Nucor Corp (NUE) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter earnings release Nucor Corp. 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 telephone. As a reminder this conference is being recorded. I would now like to introduce your host for today's conference Mr. Daniel DiMicco. Mr. DiMicco you may begin.

Thank you very much. Good afternoon and thank you for joining us today for Nucor's conference call. We will review results for the third quarter and then take your questions. First I would like to say hello and thank you to all the members of the Nucor team who are listening into this conference call on the Nucor website. Once again the 9,900 men and women of Nucor worked hard and worked together to keep our company profitable and moving ahead as a leader in the U.S. Steel industry.

Most importantly, we met our third quarter earnings expectation in spite of surging raw material costs and ongoing sluggish economic conditions. Terry Lisenby, Nucor's CFO and three of our other EVPs: John Ferriola, Ham Lott, Mike Parris are with me this afternoon and will be available to answer questions as well. Joe Rutkowski is traveling this week and is not available for today's call. Nucor Corporation is the largest and most diverse steel producer in the United States. We are the nations's largest structural steel produce, the largest steel bar producer, the largest steel joist producer, and the largest steel deck producer as well the largest U.S. producer of rebar.

Other major products include hot rolled, cold rolled, and galvanized sheet steel; steel plate, cold finished steel, pre-engineered metal buildings, fasteners and light gauge steel framing and Nucor is the United States largest recycler with over 16 million tons expected to be recycled in 2003. Our third quarter 2003 earnings of 20 cents per share were up from the second quarter EPS of 11 cents. Moreover, our third quarter 2003 earnings were consistent with the earnings guidance range of between 15 and 20 cents we gave in our second quarter 2003 earnings press release in July. A few details for the third quarter of 2003 merit comment.

Third quarter 2003 earnings include about 4 cents per share from a graphite electrode antitrust settlement received during the quarter. And on the negative side third quarter 2003 earnings were impacted by higher scrap costs. The average scrap and scrap substitute cost per ton increased $19 per ton from the third quarter of 2002 to the third quarter of 2003 and increased $6 per ton from the second quarter of 2003. Driven by higher scrap purchase costs at the end of the third quarter of 2003 and further projected increases for fourth quarter, the LIFO charge for the just completed quarter was $26.6 million. This represented a significant increase over the third quarter 2002 LIFO charge of $7.7 million the second quarter 2003 LIFO charge of $6.5 million.

The impact of this additional LIFO expense on the income statement was about 14 cents per share more than the amount assumed for the EPS guidance of between 15 cents and 20 cents given on the second quarter conference call. Nucor was able to deliver on it's third quarter 2003 earnings commitment by continual improvement on conversion costs and by profitably building our market shape. The Nucor team stayed focused on our strategic goal of building long-term earnings power that delivers attractive long-term returns on our shareholders capital. As you have heard us say many times our goal is to be the market leader in every product group and business in which we compete. We see a strong correlation between profitability and market share leadership over the long-term.

Market leadership in our core products is the critical underpinning to building long-term earnings power and raising returns in our investment capital. As always Nucor's emphasis remains on growing profitable market share, our continued profitability through the current downturn provides strong evidence of our commitment to that goal. Our third quarter 2003 volume numbers speak for themselves. Total steel shipments up 37% year-over-year, steel sales tons to outside customers up 40% and joists up 8%.

Excluding the shipments resulting from the acquisitions last year at the Decatur Sheet Mill and the Birmingham Steel Bar Mills, Nucor's steel shipments to outside customers increased 10% from the third quarter of 2002 to the third quarter of 2003. This compares against essentially flat year over year third quarter 2003 total U.S. steel shipments. Nucor's volume growth has been realized in a depressed non-residential construction market. U.S. Department of Congress data for August, 2003, show that construction spending for private office buildings declined 16% year-over-year and construction spending for manufacturing buildings fell 9% year over year.

Those are in addition to the drops of previous years. Nucor's acquisition of the four operating mills of Birmingham Steel in late 2002 increased our bar steel annual shipping capacity by more than 50% growing it from 3.8 million tons to more than 5.8 million tons. It was also the largest acquisition in our history. I am very pleased to report that our teammates from Birmingham, Jackson, Kankakee, Seattle, and Florida generated a significant operating profit for the third quarter of 2003 and again contributed strongly to Nucor's overall profitability and earnings. In addition to meeting the essential requirements of building profitable market share, the addition of these assets has broadened our product and geographic base in the bar business.

Most importantly, the acquisition brought us Nucor's kind of people, people with a strong work ethic, entrepreneurial spirit, and a passion for profitable steel making. Our other significant acquisition of 2002 was the purchase of our newest sheet mill, Nucor Steel Decatur. The Decatur acquisition increased our sheet capacity by nearly 30% to 8.4 million plus tons. Of even greater significance Nucor Steel Decatur supports our flat wall strategy to build profitable market share and to broaden our sheet product portfolio to include higher quality grades. Since the Decatur acquisition involved a restart of a previously idle facility, the Nucor team in Decatur has had to work through start up costs and equipment problems. The unexpected equipment problems arose during the second quarter of this year.

