Nucor Corp (NUE) 2002 Q1 法說會逐字稿

Welcome to Nucor's first quarter earnings release 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 anyone should require assistance during the conference, please press star, then zero, on your touch-tone phone. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Dan DiMicco, Vice Chairman and President and CEO of Nucor. Sir, you may begin.

Good morning and thank you for joining us today for Nucor's conference call. We will briefly review results for the first quarter and then take your questions.

But first, as usual, I would like to thank - like to welcome and say hi to all the members of the Nucor family who are listening to this conference call on the Nucor Web site.

The 8,400 men and women of Nucor walk their talk and each and every day, as we work together, they do it to build Nucor's position as the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world. Most importantly, we have continued Nucor's long-standing tradition of emerging from significant downturns, stronger than before entering them.

With respect to traditions and heritage of our company, we are deeply saddened by the death Sunday of Nucor's chairman Americas, Ken Iverson. Under his leadership, a failing business was transformed to one of the world's leading steel makers and a company that became known worldwide as one of the most daring and innovative manufacturers in any industry.

Ken's vision continues to guide Nucor today and as a legacy to us is a strong foundation upon which we build for the future. Our greatest gift of remembrance to Ken and his family will be to build an even greater legacy to leave for the next generation.

Terry Lisenby, Nucor's CFO, and all of you VPs, John Ferriola, Hamilton Lott, Mike Parrish and Joe Rutkowski, are with me this morning and will be available to answer questions as well.

For those of you new to Nucor Corporation, I wanted to provide a brief description of our business. Nucor is in the steel products business. We are the United States largest recycler. We're recycling over 11 million tons per year currently. With 2001 steel production of 12.3 million tons, Nucor is North America's largest steel producer.

Nucor has 40 operating facilities in 10 states and more than 8,400 employees at these facilities. We are the most diversified steel producer in the United States with products that range from reinforcing bar to steel to pre-engineered buildings. We are the nation's largest structural steel producer, the largest steel bar producer, the largest joist producer and the largest steel deck producer.

Other major products include hot rolled, cold rolled and galvanized sheet steel, steel plate, cold finish steel, metal buildings, fasteners, stainless steel and light gauge steel framing. Our first quarter earnings of 26 cents per share are better than the guidance of 15 to 20 cents per share we gave on our fourth quarter conference call.

Our results continue to reflect the very difficult business conditions existing in the United States steel markets in the first months of 2002. However, we are encouraged to note early evidence in the first quarter of improving profitability in our sheet steel business.

Substantial work and upside earnings leverage remains ahead of us as we execute our flat rolled sheet strategy of improving the by building market share and by broadening our product portfolio into higher quality grades. Many of the - all the businesses are still pressured by a very severe down cycle in the non-residential construction market.

Nevertheless, these businesses are well positioned for the inevitable return of improved economic conditions as we press ahead with cross-reductions, quality improvements, and market share gains in all products in which Nucor competes. Speaking of market share, Nucor once again set new records in the first quarter for steel production, steel shipments and steel sales to outside customers.

Our first quarter 2002 steel production of over 3.2 million tons was up almost eight percent year-over-year and compares a percent in total North American steel production of the same period. This puts us at a 13 million ton annualized pace and growing.

Our growth continues to be rooted and focused in disciplined execution of our three-prong strategy for driving long-term growth in Nucor's earnings power and raising returns on capital.

During the first quarter, we continue to work on, one, optimizing existing operations, two, implementing new and product technologies to greenfield growth, and three, in pursuit of acquisitions. We announced in February a $200 million capital projects program to be implemented by a group over the next three years.

The projects consist of the modernization of the of Nebraska, a new shop at the Jewett, Texas steel mill, and a new furnace and finishing at the Darlington, South Carolina steel mill. These capital projects are expected to be completed by 2004.

Our strong balance sheet and cash flow allow us to pursue continual proven projects in the midst of depressed economic and bar market conditions. We plan to remain a low-cost producer and a low-cost competitor in all of our product lines. Overall, our focus on continued improvement in our existing operations resulted in a year-over-year improvement in operating costs at $14 per ton.

Construction is essentially complete and we'll begin commissioning some equipment in the first quarter at Nucor's facility using the cast strip technology in Crawfordsville, Indiana. The first cast is scheduled to take place in May. Cast strip technology is designed to directly cast strip steel from liquid.

Officially we can now announce an agreement has been signed with Rio for a small facility to be built in western Australia. Our partners in this joint venture will be Rio , Mitsubishi and Shogun. Ownership stakes of the venture will be Rio , 60 percent; Nucor, 25 percent; Mitsubishi, 10 percent; and Shogun, 5 percent.

The small process converts iron ore to liquid metal without the need for , power plants and coke ovens. As you can see, commercialization of new disruptive and lead product technologies remain a key component of our world strategy.

Also, we are extremely pleased to announce the signing of a memorandum of cooperation with the world's largest producer of iron ore pellets, CBRD. Nucor and CBRD plan to work together in both North and South America to identify iron and steel business opportunities that can be jointly developed.

