Nucor Corp (NUE) 2004 Q4 法說會逐字稿

Good day everyone, and welcome to today's Nucor Corporation fourth quarter 2004 earnings release conference call. As a reminder, today's call is being recorded. And, later we will conduct a question and answer session. And instructions will come at that time.

Certain statements made in this conference call are forward-looking statements that involve risks and uncertainties. Although Nucor believes that they are based on reasonable assumptions, there can be no assurance that the future events will not affect their accuracy.

Some of the important factors that may cause actual results to differ from our predictions are listed in Nucor's SEC filings. The forward-looking statements made in this conference call speak only of this date and Nucor does not assume any obligation to update them.

At this time for opening remarks and introductions, I'd like to turn the conference call over to Mr. Dan DiMicco, Vice Chairman, President and Chief Executive Officer of Nucor Corporation. Sir, please go ahead.

Thank you. Good afternoon and thank you for joining us for Nucor's conference call. We will briefly review our results for 2004, provide an update on our progress implementing Nucor's strategic plan for growing long-term shareholder value, and then take your questions.

Terry Lisenby, Nucor CFO and our other EVPs John Ferriola, Ham Lott, Mike Parrish, and Joe Rutkowski are with me this afternoon and will available to answer questions as well.

First, and most importantly, I would like to say hello and thank you to all the members of the Nucor team who are listening in to the conference call on the Nucor website. The more than 10,600 men and women of Nucor work hard and as always work together to deliver strong profitability in 2004 for our shareholders. In fact, a record-breaking yearly, financial performance was only one of Nucor's-- the Nucor team's major accomplishments in 2004.

I will highlight several others. We continue to very successfully execute our strategic plan for long-term growth. As part of that strategy we have commercialized our revolutionary Castrip technology and we met our customers demand for steel in a time of unprecedented raw material volatility and supply shortages.

Quite simply, 2004 highlighted again that Nucor's most significant competitive advantage remains our employees. The right people working together as a team. I am going to say it one more time because it can't be said enough. Thank you team Nucor.

Our 2004 EPS of $7.02 are more than 3.5 times greater than Nucor's prior annual earnings record of $1.90 established in 2000. Our fourth quarter of 2004 EPS of $2.12 also exceeded that prior annual earnings record. And taking the long-term perspective I'll remind you that Nucor has been profitable every year and every quarter since 1966. The record earnings achieved in 2004 are the initial payoff from our execution of Nucor's strategic plan.

In 2000 the Nucor team developed and began implementation of a focused and disciplined strategy for driving long-term growth and Nucor's earnings power and raising returns on our shareholders' value capital. The objective of our long-term approach to building our business is to generate higher highs and higher lows and profitability throughout the economic and steel market cycles. As you've heard us discuss many times over the past 4 years, the keys to executing the strategy have been and remain -- first, Nucor will optimize its existing operations.

Second, Nucor will continue to greenfield-- greenfield growth via the commercialization of new and revolutionary technologies. Three, Nucor will pursue strategic acquisitions. And, fourth, Nucor will grow globally through joint ventures.

It is worthwhile to compare our performance last year to what we achieved in the prior record earnings year of 2000. 2004 steel shipments were 19.5 million tons. Versus 2000 steel shipments of approximately 11 million tons. Our bar mill group shipped 6.5 million tons last year compared to 3.1 million tons in 2000.

This growth was driven by the acquisition of Auburn Steel in 2001 and the acquisition of Birmingham Steel's bar mills in late 2002, and ongoing productivity gains at all of our 9 bar mills.

Our sheet mill group shipped 8.5 million tons last year versus 4.8 million tons in 2000. Growth in flat roll resulted from the acquisition and start-up of the Decatur, Alabama, sheet mill in 2002 as well as continued productivity advances at our 3 other sheet mills.

And, Nucor's 2004 plate shipments of 1.7 million tons, compared to 2000's plate volume of less than 20,000 tons. Our penetration into the plate market was achieved with both a very successful startup of our greenfield Hertford County, North Carolina plate mill and the acquisition of Nucor Steel Tuscaloosa in July, 2004.

I will note that our payback in the Tuscaloosa plate mill acquisition is proving to be very rapid, with the payback period being measured in months, not years. As these numbers demonstrate, our work implementing the strategic plan has greatly expanded our platform for generating earnings.