We identified the solutions to these equipment problems and began implementation during the third quarter. Decatur's hot band production for the third quarter of 2003 was 35% greater than production for the second quarter of 2003. Most importantly, Decatur start up costs declined in the third quarter of 2003 from the level of the second quarter. Based on recent trends in productivity and product quality we should see significant further improvement of Decatur's operating performance in the current quarter.

The bigger picture at Decatur remains the same-an attractive investment that will allow us to further our growth as market leader in the U.S. sheet steel market. Technical innovation remains an important driver to Nucor's building market leadership and raising long-term returns on capital. Along those lines Nucor's new facility in Crawfordsville, Indiana continues it's work with the revolutionary castrip technology to directly cast strip steel. At the inception of this project we determined that the ability to cast three sequenced heats was a major requirement for commercialization of this technology.

We have accomplished that and earlier this month our cast strip team at Crawfordsville successfully cast four sequenced heats. We continue to produce and ship prime coils to a wider customer application base and the customer feedback has been extremely positive. Most importantly our castrip team continues to resolve the technical problems that arise. While many of our competitors fight for survival or simply disappear Nucor has both the financial resources and the mind set required to adapt and continually improve ourselves through the years. A recent dramatic escalation in the prices of scrap, and scrap substitutes has captured the attention of both steel industry managers and investors. Consistent with our actions in the first nine months of 2003 Nucor will continue to implement price increases when warranted by cost increases as supported by underlying market demand.

Terry Lisenby will discuss in his report recent price increase announcements. Looking beyond these cost pressures and challenges we continue to press ahead with two promising raw material joint ventures that we announced last year. Our green joint venture with CVRD is on schedule to begin operations before the close of 2004. The initial phase of this project will utilize two conventional mini-blast furnaces to produce about 380,000 metric tons of pig iron per year. Charcoal source of the eucalyptus tree is grown in a cultivated forest and the cultivated forest will consume more carbon dioxide than will be emitted by the mini blast furnaces. The ultimate target of production from this site will be approximately 1million metric tons annually of pig iron.

Our HIsmelt joint venture has begun construction of the commercial facility in Australia using the HIsmelt process to convert iron ore filing and coal filings to liquid metal. Our partners in the project include Rio Tinto, Mitsubishi and Chinese steel maker, Shougang. This process has been developed as both blast furnace replacement technology and a hot metal source electric arc furnaces. Production startup is scheduled for the first half of 2005. A significant vote of confidence in HIsmelt technology was cast in August by Chinese steel maker Laiwu steel. They signed a licensing agreement to build an 800,000 tons per year HIsmelt facility in China.

We gave in our press release today fourth quarter earnings guidance of between 10 cents to 30 cents. Our guidance range reflects uncertainties with respect to both raw material costs and demand. Importantly the recent economic trends suggesting recovery continue, we look for earnings in 2004 to improve significantly over 2003. While much work remains ahead of us, the Nucor team has made substantial progress implementing our strategic roll plan for delivering attractive returns on our shareholders valuable capital. This is why we are very optimistic about Nucor's prospects for the future. We believe Nucor's best years are ahead of us and at this time I would like to turn it over to Terry Lisenby. Terry.

Thank you, Dan. Good afternoon, sales for the third quarter of 2003 were $1,604,000,000 an increase of 31%. For the first nine months of 2003, sales of $4,605,000,000 were also 31% higher than the year ago period. Nucor established new quarter and nine-month tonnage records for steel production, total steel shipments, and steel shipments to outside customers. Total steel shipments of 4,546,000 tons in the third quarter of 2003 were up 37% year over year. For the first nine months of 2003 total steel shipments of 13,189,000 tons advanced 32% over the prior year period.

In the steel products segment, third quarter 2003 steel joist product of 143,000 tons was up 8% from last year's third quarter. For the first nine months of 2003 steel joist production of 378,000 tons increased 10% over the level of the first nine months of last year. Our third quarter of 2003 average sales price for steel and steel products of $358 per ton decreased $17 per ton, or 5% from last year's level. The year-over-year decline was driven by decreases of 6% in sheet pricing and 4% in structural pricing. That was only partially offset by a 7% increase in bar price. Compared against a second quarter 2003 the average sales price for steel and steel products was flat.

With the scrap cost and LIFO inventory charge increases, as Dan mentioned earlier, our year-over-year margins have been pressured by the combination of sharply higher raw materials and depressed selling prices. Third quarter 2003 preoperating and start up costs of $31.3 million were up from 2002 third quarter's $20.8 million, but were down slightly from 2003 second quarter's $33.5 million. Preoperating and start up costs for the first nine months of 2003 were $91.5 million, compared with $53.2 million in the year ago period. Reflecting these cost increases our gross margin was 4.4% for the third quarter of 2003, compared to 9.9% for the third quarter of 2002. Earnings before income taxes were $4 per ton for the third quarter of 2003, down from $20 per ton for the third quarter of 2002, but up from $2 per ton for the second quarter of this year.