Of particular interest to Nucor and CBRD are the potential for low-cost, environmentally-friendly, iron-based products, as well as opportunities that may arise in the restructuring of the North American steel industry. As previously stated, we will enter into strategic alliances such as these joint ventures with CBRD and Rio with strong partners to capitalize on opportunities arising from the globalization of steel markets.

During the first quarter, the Delaware Bankruptcy Court approved our agreement to purchase substantially all the assets of Trico Steel Company, LLC. for less than $120 million. The closing of this transaction is expected to occur in the third quarter, assuming satisfactory resolution of various regulatory and tax matters.

Startup will commence after we have completed improvements to the operating equipment. This will most likely occur in December of this year. Located in Decatur, Alabama, the Trico sheet steel facility originally began operations in 1997, and has an annual capacity of approximately 1.9 million tons, increasing our sheet capacity by roughly one-third.

The addition of the Trico Steel assets, now Nucor-Decatur, Alabama will support our firewall steel strategy to build profitable market share and broaden our sheet market product portfolio to include higher quality grades. Regarding the sheet steel markets, we announced today sheet steel price hikes for the third quarter of 2002.

Effective July 1, the hot roll pricing is increased a minimum of $20 per ton and coal oil and galvanized pricing is increased a minimum of $25 per ton. Effective August 1, hot roll pricing is increased a minimum of an additional $20 per ton and coal oil and galvanized pricing is increased a minimum of an additional $25 per ton.

We will open third quarter books on May 1. Let's look at base pricing in August. At the end of these increases, at a minimum of $320 per ton for hot rolls, 400 to $410 per ton for cold rolls, and 420 to $430 per ton for galvanized. Nucor's newest greenfield steel mill, the 1 million tons per year steel plate made in Hertford County, North Carolina, is running well.

The plant ran at an annualized utilization rate of nearly 80 percent in the first quarter and was cash flow positive for the month of March for the first time. Customer acceptance of our product at a brisk pace. The Hertford County mill is now well on the way to establishing Nucor as the leading discreet plate supplier in North America.

We announced yesterday a $20 per ton plate price increase effective June 3. This brings the total plate price hikes announced since January 1 of this year to $60 per ton. With recent selling price improvements in the plate market and our ongoing productivity gains, we look for this market to generate attractive long-term profitability for Nucor.

Finally, Nucor's recent involvement in trade issues is also a critical part of our efforts to support the long-term success of our steel-making operations. President Bush kept his word and imposed a series of tariffs over a three-year period that should help prevent the flood of the US marketplace with illegally traded imports.

As we have noted previously, many of these steel imports have been unfairly traded and illegally dumped. They have devastated the US steel industry and its workers. Our President's two (over) one remedy is an extremely positive first step in restoring free and fair trade to the steel markets and is only the beginning of a long-term solution.

Importantly, we must and will be diligent in working with the Administration to see that certain elements of the decision are not abused and allowed to undermine its effectiveness.

Moreover, we would also work with the Congress to see that our country's antiquated trade laws are revamped so that they are more effective with quicker response times and with barriers in place to prevent product of country switching, features that are entirely consistent and compliant with WTA rules.

Longer term, we continue to believe that the best way to resolve the global steel industry structural problem is for the United States to help negotiate with those steel-producing countries, worldwide reductions in steel capacity and eliminate - and the elimination of government subsidies that keep inefficient mills running.

Nucor intends to continue our focus - and continue to focus our can-do attitude and energy level in seeing that free trade means all producers and all countries take responsibility and play by the rules. As you can see, Nucor remains busy pursuing a number of initiatives all focused on helping us deliver our earnings and shareholder value growth objectives.

This is why we are very optimistic about Nucor's prospects for the future. We intend to build upon the Nucor tradition as a successful, reciprocal growth company.

At this time, I would like to turn the meeting over to Terry Lisenby. Terry?

Good morning. Thanks Dan. Sales for the first quarter were one billion, 28 million even with the year ago quarterly sales level. Total steel shipments of $3,272,000 tons set a quarterly record and we're up 9.8 percent year over year. However, steel joist production of 94,000 tons was down 26 percent from last year's first quarter.

Our average sales price for steel and steel products decreased more than 8 percent year over year, dropping $29 per ton from 345 per ton in the first quarter of '01 to $316 per ton in the first quarter of 2002. As Dan mentioned, our average cost improved $14 per ton, excluding the decrease in scrap costs on quarter one, 2001 to the first quarter of this year.

The composite average sales price per ton decreased $14 per ton from the fourth quarter of 2001 due to quarter-over-quarter selling price declines of almost 6 percent per plate and more than 4 percent for joist. Earnings before federal income taxes were $10 per ton for the first quarter of 2002, compared to $19 per ton in the year ago quarter. Net earnings for the first quarter were 26 cents compared to 42 cents for the first quarter of 2001.

Pre-operating startup, another cost associated with new facilities, were 23.5 million, that's about 18 cents per share for the first quarter of 2002, compared to 20 million in the first quarter of 2001, which is about 16 cents per share. Pre-operating startup, another cost associated with new facilities in the first quarter of 2002, were incurred as a cash project in Indiana, the Vulcraft joist and deck plant in New York, and the Hertford County plate mill.

