Nucor Corp (NUE) 2003 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nucor Corporation fourth quarter earnings conference all.

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 0 on your touch-tone telephone. As a reminder, this conference call is being recorded.

I would now like to introduce your host, Mr. Dan DiMicco. Sir, you may begin.

Thank you.

Good afternoon, and thank you for joining us today for Nucor's conference call. We will briefly review results for 2003 and the fourth quarter and then take your questions. Terry Lisenby, Nucor's CFO, and our other EVPs John Ferriola, Ham Lott, Mike Parrish, and Joe Rutkowski are with me this afternoon and will be available to answer questions, as well.

But first, I would like to say 'hello' and 'thank you' to all the members of the Nucor team for listening into this conference call on our Nucor website. The 9,900 men and women of Nucor worked hard and worked together again, to keep our company profitable in 2003 and moving ahead as a leader in the U.S. Steel industry.

Our fourth quarter 2003 earnings of 26 cents per share were consistent with the earnings guidance range of between 10 and 30 cents we gave in our third quarter 2003 earnings press release in October. However, a few details from the fourth quarter of 2003 merit comment.

The LIFO inventory charge for the just-completed quarter was $75.5 million, more than triple our forecast of $20 million to $21 million and substantially above the year-ago quarterly level of $15.6 million. Results for the fourth quarter of 2003 also included other income of $4.4 million realized from a gain on the sale of equipment.

Nucor has been profitable every year and every quarter since 1966, a record unmatched by any other North American steel manufacturer. The Nucor team faced significant challenges to maintain profitability in 2003. These included severely depressed nonresidential construction markets, short-term costs required to commercialize new technology, the integration of two major acquisitions, and an unprecedented surge in the cost of our key raw material, scrap metal.

Despite these fierce headwinds in 2003, Nucor's businesses generated cash from operations of over $500 million, our fifth best year ever for operating cash flow performance. Not only maintaining profitability and strong cash flow this past year, Nucor's taken advantage of difficult economic and steel market conditions to strengthen our competitive position.

During 2003, we continued to press ahead with our focus and disciplined strategy for driving long-term growth and Nucor's earnings power, and raise the returns on our shareholders' capital.

The keys to executing this strategy are, and have been, one, optimizing existing operations. Two, continuing green field growth via the commercialization of new technologies. Three, pursue strategic acquisitions. And four, grow globally through joint ventures. Our progress in each of these areas has built a solid foundation for sustainable and substantial growth in Nucor's earnings power as we move into 2004 and beyond. We have noted on a number of conference calls and investor presentations that optimization of our existing operation represents our single largest opportunity for long-term profit growth.

Once again, continual improvement was the top priority of everyone on the Nucor team in 2003. Our unrelenting focus is on continuing to drive lower our conversion cost to produce a ton of steel for steel products. Our bar mill monitorization program is an excellent example of Nucor's commitment to continue improvement to remain a world-class competitor in all of our product lines.

During 2003, the Nucor team completed on time and on budget both the South Carolinas mills new [finishing end], and the Nebraska mills [rolling dog grade]. The new melt shop at the Texas mill is on schedule for completion during the second quarter of 2004.

Most importantly, we have already begun to see the payoff from the completed projects in the form of improved operating profit contribution from these facilities to lower conversion costs, up from 3% to 8%, with more to come. This approved cost structure offers Nucor attractive earnings leverage and improving economic conditions lead to widening metal margins and further volume gains.

Speaking of iron growth, Nucor again set records for both steel production and steel shipments. 2003 steel shipments of 17.7 million tons represented year-over-year volume growth of 31%. Market share gains during economic downturns continued the Nucor tradition of successfully emerging from a session stronger than what we entered on.

As always, Nucor's focus remains on growing profitable market share. Tangible evidence of our ability to profitably grow market share was the very successful integration of the operating mills of Birmingham Steel that we acquired in late 2002.

The purchase of Birmingham assets for $615 million in cash was the largest acquisition in our history. These mills boosted Nucor's 2003 shipment volume by approximately 2.4 million tons, and made a significant operating profit contribution last year in very depressed bar market conditions. As you will recall, our forecast was that we would do two million tons at these mills and we did 2.4.

With remarkably similar cultures and excellent conversion costs, we are looking forward to attractive profit growth moving forward from our teammates at Seattle, Kankakee, Birmingham, Jackson, and Florida.

Nucor's sheet metal group is moving ahead on several strategic initiatives that will grow our earnings power in the flat-rolled market as we build profitable market share and broaden our product portfolio into higher value added offerings. These advances include improvement to optimize existing operations, a strategic acquisition, and the commercialization of revolutionary new technology.

Nucor Steel Berkeley completed construction in 2003 of a vacuum degasser. After commissioning in October 2003, Berkeley has produced 38 degassed heaps with favorable results from these initial trials. The degasser will allow Berkeley to expand the mill's prior capabilities into deep drawing steel grades. Deep drawing capability enables us to participate in higher value added businesses in the automotive, appliance, lawn and garden, and HVAC markets. Annual capacity of the Berkeley degasser is in excess of 500,000 tons.

Our newest sheet mill, Nucor Steel Decatur, continues to build volume and improve quality. Decatur's hot band production for the fourth quarter of 2003 was 21% greater than the production for the third quarter of 2003, and was 63% greater than production for the second quarter of 2003. You'll recall that Decatur's equipment problems occurred in the second quarter.

Most importantly, Decatur's bottom line performance continues to improve. The bigger picture at Decatur remains the same, an attractive investment that increased our annual sheet capacity by nearly 30% to 8.7 million tons. Of even greater significance, Decatur's equipment capabilities will allow us to expand to the higher quality grades of sheet.

Nucor's ability and willingness to pioneer new steel making technologies remains a key competitive advantage of our company. Our team at the caster facility in Crawfordsville, Indiana has explored and successfully navigated to this point, but we're on chartered waters and working with revolutionary new technology to directly cast our steel.

Our successes in the fourth quarter of 2003 included increasing the number of sequenced heats, improvements in the life of key consumables, and rising production rates and yields. In fact, multiladle casting sequences are now part of routine production at Castrip.

Moving into 2004, an increasing capacity at the Crawfordsville EAS shop will translate to more liquid steel available through the Castrip process. We're optimistic that the prospects for attaining full commercialization of the Castrip technology will happen this year.

Our two joint ventures underway with global partners are both on track for production starts in late 2004. It is noteworthy that both projects will provide Nucor with high quality scrap substitute products. We began work on these initiatives several years ago in more subdued metallics markets, and their output will be an important asset for Nucor moving forward in more, excuse me, in more heated raw material environments.

The Standard and Poors credit rating agency just last week emphasized the critical importance of North American steel producers ability to maintain adequate supply of raw materials. Once again, Nucor's long-term perspective in building its businesses is proving to be another key competitive strength of our company.