Capital expenditures were $148 million for the first nine months of 2003. We project full year 2003 capital spending of approximately $210 million. In addition to these capital expenditures we spent roughly $35 million in the first quarter of 2003 for the acquisition of the Kingman, Arizona bar mill. Depreciation expense for the first nine months of 2003 was $274 million, and is expected to be approximately $365 million for the full year. Cash and short-term investments totaled $285 million at the close of the third quarter, up from $182 million at the end of this year's second quarter. Approximately $138 million of the $285 million was held by our 51% on joint venture Nucor-Yamato Steel Company.

Total debt at the close of the third quarter of 2003 was $904 million, or 27% of total capital. In August Nucor issued $25 million of industrial development revenue bonds in connection with the modernization of the melt shop at our Texas bar mill. The initial interest rate on this floating rate debt was less than 1%. Reviewing the numbers for the 13 weeks ended October 4, 2003, compared with the year ago period and these are all percentages. With sheet steel production was up 19, shipments up 21, net orders up 59 and backlog down 6. Steel bars production was up 84, shipments up 79, net orders up 117, and backlog up 76. For structural steel production was up 19, shipments up 14, net orders up 39, and backlog up 45. For steel plate, production was up 29, shipments up 28, net orders up 9, and backlog down 27. For steel joist production was up 8, quotes and net orders both up 8, and backlog up 7. For steel bed production was down 8, quotes down 6, net orders down 19 and backlog down 12. For cold finished steel production was down 9, outside shipments down 4, net orders down 5, and backlog down 14.

Sheet steel average pricing decreased by $22 per ton in the third quarter from the year ago level, and declined $6 per ton from the second quarter of this year. We increased sheet prices effective September 1 hot rolled up $20 per ton; as well as, cold rolled and galvanized both up $10. Additionally this week we opened our sheet metal order books for the first quarter of 2004 with a $20 per ton price increase on hot rolled, cold rolled and galvanized sheet products effective with January 1 shipments. Bar selling prices increased by $21 per ton in the third quarter of 2003 from last year, and increased by $40 per ton from the low reached in the first quarter of this year.

Additional price increases ranging from $20 to $30 per ton on merchant bar and rebar are effective for mid-September through mid-October and we announced this week a $10 per ton price increase on merchant bar to be effective November 24. Structural steel average pricing decreased by $17 per ton in the third quarter from last year's third quarter, but increased by $7 per ton from the second quarter of this year; and is up by $15 per ton from the low reached in this year's first quarter. With increased beam prices by $15 per ton effective October 5. Plate prices for the third quarter of 2003 decreased by $1 per ton from last year's third quarter and declined by $2 per ton from this year's second quarter.

In addition to the previously announced $20 per ton price increase, we announced in mid-September a $20 per ton price increase effective with shipments December 1st and we announced this week an additional price increase of $20 per ton effective December 13th. Steel joist average selling prices in the third quarter of 2003 were up $25 per ton year-over-year and were up $24 per ton from the second quarter of this year. We believe we are gaining market share in the joist business during this downturn.

At this time I would like to turn to John Ferriola for some updates on several projects including castrip, what's going on in Decatur, and a project that would commission a vacuum degasser in Berkeley, South Carolina. John?

Thanks, Dan. Good afternoon. As Dan mentioned earlier we are making great progress at Castrip. During the third quarter the Castrip team made important technological break-throughs that resulted in longer casting sequences and improved product quality. We have achieved four heat sequences and have done so with readings that indicate five heat sequences are very possible. Given the original business model based successful commercialization upon achieving three heat sequences, these successes have greatly increased our confidence that this technology is commercially viable. The success sequencing of heats also resulted in improved production rates.

During a two-week period in September, we coiled 5,000 tons of Castrip material with a yield and prime rate of over 90%. This equates to an annual production rate of 125,000 tons. We expect our production rates to continue to improve in the fourth quarter with a corresponding decrease in start up losses. While continuing to increase our production rates we are also improving the range of value-added products produced at Castrip. We have produced electrical steels that have successfully met the physical properties required for moto applications. In fact we are currently shipping a Castrip motolamb product on an export to India.

We have also produced 400 stainless steel at-- 400 series stainless steel at Castrip. The quality of the stainless steel we have coiled and processed has been excellent. In the third quarter our largest Castrip shipments have been to outside customers for use in prime applications in the construction and building industry. Castrip product is also being consumed internally by our sister divisions where it is being converted into decking and perilins for the building industry. In fact Castrip decking material was used exclusively for our new melt shop building in Juno, Texas. While there are still challenges at Castrip, the pace of the recent successes is extremely exciting. Congratulations and thanks for the Crawfordsville team for their continuing success in developing this exciting new technology.

