Nucor Corp (NUE) 2004 Q2 法說會逐字稿

Good day, everyone and welcome to the Nucor Corporation 2nd quarter of 2004 earnings release conference call. As a reminder today's call is being recorded. Later we will conduct a question-and-answer session and instructions will follow at that time. Certain statements made in this conference call are forward-looking statements that involve risks and uncertainties. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy.

Some of the important factors that may cause actual results to differ from our predictions are listened in Nucor's SEC filings. The forward-looking statements made in this conference call speak only as of this date and Nucor does not assume any obligation to update them. For opening remarks and introductions I would like to turn the call over to Mr. Dan DiMicco, Vice Chairman, President and Chief Executive Officer of Nucor Corporation. Please go ahead sir.

Good afternoon, and thank you for joining us for Nucor's conference call. We will briefly review result force the 2nd quarter of 2004 and then take your questions. Terry Lisenby, Nucor's CFO and our other EVPs, John Ferriola, Pam Lot, Mike Parrish, and Joe Rutkowski are with me this afternoon and will be available to answer questions as well. But first, as is our custom, I would like to say hello and thank you to all the members of the Nucor team who are listening in to this conference call on the Nucor website. The more than 10,000 men and women of Nucor worked hard and worked together this quarter to deliver strong profitability for our shareholders. By taking care of our customers, the Nucor team is moving ahead toward our goal of being the safest, highest quality, lowest cost, most productive, and most profitable steel producer in the world.

Nucor's employees are our firm's most important assets. They will ensure our future success. Because of the efforts of the entire Nucor team, we have achieved a record year after only 6 months. This is why our board of directors has authorized the payment now instead of at year-end of an extraordinary cash bonus of $1,000 to every employee other than senior officers as of this Friday. Thank you for a job well done. And let's continue to do it together. I also want to extend a warm welcome to our newest addition to our Nucor family.

Our team at Nucor Steel Tuscaloosa. We are excited about the addition of the new products that Tuscaloosa brings to our plate and coil sheet customers. We are also excited about the people that are coming with it. We will discuss this important acquisition later in our remarks. Additionally, I would like to say hello to our soon to be newest members of our Nucor team, at the Decatur Cold Mill. Our 2nd quarter 2004 earnings of $3.17 compares against year-ago quarterly earnings of 11 cents per share.

These are record quarterly earnings for Nucor. And they are more than double the previous record of $1.43 set in this year's 1st quarter. Second quarter 2004 earnings exceeded our initial earnings guidance range of $2.00 to $2.20 which we provided in our 1st quarter 2004 earnings press release in April. Our results also exceeded our increased earnings guidance range of $2.75 to $2.95, given in our June 15 press release. We expect the 3rd quarter to generate even higher earnings than the 2nd quarter. As you may have noted, our news release this morning gave earnings guidance of between $3.20 and $3.40 per share.

These 3rd quarter estimates do not include any contribution from either Nucor Steel Tuscaloosa or the Decatur Cold Mill. While Nucor takes a deliberately conservative approach to providing guidance we will continue to provide updates when appropriate just as we did in March and May of this year. A few details from the just completed quarter merit comment. The LIFO inventory charge for the 2nd quarter of 2004 was 67.1 million. Which included $12.1 million of our 51%-owned Nucor model structural steel mill. Prior year quarterly results included a LIFO charge of 6.5 million.

With a $1.3 million charge at Nucor Yamato. The 2nd quarter 2004 LIFO charge is also up from the 1st quarter 2004 LIFO charge of 32.2 million. With 7.2 million at Nucor Yamato. At the close of the 2nd quarter of 2004, Nucor's LIFO inventory reserve was $257 million, up from $158 million at year-end 2003, and $43 million at year-end 2002. Additionally, 2nd quarter 2004 results included a $13 million charge to cost of products sold.

This was related to a write-off of certain assets of the idle steel mill in Kenyon, Arizona, that we purchased from Northstar Steel in the 1st quarter of 2003. We determined that we will not restart Kenyon's melt shop and reduced the value of this asset to reflect that decision. Nucor's 1st half 2004 earnings of $4.59 are greater than our annual earnings record of $3.80 established in 2000. It is worthwhile to compare our performance in this year's 1st half to what we achieved in 2000.

The 1st half of 2004 annualized rate of steel production and shipments exceeds 20 million tons, versus full year 2000 steel production and shipments of approximately 11 million tons. Our bar mill groups annualized production rate in this year's 1st 6 months of 6.5 million tons, compares to full-year 2000, bar production, of 3 million tons. Our sheet mill groups annualized production rate of 9.2 million tons in 2004 compares to a full-year 2000 flat rolled production of 5.1 million tons. Our plate mills 1st half annualized production rate of 1.3 million tons compares against full-year 2000 production of less than 40,000 tons, as a start-up of the plate mill began in the 4rth quarter of 2000.

Earnings before income taxes in the first 6 months were $62 per ton. Versus full-year 2000 earnings before income taxes of $48 per ton. And 2nd quarter 2004 earnings before income taxes of $87 per ton exceeded 2000's peak quarterly level of $53 per ton attained in that year's 4th quarter. The record earnings achieved in the 1st half of 2004 are the initial payoff from successful execution of Nucor's strategic growth plan. Almost 4 years ago, the Nucor team developed and began an invitation of a focused and disciplined strategy for driving long-term growth in Nucor's earning power and raising returns on our shareholder's valuable capital.

Our strategic growth plan has positioned Nucor to capitalize on current robust U.S. and global steel market conditions. The objective of our long-term approach to building our business is to generate higher highs and higher lows, and profitability through economic and steel market cycles. As discussed on every conference call during this period, the keys to executing the strategy have been and remain one, optimizing existing operations; two, continued greenfield growth via the commercialization of new technologies; three, pursue strategic acquisitions; and four, grow globally through joint ventures.

And particular joint ventures using new developing technologies. Nucor's work to optimize existing operations encompasses a number of initiatives such as best marking, the bar mill group's capital projects program, the sheet mill group's work to improve volume, profitability, quality and onetime delivery are also continuing to move up the value chain, and fourth, most importantly, an across-the-board unrelenting focus and continuing to drive our conversion costs to produce a ton of steel or steel products lower. Nucor's commitment to greenfield growth seeking to commercialize new technologies as evidenced by our Castrip facility in Indiana and our participation in the high smelt joint venture in Australia.

Our ability and willingness to pioneer the commercialization of radically new steel making technologies is a long-standing key competitive advantage of our company. Nucor's major acquisitions made during the past 3 years generated significant and attractive contributions to Nucor's 1st half of 2004 profit and cash flow. As you will recall, these acquisitions were Nucor Steel Auburn, Nucor Steel Decatur, and four operating bar mills of Birmingham Steel. Our acquisition criteria have been and continue to be don't overpay, stick with businesses we understand, and make sure there's a strong cultural compatibility.