The Green Pig joint venture with CVRD is an environmentally friendly pig iron project. The initial phase will utilize two conventional mini blast furnaces to produce 380,000 metric tons of pig iron annually. The charcoal source is eucalyptus trees grown in a cultivated forest, as we've mentioned before. Site work has started at some of the charcoal kiln sites and the [Brickmont] pilot kiln is being installed as we speak.

The harvesting of eucalyptus trees has begun, as well. Green Pig is scheduled for start up late this year. Annual production from the Green Pig has a potential to double from the initial capacity level of 380,000 metric tons.

The HIsmelt project is building a facility in Western Australia that converts ironwork fines and coal fines to liquid metal with annual capacity of 800,000 metric tons. Our partners in this joint venture, again, are Rio Tinto, Mitsubishi and Chinese steel maker [INAUDIBLE]. The HIsmelt product has developed a blast furnace replacement technology and a hot metal source for electric arc furnaces.

At the close of 2003, construction was about 50% complete. The plant's operating teams began training and preparation for commissioning of equipment. Production is scheduled to begin in the fourth quarter of this year.

While speaking of metallics, it's appropriate to give you an update on our raw materials surcharge that we announced in mid December. The dramatic surge in the prices of scrap and other raw materials has definitely captured the attention of the steel industry, customers and investors alike. Our scrap purchase prices climbed $65 per ton between December '02 and December '03 and continue to increase today. From September 2003 to December 2003, scrap purchase prices increased $25 a ton.

As the first major North American carbon steel producer to introduce a surcharge, we took action to ensure that Nucor would be able to purchase the scrap needed to fill our customer's steel needs, and that our margins would be restored to appropriate levels. The surcharge both reduces the time lag in passing through higher raw material costs and increases transparency for steel buyers. The surcharge has been accepted by the marketplace.

I will repeat what I stated in the financial press a few days earlier. Nucor expects to earn higher margins in 2004 than in 2003 across all product lines because of the improving supply and demand balance in the marketplace and the improving economy. As this company has demonstrated for nearly four decades, the winning business model will be the one that does the best job of taking care of customers. The Nucor team has made substantial progress implementing our strategic plan for delivering attractive returns on our share holders' valuable capital.

This is why we are very optimistic about Nucor's prospects for 2004 and beyond. We clearly see Nucor's best years ahead of us.

At this time, I would like to ask Terry Lisenby to review the results for the fourth quarter and the year. Terry.

Thanks, Dan. Good afternoon.

Sales for 2003 were $6.3 billion, an increase of 30% over 2002. Sales for the fourth quarter of 2003 were $1.7 billion, an increase of 28% over last year's fourth quarter. Nucor established new fourth quarter and annual tonnage records for steel production, total steel shipments, and steel shipments to outside customers. Fourth quarter of '03 total steel shipments of 4.5 million tons represented an increase of 29% year-over-year.

Dan mentioned the 31% growth in full year steel shipments to 17.7 million tons for 2003. Our rate of organic, or internally generated volume of growth, remains healthy also. Excluding the increases resulting from the acquisitions of the Birmingham Steel and Trico Steel assets, total tons shipped to outside customers increased 6% from 2002 to 2003, and increased 5% from the fourth quarter of 2002 to the fourth quarter of 2003.

In the steel products area, fourth quarter 2003 steel joist production of 125,000 tons was up 5% from last year's fourth quarter. Full year 2003 steel joist production of 503,000 tons increased 9% from the 462,000 tons of steel joist produced in 2002.

Fourth quarter 2003 steel deck sales of 87,000 tons declined 8% from the fourth quarter of 2002. Full year 2003 steel deck sales of 353,000 tons increased 7% over full year 2002 steel deck sales of 330,000 tons.

Our fourth quarter 2003 composite average sales price for steel and steel products, $377 per ton, increased $19 per ton from the third quarter. Comparing fourth quarter 2003 average sales prices for ton against those for the third quarter, sheet prices were up $13 per ton, bar prices increased $26 per ton, structural prices gained $7 per ton, plate prices increased $19 per ton, and joist prices climbed $40 per ton.

Our fourth quarter 2003 total steel average sales price per ton of $351 per ton was an increase of $17 per ton over 2003's third quarter. This compares to a scrap and scrap substitute usage cost increase of $18 per ton from the third quarter of 2003 to the fourth quarter.

Our full year 2003 composite average sales price for steel and steel products of $359 per ton increased $2 per ton or $357 per ton in 2002. The full year 2003 total steel average sales price of $335 per ton was an increase of $5 per ton over 2002. This compares to a scrap and scrap substitute usage cost increase of $27 per ton year-over-year.

The metal margin is the spread between steel selling prices and scrap costs. Over the past year, our metal margin dropped from $225 per ton in the fourth quarter of 2002 to $196 per ton in the fourth quarter of 2003. However, the spread for the fourth quarter of 2003 was essentially stable with the third quarter 2003 level of $197 per ton. With the expectation of further demand strengthening and our implementation of the raw material surcharge on January 1, we anticipate an increase in metal margin as we move through 2004.

Dan earlier mentioned the fourth quarter 2003 LIFO charge of $75.5 million. That was substantially higher than our earlier estimate of approximately $20 million. The full year 2003 LIFO charge was $115 million, up from the full year 2002 charge of approximately $34 million.

Preoperating and start-up costs of new facilities declined to $26 million for the fourth quarter of 2003 from $31.2 million in the fourth quarter of 2002. This was also a decline from the $31.3 million in the third quarter of 2003. Full year 2003 preoperating and start-up costs were $117.5 million, up from $84.4 million in 2002. We expect a significant reduction in these costs in 2004.

Our gross margin was 3.5% in the fourth quarter of 2003. Compared against 9.1% in the fourth quarter of 2002.

Earnings before income taxes were $4 per ton for the fourth quarter, down from $15 per ton in the fourth quarter 2002 and flat with the third quarter of '03.

The effective tax rate for full year 2003 was 6.1%, which was down from 2002's effective tax rate of 29.5%. For the fourth quarter of 2003, we recorded an income tax benefit of 4.7 million. The decrease in our effective tax rate for 2003 was primarily due to state income tax credits, resolution of certain tax issues, and the effect of reduced pretax earnings. We recorded state income tax credits of 3.1 million in the fourth quarter of 2003 and 10.5 million for the full year.

Capital expenditures were $215 million in 2003 and depreciation expense was $364 million. For 2004 we project capital expenditures of approximately $230 million and depreciation expense of approximately $400 million. Additionally, we will be making an equity contribution of a about $31 million to our HIsmelt joint venture in 2004.

As evidenced by actual capital spending levels over the past three years, and the 2004 budget, we have a strong focus on the careful allocation of our shareholders' capital. Increasing long-term returns on our invested capital is the objective of our growth strategy.

Cash and short-term investments totalled $350 million at the end of '03. This is up from both $219 million at year-end 2002 and $285 million at the end of the third quarter. Approximately 135 million of the December 31 cash and short-term investment position was held by our 51% owned joint venture Nucor-Yamato Steel Company.

As Dan shared with you, our 2003 cash provided by operations performance was our fifth best ever at over $500 million. Our fourth quarter 2003 tonnage data report is posted on nucor.com, with the usual information on production shipments, orders, and backlogs for our major product lines.