At our newest sheet mill in Decatur, Alabama there have been significant improvements in both production and quality. We are setting and exceeding production records every day. Daily production increased by 35% in the third quarter relative to the second quarter. For the first half of October we have produced at an annual rate of 1.5 million tons. Additionally we are seeing substantial improvements in both quality and on time delivery. The secondary rate of Decatur is now close to being on par with our other three sheet mills.

We have installed a new gear set in our R 2 mill, expanding our product range from 60% to 80% of design capacity. By continuing to shift narrow orders from our other mills to Decatur we have been able to eliminate any production restriction resulting from the reduced product range. We will install additional gearing for our rothing mill number 1in February that will take us back up to our full product range. We anticipate producing 1.2 million tons this year at Decatur and expect production to increase to 1.7 million tons in 2004. These improvements are the result of the hard work and focus of our team at Decatur. Thanks for a job well done.

At our sheet mill in Berkeley County, we are commissioning our new dual tank vacuum degasser. This one million ton a year degasser will allow us to produce detron quality steel that is used in the higher value automotive and appliance applications. This $15 million capital project supports our strategic objective of continuing to penetrate higher value markets. Congratulations and thanks to all of our construction, maintenance and operating teams for completing this project on schedule and under budget. In addition to detron steels, we are in the process of developing both dual phase and trip steels for automotive applications at Berkeley.

Thank you, John. At this time we'd be happy to entertain questions.

Thank you. 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 John Tumazos of Prudential Financial. You may ask your question.

This morning Steel Dynamics indicated their scrap costs might go up $12 in the fourth quarter from the third. First question, what's the range of expectations for scrap. Second, concerning the charcoal based pig in Brazil, how many tons of eucalyptus logs makes a ton of charcoal and how many, what fraction of a ton of charcoal do you use per ton of pig? I guess it's 2 tons of coal for one ton of Coke and half a ton of Coke for one ton of pig iron, in this stage but I am just learning about eucalyptus logs.

John, first question on scrap. In the second quarter we estimated scrap costs would go up $8 to $10 they went up $6 for us. This quarter, fourth quarter we are estimating they are going to go up in a range that would be consistent with SDI projected this morning. We are saying in the range of $10 to $15 per ton, and as far as the second question goes, I apologize but I do not have that information available. The gentleman who would probably be most knowledgeable on that is Mr. Rutkowski, and he's not here today but we will get you that information. Mr. Lucas will be sure to get that information to you on that question.

Do you envision increasing your forest cultivation, your plantation and how much contiguous land is available in your vicinity if you wanted to go to 3 or 4 million tons, for example, of pig, could you go to 300,000 or 400,000 hectares if you needed to?

John Ferriola is going to take a shot at answering that one.

Right now we have the ability to expand the project to a second phase and go up to about 800,000 tons of pig iron. We have the required forest to increase to that level.

As far as additional land in the area, that could be removed from pastureland and to cultivated eucalyptus it's virtually unlimited but as far as exactly how many tons of pig iron we might anticipate producing there I don't know that we'd be looking at 3 million tons, John, but certainly the infrastructure there in the form of land is available. This is not virgin forest that we are talking about, this is cultivated forest that would be planted and, of course, it takes seven years for the eucalyptus to mature but with the kind of lead times we would be looking at that wouldn't be hard to do, but that's not really in our plans right now. It's possible to do that because there's just a lot of land that was turned to pastureland decades ago and it's there in the vicinity.

Could you describe.

John, again I apologize but we have to take some other questions.

Next question comes from Wayne Atwell. You may ask your question.

Thank you. Could you give us the record of price increases so far this year in your different products, please?

Terry went through a lot of that a moment ago.

He told us what you had recently and what you just put in place. I was interested in what's been put in place.

Throughout the whole year, we'll take a shot at that but I think Mike Parris on the bar products is prepared to give you some information on bar products, and John can give some information on the sheet, on the plate without Joe here I can talk in general about that but let's here from Mike first. Mike?

Good afternoon. On the rebar, of course it depends on the region but in general we've been up around $65 from the first of the year with several price increases and on merchant bar we've been up about $60 with several price increases as well. SBQ has been up to $40, and I believe that covers it.

Mike, that includes everything up to and current the most recent?

It does not include the most recent increase which is $10 on NBQ.

Thank you Mike, John.

Including the most recent increase announced just two days ago on hot rolled product we've had a total of $90 in price increases over the course of the year, on cold rolled and galvanized it has been $80.

You want to talk at all about actual realizations, John on those announced increases?

We have not realized all of the price increases announced to date. We've done better on hot rolled than we have on cold rolled and on galvanized. We do anticipate moving forward, the demand seems to have picked up significantly on hot rolled and it looks a little better in cold rolled and it's good in galvanized. So we anticipate being able to realize most of the recent increases in hot rolled, some of them in galvanized, and to a lesser extent on the cold rolled.