Nucor has established two joint ventures with Gold Partners that will enable our firm to pursue global growth opportunities in the consolidating steel business. Most importantly we have partnered with world class companies such as Rio Tinto in Asia and CVRD in South America and BHP, Blue Scope Steel in Australia. While the Nucor team has made meaningful progress implementing our strategic growth plan for delivering attractive returns in our shareholder's capital, there remains substantial work and opportunity ahead of us. I will now provide an update on recent progress and ongoing implementation of Nucor's growth strategies.

During the 2nd quarter of 2004, we completed the final project in our bar mill modernization program that began in 2002. Our team at Nucor Steel Texas started up the mill's new melt shop on time and under budget. Progress continues at Texas with significant increases in production each week. This project replaced five small furnaces and two Castors that were 25 years old with one large furnace and one Castor that represents state-of-the-art bar mill technology. We expect a new Texas melt shop furnace and the new rolling mill reheat furnace also installed last quarter in Texas to provide the same payoff we are already seeing from the upgrade projects completed in 2003 at South Carolina and our Nebraska bar mills.

That payoff is higher operating profits through lower conversion costs. Final to the success of these bar mill upgrades has been the Nucor best marking practice of identifying and transferring best practices across Nucor's divisions. Nucor's cash trip plan in Crawfordsville, Indiana achieved two significant milestones during the 2nd quarter of 2004. First, the 100,000 tons cumulative production level was exceeded. Second, the facility produced steel down to a thickness of 0.033 inches.

Our team has proven that Castor process has the ability to produce ultrathin high bend gauges that can compete and will compete with traditional cold rolled materials in many applications. We remain optimistic about the prospects for obtaining full commercialization of the Castor technology this year. On June 8, we announced an agreement to purchase substantially all of the steel-making assets of Coross's [ph] Tuscaloosa steel making operation for a cash purchase price of approximately $90 million. Which includes networking capital of approximately $37 million. Located in Tuscaloosa, Alabama the facility is a coiled plate mill manufacturing discrete plate and cut-to-length plate products.

Annual production capacity is approximately 800,000 tons. Importantly, Nucor Steel Tuscaloosa expands our product portfolio to offerings thinner than 3/8 inch gauge limitation of our North Carolina plate mill and wider than the 65-inch width capability of our sheet mills. On July 17, we closed on this purchase. We expect this acquisition to be immediately accretive. Please note this plant has been in continuous operation prior to, during, and following the closing and it is very profitable. On May 27, we announced an agreement with Worthington Industries to purchase certain assets of the cold rolling mill in Decatur, Alabama, for a cash purchase price of approximately $82 million.

The assets to be purchased include all of the buildings, the pickle line, four stand tandom mill, temper mill and a furnaces of Worthington's Decatur facility which is located adjacent to our Decatur steel mill. This acquisition will enable us to increase the value-added sheet product offerings from our Decatur mill. We expect to close the transaction within the next few weeks. Our two joint ventures under way with Global Partners to produce high quality scraps substitute products continue to move forward.

Our greenpage joint venture with CVRD is an environmentally friendly pig arm project using cultivated eucalyptus trees as the charcoal source. During the 2nd quarter of 2004 we continued on-site preparation placing equipment orders and testing of the prototype charcoal kiln. The first module we utilized two conventional mini blast furnaces to produce 380,000 metric tons was pig iron annually. At this time we expect production to begin in the 1st quarter of 2005. Our high smelt joint venture with Rio Tinto and other partners is building a facility in western Australia that converts iron ore fines and coal fines to liquid metal. The high smelt process is both a blast furnace replacement technology and hot metal source for electric arc furnaces.

Annual capacity will be 800,000 metric tons, which is expandable to over 1.5 million metric tons at a very attractive capital cost per ton of incremental capacity. At the close of the 2nd quarter of 2004, construction was nearly 90% complete, commissioning of some of the equipment began this month. We expect to begin production in the 4th quarter of this year. Nucor's participation in the high smelt and green pig ventures is part of our raw material strategy controlled by 1/3 of our earnings consumption or between 6 to 7 million tons per year of high quality scrap substitutes. We developed this strategy several years ago.

It is driven by Nucor's ongoing expansion of our sheet steel product portfolio into higher quality grades. Work on a number of other interesting potential metallic projects has been under way for some time. Various press reports have discussed negotiations involving the possibility of Nucor relocating the American iron reduction DRI plant from Louisiana to Trinidad, which offers low cost natural gas and favorable logistics. These negotiations are proceeding as we speak. And we expect the successful conclusion. As announced in December we hold a purchase option on the assets of air.

Nucor will continue to pursue opportunities to increase our scrap subject to resources at attractive costs. I was particularly encouraged by the work of our sheet millwork team during the 1st half of 2004. The Nucor sheet mills continue to make solid progress in a number of key areas, upgrading our product and customer mix, proving quality and ontime delivery and continuing to focus on cost reduction and strengthening of our marketing skills. On the marketing front the sheet millwork has been adept at taking advantages of opportunities in the area of contract business.

Last year's weak pricing environment, we dramatically reduced our exposure to the contract market. And with the improved and more attractive pricing seen in the 1st half of 2004, we significantly increased our participation in the contract market. Approximately 80% of our sheet metal tonnage volume for the 2nd half of 2004 has been sold under contract. I will also note that our contracts are binding contracts. Not just options to buy.

And they include scrap surcharge clauses. As you can see, the Nucor team remains focused on managing our business for the future, the long term success of our company, by continuing to build sustainable earnings power and returns to adequately reward our shareholders. This is why we believe Nucor's best years are still ahead of us. Terry Lisenby will now provide further details on our results for the 2nd quarter and 1st half of 2004. Terry?

Thanks, Dan. Good afternoon. Sales for the 2nd quarter of 2004 were $2,762,000,000, an increase of 82% over last year's 2nd quarter. First half 2004 sales of $5,048,000,000 were 68% higher than the prior year period. Total steel shipments of 4,905,000 tons in the 2nd quarter of 2004 were up 14% year-over-year. First half 2004 total steel shipments, 10,050,000 tons established a new 6-month record. And increased 16% over the 1st half of 2003. The 2nd quarter 2004 steel joist production of 136,000 tons was up 6% from last year's 2nd quarter.