Thank you, Terry.

At this point, I'd like to introduce John Ferriola, our Executive Vice President of our flat- roll products group for a presentation. John.

Thank you, Dan. Good afternoon.

The sheet mill group is experiencing strong demand for our product and the first quarter order book is full. We have focused on managing our order book to improve on-time delivery. As a result, all of our sheet mills are within one week of being on time.

More importantly, it should be emphasized that all customer orders accepted by Nucor will be produced and delivered. They will not be given back. We are reviewing our maintenance programs and schedules to ensure that equipment availability and steel production are maximized during this period of high demand.

Furthermore, in 2004, we expect an increase in production and shipments of 10% over 2003 levels. This additional tonnage comes at a time when our customers are requesting more steel and will result in improved pricing levels for Nucor. The second quarter order book will be opened in mid February.

While pricing has improved across all sheet products, cold-rolled and galvanized product prices have increased rapidly and traditional spreads between hot-rolled, cold-rolled and galv are finally returning after being compressed for most of 2003. Pricing expectations are strong for the second quarter, and we do not expect any change in the current high demand for flat-rolled products.

The sheet mill group continues its strategic direction of providing value-added products for value-added customers. We continue to position ourselves in the automotive, appliance, HVAC, and high carbon markets.

Nucor Berkeley's vacuum degasser's in startup, and the early trials are encouraging. We have a number of deep drawing steel trials in progress at this time. These are more formable steels, providing substantial opportunities for us to supply our targeted markets. Other exciting new products are being produced, such as dual phased hot-rolled galvanized and [galvanile] for the automotive industry.

While the sheet metal group continues to pursue profitable contract business, we did pull back from our goal of 50% to 60% when contract pricing deteriorated below acceptable levels in the last half of 2003. This adjustment will work to our advantage this year, allowing greater price realization and providing us with the opportunity to gain new contract business at fair prices. Long-term, the sheet mill group will continue to pursue profitable contract business.

We appreciate the support we have received from our customers concerning the raw material surcharge. As a result of their support, we are confident in our ability to obtain the necessary raw materials to meet their steel requirements. I want to emphasize that our mills are currently running at 100% capacity without any curtailment due to raw material availability.

Progress continues on our thin-strip casting facility in Crawfordsville, Indiana. The environmental permit granted at the end of last year has enabled the Crawfordsville melt shop to begin ramping up the supply of liquid steel to Castrip. Process improvements have increased the output of Castrip significantly and multiladle sequences are now routine.

During a recent week-long Castrip capability run, an annual production rate of 200,000 tons was achieved. In 2003 Castrip produced over 48,000 tons. Our production goal for 2004 is 125,000 tons. Castrip coils have been shipped to a potential licensee in Europe and the preliminary results from the trial are very good.

Our newest mill in Decatur, Alabama, was also Nucor's safest mill in 2003. I would like to thank and congratulate the team on their safety performance.

Operationally, the fourth quarter was one in which we saw a number of improvements at Decatur. We improved in the areas of consistency, quality, and customer service. Despite downtime for repairs and holidays, Decatur produced over 375,000 tons in the fourth quarter, or at an annual rate of 1.5 million tons.

In the third quarter, we installed a new pinion gear set in our R-2 mill. We installed a new soft main gear in our R-1 mill in the fourth quarter. These installations have greatly improved our mill reliability and product capability.

In April, we will receive the remaining gears required to significantly increase Decatur's capabilities beyond the original design specifications. Installations will be based upon need and market conditions. Decatur produced 1.2 million tons in 2003, and we expect to produce well in excess of 1.7 million tons at Decatur in 2004.

Thank you, Dan.

Thank you, John.

We also have Joe Rutkowski, Executive Vice President of our business development and our plate and beam group, has a short presentation. Joe.

Hey, thanks, Dan. And good afternoon to everyone.

I'd like to make a couple of comments regarding plates and beams. Our backlogs at the end of the year in both markets were up markedly from the year before. Our order intake in January has been very strong, as well. The backlog has increased since then and plate backlog has remained very steady.

Beams we announced a $20 book increase on all wide flange in mid December. We've recently increased [H-pile] pricing and increased base pricing on sheet piling by $40 per ton on January the 13th.

Fabricators are telling us that there is more work out for bid, so we're very optimistic for a strong beam demand in '04.

We're also nearing completion of our development of the PZ 35 and 40 sections of sheet piling at Nucor-Yamato Steel.

Plate's been a very difficult market for the last two years, however, the demand has increased in the last couple of months. We've worked hard to service our customer's on quality and on-time delivery, and are now positioned to be the supplier of choice in our markets.

Recently announced a base price increase on plate for April orders of $50 per ton and are filling the order book rapidly. [INAUDIBLE] April is open at this time.

While we shipped 1 million tons in '03, we're currently operating at a pace exceeding 1.25 million tons today. Congratulations to our beam and plate employees in achieving our best safety and quality performances ever in 2003.

Thanks, Dan.

Thank you, Joe.

At this time we'd be happy to turn the meeting over for questions.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

Our first question comes from Mark Parr of McDonald Investments. Your question, please.

Hey, good afternoon.

Good afternoon, Mark.

One thing -- I had a question on the SG&A for the fourth quarter. I was noticing it was down about $10 million from the third quarter level. Terry, I was wondering if you could just give us a sense of, you know, why it came down so much, and what the outlook would be for SG&A moving into '04?

Well, remember one of the big factors in our SG&A is profit sharing. And it's 10, basically 10% of pretax, so the largest single change in there is profit sharing.

Okay, thanks. Do you have a sense at this point on the tax rate for '04, and how recurring the state tax credits and refunds will be in the current year?

Our forecast for the first quarter, and right now for all of '04, has an effective rate of just over 34%. So back to more normal.

Okay. Terrific. Thank you very much.

Sure.

Thank you, Mark.

Our next question comes from Brian Rail of Midwest Research. Your question, please.

Good afternoon. I was curious about the Green Pig project with CVRD. I know that you guys had mentioned that there was the opportunity to expand that, should the need arise.

Have you guys looked into doing that here with raw material prices where they're at?

Joe, would you like to answer that?

Yeah. This is Joe Rutkowski.

We know in our plans, in our engineering plans, we pretty much have laid out the plan for the ability to double that capacity, sort of a mirror flip of what we currently have, what we'll be bringing up in the first phase. We haven't acted on that at this point. We're in the middle of getting our permits and starting the construction and letting all the procurement packages and all of those types of things.

The easy answer would be, no we haven't at this point. But I think once we get well underway in this project, we'll be -- we're going to be meeting with CVRD actually next month, and that will probably be part of the discussion.

With the permitting and the various procurement, would you have to basically, you know, get new permits and everything to expand this, or do the current permits --

I don't know the answer to that at this point.

Got you. Okay. Thank you.

