1 mm or .040. But, our ultimate goal is to get down to .6 mm or 0.24.

Wow.

And, of course, we get more tons the thinner we go. So, we think somewhere in the neighborhood of five to six hundred thousand tons of an average gauge in the 0.50 and when you get down into an [average?], below the 0.40 into your 0.30, the number goes up dramatically. You know, upward of 750,000 tons, potentially over a million tons if you ran all really thin.

Why does thinner gauge give you more tons?

It a matter of solidification. In solidifying steel, the thicker you are, the time goes up by a square basically. It's not a linear curve. So, if you take it the other way, you get that benefit as well.

So how many meters per minute might this thing be flying if you're...

At 0.66 or 0.50, somewhere in that neighborhood, you're running at around 85 meters a minutes.

Holy Moses. Okay.

Which isn't that bad. It doesn't look that fast. And then, when you go to around at 125 meter a minute. I have no idea what it is at 0.24, but it's fast.

Okay. So basically this process doesn't cost less per ton than [per capital], but it's putting out a very thin gauge product at a lower cost. Is that right?

It putting out cold rolled replacement materials. And also, there's one other key to this Peter, and that is that the properties of this material is different than hot band. It is a hybrid property material as well, so we can change the property of this material greatly by the cooling after it leaves the twin rolls. So, a lot of that is being patented or has been patented, it is being patented, and we think we will be able to put out a truly commercial product out of here that will give us a big marketing advantage.

Isn't this a silicon kilned product, aluminum kilned?

We're going to run initial trials of silicon kilned and then we will quickly move to try to make aluminum kilned because mainly the main sheet market is aluminum kilned.

And are you relatively confident this could work? Like 75% confident?

I would say higher than that. The real question is...we'll also run some stainless on this material. We already know that it works even easier on stainless.

The (inaudible) type or the (inaudible)_?

We will go initially with some trials of our 400 series, but we will quickly run 300 series. But, that's not necessarily our focus. It sort of almost a backup, but it's a backup that could end up being more fruitful than the primary. But, we're not...we do believe that there's a lot of advantages to this thing, and we know that we've seen it work. We've got coils. We've taken coils from Australia that was produced on here. We've produced some product out of it, as well as they've already shipped product to people to run different products. We've made purloin stock out of this stuff already. We're feeling pretty good about it.

Are there other groups in the world doing something like this?

Almost everybody else that's working on it is either working...is mainly working in stainless, and they're going thicker. And, in carving you can't go thick because you're not going to get the cost advantages. You have to go thin.

And how much of this does Nucor own?

Well, the facility was built in Crawfordsville. We own 100%.

Okay.

So, we have the marketing company that's earned [Cast-drip] LLC.

Right.

You can get to them at [cast drip]. com, and we own 47.5% of that company. The HPO's the same and (inaudible) is 5%. And that company markets the technology worldwide.

So, if you have lots of visitors to your plant and it's working, can they go to other engineering firms to get a similar plant? Or do they have to go via (inaudible)?

We don't think they can get a similar plant. We have 580 patents, I think, at this point in time. They're working on other processes and other related family patents. We call them family. We have six different families of patents, or something like that. So, no. We certainly believe we have various proprietary rights on this.

All right, so this process might work very well at existing integrated mills who might want to be rolling thinner, I would think, and keep their existing hot strip mills rolling the thicker product. That could be true?

Yes.

Okay. Thanks very much.

All right Peter.

You're welcome, Peter.

Our next question comes from Spencer Wells of Deutsche Bank.

Hi. I was just wondering to what extent do you attribute your ability to raise hot rolled prices to the (inaudible)_ that was taken out of the market? And to what extent do you attribute it to demand?

At the present time our ability to get the second quarter increase has nothing to do the capacity that was taken out of the market because that all happened pretty much afterwards.

A little bit, very much, is left. A few orders in the quarter maybe.

And on other products away from hot rolled, if inventories continue to climb as they have been, is that going to be sufficient to allow you guys to raise prices? Or is there going to have to be some sort of interplay with demands on those as well?