Reflecting the continued severe pricing environment, our gross margin was 6.9 percent in the first quarter, compared with 8.2 percent in last year's first quarter. The average cost of scrap decreased $7 per ton year-over-year and $3 per ton from the fourth quarter of '01. Cash and short-term investments totaled 456 million at the end of the quarter, down modestly from a year-end level of 462 million.

Reflecting Nucor's strong cash flow generation, the 456 million cash and short-term investment position at March 30 is after having made a cash distribution of 109 million during the first quarter to our minority interest partner, Nucor-Yamato Steel Company. Long-term debt remains unchanged at 460 million or about 16 percent of total capital.

Nucor has long practiced conservative financial and accounting practices. We report our results and financial position in plain language and in what we believe is an easy to understand format. Additionally, we have a simple capital structure with no off-balance sheet financing arrangements. We will continue these traditions and maintain our strong balance sheet.

Capital expenditures were 48 million for the first quarter of 2002, and we continue to project full year 2002 capital spending of less than 200 million. Depreciation expense for the first quarter of 2002 was 76 million and is expected to be about 305 million for the full year. Reviewing the numbers for 13 weeks ending March 30, compared to the year ago period,, re-structural steel production and shipments were both flat year-over-year, net orders were up 14 percent and backlog was up 15 percent.

Our steel bars production was up 10 percent, shipments up 7 percent, net orders up 8 percent, and backlog up 33 percent. For sheet steel, production was up 3 percent, shipments up 8 percent, net orders up 22 percent, and backlog up 44 percent. For steel joists, production was down 25 percent, quotes down 15 percent, net orders down 23 percent, and backlog down 24 percent.

For steel deck, production was down 24 percent, quotes down 10, net orders down 20 percent and backlog was down 24 percent. For cold finish steel, production was down 13 percent, outside shipments down 14 percent, net orders down 1 percent and backlog down 7 percent. Structural steel pricing was flat in the first quarter of 2002, compared with the fourth quarter of 2001, but was down $13 per ton year-over-year.

Pricing in the structurals market may erode modestly over the balance of this year reflecting the combined impact of soft non-residential construction markets and imports. Steel joist averaged stronger prices in the first quarter, were down $28 per ton from the fourth quarter of 2001 and have now dropped $164 per ton, or more than 20 percent from the year ago levels.

Quote activity and order activity in our joist and deck businesses show no evidence yet of any impending upturn in the non-residential construction cycle. Sheet steel pricing increased by $8 per ton in the first quarter of 2002, from the fourth quarter of 2001, and was flat with the first quarter of last year.

With approximately $100 per ton of price increases currently working their way through the market, we are very optimistic regarding the potential for continued increasing the sheet price realizations over the balance of this year. Bar prices decreased by $7 per ton in the first quarter from the fourth quarter, and are down about $20 per ton year-over-year.

We announced a bar price hike of $15 per ton in early March. Additional price hikes we have announced since January 1 of this year include $55 per ton on SBQ, $15 per ton on cold finish bars and $15 per ton on rebar. There may be some initial signs of modest demand improvement in the bar market.

Plate prices have declined $22 per ton year-over-year, however, three rounds of price hikes totaling $60 per ton put in place this year suggest an improving trend in plate market pricing looking forward over the next several quarters.

We will now be glad to take your questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the one key on your touch-tone 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 Scott Morrison from Credit Suisse First Boston. Your question please?

Hi. Good morning guys. I was wondering, Dan, if you could talk a little bit about the memorandum of understanding with the CBRD in terms of implications for that on, I think as you put it, capitalizing on potential opportunities in the North American consolidation and rationalization? I mean, is this potentially a precursor to getting involved in an integrated steel asset down the road?

I'm going to turn to Joe Rutkowski to answer that question for you, Scott.

OK.

Hey Scott.

Hey Joe.

First of all, before we get into your speculations, let's talk about the things that we see that are obvious between Nucor and CBRD. We're the largest Teague iron buyer that we know of in the world and as we continue to grow, especially in the higher quality marketplaces, we need to have some positions we believe in, virgin iron units, and from our perspective, Teague iron is the preferred commodity.

CBRD has an incredible facility in the northern part of Brazil. Their Catingas mine as well as their Sao Luis shipping area and and we're working with them on some ideas of a more environmentally friendly way to make Teague iron. And also there's ways to show that project to be quite good in relation to being a potential carbon sink.

It's just basically a generator of oxygen and in the long run, the CBRD folks have a forest available that can be made into a renewable forest and can be - the whole project could be done well and so we're investigating a project with them in the northern part of Brazil.

They also are owners or partial owners of at least three steel facilities, Usiminas, CST and CSI. CST is probably the largest slab exporter right now and we visited their facility. We know the folks at CSI, and because CBRD is a steel owner, we think that they understand our business and quite frankly are a good partner potentially on some future steel operations.

We believe that there's going to be a significant restructuring in North America even though the is here. It's only a temporary measure and we don't believe pricing is actually going to save the weaker players.

So as that restructuring happens, we're not exactly sure what's going to happen or how and when, but we need to be adaptive and ready to take advantage of opportunities. CBRD sees that same potential and has recognized us as the partner with which to take advantage of any of those opportunities.