That's a good question though, and one thing I will add to that is, we are -- and we can talk about this some more in further questions if there are any, but we are working on a number of different strategies and, as we speak. The details in which we're not able to share, to increase our raw material options going forward, including opportunities to bring raw material manufacturing facilities in-house such as the air, DRI plant that we talked about in previous press releases. But there are others that we're looking at, as well.

So it's just -- we're not just working on the Green Pig project. And depending on how some of these other things work out, will influence how quickly we move into phase two at the Green Pig project.

Great. Thank you.

Our next question comes from John Tumazos of Prudential. Your question, please.

Congratulations on making money.

Thank you, John. It's been tough out there, but our people are doing it.

It's better than the alternative.

Could you walk us through underlying assumptions and swing factors in the 40 to 60 cent first quarter guidance, average cost of scrap used, tons produced, if can you, product pricing?

It sounds like some of your products are already booked for the quarter, so you ought to have a pretty good idea. Whatever you can share with us, please.

Well, first off, most of our products are booked for the quarter. Our steel products are all booked for the quarter in terms of the steel mill production, and we've got healthy backlogs in our product groups.

And as far as the swing factors, with the surcharge in place, the influence of scrap increases will be significantly less than versus where we were last year, and even in the fourth quarter. And we have pricing increases already in place in first quarter versus where we were in fourth quarter.

Right now, the situation, we have a strong LIFO inclusion in our earnings estimates for the first quarter. So, as far as exactly what's going to happen with respect to scrap prices, usage numbers are definitely going to go up. But they will go up at a lesser rate than what our selling prices and revenues will go up as a result of both price increases and the surcharge being put in place.

Don't have actual numbers to put in front of you, John, at this point in time.

Dan, we, you know, we read these trade publications. And just to give you a sense, they write about alumina spot prices at 400, when Alcoa realized 192.

And, you know how these scrap quotations sometimes, or the dealer bids, or what the dealer tells the newspaper reporter Friday night. Not real transactions. And those auto bundles might be 8,000 or 10,000 tons a month and Nucor's doing 1.5 million tons a month of metallics.

Uh-huh.

So, forgive my stupidity and ignorance, but you guys really know a lot more than we do reading what the scrap brokers tell reporters.

Should we be assuming that the cost of metallics goes up more like $15, $20, $25 in terms of cost of scrap used? I don't want to be like alumina where some people think the price is 400 when Alcoa's getting 192.

Well, in reality, John, those prices are pretty close. What you see in the press, they're pretty close to what's actually being incurred.

And there are time lags between when we purchased and use scrap, so the scrap usage numbers will always be different than what the scrap purchase numbers, or iron use numbers are for a given month, or for a given quarter, for that matter. But I would have to say that right now, those scrap increases your reading about are actually being experienced in the real dollars, in terms of what we're paying.

So the scrap broker ain't lying to the reporter?

Uh --

Too much?

I think that the reporter probably does as good a job as possible in talking, not only to the scrap brokers and scrap processors, but also to several of the mills who are buying scrap and weighs all of that information. I imagine he's -- the numbers he finally puts in there is some aggregate of all that information.

I couldn't tell you exactly what -- how much that would be different than what the scrap brokers are telling him when he first talks with them, but they're pretty close to what the marketplace is actually seeing for scrap costs.

Could you review which published grades of scrap you're using for the surcharges on different product classes? Just to make sure we're paying attention to the right time series in the publication.

Sure. Sure. We're using the American Metal Market published pricing near the first of every month, the first week of every month. For long products, we're using shredded, and for flat-rolled sheet products, we're using bushling. The reference point for the shredded is 162 a ton. The reference point for is bushling is 170 a ton. And that's where things stand right now.

We are not blind to the fact that some people might try to influence once you publish a spot or a scrap index that you're following, but -- there might be someone out there that might try and do things to manipulate that situation. And we have a number of ways of following through to see whether people are or they are not. We will absolutely do that.

On the whole scrap issue, I would probably at this time, just like to quote somebody from the industry who is well known as a strong supporter of the scrap industry. I have spoken on their behalf many, many times as a steel producer and user of scrap, and I will quote, "Scrap, we are now in the phase of greed and speculation. It is not supply and demand logic. It is what price the highest buyer will pay and that clearly becomes the market price. The bubble will eventually burst."

That's pretty much how we look at the situation ourselves. In the meantime, we've done everything possible to make sure that we can get the raw materials, to supplier, customers, so they don't have to worry about phone calls saying, "Sorry, Charlie, we can't meet 50% of what have we promised you, how about pushing it out to the next quarter or two quarters out?"

We're going to do everything we can, and we are, to make sure that our customers get the steel they need in a global market that has a tremendous, tremendously high-demand situation right now, and is experiencing really runaway raw material costs. We think that that will moderate as we go through the year.

But everybody that's been forecasting on this has been wrong so far, so I'm not going to even hazard to guess a forecast of where things are going to be. All I know is that we'll be working to make sure our customers get the steel they need, when they need it, on time, and take care of their steel needs.

Dan, for reference, how much is the February surcharge for long products on shredded and sheet products on bushling?

Right now, the total surcharge, including what was in place in January, plus the edition in February on long products is $49 a ton, and on sheet products, it's $60 a ton.

Thank you and congratulations.

Thank you, John.

Our next question comes from the line of Wayne Atwell of Morgan Stanley. Your question, please.

Thank you.

Hello, Wayne.

A couple quick questions. I hope it's warm down there. It's kind of chilly up here.

It's been cold, but it's starting to warm up a little bit.

Well, that's good. Hopefully that'll -- you can send that our way.

We just want warm weather for the Super Bowl game that we're going to win down in Houston.

There you go. There you go. Sounds like some people might take the other side of that bet on the call. Maybe you could make some money.

Seven points? Ten points?

The -- what we hear about the surcharge is that auto industry and the contract buyers aren't very happy about it. I hear two stories. One, is that it's sticking, and one is that it's not sticking. Are you able to pass through your surcharge on contract business?

I'll let John Ferriola speak to that. The short answer is yes.

The shorter answer is yes. We have passed through the surcharge on all of our business, contract and noncontract.

Okay, so there's really no equivocation there, you're definitely getting it?

That is correct.

Wayne, let me just add to that.

These are difficult times, and, you know, we're all very unhappy with the raw material increase as steel producers go, and our customers are not happy about having surcharges apply, but they understand. And are there some folks that are unhappy, would rather it wasn't there, and we'll voice that. Absolutely.

But the reality is this has to be passed through to the final consumer, because it's for real and it's not going away anytime soon.

Well, it's certainly an environment that I've never witnessed before.

Green pig, I hear that project is late getting started. I heard that from your partner. But you're going to get it done by the end of the year, so it's going to be billed pretty quickly?

Yeah, I'll answer that, Dan.

We -- just like in the states, Wayne, you have to have environmental permits before you can start construction. We are permitted already to do the work we needed to do in the forests, which is, we're already cutting trees, we're harvesting trees, we are building several prototype furnaces, one of which is a proprietary technology that we're developing with [Brickmont].