The 1st half 2004 steel joists production of 252,000 tons increased 7% over the 1st half of 2003. Our 2nd quarter 2004 average sales price for steel and steel products are $575 per ton, increased $218 per ton from a year ago. And increased $120 per ton from the 1st quarter of 2004. Looking at quarter-over-quarter pricing gains, sheet increased $135 per ton, bars increased $90 per ton, beams increased $89 per ton, plate increased $135 per ton, joists increased $127 per ton, deck increased $97 per ton, and cold finished increased $99 per ton. Looking at the year-over-year pricing changes, sheet prices gained $236 per ton, bar pricing gained $197, beam pricing gained $188 per ton, plate pricing gained $256 per ton, joist pricing gained $236, deck pricing gained $128 per ton, and cold finished pricing gained $177 per ton. The average usage cost of scrap and scrap substitute for the 2nd quarter of 2004 was $227 per ton.

Up $27 per ton from the 1st quarter of 2004. And up $96 per ton from the year-ago quarter. Our scrap surcharge continues to work as planned. Both by reducing the time lag and passing through higher raw materials costs, and providing us some financial resources required to buy the scrap needed to produce the steel demanded by our customers. In a market where a number of other steel producers have curtailed production and canceled customers' orders, the Nucor team once again in the 2nd quarter of '04 got the job done by taking care of our customers. Dan gave you the LIFO charges for the 1st 2 quarters of this year and last year's 2nd quarter. We were surprised to note that there was some confusion regarding LIFO inventory accounting evident after our last conference call with some commentary that LIFO increased our earnings for the 1st quarter of 2004, when we actually took a LIFO charge that decreased earnings.

I would like to briefly review our use of LIFO inventory account. Nucor has a long tradition of applying conservative financial and accounting practices. Our company has used the LIFO method of inventory accounting since 1973. The objective of LIFO inventory accounting is to match the most recently incurred costs with current revenues. LIFO does this by charging cost of products sold with the cost of the most recently purchased materials or produced goods.

Generally in times of rising costs such as the current environment, Nucor will record LIFO expense, and in times of decreasing cost, we will record a LIFO credit. Each quarter, Nucor prepares detailed LIFO calculations and then records changes, either through a LIFO charge or credit, and the LIFO reserve based on the expected required annual effect on earnings. The LIFO reserve decreases the book value of inventory. A LIFO charge increases the LIFO reserve and a LIFO credit reduces a LIFO reserve. Any change in the LIFO reserve is a noncash item. Scrap costs has the most significant impact on our LIFO reserve.

This year, the average scrap cost and ending inventory increased from $162 per ton at year-end 2003, to $222 per ton at the close of 2nd quarter. An increase of 37%. Preoperating and startup costs for the 2nd quarter of 2004 were 7.6 million. Down from both 33.5 million in the 2nd quarter 2003, and 9.2 million in the 1st quarter of 2004. In 2004, these costs are primarily from our Castrip facility, the Crawfordsville sheet mill. In '03, these costs were primarily attributable to the Decatur Sheet Mill startup and Castrip.

Our teams at the Decatur Sheet Mill and the North Carolina plate mill continued to deliver impressive turnaround and performance through the 1st half of '04. The 2nd quarter of 2004 gross margin and 19.1%, compares to the prior year quarterly gross margin of 4.4%, and the 1st quarter of 2004 gross margin of 11.8%. Earnings before income taxes were $87 per ton for the 2nd quarter of 2004. Up from $37 per ton in the 1st quarter of 2004, and up from $2.00 per ton the 2nd quarter of 2003. The effective tax rate for the 2nd quarter of '04 is $36.6%. Versus 11.2% for the year-ago quarter. And 35.9% for the 1st quarter of '04.

The higher tax rates for the 1st half 2004 primarily due to the effect of increased pre-tax earnings. For the 1st 6 months of 2004, capital expenditures were 112 million. Depreciation expense was $194 million. For the full-year of '04, we project capital expenditures of approximately $230 million. And depreciation expense of approximately $385 a million. As increasing long term returns on our invested capital is the objective of our growth strategy, Nucor continues its strong focus on the careful allocation of our shareholder's valuable capital.

We intend to build upon Nucor's long-term record of being an effective steward of our shareholders' investment. Cash and short-term investments totaled $502 million at the close of the 2nd quarter. Up from $350 million at year-end 2003. Approximately 17 million of the July 3, 2004 cash and short-term investment position was held by our 51% on joint venture Nucor Yamato steel company. Nucor's cash provided by operating activities was $372 million for the 1st half of '04, up from $207 million in last year's 1st half. The close of the 2nd quarter of 2004, our debt to capital ratio was 24%, down from 26% at year-end 2003.

Nucor's debt is rated A-plus by Standard and Poor's and A-1 by Moody's, the highest debt rating assigned by both credit rating agencies to any North American metals and mining companies. We view Nucor's strong balance sheet as an important competitive advantage. As stated in this morning's news release, we expect that the 3rd quarter will be stronger than the 2nd quarter. Our outlook reflects the improving economic conditions and continuing strong steel demand. And as we discussed in our conference call in April, increased nonresidential construction activity is going to translate into better results in our steel products businesses. We appreciate your interest in Nucor, thank you.

Thank you, Terry. At this time, I would like to ask Mike Parrish to talk a little bit on our barphonics group. Mike?

Thanks, Dan. Good afternoon. The bar group had record production and shipments for the 2nd quarter and 1st half, as most of our divisions set all-time records. Production for the 2nd quarter was 1.67 million tons which is 12% greater than last year. And 3.27 million tons for the 1st half, an increase of 10% from last year. Shipments for the 2nd quarter are 1.66 million tons, and 3.47 million tons for the 1st half, and both are 7% increase from last year. Looking at the various markets, the rebar market continues to be a very steady market for us.

We have announced base price increases for rebar in the 1st half of $120 per ton. The merchant bar market continues to improve, as we see improved demand in nonresidential construction, agriculture, and mining markets. We have announced base price increases for merchant bar of $100 per ton in the 1st half. SBQ both of our hot rolled and cold finished markets remain very strong. We have announced base price increases there for SBQ in the 1st half of $110 per ton. And finally, the bar group has spent over $200 million in the past 3 years upgrading our older mills.

These projects have had a very positive impact by reducing our cost, increasing our yields, and improving our overall safety and quality. Through these projects, we have reduced rolling mill costs in some cases as much as $15 per ton, at our mills in Texas, Nebraska, and South Carolina. Congratulations to all the team members at these operations for their diligent hard work and their dedication to making these projects successful. Thanks to all our bar mill group employees for their continued efforts, on best marking projects, and the relentless drive to lower our costs and improve in all areas.

Thank you, Mike. I would like to ask Joe Rutkowski to talk a little bit about our plate and structural business.