And at the same time we have strengthened Nucor's position as North America's most diversified steel producer. Our product line diversity and balance is important in that Nucor's short-term performance is not tied to any one market. I emphasize that 2004's encouraging results are just the initial payoff or returns from our strategic plan.

The Nucor team is pressing ahead with a number of additional initiatives to strengthen our competitive position, build additional earnings power and raise our returns on shareholders' capital.

Please allow me to review some of our most recent accomplishments. Nucor's strategic plan recognizes that technical innovation must remain a competitive strength of our Company. Nucor's past, present and future success is rooted in our Company's ongoing ability to adapt and continually improve our cost position relative to our competitors. For this reason, I am extremely excited and proud to report that our team at the Castrip facility in Crawfordsville, Indiana has fully commercialized revolutionary new technology to directly cash (ph) sheet steel.

After beginning of production in May, 2000, our team has resolved countless technical challenges. Their work has proven to us that the technology produces a product that can be successfully sold in the market and that the technology is economically viable.

When unconstrained by hot metal availability the Castrip team break-throughs in sequence casting, prime yield and quality have demonstrated the cost structure required for commercialization. And customers' acceptance and demand for the Castrip product is stronger than ever. Most importantly, the process of selecting a location for Nucor's second Castrip production facility in the United States is now underway.

The bottom line is that Nucor remains the leader among North American steel producers, and for that matter global steel producers in commercializing new technologies. Later in the call John Ferriola will discuss further our exciting news on Castrip.

Nucor strategic plan is also focused on continuing to build market leadership positions in attractive downstream steel products businesses. Our value-added steel products have consistently generated very attractive returns on assets through economic cycles. Earlier this month we announced 2 agreements to further grow our vertical integration from our bar mills and to value-added processes.

We have entered into an agreement to purchase substantially all the assets of Fort Howard Steel's Oak Creek, Wisconsin cold finished bar products business. The Oak Creek facility has an annual production capacity of approximately 140,000 tons. Our existing cold finish plants located in Nebraska, South Carolina, and Utah, shipped 271,000 tons of cold finish bars in 2004.

With this acquisition, Nucor will become the largest producer of cold finish bars in the United States. Nucor cold finish Wisconsin will also broaden our cold finish product line to include sizes of up to 6 inches and increased volumes in leaded bars.

And, the Oak Creek location will position us to better serve the key Chicago and northern Illinois market which is the heartland of cold finish bar consumption in the United States. The transaction is expected to close in mid-February and we expect it to be immediately accretive to our earnings. Additionally we announced an agreement with Ambassador Steel Corporation to form a rebar fabrication joint venture that will grow through both greenfield projects and the acquisition of existing assets.

Nucor is the largest producer of rebar in the United States and Ambassador Steel is the largest independent rebar fabricator in the United States with fabricating facilities located in 8 midwestern states. Last year we established a very successful rebar fabrication joint venture with Harris Steel Group in the western and northeastern United States regions.

Looking ahead our joint venture with Ambassador, Nufab Rebar LLC, will allow to us expand Nucor's rebar fabrication presence into the other regions of the country. Both Ambassador Steel and Harris Steel have built very attractive business models based on their strengths in engineering, manufacturing and marketing.

Nucor is excited to have established these partnerships with the leaders in the rebar fabrication industry. Our strategic plan also calls for Nucor to develop attractive supplies of high quality scrap substitutes. We are implementing a raw material strategy to control about one-third of our iron unit consumption.

This would represent between 6,000,000 to 7,000,000 tons per year of high quality scrap substitutes at our current consumption rate. Our material strategy-- our raw material strategy has been under development over the past several years and has driven by Nucor's ongoing expansion of our sheet steel product portfolio into higher quality grades.

We already are well underway in implementing 3 raw material projects. In total these 3 projects should provide Nucor control of over a minimum of more than 2,000,000 tons per year of high quality scrap substitutes. Our HIsmelt joint venture with Rio Tinto and other partners is building a facility in western Australia that converts iron ore finds and coal finds and liquid metal. The HIsmelt process is both a blast furnace replacement technology and a hot metal source for electric arc furnaces.

Annual capacity initially 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. The finishing touches on construction are being completed and cold commissioning of about 75 percent of the plant is in progress. Production is scheduled to begin in the second quarter of this year.

Our green pig joint venture with CVRD, now named Faragousa Carazache (ph) is an environmentally friendly pig iron project using cultivated Eucalyptus trees as a charcoal source. The first module will utilize 2 conventional mini blast furnaces to produce 380,000 tons of pig iron annually. Construction continues on the furnaces in Araba (ph) and the kilns at the 4 sites. We expect product to begin in this year's third quarter.