I would add to that that the competitive forces in the marketplace on the earlier announced price increases, and the customer's resulting acceptance of those price increases have not been strong until in about the last couple of months and now we see that the market prices are moving up and the realization will move up to accomplish some of those increases and the $20 ton announced increase for January 1 we've heard other people going up $30 a ton at US Steel which really puts them pretty much in line with our $10 to $20 per ton increases that we announced a couple months ago and yesterday. Some of the other players in the marketplace haven't gone up quite as much. It remains to be seen how much of that will actually be realized.

But as John said the demand is improving, the economy continues to improve, we are looking favorably on actually getting those price increases which we've had trouble getting during most of the early part of this year. On the plate products we've had a number of price increases throughout the year. But likewise there the competitive pressures in the marketplace have not allowed all of those to be obtained. What we did just running down the list of what we actually went out there to get on the 31st of January we put a $20 price increase with an effective date of March 8th. On May 22nd, we put a $10 price increase effective June 29th.

And that was partially collected on the East Coast with very little support in the southwest and midwest. The first $20 per ton that I mentioned really received no support in the marketplace. The third increase, there was a $10 per ton increase that came out at May 22nd of '03 with an effective date of August 31st; and we are effectively getting that $10 per ton now plus we are starting to get an additional $10 per ton from some of the previous announced increases, because the market is firming, demand is firming. Order entry has been extremely strong in plate the last couple of weeks and has been good the last really for the last several months; and it is starting to show up in the price realization in the marketplace. On the 22nd of July we raised prices $10 per ton with effective date of August 31st, and we will collect that in October.

The same announcement, excuse me, on September 12th we announced a $20 per ton price increase to go into effect on November 30th. We believe we will be collecting that in December and as we mentioned earlier we went up another $20 per ton effective December 15th. That's the history on plate. Both in plate and sheet it's been more difficult to achieve the price realizations throughout the second quarter as evidenced by our flat sheet pricing and plate pricing to slightly down. You take Decatur out of the mix it was flat on sheet, for our other three mills; but now we are beginning to see those price realizations come into play. We should see strong realizations in the fourth quarter and into next year.

How about structurals?

Structurals we have done $35 a ton plus recently we announced another $15 per ton increase. Joe is not here but so I think we are looking at somewhere in the order of $50 plus a ton year-to-date.

Thank you.

Our next question comes from Charles Bradford. You may ask your question.

Good afternoon. I'd like to ask you about the Castrip comment you made in your press release. You said you know what the 12,400 tons relates to. In June Castrip had said they had sold 10,000 tons and then on your call you said that half of it was internal, half external. So the 12,400 relate to 10,000 or to 5,000?

I'm sorry, Chuck, can you repeat that. I'm not sure I understand what the question is.

That's what I want to know, was it 7,500 tons or 2,500 tons because Castrip had said at a conference in New York in June said they had shipped 10,000..

In the first six months of 2003 we shipped just about 10,000 tons, slightly under 10,000 tons in the third quarter of 2003 we shipped an additional 2,459 tons.

That's what I wanted to know. Thank you.

Our next question comes from Frank Dunave. You may ask your question.

Have you removed any equipment from Kingman and shipped it to anywhere else, or what are you doing with that plant now?

As of right now we are still continuing to work with the utilities to get competitive power rates. Without that we will not be able to start it up. We have not removed any equipment to date. We have done studies as to what we would do with the equipment within the company and we would pretty much fully utilize it at our different locations, but only if we can't get the competitive power rates.

I've received conflicting reports. You all filed a registration for stock for officers earlier in this quarter? Was that just to be able to sell it in the future or was that stock actually sold?

We file that every year.

Okay.

It's standard op. We've been doing it for 35 years.

Fine.

Nothing new, Frank.

I know it's nothing new. What does it mean? It does it mean anything?

Just it allows the officers and directors to freely trade. There is not any intent. It's just a convenience.

That's what I thought. Okay. That was my interpretation. Other people said you actually sold. That's not correct, right?

No.

Okay. Thanks.

Our next question comes from Dan Roling. You may ask your question.

Hello?

He may have stepped away from his phone.

Try another question.

Our next question comes from Mark Parr. You may ask your question.

Thank you. Good afternoon. I was wondering if you could give us an outlook for potential LIFO charges in the fourth quarter. Also, anticipated start up costs for the full year, if you could update that, and also just anything, any additional color you could share as far as changes in environmental reserves for the fourth quarter or for the full year?

On LIFO we are forecasting $20.4 million charge for the fourth quarter. And preoperating and start up, probably $25 to $30 million in the fourth quarter and environmental, that's one I can't give you an estimate on, that's a facts and circumstances. We look at it at the end of each quarter.

Thank you very much.

Our next question comes from Chris Olin. Chris, you may ask your question.

Good afternoon. I jumped on the call late so I apologize if this was already covered. I was wondering if the hurricane or the blackout had any material impact on the earnings for the third quarter?

It had a real slight effect, the combined effect of the two was less than $1 million.

That's all I wanted. Thanks.

Our next question comes from Jay Boycott. You may ask your question. Evidently he has stepped away, also.