Thanks, Dan. First, I would like to reiterate the welcome of the Nucor Tuscaloosa team to the Nucor family. I spent a lot of time there over the last few months and have been very impressed by the people there and know they are going to be excellent additions. Nucor Tuscaloosa brings synergies to our sheet and plate product offerings. About 50% of the product there is sold as coiled product, primarily over the width of our sheet mills, and the other 50% is sold as flat plate, primarily thinner than we can or like to produce off off of Hereford County mill. These new products compliment our portfolio to our customers very, very well.

We believe they are excellent opportunities to be explored there. Secondly, the plate market remains one of our strongest across the company. As we have reported, our shipments of plate from Hereford County are at an annualized rate of 1.3 million tons this year. About a 30% increase over 2003.

Congratulations to the team at Hereford County this for if this achievement in a market demanding our best. Lastly a remark about the structural market. This market is a little softer than some of our other markets. However, we expect to see it gain momentum through the remainder of the year as nonresidential construction continues to improve. The teams at Nucor Yamato and Nucor Berkeley are doing well and are poised to meet this challenge.

Thank you, Joe. At this time I would like to ask John Ferriola to talk about the sheet mill group.

Thanks, Dan. The sheet mill group's performance in the 2nd quarter was again elevated by increased production, shipments, and price realization. Our continued focus on disciplined auto book management allowed the steel mill group to deliver steel on time to our customers, and optimize price realization. Given the improved pricing environment for contract pricing during the 2nd quarter, the sheet mill group significantly increased our acceptance of medium and longer-term contracts. Customers seeking a reliable supply of high quality flat-rolled products have entered into medium term contracts that provide a stable order book for the sheet mills through the balance of the year.

The market outlook for the balance of 2004 remains extremely favorable. Robust demand, coupled with significant production curtailments by our competitors have resulted in favorable market conditions. As a result of the sheet mill group's consistent delivery performance, many customers are seeking to make firm commitments with Nucor for 2005. Our focus on providing high quality steel on time with excellent service has provided our customers a dependable supply of steel during this turbulent period. We remain committed to our commercial strategy of providing value-added steels to value appreciative customers. We have already begun consummating contractual business for 2005.

As a group, our production increased 7% Q2 over quarter one,, and our shipments increased by 3%. We had a sales price realization improvement of approximately 30% over the same period. Individually, each of our 4 mills set production and shipment records. At Berkeley, we melted over 350,000 tons in the month of June. And are on pace to produce over 3.4 million tons this year. Our Hickman facility is on pace to produce a record 2.5 million tons, and our Crawfordsville facility is anticipating producing a record 2.2 million tons for the year. Our newest mill in Decatur, Alabama operated at a record annualized rate of 1.8 million tons during the 2nd quarter, and is expected to produce over 2 million tons this year.

Speaking of Decatur, the acquisition of the Worthington Steels Decatur, Alabama cold mill is progressing as scheduled. Transition plans are well underway. And we expect to finalize the transition within the next few weeks. Discussions with customers regarding the cold rolled products have been very positive and we do not expect any issues in the marketplace as we work with Worthington and our other customers toward a smooth transition. Progress towards commercialization of our Castor facility continues at a fast pace in Crawfordsville, Indiana.

The 2nd quarter saw continuing improvements across the board in tons produced, prime yield, quality and tons shipped. As Dan mentioned, the total production since the startup of the Castrip strip has now exceeded 100,000 tons. The plant produced over 480 tons in a single six-hour cast utilizing four ladles. Not just once, but twice in a recent 24-hour period. This is a major step forward in achieving commercialization. Castrip has continued to produce thinner strip of higher quality at lower cost each quarter. Today, we are producing 040 inch products on a consistent basis.

In the 2nd quarter, the Castrip plant produced its 1st full size commercial coil with a thickness of only .033 inches. Nucor's stated goal at the beginning of this project was to be able to achieve strip production of .028 inches. The thickness achievable today only with pickling and cold rolling. We are confident that we will be able to achieve this goal. Most importantly, customers have begun to use Castrip product as a substitute for cold rolled steel, with excellent results. The viability of using Castrip product as a cold rolled replacement is now a reality.

The vacuum degaser at Berkeley -- at our Berkeley division has produced more than 120 vacuum degas heats since its commissioning in October of 2003. We are successfully developed commercially salable galvanized galvaneel and cold rolled EDDS, that's extra deep drawing steels, at this facility. This facility is now capable of producing a full range of deep drawing steels for properties similar to the products produced by integrated mills. We believe Berkeley is the only CSP mill in the world capable of producing EDDS products. The vacuum degaser has a capacity of 1 million tons per year.

Nucor's presently shipping vacuum degas production orders into value-added markets including automotive, appliance, lawn and garden, and HVAC. In summary, the 2nd quarter was a very strong quarter for the sheet group. The viability of using Castrip as a cold rolled replacement product was established. Berkeley's success in producing EDDS product has proven once again the men and women of Nucor do what others say is impossible and we were able to establish a stable 2nd half of this year due to the establishment and use of medium term contracts. These accomplishments and our expectation of a continuing strong market, we anticipate 3rd quarter to be even stronger than the 2nd.

Thank you very much, John. At this time, I would like to open up to questions.

Certainly. The question-and-answer session will be conducted electronically. If you would like to ask a question, please press star, one on your touch-tone telephone. Also if are you are on a speaker phone please make sure your mute button is turned off to allow your signal to reach our equipment. Again, that's star, one if you'd like to ask a question. We will go first to Cadler Summit with CS First Boston.

Thank you. First of all congrats for these excellent results. The question that I have is related to shipments and production. The shipments number, you know, I see the decline this quarter, by 5% while at the same time the production was up 3%, by 3%. And inventories on the balance sheet as well, you know, rolls by 14% in value. Could you comment on that in terms of, you know, the disconnect between shipments and production?

We will deal with the value part of it as a matter of just increasing sales prices for the most part. If you take a look at the --

There was one big difference in the 1st quarter, there were 94 days versus 91 days in the 2nd quarter to get our week -- our months on a 4, 4, 5 basis. We do 4-4-5 accounting so somewhere in the year there is always an odd quarter. This year it was the 1st quarter with 94 days versus the standard 91 in the 2nd quarter.

And that is roughly 160,000 tons in that three-day period, give or take a few thousand tons. You will note that the difference between the shipments in 1st and 2nd quarter was about 200,000 tons lower. That's the 5% number that you mentioned. In addition to that, we had some pretty good inventories in the 1st quarter. And we outshipped production in the 1st quarter through a lot of our products. And principally, Mike, would you like to just talk a little bit about the bar products area on that?