In September 2004 Nucor exercised its option to acquire the assets of an idle direct reduced iron plant located in Louisiana. We have begun implementing a plant to relocate this DRI plant to Trinidad and expand annual capacity to 1.8 million metric tons. The Trinidad site will benefit from low cost supplies of natural gas as well as favorable logistics for receiving iron ore from Brazil and shipping DRI to the United States.

The new iron project's total capital budget is approximately 200,000,000 and operations should start in the first quarter of 2006.

As you can see, the Nucor team remains strongly focused on the future, building long-term success of our Company. In defining that success our strategic plan has 1 objective: Deliver returns that adequately return our shareholders-- excuse me, deliver returns that adequately return reward our shareholders. We remain very mindful that success requires the continued careful allocation of our shareholders' valuable capital.

2004 was a strong test for Nucor with our average scrap and scrap substitute usage cost rising by approximately $125 a ton over the course of the past year. In fact, some steel market observers and analysts at the start of 2004 questioned our ability to remain cost competitive with the integrated steel producers in a high scrap cost environment.

We believe we addressed those concerns with our full-year 2004 pretax profit per ton ship of $96 per ton. With their typical and unrivaled can-do attitude the Nucor team, which includes our partners of over 3 decades, the J. J. Davis Company, met the challenges of last year's metallics markets and once again got the job done.

Nucor was the leader among carbon steel producers in implementing a raw material surcharge. Most important of all, we continued the Nucor tradition of taking care of our customers. Unlike many of our competitors we were able to meet all of our customers' demand for steals when others could not supply it.

Our team will continue to meet head on any and all challenges that may arrive. As one example, surges of imports that result in illegal dumping are still a risk to the future profitability of our industry, both domestically and globally. Nucor views as critically important the enforcement of U.S. trade laws that appropriately penalize those who abuse our markets.

And it is long past time for all governments to stop subsidizing new and existing capacity. Capacity additions as well as capacity reductions must be driven by the unfettered discipline of the marketplace. In short, more work remains to be done by the global steel industry and by governments. Nucor will continue to take a proactive role in the fight for free and fair trade.

Looking at both our accomplishments over the past 4 years and our ongoing work implementing our strategic plan, my confidence has never been greater that Nucor's best years are still ahead of us.

At this time I would like to turn it over to Terry Lisenby, who will provide further details and comments on our results for 2004. Terry.

Thanks, Dan, and good afternoon.

Sales for 2004 were 11.4 billion, an increase of 82 percent over 2003 sales. Sales for the fourth quarter of '04 were 3.1 billion, a gain of 86 percent over last year's fourth quarter. In 2004 Nucor steel mills established records for steel production, total steel shipments and steel sales to outside customers. 2004 steel shipments of 19.5 million tons represented year-over-year growth of 10 percent.

Our rate of organic volume growth remains healthy. Excluding the increase resulting from our acquisition of the Tuscaloosa plate mill last year, total steel shipments increased 8 percent in 2004 from 2003. In the steel products business, 2004 cold finish steel sells of 271,000 tons, gained 14 percent over 2003 cold finish steel volume.

2004 steel joist product product of 522,000 tons was up 4 percent from 2003 joist product. 2004 steel deck production of 364,000 tons increased 3 percent over 2003.

I will note that our team at Vulcraft, New York, has successfully penetrated a new geographic market for Nucor's joist and deck business and they built their business over the past 3 years of extremely depressed nonresidential construction activity.

Our fourth quarter 2004 composite average sales price for steel and steel products was $697 per ton, an increase of $29 per ton from the third quarter and an increase of $320 per ton from the year ago quarter. This compares to fourth quarter 2004 scrap and scrap substitute usage cost increases of $30 per ton over the third quarter and $123 per ton over the year ago quarter.

The LIFO charge for the fourth quarter of 2004 was $152.5 million, which included 11.3 million at our 51percent-owned Nucor-Yamato structural steel mill. This compares to a charge of 75.5 million in the fourth quarter of 2003 with 8.9 million at Nucor-Yamato.

The full year 2004 LIFO charge was $375.9 million which included 36.7 million at Nucor-Yamato. By comparison, our 2003 LIFO charge was 115 million which included 17.6 million at Nucor-Yamato.