We have a phantom caller every conference call that tries to pawn himself off as an employee of the company. He or she has struck again.

Our next question comes from Aldo Massafero. You may ask your question.

Hello, Aldo.

I was wondering what you think about the scrap market at this point? Are you thinking that we are near a high? Can you see it conceivably going $20 higher from where it is right now?

I left my crystal ball at home. Right now as far as, could it go up 20 bucks? Anything is possible. What's going on in the marketplace today entirely, it's mostly supply and demand related, some of it is opportunism on the part of scrap suppliers. Right now our assessment of the market is that it has peaked, we see it flat to down through the fourth quarter into next year. But as we mentioned earlier we are anticipating pretty strong LIFO charge for the fourth quarter. We had a strong one in the third quarter. Based upon things staying pretty much flat from here. Anything could happen.

Already this year we've seen an early year increase, then it peaked, oh, about March of the year, then it dropped down through July and then in August it kicked up again and stayed up August, September, October. October, September, seemed to be sideways and so also a little bit of roller coaster. We don't see prices dropping off significantly, but we don't see them going up significantly, either.

Great. Thank you. I am wondering, Terry, if you have an estimate of the capital spending plan for next year.

No, not for next year. We do that in our November meeting. So we've just now got divisions putting together budgets for November but in all likelihood it's going to be less than this year.

One additional comment on the scrap answer just a few minutes ago we said we anticipate the numbers going up to $10 to $12 per ton or $10 to $15 per ton, that's on usage. My last comment and the answer to your question was directed towards purchase pricing. So we don't see purchase pricing or pricing for scrap except maybe flat to down, but usage numbers will continue to climb just because of the time delay in purchasing and delivering, receiving and to actually using the material in our furnaces, it's usually at least a month to month and a half lag sometimes two months depending on the inventory that the individual plants have.

I appreciate that, thanks.

Next question comes from Michele Applebaum. Michele you may ask your question.

Hi, I was on that tour to Castrip last week and I awestruck by the simplicity of the facility and the size. Can you talk a little bit about, put it into perspective and tell us what it's going to do for you?

Well, I'll let John talk a little bit about it in detail, but in a general sense it is an awesome site to watch this piece of equipment that barely fills up half a Wal-Mart store and producing sheet directly from liquid. And doing it to the qualities and consistency that we are now achieving, it's nothing short of the equivalent of putting the first person on the moon in steel making terms. It's that radical a step in steel making technology. As far as what it will do for us in the future, the potential is unlimited. We've got projections based upon what we think we would do internally and what we would do externally, but the projections we haven't published those yet.

It definitely has the potential to revolutionize the way a significant part of the sheet steel production is done not only in the United States, but on a global basis. As we've mentioned before, Nucor BHP retained the technological rights and the patent rights and the royalty rights to the technology and the marketing of that technology. John, you want to add any specifics to highlight Michelle's comment?

You did a pretty good job, Dan. One thing I would add that some of the possibilities that it gives us at Crawfordsville right now that particular facility is limited to a 55-inch wide product as we continue to develop Castrip as you may recall we can make wider and wider products truly only limited by the opening on the mill which is about 80 inches. So we think ultimately at the Castrip facility in Crawfordsville we can go as wide as 78 inches. In addition to that, it does give us unique products, unique applications and as Dan said it's really the potential is unlimited at this time. We are learning more about it every day. It's very exciting technology.

One more thing, Michele, a lot of people have said, have you made AK steel on that piece of equipment yet, you have to make AK to have a commercial technology. That's totally incorrect. We are replacing AK material as we speak and have been with the product offer not being AK because what customers are looking for is the performance and the properties of an AK treated material and we are able to produce that in a lot of applications we don't know what the limit to that is going to be yet without having to go the AK route.

Whether it be drawability or formability or what have you. The other thing I would add to what John said, there's this opportunity to go wider at Crawfordsville, that's a fit that exists at our other sheet processing plants at Hickman, Decatur and Berkeley where we would be able to go significantly wider there to complement the product mix that we have at those plants; and one of the opportunities for us in the future would be to take Castrip and actually build those facilities on to our existing plants and we've already talked about that as being one of the strategies because that enables us to widen our product mix considerably across all of our operating plants.

I honestly never thought I would be in the business long enough to see that facility. I was extremely impressed but I still have to ask, you are talking about all the theoretical possibilities. Can you give us some timeframe, can you tell us what with a high degree of certainty that we will see an announcement of this facility in the next year?

I can tell you that you will see other facilities.

Other facilities.

Whether it will be in the next year or not I'm not willing to comment.

Five years?

The success evident of the technology and the rapid pace of development that we've seen in the last couple of months is nothing short of fantastic and we are very positive about the technology going forward but I'm not going to get into saying, will we have another plant built in 12 months or will we announce another plant to be built in 12 months that's like me saying to you, we are going to announce three more acquisitions in the next three weeks or 12 months, it's not appropriate for us to do that. Suffice it to say our confidence is such that there will be Castrip facilities built certainly within the next five years.