On the bar side, we did have more inventory on hand in the 1st quarter, and due to the scrap escalating, a lot of that inventory was shipped out during the 1st quarter. As you can see, the numbers in the 2nd quarter, production and shipments were matched, so we're selling and shipping everything we can produce.

Okay. And one last question, you know, it is basically related to your expectations in terms of scrap cost, and pricing. Can you give any guidance, you know, if you can give some guidance for -- by product, in terms of pricing, that would be great. Very helpful.

Up and up. One is desirable, the other one is not. On a pricing side, we definitely see that the pricing will be going up. Unfortunately, the scrap pricing is also going up. And to give you numbers at this point in time, it is really meaningless and we're not comfortable doing that and we haven't been comfortable throughout this entire period of rapidly escalating and varying scrap prices.

In other words, I think, you know, I'm curious about the assumptions that you use for 320 and 340 guidance, in terms of earnings.

As we stated, they're very conservative assumptions, and we will update our earnings forecast if required as we go through the quarter. It is just -- there's too much variability out there. When you have scrap prices going up $100 a ton in some cases in one month, and down $50 a ton in another month, and you talk about the actual receiving of that scrap, and the realization of it, and I mean there is -- there is no way that to pinpoint this and it is kind of foolish to really try.

But we take a very conservative approach. And typically, we do not give out what those basic assumptions are in terms of pricing and scrap, but we do see both of those numbers -- we will definitely be up for the 3rd quarter. We believe margins will be up in the 3rd quarter. As we stated, we have already got an increased projection and what I will mention to you, as well, which is -- is that the projection of 320 to 340 does not include Tuscaloosa or Decatur contributions. And again, because there is a little bit too much unknown there at this point in time. But again, we will update that forecast as we proceed through the quarter.

And in terms of import offerings, I mean are you seeing any --

Last question, because there are a whole bunch of other people wanting to ask questions. Import offerings have definitely, you know, been on the uptick. The import numbers have definitely been on the uptick. Pricing on those import numbers seem to be very strong. And they seem to be meeting the demand in the marketplace as opposed to exceeding it.

Okay. Thank you very much.

Moving next to Michelle Applebaum with Michelle Applebaum research.

Hi.

Hello, Michelle.

A couple of questions. You just mentioned Tuscaloosa and Decatur.

Yes.

Can you just venture if that is a plus or minus?

It should be plusses.

Okay. So there is some increment in there.

We have, you know, as we talked about in the past, on the purchase accounting issues, with inventories, we take an adjustment based upon standard costs and current pricing, and that adjustment will impact the Tuscaloosa number in terms of how positive is. It should be positive and we believe that the Decatur cold mill will also be positive.

Okay. You know, I'm confused. I know you guys are conservative, but I'm a little confused. Because if you -- you reported $3.17. You took 13.2 million charge. If you add that back, I get $3.28. So you're saying there is the scenario here where the September quarter could be worse than the June quarter?

No, we're not saying that at all.

You anticipate a charge?

What we said verbally was that the 3rd quarter will be better than the 2nd quarter. But there are issues out there that we put into our thinking cap and we put together that conservative projection that could cause it to be as low as $3.28. But there would probably be similar adjustments that you would want to make. I mean the LIFO issue by itself was 67.-something million dollars in the 2nd quarter. We have no idea at this point in time what the LIFO adjustment will be for the 3rd quarter. And that's significant that it changed over $30 million in one quarter. So that's the answer.

Okay. So this is an absolute worst case?

It is very conservative, yes.

Can I have one more?

As we always are.

One more that I'm sure everybody has, which is you've said nothing on -- there was a big jump in surcharge obviously for August. You've had nothing to say on the base price but steel dynamic, with a lower surcharge, I'm not sure why, can you comment on what is happening with your base for the month of August?

The beauty of an open and free market is that people get to do what they think is best, and in our situation, we think it is best to maintain the integrity of the surcharge and this volatile market so the customers can see exactly what is going on with the scrap issue and not interject any subjectivity into it. The surcharge will be based upon the index and the reference points. And as we've said before, the transaction price is a combination of the surcharge and the base price. And the actual transaction price will be based upon the strength of the market. And what the market allows.

At times, that will mean that the base price will go down with scrap surcharges going up. At times, it will mean that it won't move at all. Other times it will mean it will go up. And right now, you know, we have announced on beams and bars that we have adjusted our surcharge mechanism up to full amount. But we have taken back some of that in the base price. I think we passed along $45 of $90 on beams. We passed the whole thing along on -- on plates. We are not discussing what we're doing on sheet because of a contract situation. And -- but the spot business that we have left will be determined on the strength of the market. And on bar, we reduced pricing about $30.

So the answer to my question of what the base price was with all that was you're not telling?

No, I gave you -- I'm not telling you what the specific base price is. But what I've given you are the changes in base price, based upon each product.

Except sheet. I think you said --

Sheet, at this point in time, there has been no change on the base price.

Oh, okay. So are you giving --

The spot business that we have only of which 15 to 20% is left throughout the rest of the year will be done on a strength of the market basis. That may involve a discount off the base. It may involve an increase off of base. It will be determined by the strength of the market as we open the order books. That's the definition of spot.

Okay. The base on these new contracts, is that the same as your base on the spot business?

Well, Michelle, that varies. The base on the contracts is a function of when the contract was signed, and frankly, it is really isn't tied together at all to the base price on spot.

And each, as I mentioned earlier, each one of those agreements has a surcharge mechanism, scrap mechanism in it to cover the variability in scrap costs going forward.

And they're fixed price, fixed volume?

Fixed price, fixed volume, correct.

Essentially --

Thank you, Michelle.

Thank you.

We will go now to Peter Marcus with World Steel Dynamics.

Hi, gentlemen. I have a couple of questions about Castrip, please. If you would go to a new Castrip plant with an electric lock furnace or added to a steel plant which already has enough steel-making capacity, and were to include a galvanizing line and it would have a capacity about a half a million tons a year, I wonder what the capital costs of that unit would be.

Good question. I don't think we've sat down and figured out that exact combination yet but we will be happy to get back to with that, Peter.

Okay. And secondly, does the high smelt potentially tie into the Castrip, or does high smelt have too much size to it to be combined with a Castrip plant?

No. The high smelt plant can be sized differently. The current vessel size is, as we mentioned, 800,000 metric tons, there is nothing that says that you couldn't also do it a little bit smaller or a little bit bigger. There will be -- this is a six-meter vessel. We are also looking in the future at 8-meter vessels and we've also talked about the ability to expand the 6 meters with some really small levels of cap -- additional capital expenditures and there is nothing to say that you don't put two Castrip facilities together if that makes sense as well. But it can be sized.