We'll be -- it is in the middle of the rainy season down there, so we will be doing the charcoal trials in probably the early part of March. The site's been selected near Maraba, our engineering is well underway. We have a total of 43 packages of procurement, different packages of procurement that are out there, more than half of them are on the street.

We're already analyzing the results, you know. We're well on a long on the project. We expect to be actually on the site and beginning core construction, I would say, in March-April, and we're going to go as quickly as we possibly can. I have three guys going down there in about two weeks.

We've been reviewing the schedule with CVRD every day trying to make sure we don't lose ground. We expect to have one mini blast furnaces up in the -- hopefully in the early fourth quarter, and try to get the other one up before the end of the year.

Now, my understanding is this is off the shelf technology. So it should be fairly easy to get up and running and there shouldn't be any technology risk.

If that's the case and if you're happy with the way this thing starts up in the first phase, I would think you'd want to expand this by tenfold. I mean, you could use four or five --

Uh -- we will look at that. Actually, that's a good point. We'll look at that versus the other options that we're pursuing, and we'll weigh those. But you're, I mean you're not stating something that's not something we would be considering.

Right. And lastly, Dan, in the past you've talked about M&A, and you were pretty positive about it, and you ended up coming up with more ideas than I thought would actually make sense.

Is this something that has pretty much run its course for you now, and certainly, you're not going to tell me where or what the names are, but are there still opportunities out there that can you pursue, and is the game not completely done yet?

Absolutely. There's opportunities that we are pursuing. You are correct. I can't talk about and won't talk about. And the game, as you say, is not over.

Great. Thank you. Good luck on Sunday.

Thank you. We will.

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

I have two questions, please. First Dan, I think I heard you say that you have received price relief on all of your flat-rolled bookings, so does that mean on some of the contract business to which you made bookings before, such as automotive, you might have been able to obtain some price increases?

John?

If the question is with our contracts for 2004 --

Yeah.

The answer is definitely yes.

Okay. Secondly on Castrip, I heard some statement about you were working with a licensee in Europe. I'm wondering that when you -- if you were to be selling your Castrip facility, whether or not that might include a galvanizing unit at the end of the Castrip facility.

I can't comment on that.

Thank you.

Nice try, John, or Peter. Nice try.

Okay. Thank you.

Our next question comes from Brett Levy of Royal Bank of Canada. Your question, please.

Hey, guys. Another great quarter. Quick question.

I mean, relative to the surcharge, you know, it's coming off of the Cal Steel conference call in the West and the AmeriSteel conference call in the East, I get the sense that not everyone is going along with the surcharge.

How are you addressing this? Can you talk about any product areas where the surcharge is being particularly resisted? And then, obviously, with the GM comment on the surcharge, can you talk a little bit, I mean, about how that relates to you guys?

Well first off, the vast majority of steel producers have put surcharges in place. And certainly in all of the beam product lines, the plate product lines, and the majority of the flat-roll product lines, both minimill and integrated. On the bar side, a couple of people have come along. Others have chosen to deal with it through market pricing.

I think you'll find that we are competitive in the marketplace, whether there's a surcharge in place or not. And people have different reasons for choosing different routes. And, you know, we've made the decision that we did, and the prices are being accepted, and across all product lines.

I don't know if John wants to address anymore of your questions about GM in particular, but we have automotive customers that the surcharge is being passed along to.

I think I'd make a more general statement and say that our customers clearly understand the relationship between the surcharge and our ability to obtain the raw materials that they need to run their businesses and their operations. And, frankly, they're counting on us to supply the steel that they need, and we're not going to let them down.

And, you know, to that point, I have visited many customers in the last couple of weeks discussing this. Clearly, as Dan said earlier, they are not happy customers, but they are understanding customers. They understand how important it is to keep a strong supply of base and to keep Nucor in that strong supply of base, and have been very willing to work with us on this.

One thing I will add is that not every supplier in the marketplace has been able to live up to their commitments to the customers. Nucor has, and will continue to. And that's an important issue going forward.

Particularly as the economy improves, demand picks up, and as the global economy, in particular with China, what's happening in China and India, continue to move in the directions they're moving in. And we will continue to do everything to make sure our customers gets the steel they need from us.

All right, which brings the second question, actually, I had. With respect to China and India and the whole Far East question, what is your view on, you know, kind of their ability to start to become a little bit more self-sufficient globally?

I think India is self-sufficient.

As far as China goes, you know as well as I do, all of the capacity that they're building over there, and the rates at which they're consuming steel. I think that they're running into logistical constraints that are -- they've built a lot of capacity that they're going to have trouble supplying the raw materials to. Either because of availability or because of logistics. Because of power problems, because of a whole host of issues, including coke shortages.

I just heard today that they've reduced again the amount of coke they're going to sell to the world. And so, you know, this is a process that's been going along very strongly. It will have its fits and starts and stops. And, you know, right now, I think you're going to start to see some governing of the whole process, because just of the issues such as getting enough ships to move stuff, railroads within their countries, power to run their plants. Raw materials, you name it.

There's a limit as to how far you can go, and I think you're going to start to see some of that impact. It's going to start impacting raw material prices as well. Freight rates are going through the roof. The availability of vessels is decreasing, and that's all going to have an impact on the pricing, where the raw materials are coming from.

So, now it's for real, no doubt about it. For the next 30 years, it's going to be for real. Our best guess is that you'll see things, you know, moderate as we go forward here, but still, be a positive growth trend.

All right, and last question. Globally as you look at your M&A opportunities, coking facilities in places and sovereign places that are environmentally friendly, are those on the list of things that you guys are looking at?

No, we're not looking at coke issues at all, as the blast furnaces that we're looking at operating in Brazil will be run on charcoal. That comes from farming, tree farming operations that are already in place. And we have no interest at the present time of being involved in that clean little business called coke making.

Thank you.

You're welcome.

Our next question comes from Aldo Mazzaferro of Goldman Sachs. Your question, please.

Hi, good afternoon, Dan.

Good afternoon, Aldo.

Hey, on the Green Pig project, my question is, if you could help us compare what your cost of that charcoal might be compared to what the cost of -- the cost to make coke might be?

Joe, do you have any thoughts on that?

Aldo, ask that question again more specifically.

Yeah, I'm just trying to get a feeling for, you know, how much charcoal do you need to put in the blast furnace to replace what would normally be coke? And then whether the amount of that charcoal that you put in, whether the cost to produce that would be anywhere near say the, you know, $100, $120 a ton that it might cost to make coke?

Okay. In general, first of all, the mini blast furnace uses charcoal because it can. Large blast furnace can't. The charcoal is viable to the point where the large burden won't work with something that is that soft. That's why you have metallurgical coke that goes into a large blast furnace versus charcoal into a mini blast furnace.

Certain scale, first of all, of which you can only build a mini blast furnace, why you build your burden that can utilize a soft product like charcoal. On a consumption basis, it's not too different. I mean, it's in the neighborhood of a half a ton per ton of products used. On a cost basis, the cost of making charcoal is much less than the cost of making coke.