Getting into speculation on are we going to own an integrated mill, that's not necessarily in the cards.

OK. Thanks.

Oh, one other thing Scott. You may recall that we have exclusive rights to cast strip in both the United States and Brazil, so I'll throw that in as well.

Thank you. Our next question comes from from JP Morgan. Your question please?

Yes, good morning Dan and to everyone else at Nucor.

Good morning Mike.

Good morning. I have a follow-up question on the CBRD agreement and that is, I'm assuming that any kind of pig iron facility in combination with a strip cast or whatever, would be done in the - in the Brazilian market, especially on the pig iron side?

On the pig iron side, yes.

And you would, I mean, on strip casting, you could do it throughout North or South America based on your agreements, but then you'd probably look at one down in Brazil as well I would think?

That's one of the reasons that we carved Brazil out Michael. We think that ultimately that would be a good place to have strip casting.

Now, have you gotten - I know it's kind of early, you just made the announcement, but has there been any reaction from your other partner, Rio , which is also a competitor of CBRD?

Well, they're competitors but they're not - these projects are quite frankly a little bit exclusive of each other and we informed our folks at CBRD about this. There's not really been any push back at all. We think they're complimentary. In fact, some of the folks that are now engaged at CBRD were instrumental in the development of the high smelt vessels and designs and they know each other very, very well.

They respect each other and from our perspective, we're trying to have alliances with very strong - both strong financially, technically and marketplace strong companies throughout the world. And I think what you're seeing right now is we believe Rio and CBRD are good first steps and these won't be the last steps.

And on the high smelt agreements that you have so far, are there any specific, you know, supply agreements on the iron ore?

Supply agreements as in?

You know, that future plans would have to be set on pig iron ore base, or something like that?

There is some option. I would say that they have to meet pricing that they would like to be the supplier of any future Nucor facilities. But basically, it kind of gives them an option to supply some of the iron ore.

OK. And then just - with the following question, I'm ...

What'd I say? This is only for high smelt. I'm sorry.

Right. Yeah, for high smelt, yeah.

Yeah.

Anything new on Birmingham and then just on Trico, just based on your initial observations of the facility and what you could do to it, do you think you could squeeze out some more capacity there ultimately?

The answer to the first question about Birmingham, there is a process ongoing and Nucor is very much part of the process. Other than that Michael, it would not be appropriate to comment. Regarding the Nucor Decatur facility, it is as we've mentioned, it had a rate of capacity of 1.9 million tons. I'll let John Ferriola speak to what he thinks the future might hold.

Well, we think we'll begin at about 2 million tons, but Nucor is known throughout , we're able to squeeze more tons out of existing facilities. So we're optimistic, but right now we're anticipating 2 million tons capacity.

OK. Thanks a lot John.

Thank you sir. Our next question comes from Mark Parr from McDonald Investments. Your question please?

Good morning gentlemen.

Good morning Mark.

I just had a couple of questions. First of all, what was the impact of Trico on the first quarter?

It's about 5.3 million Mark.

OK. So that's a charge?

That's a charge.

OK. And is there any revised timetable as far as when you think you can get Trico back into production?

What we mentioned in the initial part of our presentation Mark was that we believe that we'll have that plant producing coils in December of this year.

OK. I'm sorry. I had to - I missed a couple of minutes so I apologize for making you ...

Yeah. No, that's OK and it's based upon us getting the proper regulatory approval in a timely fashion, which we believe at this time is happening.

OK. Terrific. All right. That was really - I just - I want to say congratulations on a solid quarter. Also, congratulations on the announcement with CBRD and you know, hopefully this time around, Nucor's interest in the Brazilian market will come to some more fruition.

Yes, in our - we're very much aware of the past issues that we've had and opportunities that have not gone anywhere, but that doesn't mean you don't still continue to work on putting together ventures and relations if they will, and this one here will definitely go somewhere.

No, I mean I thought it was great when, you know, you were working on it before. I was sorry nothing really happened. I'm just happy to see you keep at it. So anyway, great. Just keep doing what you're doing and we'll look forward to better earnings in the second quarter.

We're definitely a persistent bunch Mark.

I'd never accuse you of anything different Dan.

You know, along those lines Mark, this is Joe.

Hey Joe.

One of the things you really have to do is, I think we've learned as we go into a - into an area like that is you have to have the right partner, and you know, in Australia, we think we had great partners.

We were, you know, we have a good relationship with through the cast strip organization. We're partners in Cast Strip, LLC. and Rio is a great partner in Asia and Australia and CBRD is a great partner in Brazil. And ...

Yeah.

... and also, you know, I think they are going to bring some strengths to North America with us as well.

Yeah. While we're talking about Cast Strip, is there - is there any - are there any major differences between the Cast Strip process and US strip?

Yes. Actually, quite a few. The biggest one is the diameter of the rolls. They will be only able to make a thicker strip and while they're working on carbon, they're also quite focused on the stainless.

Yeah. It seems like it's focused on stainless and alloy, really different products than what you guys are focusing on.