At the close of 2004 Nucor's LIFO inventory reserve was 533 million, up from 158 million at year end 2003. The objective of LIFO inventory accounting is to match the most recently incurred cost with current revenues. Generally in times of rising cost Nucor will record LIFO expense and in times of decreasing costs, we will record a LIFO credit.

The fourth quarter gross margin of 20.9 percent compares to the prior year quarterly gross margin of 3.5 percent. Our full year 2004 gross margin of 19.8 percent was up sharply from 2003's gross margin of 4.3 percent.

Earnings before income tax were $125 per ton for the fourth quarter, and $96 per ton for full year 2004. Up from $4 per ton for both a year ago quarter and full year 2003.

Nucor's effective tax rate was 34.7 percent for the fourth quarter and 35.2 percent for full year 2004. Our year ago quarterly tax benefit as well as 2003's unusually low effective rate of 6.1 percent was a result of substantially lower pretax earnings and state income tax credits.

Our cash provided by operating activities for 2004 exceeded $1 billion, also a record. Cash and short term investments totaled 779 million at year end 2004, up from '03's 350 million. Approximately 71 million of the December 31, 2004, cash and short term investment position was held by our 51 percent-owned joint venture, Nucor-Yamato Steel Company.

In 2004 CapEx were 286 million, and depreciation expense was 383 million. For 2005 we project CapEx of approximately 415 million, and depreciation expense of approximately 400 million. The 2005 capital budget includes expenditures of more than 150 million for greenfield projects, primarily for the new iron plant in Trinidad.

At the close of 2004 our debt to capital ratio was 20 percent, down from 26 percent at year end 2003. Nucor's debt is rated A+ by Standard & Poor's and A-1 by Moody's. The highest debt ratings awarded to any North American metals and mining company. We view Nucor's strong balance sheet as an important competitive advantage.

Nucor increased its regularly quarterly cash dividends twice in 2004 for a total increase of 30 percent. Our Company has increased its cash dividend every year since we began paying dividends in 1973.

As Dan emphasized in his comments, we have a strong focus on the careful allocation of our shareholders' capital. Our news release this morning gave first quarter 2005 earnings guidance of a range of $1.70 to $1.90 per diluted share. First quarter 2004 earnings were $0.72 per diluted share. With weather-related seasonal softness in construction markets, the first quarter is typically the weakest quarter of the year for Nucor.

As 2004's strong business conditions appear to be carrying over into 2005, we expect that the second and third quarter's of 2005 will be stronger than the first quarter. 2005 should be another strong year for Nucor in profitability.

We appreciate your interest. Dan?

Thanks, Terry.

At this time I would like to ask Joe Rutkowski to give an update on the plate and beam business and some of our special projects.

Thanks, Dan.

The plate market remains very strong. Heavy equipment OEMs are improving their outlook in '05 versus a very strong '04. Last year our team in Hertford County rose to the occasion by shipping close to 1.3 million tons, an increase of 30 percent over '03.

We have collected our $30 per ton increase in January and are continuing to book all plate orders with our customers month-to-month to make sure we service them as they need.

The addition of Newport Tuscaloosa in July has integrated very well and we are very proud of our team there. We have been able to improve production by about 20 percent thus far in both the coil plate side and the cut-to-length plate. We are very happy to have the Tuscaloosa niche products added to our portfolio.

The coil plate market has been affected some by the inventory overhang on sheet products but we are confident in the first quarter filling up and the additional strengthening in the next couple of months. On the beam side, as has existed for a few years there remains an overcapacity in beam production versus the demand. However, the market appears to be stable. Both from a perspective of orders and pricing.

Over the last couple of months, Nucor has tried to keep transaction pricing flat to help our customers plan and to feel comfortable bidding on construction jobs. We believe this will bode very well for the release of the construction activity after the winter thaw. As Dan mentioned previously our pig iron project with CVRD called Faragousa Carazache is progressing fairly well.

We were-- had been stymied through a number of months last year with permitting issues but we have-- at this point we are erecting the blast furnaces, the steel has all been delivered, we actually have the furnace shelves going up. The glendins (ph) or the stoves are completing and most of the civil works at the site to support the project are complete. We should start production either in August or July.

We are doing some work now as to whether to accelerate that schedule and what the impact on the budget would be. As Dan mentioned also, on our HIsmelt project our team, which is being led by-- our operating team, which is being led by 2 Nucor individuals, Leon DePollian(ph) and Chad Paine, are in the process of cold commissioning about 75 percent of the plant. They should be able to have total access to the plant sometime in February and then we will finish up the cold commissioning and have startup in the second quarter. We have an unbelievable team there.