Let me try one more way and this should be a little easier.

Probably get the same answer, Michele.

I know you guys had the IISI group in there and I heard that the reception was good. Can you tell me, would you expect to have an order, would Castrip expect to have an order to sell one of these things within a year? Is that something you can comment on?

John, take a shot at that one.

Okay. Well, you are right, Michele, the reception by the IISI group was very, very positive as you saw on the following day we also had a flawless cast during that visit. I can tell you that there was a tremendous amount of interest by several groups representing several different countries on that tour.

We want to make sure that we have all of the, all of the nuances of the process understood before we begin selling licenses. I can tell you that we have several very interested potential licensees, I personally feel we are close to that. When we are comfortable that we understand all of the process we will begin licensing it. There's a high degree of interest, we are being conservative in making sure that we don't sell a license until we are ready.

You don't want to speculate if a year is enough time that you could put it outside?

If we would let it there are people who would buy it today, that kind of interest has been expressed, several people who would take these things next week. But we are not ready to do that yet. John?

One further point I want to make and that is what we want to do with the technology. We want to make sure and I when I say we want to make sure we understand all the possibilities, we want to understand all of the product capabilities that the technology holds so instead of just going in and producing a lot of common product for construction applications we are moving at a different pace and developing other products while we are producing for the construction industry as evidenced by our motolamination and stainless success.

Thank you, Michele.

Our next question comes from Dan Rolin.

I am really here. I had to jump off guys.

Luckily you didn't jump off a bridge, Dan.

It's hard to jump off those big bridges. I was going to ask some of the same questions Michele did on Castrip, but I guess the question that is left to be asked; is you guys said initially three continuous heats would deem it commercial. You've done four, John, alluded to the fact that you are close to and would probably do five. Can you tell me what you mean by commercial? Is that when you sell a license of it or when effectively you are now going to run the plant you have at Crawfordsville and start booking earnings on it?

I would be about that would be how I define commercial.

Just the way you did Dan, the latter.

How close are you to be becoming commercial then since you've already done four heats.

Dan we've done that several times not just one time but, John, yes. There's still some cost that only running large volumes will be able to determine. For example, the rolls in the mill, we are subjecting it to a different heat cycle than we do in our standard CSP mills. We won't understand the true effect on cost in that area until we begin running 50 or 60 or 70,000 tons over a concentrated time period. I guess my only reservation in saying it's commercialized at this time is we still have some longer term costs at higher volumes that we don't completely understand. The biggest issue keeping us from getting there as John mentioned to most people that visited on the plant on the tours both at the ISSI and at the investor analyst tour that we had, is the fact that the hot metal from Crawfordsville cannot be delivered at a consistent enough pace yet until the we get the approval from the EPA to increase our production capability of those furnaces. The furnaces can do it. It's not the issue it's just getting the proper permitting so we don't get into trouble by moving more steel out of there than we are permitted to.

Currently where we've had continuous runs, in other words, runs where we didn't have to worry about running out of hot metal and we've been able to run that facility at a 300,000 ton annual pace but not for weeks at a time. Okay? And that will be-as soon as the permitting is approved, which should be shortly. We should hear it next week. Then we will be in a position to run it for a week solid or two weeks solid and get a handle on some of these other things. But one of the biggest issues that we were concerned about from a commercialization standpoint was would we be able to increase and did a fair number of subsequence, that means one another after another after on without having to change out the cast or what have you and that's been accomplished and that major hurdle is behind us. John, anything else you want to add,?

Thank you very much.

We have another question from Wayne Atwell.

Thank you. Could you tell us what the export picture looks like, are you exporting much steel?

No, we are not but neither is there a lot of imports coming in. So that's one of the things along with the improving demand picture from customers, it's allowing us now to start to actually realize the price increases we put in place.

So you are not exporting much at all?

No.

If you were to decide to build a green pig plant how long would it take you to build your second plant.

Slightly less, I would say six to eight months.

Six to eight months.

You could build your second plant in six to eight months?

Yeah.

What keeps you from doing that with pig iron where it is and scrap? It would seem like that would be a no brainer?

Just like anything else, you have a game plan, the game plan is to put two units in place and get those up and running and then go from there and so that's our game plan. As far as our raw materials sourcing goes, that is one of several we have the HIsmelt project, but there are two or three other projects and ventures that we are involved with that I can't talk about specifically; that we are also looking at from a standpoint of supplying additional iron to the marketplace and to ourselves.

So our whole approach here is not just at one location or one venture and so there's no reason for us at this time to go and build up to a million tons overnight. But we may decide to ramp it up pretty quickly after that. But to get to 380,000 metric tons will be a realistic and sizeable first step.

In your earnings guidance do you have a specific price increase average in thought, ie, what is your assumed price increase based on the 10 to 20 cents you are giving us as guidance?

Last time we anticipated that we would see a $10 to $12 price increase on flat roll, and we actually saw a decrease. So I am not going to get into projecting, but we are projecting increased price relationizations across all of our products; and it would probably be at least on the same order of magnitude as to what we expected from last quarter. But it could be significantly more than that. We just don't know.