Right. If you think about it logically, the bigger diameter means you're going to have a choice between the more contact with the roll, which means you have an increased solidification and a thicker strip or you have to go a hell of a lot faster. There's limits how fast you can go, so they're primarily looking at a thicker strip than we are. And we're focused on thin and carbon.

OK. Terrific. All right. Thanks a lot. And again, congratulations.

The only think I would add to that is that while we are not focused on stainless for cast strip, stainless is certainly an opportunity for us with Cast Strip. The carbon is a much tougher to cast than the stainless.

Thank you Mr. Parr. Our next question comes from Aldo Mazzaferro from Goldman Sachs. Your question please?

Thank you. Morning.

Morning Aldo.

Again, I had two questions. I was - I was wondering what you think about the scrap market today in terms of what you might see in terms of price changes going forward and also I was wondering on Cast Strip, how soon do you think you might attempt to make stainless in that facility? Is that something you might try within a month or two or is it longer term?

I'll ask Mike Parrish to talk on the scrap issue and then we'll turn it over to Mr. Ferriola for the cast strip.

Hello Aldo.

Hi.

On scrap, it's probably going to go up. It's been up around 10 to $15 over the last - for the last three months into April and for the next 30 to 60 days, we'll probably see it go up some more. How much we don't know but probably another $5 in the next 30 to 60 days.

And so when you're thinking about your crude expense in the first quarter, you probably would see maybe, I don't know, maybe 6, $7, something like that, you think?

The crude expense? About what we have in inventory. Probably.

OK. Thanks.

As far as the production of stainless on the cast strip, we are scheduled to attempt that before the end of the year. So I would say in the first six months of the operation, we'll try it in stainless.

Our next question comes from John Tumazoes from Prudential Securities. Your question please?

Congratulations on the tremendous output.

Thank you John.

Yesterday's field dynamics estimated in the second quarter that our sheet prices would rise about $40 following through the income statement and scrap about 15. I might have been confused by that accrual comment. Are you saying that your scrap costs would rise 15 to $20?

No. That's not what we said. What was said was that in the first quarter of this year, we've seen scrap go up 10 to 15, but for the next 30 to 60 days, we believe that will go up another five bucks and plateau out after that.

So for the second quarter income statement, about how much would scrap price?

Well, we can give you an idea. We were - if I can find our ...

$96 was the first quarter.

It was the first quarter and I think we - in ending inventory, I think we were around 103, so maybe up about 10 then from that based on what we're guessing the buys are for the second quarter.

So you would average about one of six then, up $10 from 96?

That'd be our guess.

What is your guidance for second quarter earnings per share?

Our guidance for - as you know, we've always said that we're good at predicting about two weeks out, OK? And we usually leave the estimations of the targets up to you folks. But our estimate for second quarter earnings is going to be in the range of 45 to 50 cents a share.

One of the things that makes it a little more difficult to project, this going up in the second quarter, is that dynamic pace of which pricing is changing and when contracts are coming up and being re-negotiated and so it's a little different - a little more difficult going into the second quarter to project our earnings.

But we do believe, number one, that throughout the rest of the year, we're going to see increasing prices on flat walls and on several of our other products, including plates, and we do believe that earnings will continue to improve dramatically through the year. But at second quarter, we're looking at 35 to 50 cents.

Thank you very much.

Thank you sir. Our next question comes from from . Your question please?

Hi Mr. DiMicco. Two part question. What kinds of sales growth are you expecting the rest of the year? And secondly, in terms of your raising your prices, to what extent have the Section 201 tariffs allowed you to do that? And what are other factors that have allowed you to do that?

Up to - up to this point, the major factor that's allowed us to increase pricing, particularly on the sheet side of the - of our business, has been the balance that's been achieved between supply and demand. It hasn't been due to an uptake in demand necessarily.

We do - we are beginning to see that, but it's more that supply is coming out of the marketplace. The majority of that supply has come out in two forms. One, domestic producers that have shut down capacity. In the last two years, it's been about 15 to 16 million tons of flat roll capacity that's been and a lot of that happened last year.

In addition to that, the 201 impact of - 201 has had - had some, at this point in time, some minor impact. Really, the trade cases that were filed last year had a stronger impact in hot rolled than on the cold rolled areas because we were successful on those and also on some cases we were successful.

As far as actual price realizations go, one of the things that's helped us going forward has been a significant - an increasingly significant shift into value added products in our flat roll business and in our bar business as well. And a shift to value added customer base.

But the 201 really has not had an impact other than the anticipation on the part of customers and the importers. Up to this point in time, the pricing has been supported by the balance of supply and demand.

Do you expect the 201 to have an increasing impact on prices as the year continues?

We believe that the 201 has the potential to have a positive impact on pricings. Exactly how much, we don't know. What it will do and what it was intended to do was to prevent a re-flooding of the marketplace by imported steel price that's basically very low and sometimes at illegal levels. So it was designed to prevent an increase of imports flooding into the marketplace going forward for the next three years.

And lastly, what kind of sales growth do you expect this year?

I'm ...

Well, we really haven't projected or at least given a prediction on what we see total sales being really is dependent upon price realization.