That's really about all.

John Ferriola on sheet products?

Thanks, Dan.

The sheet mill group's performance for the fourth quarter and for all of 2004 was very strong. Marked by excellent production, shipments and increased price realization.

We remain focused on our commercial strategy to provide value-added steels to value appreciative customers. And as a result, we continue to earn increased market share with many of our high-value added customers. The sheet group ended 2005 with 65 percent of its capacity under firm pricing contracts. That is, contracts with fixed base pricing for a fixed number of tons plus a raw materials surcharge. These contracts provide Nucor with a constant margin while providing our contract customers the benefit of decreasing transactional price as raw material pricing falls.

The fourth quarter finished softer than it started due to an influx of imported steel ordered during the third quarter when steel availability was very tight and due to the traditional year-end slow down. This softness has continued into the first quarter as a result of inventory hangover.

However, the combination of our high percentage of contract business, our increased participation in end-use markets and the customer loyalty earned by our reliability-- our reliable deliveries last year has enabled us to weather this temporary softness very well. We expect to run full through the first quarter.

And we expect the second quarter to improve over the first. Increased demand will result as the inventory reduction being reported by our service-center customers is completed. Also continued strong end-use market demand and the expected reduction in imports during the first quarter will add to the market tightening in the second quarter.

In fact we are hearing reports of automotive gaining momentum and we expect construction demand to increase in its typical seasonal pattern. We have-- we also have high expectations for the remainder of 2005. As Dan mentioned, we have proven Castrip technology to be an economically viable process that has demonstrated the technical ability to produce ultrathin Castrip as a direct replacement for light gauged, hot-rolled and cold-rolled sheet steel.

Products with the final thickness of 0.84 millimeters have been made at the Nucor's Castrip facility and have been successfully sold into multiple applications. As energy costs increase, the energy efficiency of this process gains in significance. Castrip technology reduces the amount of energy consumed and CO2 emissions per ton of sheet steel by 85 percent when measured from the ladle to the finished coil compared to traditional integrated steel making.

The process has also demonstrated that steel with high level of residuals, particularly copper, can be successfully cast and rolled into sheet with the Castrip technology. Sheet with as high-- steel with as high as 0.6 copper has been successfully utilized. This ability to use much lower grades of scrap to produce sheet products brings significant operating cost reductions to the Castrip process, particularly with prime scrap pricing at today's levels.

Although Castrip can be substituted for standard grades of hot and cold-rolled sheet, the potential for new and unique steel grades exists as a result of the extremely high cooling rates used in the Castrip process. We have just begun to explore the benefits of the resulting unique microstructure. We are working with our customers to develop new products and applications that take advantage of these unique benefits.

In fact, this Castrip product is so unique that a new ASTM specification number 1039 has been written and approved for the Castrip product. Given the success of the Castrip facility we have assembled a team to determine the best location for the second Nucor Castrip facility. Although we are examining many sites we are focused on 2 general regions -- the west coast and south central region.

The west coast because we believe its available market of approximately 600,000 tons while far too small to support a traditional steel mill is perfectly sized for a Castrip micromill. We like the south central region due to the excellent water transportation system. We are considering placing a new Castrip facility at 1-- near 1 of our existing mills in Arkansas or Alabama.

In addition to the site selection for the second Nucor facility, discussions have intensified with potential oversea Castrip joint venture partners. We fully expect to announce the location of the second Nucor Castrip facility and at least 1overseas Castrip joint venture facility this year.

I would like to thank the entire Crawfordsville team, as well as all the other Nucor employees who gave support to the effort of making this exciting new technology a reality. Thank you, Dan.

Thank you, John. Mike Parrish will now talk about our long product segment.

Thank you, Dan.

Looking at the individual bar markets, the rebar market is fairly strong. However, we are currently shipping at less than a normal rate because of high inventories at customers' yards. This is primarily due to excessive third quarter imports and aggressive buying during that time.

The good news is that the fourth quarter imports were much lower. By mid-February we expect that most customer inventories will be back to normal levels. Combining this with other seasonal factors, we fully expect our shipments to return to normal levels as well.

We see rebar transaction pricing remaining steady or slightly increasing over the next few months. The merchant bar market remains steady with demand at moderate levels. We expect merchant bar transaction pricing to remain steady also.