Thank you.

A lot will also depend on the width and the thickness if you actually end up casting on the Castrip operation.

Thank you.

We will go go next to Wayne Atwell with Morgan Stanley.

Thank you. Can you tell me, are you never going to start Kingman? Or what is the status of that plant?

Kingman is, as we mentioned, we've written off part of the melt shop. What we've done there is we worked to get power contracts with the utilities that basically told us to go away. They didn't want us to operate the electric furnace in their area. They did that by telling us they wouldn't give us a decent price for electricity. Decent is not even close to the right word. And but the rolling mill complex is intact.

From reheat through to the finishing and shipping operations. We have not dismantled that. We have dismantled portions of the melt shop, moved equipment to different divisions in the company, back houses, static bars, and other electronic equipment. And so we felt it was appropriate at this point in time to write down the melt shop portion of that that we hadn't already taken and sent to other divisions, but the roll mill is still there intact and can be started up, depending on market conditions, and also as we've mentioned before, Wayne, tied to the production attainment of the new melt shop, and Jewett, where billets can be shipped to the area, the Kingman area at relatively low cost. Mike, do you have anything you want to add to that?

No, that's fine.

So it sounds like you will never operate that melt shop?

Oh, definitely. The melt shop will never operate there. That particular shop. Now that doesn't mean that someday it couldn't change and we build a melt shop at that location if the power companies ever came to their senses. And the market so dictated. But right now that melt shop is dead.

And lastly, can you explain the logic in your contract approach? In the past, steel companies including yourself have put contracts in and the customers have chosen not to honor those. Your logic now is that we're in a new world and that the customers are going to honor these contracts? And can you tell us what type of customers are these auto companies, appliance, what kind of customers are you dealing with here?

Yes, yes, and yes. I don't mean to be flippant, I mean as far as the customers go, you mentioned two of the significant customer groups. As far as the contracts themselves go, we've taken great pains to sit down and put together agreements that we believe are enforceable as opposed to open-ended agreements that people have had in the past. And we believe our customers will honor them. And they expect us to honor our commitment to it, because, you know, we've committed to get them tons in the market where they've been getting short-changed tons by a lot of our competition for the last 6 to 9 months. So John, do you have anything you want to add to that?

I think we I will just add that we're selective with our contract customers, we make sure we pick customers that are honorable, and we have a high level of confidence that they will in fact honor the contract and as Dan mentioned we've taken great care to make sure the contract is a binding one.

And without being specific, it sounds like they're going to pay the list plus they're going to absorb changes in the surcharge?

They're going to pay a base price that we agreed to, and plus the surcharge, yes.

The price is fixed for the length of the agreement but the surcharge varies.

And the base price might be different than the market price that you're charging other customers for spot?

Yes, that's a true statement.

Okay. Thank you very much.

Moving on to John Tumazos with Prudential Equity.

Congratulations on having a great year and a June quarter and [inaudible] it could be so good.

Thank you, John.

Could you explain the fraction of the 2nd quarter scrap where the average blended cost was $2.27 whose pricing was nonsimultaneous to the domestic quote we would read in esteemed publications like metal market research, or from -- in particular, what fraction did you import as scrap or other -- or virgin units, where it might have been priced three, four or more months before delivery because of the lead times in international trade?

A couple of things, John. That's a good question. Those -- that particular situation you are describing is always there, whether the market is going up or down, because we do bring a lot of iron units in in the form of pig iron and HBI and sometimes DRI. We also buy scrap offshore as well and there is more -- the lead times are significantly longer. But when scrap prices are falling here, that actually hurts you a little bit. When scrap prices are rising, that actually helps you.

In addition, domestically, the time lags between when you buy material and when you actually get it. And you work to stay ahead of issues like rail transportation problems and what have you by planning properly, but as far as what percentage of our total buy during the quarter may have come -- or uses during the quarter may have come in from product bought in the previous quarter, or very early in the quarter versus late in the quarter, I'm going to turn to the very esteemed John Ferriola, he's got his magic wand and his wizard hat on. And.

And I will say I don't know. Frankly, John, it is hard to gauge that. We have -- it changes month to month. It actually changes week to week. We have optimization programs that we look at and we look at the costs, you know, all over the world and we look at the costs of various types of iron units and it's constantly changing. I don't have a number.

Is your virgin iron ratio 15 to 20% and your imported scrap ratio 10%, for example?

Let me just answer it this way. If I may. The amount of pig iron or iron substitutes that we can use in our furnaces varies from 10%, maybe to 50%. So there is no one number. Again, depending upon the cost, the availability throughout the world, we adjust.

We could give you a ballpark figure for what we bring in, in the course of a year. In any given quarter depending what the pricing and availability is we can bring in at a greater rate than that or lesser rate than that. John, what's your guess as to what -- we've used numbers like 2, 2.5 million tons a year of iron units. What are we actually bringing in these days? Just the iron use. Not the scrap.

I would say about 2.5 million.

About 2.5 million tons. And if you were to guess, you know, there are only a couple of divisions that really bring in a lot of scrap from offshore. There are some of our larger ones but --

We might bring in another million tons of scrap.

So you are looking at 2 to 3.5 million tons. Probably -- excuse me, 3 to 3.5 million tons of scrap coming in during the course of a year. And iron units, and so that would average out, John, divided by four, you know, you're looking at roughly 900,000 tons a quarter? And so that's kind of a -- you can assume that that's fairly continuous throughout the year, so at any given quarter, there is a lag of about probably two to three months on what is bought and what is actually coming in. I don't know if that helps you answer your question. But that's probably as close as we are going to be able to get you.

Those imported units might have been at the 1st quarter average cost or slightly lower, and if we simultaneously price your scrap by over the whole company, it might have been five bucks more but that wouldn't account for a rampant conservatism in your 3rd quarter guidance, because scrap was going to go up because of nonsimultaneous pricing.

Well, as you know, with the leverage that we have in doing 5 million tons a quarter, a $10 move, you know, is $50 million. And you know, certainly the variability can be in there from 10-15, 20 bucks a ton. In all cases. Not just from the standpoint of what we're bringing in from offshore. So again that's why we broaden our ranges and we -- with our estimates and about a six months to a year ago, and why we start off pretty conservative in this kind of volatile market.

With your 3rd quarter stuff somewhat priced contractually for sheet, can you tell us what your 3rd quarter sheet realization is -- is going to be excluding the surcharge?

Excluding the surcharge, we expect it to be between 85 and $90.

Additional.

Additional, yes.

Thank you very much.

Our next question comes from Bob Legita [ph] with CIBC World Markets.