The issue is beginning to be a little bit more demand-oriented on our bar structural, but really, it's by far and away more influenced by the excess supply created by the import situation, and so, the demand-side of the equation is maybe 25% of the issue. And so, we really don't need to see a major pickup in demand as much as we need to see a more balanced supply.

Just one last question. On the acquisition front, would a unionized mill be a total nonstarter for you guys?

We've been very public about our initial acquisition opportunities as being nonunion, and there's nothing that's going to change that at the present time. However, we won't want to limit ourselves long term by saying we would never do it.

Okay. Thanks very much. Our next question comes from John Tomazos of Sanford and Bernstein.

Hi, John.

Good afternoon again. With regard to the three technology development ventures, (inaudible) and the first Alpine rail venture, what do you estimate your rates of return on investment with these three? It's such a broad range, I know, some of best great technical uncertainty.

And it's (inaudible) too uncertain, John, to make predictions on it yet. Particularly on the first two items.

On the rail mill, do you have any gauge as to what the return would be?

We wouldn't be doing it if it weren't going to be greater than...

Well, we like to use a 15% hurdle rate. We can assume on things that are other than technological plays, that if we go ahead with a project we're projecting better than a 15% internal rate of return.

Is it fair to say that if something is involving technology and a lot of imponderables you may get intuitive judgment and don't do a return model, per say.

Oh, no. We do a return model, John. In fact, we have to be able to see again, what as you said, a lot of imponderables. We have to be able to see the potential for about a 30% IRR. Now, that doesn't mean that we expect that. It just means that if we can't see our way to seeing that, then we seriously question whether it worth taking the risk.

When you evaluate acquisitions, such as potentially Auburn or a facility, do you place any value in reducing or eliminating a price competitor?

Not normally in an evaluation model. Outside of the evaluation model we may try to put some numbers with that, but we think it's a little silly to put that in the synergy in an evaluation model.

We try not to pay for synergies, if there are any. We think we bring them to the table. We should get them.

John, we recognize the potential opportunities and we also recognize the benefits of not going through a startup situation where you're penetrating a market, but you're already basically have a going concern, but we don't put those into the evaluation.

Thank you. Our next question comes from Joseph Wyman of Product Investments.

Hi, Joe.

Hello. I have a question with respect to your acquisition of Auburn Steel. Is that mill now running? And, if not, or if so, what do you have to do in order to sort of, to bring it, say, Nucor compliant?

We'll let Mike Parrish. Mike, you still there?

Sure am.

Why don't you answer that question for Joe?

Okay. Thanks. Yes the facility is running. As a matter of fact, as we're doing our integration and transition there was no stoppage in production and no stoppage in the service to the customer and shipments. So, everything is transferred very smoothly and we expect to get actually more tons out of the facility as time goes on and as we can, you know, work with them in getting a little more efficiency out of them.

Thank you. I also have a question with respect to [cast drip]. I remember how confused you all were at the time that the (inaudible) began and now there's a similar enthusiasm. My question is, should it not work, what sort of total capital commitment and time would you permit for this project?

I think if you had followed our initial announcements of [cast drip], one of the things we did recognize with Iron Carbide is we never framed it into the terms that you just asked and we did that initially. We said we would spend up to around $150 million, which included about $100million worth of capital. And we think we're going to be somewhere around the $100 to $110 million range on the capital, and we would spend another $50,000,000 or so on trying to prove the technology. At which point, we should know whether it worth putting a little bit money in or calling it quits. And we expected that to be over about a three-year period.

Thank you. Our next question is a follow-up question from Wayne Atwell from Morgan Stanley

Thank you. This sure is a follow-up. Is it smart to have three new facilities to start up? I would guess that they are really large pilots at the same time. Now if you could give us some more details on (inaudible), are you putting up your pro rate per share? Are you putting up 25% or more? What is the construction period? And maybe some more details on that.

What three projects are you referring to just for clarification?

I guess you have cast drip, (inaudible), and the rail mill. I guess the rail mill is proven?

Yes the rail mill is proven. That is not a question mark.

Well okay. I guess there is two then.