We've given a broad range in our guidance and a conservative range because there's just too many uncertainties with respect to where scrap is going to end up, how the LIFO adjustment will hit us and what actually will be realized in the marketplace. If we don't realize those price increases of north of $15 a ton it will be because the competitive forces in the marketplace have kept it from being realized and we'll see how that goes.

Dan if I could digress for one second you've done a phenomenal job of growing a company, i.e. adding volume and taking market share but your profit has been relatively restricted obviously great compared to your competition. Would you be willing to shutback capacity to push prices through or what's your pricing strategy going forward?

I don't want to comment on whether we would be interested in governing capacity or not. We still view ourselves as the low cost producer in North America and certainly one of the low cost producers and certainly from a percentage of the market standpoint there are a lot of folks who have much higher cost structures than we do. We are not in the mode now of looking to cut back or what have you production although we are not running at what we think is the full production of Decatur yet we have no plan, we are cut back on the beam business from where our peak capacity utilizations have been, but on bar products and on all the sheet mills other than Decatur our plans are to continue to operate those because of our ability to sell our product to the customer base with the service and quality and deliveries that we've been achieving.

We are a preferred supplier and we'll keep running our plants as full as the market allows. And we believe that the demand and the global marketplace, demand here, demand overseas, lack of imports and a host of other raw material price increases that are hitting both integrators as well as mills. We believe that the climate is such that price increases are realistic and necessary and achievable; and that's the mode at which we'll be going to get prices up, by increasing our pricing structure. Not by cutting back on production.

And Wayne the other thing I would add to that your observation about the fact that we've done an excellent job of growing our company, if you go back to three years ago when this management team first took over the legacy of Nucor; our game plan was very clearly spelled out. That we were going to use the slow down in the economy to build a footprint for the future both through new technologies, through acquisitions and growth at our existing divisions, and we were willing to do that to sacrifice short term gains because we knew that now would be a unique time to grow the company and to take advantage of the strong growth in the economy when it comes back.

So what we are doing is exactly what we planned to do, it's exactly what we told people was going to happen and there should be no surprises on that. Maybe things have been a little bit worse than we anticipated for scrap pricing, but the overall game plan to grow the company and not to focus on short term profits has been very successful. And we are still profitable in this environment, which not a whole lot of our competitors are; and we are doing a lot of excellent projects and development work. So as things continue to improve in the economy as they seem to be doing, we will show significant improvements going forward and that's why we projected 2004 to be a significant improvement over 2003.

I give you a lot of credit. Some are skeptical about that strategy but it's certainly worked out. Any thoughts when Decatur might be in the black, one could guess first/second quarter next year?

I can tell you what I've told people. But that's probably a realistic goal to have would be in the black by the first quarter of next year.

Okay. Thank you.

We have another question from Charles Bradford.

I'd like to go back to the Castrip for a second. I understand that you did have the hearing on the permit September 30th and they have to give you a decision in 30 days, which would be next week. Assuming that you get that permit do you have to do anything to the baghouse or any construction work to be allowed to operate the furnaces at a higher rate, which I assume will allow Castrip to operate better?

We do have a capital project to increase the size of the baghouse and that's in progress now. However, to achieve the production rate at the furnaces we need to successfully feed Castrip next year, we do not need the extended baghouse. We will be able to do it as soon as we receive the necessary environmental permitting.

Thank you.

We have another question from Michelle Applebaum.

Okay. I was wondering, can you comment on what's happening with the increases in freight rates and what's that doing to both your business and, I'm talking about ocean freight, and what it's doing to the competitive terrain?

Actually overall the increased freight rates on ocean freight work in the domestic industries favor. It makes it more expensive to move scrap out of here, it makes it more expensive to move steel in. Certainly it does affect us negatively as when we are bringing raw materials in from overseas like we do with pig iron from Brazil or Russia; but in the net of it all it's really a much more significant plus for the domestic industry, including Nucor, than it is a negative.

Okay. That's it.

Thank you, Michele.

We have another question from Mark Parr. You may ask your question.

Thank you. Dan, I was wondering if you could talk about what percent of your mix in the flat rolled side is contract and whether you see yourself increasing that or decreasing that over the next three to six months?

John.

It's different for different products. On the hot rolled side, we'll spot about 60% and contract about 40%, for cold and galvanized it's just about reversed spots about 40% and contract is about 60%. So therefore overall we have a mix of about 50% spot, 50% contract. We do intend to keep that mix about the same going into 2004, however, given the direction we think the market is heading we have shortened the terms on the contract.

Thank you very much.

I'm showing no further questions.

Okay, well, I'd like to thank everybody for their excellent questions, and again I would like to thank all of our Nucor family including our suppliers, employees and customer base for the tremendous support and performance over the last quarter and look forward to having a more positive report in the fourth quarter. Thank you all very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Have a great day.