That goes right back to our comment previously about we're real good at predicting about two weeks out Paul. And we don't - we don't really get into forecasting or revenue growth out for nine months from there.

Thank you.

Thank you sir. Our next question comes from Timothy from . Your question please?

Good morning Dan.

Morning Tim.

Congratulations on your strategic moves. I think that's probably been the most important part of this call. Questions on more mundane matters. The cash at Nucor-Yamato Steel. Where is that at the end of the first quarter?

Nucor-Yamato's cash at the end of the first quarter was 172 million.

OK. And prices at the end of December, or prices for the month of December were below the fourth quarter average and so that caused the quarter average to not rise as much as the price hikes. Are the prices in March above the quarter average now?

Yes. Yes. Are you talking - do you want these specific? Are you talking structurals or are you talking sheet or are you talking average pricing?

Well, overall, average pricing.

Yeah. The answer is yes.

OK.

March was a considerably stronger month than January and February.

OK. So the quarterly price increase is going to be a little more reflective of the price increases announced if we weighed everything for a mix of business, et cetera? Nucor-Yamato, we're not trying to overcome a, you know, prior price declines any longer?

That's correct.

OK. Fair enough. And then on the CBRD announcement, that - you had mentioned that, you know, CBRD has an interest in the consolidation of the North American industry. It has long been rumored to be interested in finished product facilities, re-rolling, slab or hot band or something like that. Is their interest still in that area or do they have other interests as well?

Well, I'm not sure what rumors you're referring to.

They've been - apparently they've been interested in the LTD ...

... You're confusing Brazilian companies.

OK.

You're thinking of CSN ...

OK.

... which is a steel maker that used to have some partial ownership by CBRD, but no longer does.

They are no longer linked? OK.

No.

OK. I thought that they were still.

No. CBRD is principally into iron ore and in the steel areas where they're involved, as Joe mentioned earlier, they are involved with CST and Usiminas and Brazil and CSI here in the United States.

OK. And CSI is a re-roller of flat, correct?

Right. That's correct.

OK. And their interests are, I mean, the consolidation in the US, their interests are still in that - that finished product type area?

Well, let's be honest. Their interest is moving iron units out of Brazil. Which form that takes isn't - doesn't have to be any specific form. It can be in iron ore, it can be in pig iron, it can be DRI, it could be in slat, it could be in bands, and so all of those options are open.

All they really worry about is how do we move more materials into North America and they weren't looking at a number of options. I can't tell you that they're solidified at this point on the steel side because, as I said, we believe there's going to be a lot of re-structuring. I mean, our prediction is you've got over 15 million tons of crude steel that could leave this market over the next 10 years.

Predicting that and figuring out where it's going to happen and how it's going to be replaced is what we're working on together. And it would be inappropriate for us to speculate with you at this time or even to pre-announce some of the products that we might be considering.

Right.

OK.

You'll become aware of them as we announce them.

OK. And you had mentioned that - or Dan had mentioned, that the long-term solution to the dumping of steel at low prices is really closing some of the plants that are either subsidized or are inefficient and just simply dump of the cash costs. Are you - are you optimistic about reaching a solution over the next year or so? And what we read in the paper seems to be fairly acrimonious among, you know, the political players.

Well, acrimonious is a nice word. I would caution you to be very careful about what you actually read in the press and what is actually going on. Certainly there is a lot of posturing and commentary out there today, more than ever.

I think what that indicates really is that there's as good an opportunity in the next couple of years to achieve what we're talking about than we've ever had before. A lot more of the world's steel producers are now privatized, i.e., they are no longer owned by the government. There are a lot that still are being kept running by heavy government subsidies.

The industry globally needs it to get its act together. The International Iron and Steel Institute, of which Nucor is a member, along with most of the steel producers in the world, including all of the major ones that might come to your mind.

And that group has recommended to the governments and the individual companies have recommended to their individual governments that these talks at the OECD be serious talks, that something needs to be done, except it's not appropriate for the companies to get together and talk for obvious legal reasons.

But it is appropriate for the governments to get out of the business of making steel in controlling markets and the global industry is calling for that. And almost in unison. And there was a recent press release that was put out by the IISI from a that had just this past weekend in Portugal.

As far as the long-term solutions go, the 201 is not a long-term solution. It provides the opportunity, the time out, to get what needs to be done long-term in place with the reduction of global over-capacity that exists and the heavy subsidies that exist, not only there today but going forward.

It also allows us the time to - which we've already submitted legislation in Washington, both in the House and the Senate, to get our trade laws to be more rapidly enforced, which is actually the way it's done in the other countries around the world, and also to be better designed so that they prevent the product and country circumvention that has put us in this continual revolving door import situation and dumping situation we've had for the last 35 years.

Now is the time for us and that is why you've seen not only the integrated producers involved, but you see all of the mini mills involved and that's because now is the time to get this straightened out. And it's very important for people to focus on what free trade really is, right? Free trade is entirely about responsible, rules-based trade.

Anybody that calls themselves a free trader for coming into anybody else's market, selling the product below the home market prices, below their own cost of production and destroys a domestic industry, whether it be here or elsewhere, is not a free trader, even though they yell that at the top of their lungs.