With respect to [], yes we are putting up of the capital. At this point I would guess that we were, I can't remember how long the permitting process might take over there. You know, we are probably looking at 18 months after permits, or something like that. So let's say it is going to be a couple years out there at least, and so we really are not going to be in start up in facilities at the same time. Cast drip, we will have a year or two years under our belt before we worry about inaudible WAYNE So the capital cost that you estimated for is about 25%. So it is going to be about 170 million in capital and you put up 25% of that?

Yeah.

Any estimate at to what might be the start up expense there?

no, I haven't gotten that far. Keep in mind that the process was (inaudible) planted at that location. They have a lot of infrastructure already in place and they have a lot of experience. What we are doing now is scaling it up to a 600,000 ton a year operation from a 20,000 ton a year operation, something like that.

The main goal in doing this was to prove the process in a commercial basis. Often what we want to make sure of is that we have a technology that can be sold elsewhere.

Right, but if I am not mistaken, they spent like 200 to 300 million on that already over 10 to 15 years.

Yeah

And this is really a large pilot isn't it? Because 600 thousand can't possibly be commercial.

Oh sure it could, 600,000 why not?

That seems kind of small, 600,000 tons is a commercial plant?

Now remember, that the original mini market plant started out as a 200, 000 tons a year plant.

Right

And certainly depending on what it is tied into it can be commercial. WAYNE ATWELL Well those plants wouldn't be commercial today.

Remember if we use it in conjunction with electric furnaces, we are not going to use it for 100% of the charge, so a 600,000 ton a year operation would fit nicely with some of our larger sheet mills and certainly if we tied it into a cast drip operation, it would tie in almost perfectly.

Well my point was that that specific facility in Australia wouldn't be commercial.

We would disagree with you.

But there is no mill tied to that though.

No, but it is going to make commercial cake.

Oh, Okay, and do you think that will be commercial?

Yeah, definitely. I mean mainly what you are trying to do is prove that the technology works and that it can meet the consumption and cost goals both on capital and operating expenses that you project. And once you do that you have a very saleable technology. And what we are doing is, we will also have a very saleable product out of that that we think can make money out of the market

Is there are specific issue that you are trying to work with, maybe the corrosiveness of a specific element of the process, or this ability to configure the furnace to work correctly? Is there some issue that you have to work with there or is this just getting a smaller plant to work as well as a larger plant?

Mainly the scale up of the vessel itself, and the reactions that take place within that vessel. Do they take place efficiently? Do they take place at the same cost structure, things of that nature?

Okay, thank you. Our next question is a follow-up from Aldo Magasero, from Goldman Sax.

Hi Dan thanks for the follow-up. Are you seeing any strength in the hot rolled market that it is going to spread to cold rolled or galvanized in the near term?

I read something the other day in one of my favorite magazines the American Metal Market, that said the worse galvanized price increase was being realized. We are not too comfortable if that is the case. As far as the cold rolled goes, because of the situation being impacted primarily by levels of dumped cold rolled product in the US and North American market. We don't see that situation necessarily improving until, if and when a rates suit is filed on that issue.

Right, so can you say if your prices increases by sheet are they pretty wide spread geographically or are they mostly Chicago area? Any guidance on that?

No it is fairly wide spread.

Oh, Okay. A quick one for Terry. Hey terry, with the scrap cost down, in the first quarter and projections are suppose down more in the second quarter, how comes you took a LIFO charge?

Well we are doing the same thing really that we always do in LIFO, trying to look out for the year.

Right.

It is anybodies guess what scrap is going to be. We use the last purchases in the year to determine our index. So, we don't know until the fourth quarter, but just being conservative, which we are, as you know sometimes tend to be a little conservative. We go ahead and take a charge in the quarter. This concludes the question and answer portion of today's program. Mr. DiMicco, I would now like to send the program back over to you for any closing remarks. Mr. DiMicco.

I would just like to say thank you to everybody that participated for the questions, for their patience. And to all of our employees, for there support in helping us to continue to be successful, and our customers as well. Thank you. Well ladies and gentlemen, thank you for participating in today's conference, this concluded the program, have a wonderful day.