Factor -- Joe, could you comment on, you know, --

Well, I'm not -- you mentioned a number on coke. We're not familiar with coke costs. Certainly we hear coke pricing today.

Yeah, I know. The pricing seems like they ought to get Elliott [Spitzer] involved in the coke market.

I would say when you're talking about coke costs similar to what you're talking, we would be looking at, hope less than half of that number.

Good. Thanks very much.

And staying on the raw materials a little bit, Dan. You may have said this. I didn't hear you comment on what your plans might be for the old air project that you have an option to purchase.

We haven't made any comments about what the actual options are. Joe, would you like to speak to that?

Yeah. We're working hard, Aldo, on what to do with air. It's a nice mega mod. We are, we're considering all kinds of option. Do we run it there? Do we move it to a gas-friendly place? Do we convert it to HBI?

We're doing all the engineering work on on that. We're looking at everything we can possibly look at, and we have people dedicated to that project. But at this point, we have nothing to really report.

Great. If you pardon me, just one more question. This is for Terry, I think.

You know, if you look at the start-up costs in the fourth quarter, roughly, you know, $26 million, and you look at the rapid improvement going on in the Decatur operation and the improvement in Castrip, I had two questions. There seems to be a good chance it would drop sharply. I think you mentioned that it would.

But is there anything coming into the mix of start-up costs, maybe in terms of your raw material projects that would tend to keep some start-up costs? Let's assume Castrip and Decatur became profitable. You know, theoretically your start-up costs could go to zero that case, no?

We think they'll be $20 to $22 million in the first quarter and then going rapidly down from there. And that may be -- that amount in the first quarter, looking at it just today, could be well more than half of what it might be for the whole year.

Again, that's just looking today. We don't know of anything else coming in at this point.

All right, thanks very much.

Aldo, I know you're off now, but just to add to that, once Castrip becomes commercial and viable, we'll be looking at billing those plants elsewhere. So, you know, there will be start-up costs eventually coming back in as we build Castrip operations at our other locations, and eventually with HIsmelt, too. But we're a couple of years away from the HIsmelt deal.

Next question.

Our next question comes from Mark Parr of McDonald Investments. Your question, please.

Yeah, thanks very much.

Dan, you know -- you've gone on the record about a lot of different things related to just a, you know, government lobbying, you know, issues around the steel industry.

I was wondering if you had any specific comments you'd like to make on the recent commentary in the press regarding export tariffs on scrap? And whether you see that as something that could help out the minimill industry in '04 and '05?

Well, you know, right now, all of that discussion has been initiated, actually, by our -- by the customer base. We, as well as the SMA, have been approached by customers saying, "What can we do about the amount of scrap leaving the marketplace and the impact that the export of scrap is having on the pricing in the domestic market?"

And I know that there are customer groups that are pursuing various options. And at this point in time, our position, unless we start to see real shortages develop, has been to provide information, support what they're doing, but they will pretty much be taking the lead. One of the issues that we've been asking our government to focus on is not so much what's happening here, but what's happening offshore.

The Russians and the Ukraines have cut their scrap imports to the world market by 9 million tons in 2003 versus 2002. And, obviously, that helps them to keep their raw material costs at home very low and allows them to ship out finished products very low. And, you know, right now, there -- you know, this is an issue that we think that, you know, if they want to participate in a truly global open market, they can't be restricting the amount of scrap that comes out of their country. They need to let market forces determine what's going on there, increase scrap collections there like they happen here and elsewhere.

And, you know, a lot of people attribute the scrap issue to China. Well, it's only indirectly China. It's really more related to the fact that 9 million less tons of raw materials that were being supplied to the world market have been stopped from going out there through limitations that the Russians and the Ukraines have put on scrap exports.

So those are the type of issues we're working with the government to address. And there's a number of avenues that that's being pursued on by ourselves and by our people in the government, the congress department and elsewhere.

I mean, based on what you know now, is it viable quid pro quo for the U.S. to follow with the export tariffs on scraps at this point?

I am not sure that that's the best solution. That's why we have not taken a leading position on that. But we certainly do understand our customers concerns. I think even some of our customers will be looking at exactly how the scrap market is being traded today in this country.

It seems like, you know, you've got a thousand tons of number one factory bundles being offered. Somebody decides to bid it up every month, $25, $30, and then that sets the tone for the whole damn market. Some people are very concerned about that behavior, and they're taking a look at it.

Right.

I think you'll see people taking more of a look at it. And our customers are the ones that are leading the charge on that, and I know they'll get a lot of support on those type of issues if anything is found out.

Speaking of the up $25 a month, I mean, has the -- have the numbers for the February bundles auction come out yet? I thought those were going to be out either today or tomorrow. I haven't seen them yet. I wondered if you guys had.

Usually they don't come out until the first week of the month. But what we've heard, and I haven't had confirmation, is that the first thousand tons is up over $30 a ton.

Over 30? Oh, my gosh.

Yeah.

Yeah, just one follow-on on the scrap issue. Because, you know, it does seem like you're really being very proactive and looking, as what you said, in, you know, enhancing your options as far as raw material inputs are concerned.

What do you look at as a, you know, as a viable strategy in terms of, you know, how many tons of alternative materials make sense for an effectively diversified raw material portfolio? And what's an appropriate capital cost per ton to, you know, to bring those materials on line over the next several years?

Well, at today's, you know, Nucor in a year's time will be a 20 million ton a year producer and shipper. And it's not -- today I think we're doing close to 3 million tons of iron units.

2.5.

2.5 between HBI and pig iron and some DRI. Certainly the 25% of our overall mix is something that, you know, we would shoot for, 25 would make it 35%. Certainly there's no reason why that couldn't be the use in our electrical arc furnace at those levels. We have done that already very efficiently. It brings a lot of actual production enhancements to the operation.

As far as cost per ton, a capacity that, from a purchase stand point or a build standpoint -- Joe, what are we looking at for the Green Pig? Can you talk about that?

On what, Dan?

Can you talk about the capital cost per ton on the Green Pig project?

Well, it's split up, really. Because we have a contribution of a forest, which is a significant contribution.

Right.

So, on the actual mechanical equipment site work infrastructural issues, I would guess it would be a little over, say $100, $120 a ton on the -- and the forest is going to be a little less. The contribution of forest will end up itself being a little less than $100 per ton.

So if you have, that's one of the things. If you have an adequate forest and you're going to have your own sustainable charcoal and that type of thing, and make your own charcoal, it's going to be in the neighborhood of a couple hundred bucks a ton.

John, do you have any comments on that?

I'm not involved with the Green Pig project to that level of detail, but when you look at the availability of the material today, that's our number one concern. It's certainly worth that amount of money to move into that area.

All right. What do you think, Joe, on the -- the air project. If we go forward with one of our more likely scenarios. What are we looking at per ton on that?

On an annual ton, capital per annual ton, we would believe less than $100 per annual ton.

Yeah.

Okay, terrific. Thank you very much for your -- for the comments.

Our next question comes from Michelle Applebaum of Applebaum Research. Your question please.

Hi.