You might consider them to be Attila the Hun, but you would never consider them to be a free trader in the truest principles of what free trade is all about.

OK. Thank you. And the Europeans have been complaining that the Bush Administration apparently has identified 17 million tons of US capacity that could be closed. And they have complained that the Administration has no power to actually close these facilities and they are concerned about offering their facilities to be closed and then not having reciprocation on this side.

What are, you know, what are our answers back to the Europeans about, you know, enforcing closure of capacity, if it's offered?

Well, first of all, that's a question probably best asked of our current Administration. However, there are a number of things that our government can do, one of which is to not be in the business of subsidizing these companies back to health. And we're very much against any bailouts of these individual companies that are in trouble.

The beauty of the American marketplace, which does not really exist to the same extent globally in most places around the world, is the fact that we do have a free and open market. And the market forces, if you have a level playing field, which is what we're - what we are working towards with respect to the 201 and the trade laws modifications to get a level playing field, get that level playing field to the market forces in the United States and the people in North America in general, will continue to work that way.

They have worked for the last 35 years. The electric furnace mini mill industry grew from nothing to over 50 percent of the steel production as a result of the level playing field in the market forces that work in this country. The same can't be said for the rest of the world. So really, where the highly inefficient, heavily subsidized steel producing facilities are, they're outside of the United States.

Do we have some facilities that should be - that are no longer competitive? Probably. Will they end up disappearing? Yes, just like they have over the last 35 years. Because companies such as Nucor and others will introduce new technologies, improve the cost for making steel and the competitive marketplace will dictate and will be the best companies that win.

The companies that are the most flexible and can adapt at best, not the ones who break the laws.

Our next question comes from Wayne Outlaw from Morgan Stanley. Your question please.

Thank you and congratulations on the good quarter in the tough environment.

Hello Wayne.

You talked about starting up Trico after you'd done . I assume that the tunnel furnace would not be complete until maybe the first quarter? When do you think that would be fixed?

John?

I'm sorry, did you say the first quarter? We're expecting to complete the tunnel furnace this year.

Oh, you are?

Yes.

Oh, OK. I thought it was a little more extensive.

We're good at what we do.

Another question. In dealing with the auto industry, the conference call yesterday involved a discussion on the part of steel about increasing their participation in the auto market and their goal is to have an exposed part.

How do you stand there in terms of your relationship with the auto, I mean, maybe what industry, what percentage of your volume goes to the auto industry in flat rolled, and do you have any exposed parts and what percent of your contracts are long-term with the autos?

I'll see if I can remember all of those questions. First of all, it is a small percentage now that we deal directly with the automotive, but it is growing. It is not in exposed, it is in unexposed frame parts, also in stainless. We do quite a bit of our stainless business, has shifted over the last 12 months to the automotive exhaust market.

For example, last year, we did only about 5,000 tons of stainless went to automotive exhaust. This year we're expecting about 25,000 tons going into that market. In general with automotive, we are not focused on doing business on the exposed steels.

We are very interested in the other steels and we think we're positioned geographically in a great way to do that, especially with the auto transport companies in the south. So we expect that business to grow and we're actively pursuing it.

Do you know offhand what percentage of your product is under long-term contract with the auto industry?

In the auto industry specifically, I do not know. Long-term contract being defined as greater than one year, we probably only have about 15 or 20 percent of our total output committed for more than one year.

OK. And of the contract business you have with the auto industry, we're hearing that negotiations are getting challenging in terms of - for them, in terms of pricing and we're hearing talk that prices may be rising. Is that in fact the case? Are you in conversations with them about getting a little bit better pricing on your products?

As in the entire market, the pricing is getting better for the seller, so I would say yes. The negotiations are going well from our side this year. We're in a better position.

OK. And then lastly for guidance, you talked about pricing for scrap. Do you have a thought in terms of overall pricing, what the impact, the realizations might be in the second quarter versus the first, up $5, up 20, any thoughts on that?

As I mentioned earlier Wayne, the dynamics of the pricing moves that are in place and taking place, the contracts that are coming up and being re-negotiated, and the - there's so much taking place that to try and predict what the selling price is going to go up is futile at this point. The good news is it's going up and it will go up strongly. Where it ends up, we'll find out come June.

Right. OK. Listen, thanks a lot and good luck. You have a lot on your plate.

Thank you.

Our next questions comes from from Merrill Lynch. Your question please?

All right. Thank you. Good morning gentlemen.

Morning Mark.

I've got a couple of questions on the structural steel business. Could you tell me what the minority interest line was for Nucor-Yamato?

For the quarter, minority interest was 29 million, seven.

Thank you very much. And in terms of the business itself, how do you - how do you see these sort of impacting the for the year of the new steel mill coming on stream in terms of sort of pricing, particularly?

The pricing environment will become extremely competitive. People are rolling up their sleeves as we speak. You know, you have a market where non-residential construction is down 20 percent. And you don't - there's not a significant upturn in that market, while it is not deteriorating further, there's no significant upturn.

That mill will bring on more capacity than the market needs even in good times, so it will be a challenging time in the structural business and it will be very competitive.