Bob, before you ask a question, I beg your indulgence in finishing up an answer to Mr. Tumazos.

Absolutely.

Those are estimates and because of the volatility out there, and that driving our resulting conservativeness, that number can vary, and that's -- so you got to take that with a bit of conservatism please, Mr. Tumazos as you work through your models. Yes, sir, sorry.

No problem. I just had two questions for you. One I was hoping to get a little bit more color on what you're seeing out in the scrap market. I know it has been volatile and there has been a lot of conjecture out there relative to maybe he scrap suppliers holding back on product to seek out a higher price. I was just wondering what your thoughts were there first.

Well, definitely volatility that -- of an extreme nature. Not only in the Delta changes in scrap, but in the absolute levels of scraps out there today. And we're -- you know, yes, there's a definite tie-in to demand in the marketplace, but we have had strong demand periods in the past. And we've never seen scrap prices do this. And in the past peak periods with very high demand for scrap, both exported and domestic, maybe we saw 170, 175 dollar a ton prime grade of scrap. Now we're looking at 350. And so, yeah, it leaves one to wonder about what is actually going on out there. Certainly, these are very unusual times.

And I'm not in a position to be able to tell you that, you know, I've had first-hand experience looking at scrap yards around the country, or around our mills, and we buy from a lot of locations. We believe that there is plenty of scrap out there. And we believe that it will work its way into the system. And anybody that says that when scrap was $100 a ton cheaper in June than July, for prime grade, that at $250 a ton, that did not encourage people to bring scrap into the pipeline, shame on them. I mean $250 a ton historically is a huge number for scrap. People are -- should be out there bringing everything they can in.

So when people say, well, you know, they weren't going to bring in the $250 but they will at $350 I mean give me a break. You know, different logic needs to prevail there. So yeah, there is a lot of questions and a lot of concerns about the fact that the scrap end of things has gotten crazier than it should be. I've heard comments that other people in the industry, both on the steel side have quoted in the press, and on -- and former scrap people in the scrap industry have stated, and you know, it leaves you to be concerned about what is really going on. We should be working together as a team. Both segments of the industry grow together. And both segments of the industry will die together.

And the scrap industry has benefited from the growth in electric arc steel furnace making and we've benefited from the ability of our scrap suppliers to continue to bring scrap to the market. And we have to work better together because these times cannot stick around for our customers' sake. You know, yes, we're making money. We're making money at levels that are near previous peaks. Not grossly achieving previous peaks in terms of per ton profitability but these scrap numbers are driving prices at levels that it is hurting our customers and manufacturing. And, you know, we need to find a way to bring moderation and better pricing to the scrap market.

That's why we are embarking upon a 6 to 7 million ton in-house capacity increase. Which will bring more supply into the marketplace. That's why other producers are doing the same thing. You don't see the speculative DRI plans going in that you saw back in the '90s. Where everybody -- every financial wizard in the world wanted to go and build a DRI plant because they got burned when things collapsed. What you see is the producers taking the action today because it is part of a strategic vertical integration that -- to deal with the astronomically high prices that we've seen and the variability we've seen in volatility over the past 12 months. That's a long answer to your question, but that covers our thoughts on it.

No, that's terrific. I appreciate that. I just had two other real quick questions. One, the 80% contract business, I was just curious as to how much of that is on a medium term basis and a long-term basis and what you consider medium-term versus long-term.

Long term would be a year or longer. And medium would be 3 or 6 months. And right now, about 47 -- in this case, through the end of this year. Six months. Through the end of this year. The firm orders or the middle -- medium length contracts represent about 47%. And the longer-term contracts represent about 33%.

Of the 80%.

Of the 80%.

Okay. Terrific. And last question, I just had, was again getting back to the imports, are there any particular products that you're seeing where there is increased availability in terms of the inflow or at least the quoting activity?

It is virtually on all products, if you look at the May numbers, you know, all products have shown increases of importation. Some more than others. Rebar, places like Turkey has gone through the roof but other places as well. Flat roll products from Europe and India and Egypt. And a few other places. Brazil. And again, as I mentioned earlier, at the present time based upon our interactions with customers and our order activity, we see this stuff coming in at pretty decent pricing compared to domestic market, that could always change, and we don't see it coming in in volumes yet that are affecting the ability of us to fill up our order books.

Great. Terrific. Thank you very much.

Thank you.

We will hear next from Aldo Mazzaferro with Goldman Sachs.

Hi, Dan, how are you?

Hi Aldo, how are you doing?

Good. I was just wondered if you could tell us how the startup of high smelt in Australia later will affect your business? Are you planning -- you're not planning to move iron from Australia. I'm just wondering if there will be any impact --

People move iron all over the world. There is no reason why we couldn't bring it from Australia. There are a lot of vessels that go to China and come back empty. So I wouldn't rule out the fact that we could bring anywhere from half to 100% of that production back this way. And -- but as far as what our plans are for high smelt, at this point in time, Joe, do you want to talk to that? I guess what I would say is, you know, we've got to get through the startup. We've got to get through to the -- proving it is a commercial process. And then people are beating down Rio Tinto's door right now to buy this technology and implement it in place of blast furnaces and we certainly have plans to use it in different locations in the world and we are evaluating a number of sites in the United States and in South America, the Caribbean as we speak to use this technology. When it is proven commercial. So it is really premature to be getting into what, you know, exactly how we're going to use it and what impact it is going to have but it has tremendous potential impact on the raw material side and from a cost standpoint, and a -- helping us to achieve that 7 million ton number. At least at today's total production capabilities of a little over 20 million tons.

But ideally, wouldn't you want to locate one of these near a furnace that you could charge hot metal in?

Well, there are circumstances where that would be the right thing to do. And we are evaluating locations where that will indeed be the setup. But there is also makes very good sense to use it to produce pig iron in different parts of the world and move the pig iron to our operations here in the United States. And so there is a number of opportunities there that the numbers work out for.

Great. On a different topic, Dan, I'm hearing some of your bigger competitors are out there talking, you know, pretty well north of 700 dollars for spot pricing. September period. And I'm wondering if you're in negotiations on contracts, is that a -- is that a negotiated compromise, so to speak, with some of the buyers that might be rejecting these spot prices and trying to kind of fall back into line on a longer-term contract for a little break in the price?

No, these contracts are -- I mean typically, when you put a contract in place for medium to long term, there is a different price than the spot market, okay? That's nothing magical, nothing new. But in relation to today's spot, it all depends on what time we actually implemented the contractual agreement with the customer, whether it was 3 months ago, or 1 month ago, or 4 months ago, will determine where the actual contract price is, relative to spot price today or spot price back then. John, do you have anything you want to add to that?