Hello, Michelle.

I thought it was interesting that you're backing off of the contract market. You had a goal of 50%, 60%, right?

Absolutely.

In your flat-rolled business?

Absolutely.

Okay. Now, what's your actual right now? Assuming this 10% production increase that we were talking about?

Today, we're at about 35% to 40% contract business.

And contract is something, 12 months in your book or over three months?

No, we define it as over six months with firm pricing and firm tonnage commitment.

And you really said, John Ferriola, that you have passed through surcharges on all your contract business.

That is correct.

You really said that?

I said it.

Okay. That's -- that's a surprise.

The reason, Michelle, that we have backed off from the 50% to 60% is because the pricing was such that it didn't make sense to maintain those levels. And that doesn't mean long-term. That's not our strategy. It just means there's times when the market pricing is such that it's not smart to lock up long-term agreements.

Well --

Steel prices are moving that rapidly, and probably our customers are saying the same things about when prices are moving rapidly down. So --

Yeah, no, I mean I never was particularly excited about the target of 60%. I thought that that was overdone, and, you know, everybody wants to sell the auto industry, and you know, you don't always make money there. So, I guess --

Well actually, Michelle, very little of our business, contract business goes to the automotive.

Mm-hmm. Where's it going?

It goes to different OEMs. Automotive is probably about 5% today of our business. Goes into the electrical steel markets, appliance, HVAC, you know, many different OEM applications.

Okay, and what was your contract business last year on a percentage basis?

It was about 55%.

All right, so this is a drop.

Yeah, and to Dan's point, we saw a dramatic change in the last half of 2003 in the contract pricing.

Mm-hmm.

And, you know, as he said, you take a look at it. There's good contract business and there's not good contract business. You don't take contract business that isn't good contract business.

Mm-hmm. No, no question.

Okay, another question is, I hear noise about something called Mesabi Nugget. And to the extent that you're interested in every type of seed stock out there. Can you give me your view on this thing? What it is, is it something you guys might be interested in?

Is that a new entree at the Chicken McNugget? No, I'm just joking, Michelle.

You are just joking? Okay, I'm glad to figure that out.

We are aware of it. In fact, we were approached several years ago when I was at Nucor-Yamato about turning the -- a hearth, rotary hearth operation that was a dust processor at the [Almatt] plant into a Nugget, Mesabi Nugget-type, It was called ITmk3, I think, is the technical name for the process, and we decided not to do it there.

We think it has a viable potential as a raw material supply to the marketplace. The product that we saw looked pretty good. And, you know, I encourage anybody that's interested to get a couple of plants running.

Is -- okay. Who is the vendor on that, and is that something that you might want to build a plant?

I think it was --

Kobe.

Kobe. Yeah, thank you, Joe. And, anything's possible.

Mm-hmm. Okay, are you looking at other raw materials investments?

Yes.

Okay. I'll ask it ten different ways, and I'll get a 90% answer, so just let me keep going.

I feel like I'm on "What's My Line", here.

What is the ideal integration mix at Nucor? I mean, this is for real. Ken started doing this in '88. I mean, this is not new, it's just a matter of figuring out how to do it.

Right.

What would you [INAUDIBLE]?

We got into the iron carbide in the '80s because we knew we were getting into flat-rolled and we thought it would be good to have some of our own in-house raw material supply of high quality metallic. That strategy's not changed.

That's why 3 1/2 years ago we were still working on things like HIsmelt and decided to go forward with that and Green Pig. The strategy is a good one, and it's been here for a long time, and we're acting on it in a number of different ways.

When you say integrate, I'm not sure I understand what you mean. I think what you're saying is, you know, what -- how much of this do you want to be doing yourself? What percentage of your raw material mix do you want to have coming from in-house iron unit production? Is that what you're asking?

Yes, exactly.

Okay. You know, we've talked earlier to a question that Mark Parr asked, you know, 25%, 35% of our usage could be scrap replacement units like pig iron or HBI or Mesabi Nuggets or whatever you want to refer to it as, and even DRI in the open market. We wouldn't necessarily be interested in building DRI plants. But, you know, it's entirely possible that we could be looking at anywhere from 20% to 35% of our needs being in-house some day.

Owned?

Owned. Owned, either, you know, in its entirety or JVs.

Would you own mining operations or have an equity interest, as well?

We have no plans to get into actual mining operations. I think that'd probably be too damn expensive today with all the money they're making.

Now, why do you, as the largest buyer of scrap in the world -- in the country, why do you you pay a broker?

Why do we pay a broker?

Mm-hmm.

Because we are the largest purchaser. We're coordinating the buys of 18 to 20 million tons of scrap. And they do a very good job for us. Have done it for a number of years. They know that business.

What we've always known well is how to operate steel plants efficiently and be low-cost producers and build them efficiently, and so together as a team we accomplish what we need to do.

So you couldn't see a scenario where you no longer have Joseph doing this for you, where you do it yourself?

Not at present time, no. We see no reason to move in that direction. We work well together as a team, not that there are not issues from time to time. But they do a great job for us and they actually do a great job for a lot of other people in the marketplace, as well.

Nucor is-- Nucor is -- and you, especially, Nucor's had enormous sensitivity through the years, particularly at Nucor-Yamato, in maintaining prices up until a level and then holding off on price increases.

There've been a couple of cycles, and I think you were running the plant at the time, where Nucor-Yamato held the line on prices to keep imports out. We're seeing price inflation in steel that's unprecedented in my professional life, and --

Never say never, right?

I never do -- except for -- I almost never do.

Can you tell me -- does Nucor -- is there a price cap? Is there -- do we worry about what kind of pricing we could get? Do we worry about Greenspan making noise? Presidents calling you on the phone?

Well, first off, if they're going to call us on the phone, they ought to be talking to the raw material suppliers first. Secondly, they're very pro open market. Since we found out with the rescindence of the 201. And with the -- the world market for steel is way beyond us. You take a look at global steel pricing, they're higher than we are, and so this is not a domestic United States of America issue. This is a global issue.

It's not just on steel, it's on most commodity products and raw materials and metals and you name it. So, this is a much bigger issue than just one industry or one -- one industry and one country.

Mm-hmm.

So, you know, as far -- yes, it's unprecedented. But, you know, in the past when we have fought the imports, it's because they were a threat. Today they're not a threat. That doesn't mean they won't be again. That doesn't mean we won't deal with it similarly in the future.

And as far as -- we want to make sure we're competitive with alternative materials. But if you look around the block, there's not an alternative material, whether it be aluminum or concrete, whose prices also haven't gone up dramatically over the last several years. And concrete's gone up something like 35% since the early '90s, while steel prices have gone down. So, you know, it's an issue.

Those -- all of those issues are important issues to follow and to keep track of and to make sure that the -- the market's going to dictate in the end what you can sell the product for. No matter whether you're doing it on a surcharge bases or you're doing it on a list price basis. And the market today is a global market.

Okay, I guess that's it. Thanks.

You're welcome.

Our next question is from John Tumazos of Prudential. Your question, please.