Thanks Dan. And maybe lastly, could you maybe break down what actually led that to the $14 a ton cost reduction? Was it mainly energy prices, higher efficiencies? Could you just give me a bit of color on that?

It's probably all the above but no, we don't have a - we don't have a more specific breakdown.

OK. OK.

But certainly in the two that you mentioned go a long way to describing the bulk of that number.

OK.

Increased productivity, lower energy costs, definitely have had an impact.

Thanks a lot.

Thank you sir. Our next question is a follow-up from Aldo Mazzaferro from Goldman Sachs. Your question please?

Hi Dan. I was just wondering if you could give us a little more color as to what your thought process might be on cast strip in terms of locations of those facilities. Are you planning to put them, you know, on the existing sites or your customers or what is your - what is your kind of strategy in a potential in terms of number of mills we may see over the next, say three to five years?

We figure 10 or 12,000 located judiciously around New York State ...

Aldo.

I think is a candidate for .

I'll let John give you a serious answer for that question.

I would answer that and say all of the above. I think that it's a great facility to have located near a customer. We've had a lot of interest from our existing customers to do that because it is a small facility, a micro-type mill and doesn't need to be as heavily loaded. So that's a good possibility.

It's also a great application for existing facilities that have excess metals, as it would be just in casting and rolling operation and it's a very small investment to put inside of an existing facility, so I think those are the two major areas that we'll see this process being used.

Aldo, in addition to that, one of the things that just internally within Nucor, that along the lines of what John was just saying, is the width availability through Cast Strip is significantly greater than any of our current facilities can make and we certainly could be doing lifts up in excess of 80 inches with those that would, you know, factor into an overall marketing strategy to improve value added and get into wider products.

So there's a host of opportunities along with this despite - in addition to all the other things that we've talked about in the past.

So Dan, do you think this could be more or less disruptive to the market than your thin slab technology risk?

I think it would be disruptive to our competition. I think we have greater control capability over this technology and how it gets applied in the marketplace. And so we should be in a better position going forward with Cast Strip than what took place within slab cast.

Yeah, because I'm thinking the capacity impact obviously is smaller per unit, but the regional applications might make it even more disruptive.

That's probably a good thought Aldo.

Yeah. And then can I ask you one more question? When you guys had your last conference call, you were taking 15 to 20 cents. Not that I want to, you know, criticize the forecast or anything, but what happened during the quarter that, I mean if you could just give us, you know, a couple of key points that you think.

What do you think changed the numbers most dramatically compared to what you forecasted initially and what you reported? I mean price volume, cost structure, maybe all of the above? I don't know.

I think all of the above. Volume was strong, better than we forecasted. Pricing was a little bit better, and I think we realized a little bit more on cost reduction than we thought. So it really was for all of the above.

And most of those items Aldo, that's why we said predictions are good for about two weeks out. And we say that some of the time we cheat but actually not. We're really serious about that.

When you have a situation where your entire organization is working to continually improve every aspect of its gain, it's very tough to predict how far those continual improvements will take you, whether they be in costs or the product mix or what have you. And we had a pleasant surprise there. And also, we're going to continue to have pleasant surprises.

I hope so. Thanks Dan.

OK Aldo.

Thank you sir. Our final question comes from - it's a follow-up from Mark Parr from McDonald Investments. Your question please?

Hi, yeah. Just one thing real briefly. In the 45 to 50 cents number Dan, that you talked about, what's the assumption for additional price realizations on flat roll?

Mark, I'll be honest with you. I don't know that we get that specific. We were sort of at the next line down. We work from divisions forecast on what their operating earnings are going to be, so ...

OK.

... each division makes a little bit different judgment based on their market, so ...

I'll have that answer for you in three months. April, May, June and July.

Yeah, Dan, you know, the only reason I ask it was just if we could make a judgment on how we think prices might move a little bit faster, a little bit less fast. Yeah, it's one thing that's really clear here is that the market is really recovering quite aggressively, so ...

It certainly, it is, but it also deteriorated quite aggressively and we're nowhere near getting back to the levels we had prior to the flood of imports and we probably won't see us get back to those levels without getting folks around the world excited again about coming back into our market, so there's going to need to be some tempering of enthusiasm.

The pricing announcements that we've made to date, we feel very comfortable and sustainable. And you know, the part that really complicates it for us - I apologize for repeating myself Mark, but you know, when you have contracts coming up in a quarter, when you have price increases that are taking place ...

Right.

... in a fairly aggressive fashion, it's very difficult to project. And so ...

OK. All right.

... Nucor tends to be conservative in the way that we look at things and we're not changing that.

OK. Terrific. Hey, thanks a lot.

Thank you.

This concludes our question and answer session. Mr. DiMicco, would you like to take with any closing remarks?

I would just like to thank all those who have participated with their questions and those listening and particularly to our employees. And this afternoon, we have a funeral service for Ken Iverson that we will be attending and all those who have worked with Ken over the years, I know that your thoughts and prayers are going out to his family.

And in particular, between two and three this afternoon, you might want to spend a little time thinking about that. Thank you very much.

Ladies and gentlemen, thank you for participating in Nucor's first quarter earnings release conference call. The conference has concluded. You may now disconnect.