I guess the only thing I would add is, you know, two points about the contracts, especially the longer-term contracts. One, we see customers coming to us today looking to secure contracts for 2005. That is very early. Typically they're not -- we're not in these kind of discussions until October. So the fact that they are coming so early is an indicator to us that they have some concerns about availability in 2005. The other general comment I would make is the contract pricing is up substantially, next year, relative to this year's contracts.

Great.

And those five numbers that you've thrown out there, you know, they are probably representative of spot pricing in the marketplace. I've heard some numbers as high as $780 a ton for hot.

Great. One final thing, too, Dan. I wanted to congratulate you on the purchase of Tuscaloosa and I'm wondering based on the numbers that I'm kind of throwing around here, why did they sell it to you for what looks like one times earnings?

Because they like us? They had a strategy. And working with us allowed them to meet that strategy. It is probably best to talk to the folks at Coros about that, but I think both parties walked away very happy about concluding the deal. And I think we got the better end of the deal to be quite honest with you. We've been in discussions with them for a couple of years and thrown numbers at them before, and this time it stuck.

Have you talked to them about their ERI facilities?

At present, yes, we have talked to them, but at present, we have no interest in them.

Okay.

In the past, Aldo, we've offered even more than what we paid for it today but that's going back a couple of years.

Okay. Dan, thank you.

Daniel Roling with Merrill Lynch has our next question.

Thank you. I got two easy ones for Terry.

Hello, Dan.

Hi, Terry, how are you?

Easy is relative but go ahead.

This one will be. On the cash flow statement, there is an issuance of common stock for $32 million, 16.2 in the second. Can you tell me what that is?

It is all stock options.

That's what I thought. And second what was the dividends from Nucor Yamato?

You mean distributions?

I'm sorry, yes.

Well, we have 51%, so the distributions to Nucor would be just slightly more than the distributions to minority interest that you see on the cash flow statement.

So 100% of that distribution it from Yamato?

Correct. Correct.

Thank you. Told you they were easy.

Thanks. I like easy questions.

Moving on to Alex Mitchell with Skopis Asset Management.

I have a more general question. There any evidence of double ordering out there and how would you know if it was going on?

John, you want to speak to that?

Sure.

Usually that is the problem on flat rolled more than other products.

And frankly that's is one of the reasons that we've gone from medium term contracts to make sure that that doesn't happen. You know, the other point that I would make to you is usually we know our customers, we know them well, we know their typical order entry level, their consumption levels, so we have a -- we have a finger on the pulse of that. And I've got to tell you, I see no evidence of that at this time.

Okay. Thank you.

Obviously, you know when it is happening when people start cancelling orders. And we haven't seen that.

Anything further, Mr. Mitchell?

No, that's it, thank you.

We'll take a follow-up question from Michelle Applebaum with Michelle Applebaum Research.

Hi, can we have a little bit of a philosophical question? Because there is a school of thought going on right now that you've got some iron disruptions in Canada and palate availability, you know is tight, and not many people have any extra inventory, and so a bunch of these companies I think may be stuck when the lakes freeze if they're not stuck sooner. And then we could see kind of shortage going to a true shortage. Do you think that flat rolled steel price could go any higher?

Listen if, ask us, the industry that question a year ago --

Oh, I know.

I mean, what kind of answer would you have gotten? I mean --

You didn't think they would go this high, I understand that.

Absolutely. Absolutely. And never say never on any of this stuff. But at some point in time, there has to be some, you know, reason in the marketplace, and if you don't put it in, the marketplace does it for you. In general, I would say that, you know, the uncertainty about what is going on with iron ore supply prior to all of these strike discussions and disruptions at the mines, at several locations in North America, prior to that there was uncertainty about iron ore, coke, and scrap as well.

This just adds to that uncertainty. And it is probably driving a -- you know, the driving force behind why a lot of customers have approached us to -- for 2005 business going forward. The uncertainty. Not that I'm saying anything is going to happen. The disruptions are actually going to take place, but that uncertainty, you know, doesn't sit well with folks whose business is improving because the economy is improving.

I guess my question, Dan, you know, your background at Nucor Yamato, you guys would often show some discipline at the top of the market, worrying about competing material, worrying about import, you know, I understand that import prices are comparable to domestic prices, and that there is tonnage coming in, but it is coming in at rich prices. I get that. But at what point do the economics say, you know, we're done raising prices?

There is definitely a point where that happens. You're correct that at Nucor Yamato, that we got to the point where we said okay, where are we with respect to competing materials, particularly concrete at that time. And we made it, you know, an analysis with the American Institute of Steel Construction, the steel industry did, and not just Nucor, but Nucor took that information and basically said, well, you know, this is where we're competitive, this is where we're not competitive, we're working to grow the market share for steel versus concrete so we had an idea in our head where steel pricing should be.

The difference between then and now is you didn't have this crazy raw material side of the equation driving things. So, you know, it is a totally different ball game. But yes, there is a point where, you know, if the raw material supply stabilizes but demand, you know, is very strong, and you weren't faced with the raw material question mark, yes, definitely there would be a point where you would say, you know, the margins are very good and we're comfortable with them. And you know, that's when you start taking more contract business, I guess.

Okay. Well, thanks. It makes sense.

And our final question will come from John Tumazos with Prudential Equity.

Hey, John.

Hey. In terms of the LIFO, could you explain how you peg the 2nd quarter charge? It seemed disproportionately large given that your actual scrap used only rose about 10%.

It is not driven off usage. It is driven off the last purchases. And it is -- there is no simple way to explain it. It is, I think, 17 or 19-page calculation.

So it is driven off of your end of June buys?

Yes. Driven off the end of the period purchases, we're on the last purchase method.

Do have one scrap pool? Or do you have a different pool for long products than sheets?

No we have one scrap pool.

And do you use one representative grade or some sort of --

No we use actual -- actual purchases.

So it is the actual June cost?

Right.

So June purchases --

Well, it is the actual last purchases that cover the amount in inventory. It may be June, it may include part of May.

So your inventory cost was much higher than the beginning inventory cost signaling a higher 3rd quarter scrap cost?

Yes.

Thank you.

You got it.

That concludes the question-and-answer session. Mr. DiMicco, I will turn the call back over to you.

Thank you very much. Greatly appreciate your involvement in our conference call. The questions. And I want to say again, thank you to all of the employees of Nucor, all of our people who have worked very hard to help us be successful. Thanks for a great quarter, a great year, and excuse me, a great 6 months, and hopefully a great year will continue, we need to keep working harder and safer, and smarter. And to our customers, and to our shareholders, we say thank you for your support. Thank you all very much.

That concludes today's teleconference. Thank you for joining us.