If I heard you right, you said that Castrip shipped 48,000 tons. Was that in a quarter or the whole year, last year? And you plan to do 125, was that for the coming year '04?

My impression was the capacity was 150 -- was 500,000, excuse me. But you said the results were going to improve. Does that mean the break even is very low?

The numbers were annual numbers. They were production numbers. And you're right on 2003 and 2004 numbers.

Now, the second part of your question, can you repeat the second part?

I believe I understood that the start-up losses were going to greatly fall for the company. So that must mean that the break even point of the Castrip is something like a fourth or three-eighths or under half of capacity, then?

John, break even obviously depends upon what you're selling the product for off of the mill. And that will influence at what capacity you're breaking even.

So silicon, [INAUDIBLE], electrical, and stainless steels must be really kicking butt.

Electrical steels are kicking butt.

And the capacity, you're absolutely correct on the capacity numbers of 500,000. But, again, as we've said on several conference calls, right now what's limiting us is the back house expansion.

First it was the permit, we got that. The back house expansion is going forward. When that's in place, the melt shop will be able to produce steel at the same rate that Nucor-Yamato does, which will give us more than enough to be able to supply half a million tons over time.

Won't happen overnight, but through the course of the year, and what John is saying is that for 2004, we're looking at, conservatively, 125,000 tons of production.

Of production.

In 2004. John do you have any comments about the production numbers in the last quarter or --

Clearly 2003 was a good year for us in terms of learning the process. If you look at the production in the fourth quarter of 2003, compared to the first quarter of 2003, it's a world of difference. And we moved very quickly up a learning curve once we made some initial discoveries, which we made about mid-year.

Fourth quarter was about 22,000 tons versus the first quarter, which was probably around 6,000 or 7,000 tons. I don't have the exact --

But of the 48,000 tons of production, just a little bit below half was in the fourth quarter, John. So the production is ramping up significantly.

If I could ask a follow-up. You said for sheet products, your scrap surcharge is pegged to bushling?

Yes.

I was just fooling on the American metal market website, and you can click on up to shredded real easy, in number one heavy melt, but not bushling.

Well, bushling is published --

Is that out of Iron Age?

No, it's published on a daily basis in AMM.

Okay, I need to click at a different place. Just for reference, how much higher is bushling, roughly, than shredded?

Last month, it was roughly $19 a ton higher. It was 230 versus 211.

And please forgive my lack of familiarity, but what is the difference between a bushling and a turning and boring? I'm thinking it's something like wood shavings, but I must not be thinking of the right grade. What's a bushling?

Turning or boring is actually a [INAUDIBLE] drilling-type operation, okay? And it comes down in chips and -- let's see, what's the -- I should know what the correct --

I think of wood shavings.

Yeah.

Rigatoni?

No, it's not rigatoni, alright. Bushling is a totally different product. It's cuttings and --

Trim material off of pickle lines, for example, edging materials, stamping materials. Those kinds of things.

I think it's -- the number is, you know, for every kind of prime steel that goes into a stamping operation, like 49% of it, comes out as a bush, as a piece of scrap. So --

So it's a clean, prompt industrial grade.

Absolutely. Absolutely.

Okay. Thank you.

Our final question comes from Wayne Atwell of Morgan Stanley. Your question.

Thank you. Could you refresh our memory on your guidance for this year? Did you give us a price, an average price assumption for the first quarter? And what did you say about your average expected scrap costs?

We didn't on either account. The only thing that we forecast for the first quarter was the earnings range of 40 to 60 cents a share.

Is there any way you could share your thoughts on the pricing of either of those?

No. It will be -- pricing will be significantly higher. But not on an absolute [INAUDIBLE].

Okay, I'd be willing to take that bet.

And lastly, this is sort of an esoteric question, but the steel markets are about as tight as I've ever seen it, but markets change. And if you fast forward three to five years, the Chinese are going have a very large steel industry. And when the Chinese have an industry they operate it, irrespective of environment, and you guys are pretty forward-thinking.

Are you at all worried about or thinking about what the environment's going to look like in five years when is the Chinese have 400 million tons of steel capacity and their labor cost is extremely low? Now you have a low labor cost, but this could have -- this could be a pretty ugly environment for the steel industry.

When you say environment, now you're not talking about the quality of the air and the brown cloud over China, right?

Well, no.

You're talking about that -- the market for steel environment.

Exactly. I'm talking about competition.

I know what you mean. I know what you mean. They don't have any regard for the environment either in China right now.

But I think they are, and I think that you will see consolidation take place in China before you see the type of behavior that you're concerned about. But yes, it's something that we are concerned about. It's something that we are being proactive with and dealing with the eventual situation, which will come, where they can produce more than they can consume for whatever reason, a downturn in the economy or over building.

We are well along in laying the ground work from a standpoint of trade issues and how to handle it in Washington with the Department of Commerce and with the legislature. And this is not just Nucor, this is an industry-wide effort. Not just the steel industry, but manufacturing in general. And these will be very, very well discussed issues, and there will be things in place to mitigate that. But the reality is, you know, that day will come, and we will all have to deal with it at that time.

Certainly one of the good things for us in that type of environment is you will see raw material costs, our raw material costs go down along with that. That's why Nucor's, in the past down cycles, has been able to maintain profitability because our raw material costs are more variable than fixed. And so, yes, it's an issue. Yes, we're concerned about it. And, yes, we're not sitting on our hands.

If I could just pursue that a little bit more. In the past it seems there's two problems in dealing with Washington. They only respond to headlines in the paper, and it takes a long time for any trade action to get completed and in place.

So one worries that they might be slow to react or really not care unless voters are starting to focus on it. So, I guess this is something that's going to require a lot of education in Washington, and what's their response? And do you think you can educate them that they've got to be proactive instead of responsive?

Wayne, I think that the education process is way past go. I think it's a manufacturing issue and a manufacturing agenda is being brought by the entire manufacturing sector. China is not just a steel issue. It's more of a nonsteel issue today and other manufacturers issue today than it is for steel.

I think the attention on the education process is well underway. I think if you follow what's going on in Washington, particularly in the Congress, you see that people are being proactive about these issues. We think that by the time those type of things happen, there will be concrete means in place to deal more proactively, faster, more efficiently with any illegal activity from a trading standpoint that might be going on.

I think the sensitivity in Washington is extremely high today. I think it will continue to be high, and I think the entire manufacturing base will be keeping the pressure on, not just the steel industry.

Great, thank you very much.

I think we're done with questions.

Yes, sir.

Just a closing comment.

Again, thanks to everybody who participated on the call for the questions that they asked and the professionalism. Thank you to all of our employees for getting through a tough year. Next year will be significantly better, and we'll enjoy the fruits of that. And it -- better than 2003. It'll -- it's not without its risks, it's not without its problems, but I know we will work through those as a team.

Speaking of teams, as I sit here with my Charlotte brothers here in Nucor, we're sitting around here with Carolina Panthers shirts on, thinking of our team this weekend. Go Panthers! Thank you all very much.

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