The SBQ market continues to be very good. This is largely due to a strong demand for heavy equipment and machinery. We expect transaction prices here to stay at their current high levels.

Our cold finish group had a record year shipping over 270,000 tons. As Dan said earlier, we are very excited about the addition of Fort Howard Steel as they bring an experienced and hard working team of people, great customer service and additional products to our cold finish group. With this addition, we will produce and ship over 400,000 tons annually of cold finish material.

Thanks, Dan.

Thank you, Mike. At this point in time we would be happy to entertain questions.

Thank you very much, sir.

[OPERATOR INSTRUCTIONS]

And, let's begin with Brett Levy, Jefferies and Company. Your line is open sir, please go ahead.

Hey, guys. Congrats on a good quarter.

Thank you.

Can you talk a little bit about-- there's been some reports about iron ore substitute prices starting to come down, scrap prices are clearly coming down. What are you guys seeing for February, and can you talk a little bit about where you see scrap and substitute prices going during the course of the year?

Your assessments are-- we see as being very accurate and representative of what's going on across the raw materials markets with the exception of iron ore pricing. As we've read that the iron ore producers are working to get prices up as much as 90 percent. But on the scrap side and the scrap substitute side, we have seen significant softness and we expect to see some further softness going forward.

Over the course of the year, we see scrap going up-- going down a little bit, but pretty much staying flat across the year from where our levels will be in February.

All right. And you had talked about putting potential additional Castrip mill up. Are you looking at this point about-- at any other potential capacity additions in North America in terms of-- in terms of mills at this point?

This is Joe Rutkowski.

I think you've seen from our last 4 years we've been in the acquisition mode and we continue to be there and we would expect to be active in '05.

But in terms of-- in terms of greenfield projects beyond the aforementioned Castrip mills?

As far as greenfield goes our position has been very clear on that. In a market where there's clearly global overcapacity more times than not throughout the course of a cycle, greenfield adding capacity that doesn't really do anything in terms of significant cost improvements over existing technologies, does not make sense.

If the returns are low it takes years to get into the marketplace. But where you have significant cost advantages being developed by radical new technologies like Castrip and like HIsmelt would be from an iron-making standpoint, certainly we plan on going forward with greenfield opportunities domestically and globally.

But as far as building more conventional type mills, CSP- type mills, beam mills, bar mills, no, we do not.

Thanks very much, guys.

Thank you, Mr. Levy. Next in the queue, from Michelle Applebaum Research, Michelle Applebaum. Your line is open, please go ahead.

Hey. Yes, I think it is worth mentioning that iron prices are looking to be up 90 percent this year.

But I guess my question is, how often do you see iron and scrap prices diverging and what's the likelihood that that's going to continue? Aren't they pretty good substitutes?

Well, the reality is what you've seen happen since about October of 2003 was a massive divergence in iron ore pricing and scrap pricing. What you see happening with iron ore now is they are playing catch up. They are playing catch up to what's happened in scrap over the last 15 months.

So, the reality is, that that divergence has been very strong, very wide, mostly because the iron ore contract-- iron ore business is done on annual contracts and the contracts-- many times they are 20 years in duration for volumes but pricing is renegotiated annually or 18 months or 2-year basis. So, now you-- last year iron ore prices only went up 20 percent because of those previous agreements.

Now what you see is, people in the iron ore business saying, we've got a long way to go.

Okay. That's very fair. And you're right. Okay.

But I guess on scrap substitutes, wouldn't the scrap substitutes use iron, so wouldn't there be-- I understand the scrap substitutes you have to be competitive with scrap, but wouldn't you expect those prices to rise this year because they are feedstock or will there just be margin compression because they will have to be competitive with scrap?

Well, their iron ore prices have not moved much at all during this entire period where scrap moved and the HBI, pig iron, DRI producers took advantage of scrap moves to drive prices up with wildly-- wildly broad margins. I think what you will see is margin compression going forward because they still have to remain competitive with the prime grades of scrap, but the iron ore prices are going to be going up. Their margins will go down but they will still be quite healthy.

I see. Okay.

Could you just clarify, your scrap prices did go up quite a bit in the fourth quarter. And I know that scrap and other metallics, was there some mix issue,? I think that's a bit more than the market.

I think our scrap increase during the fourth quarter was $25 a ton, is that right?

Thirty.

It's in that ballpark. Remember there's always a time-- a time delay, Michelle, from the time you are buying scrap to the time you are using it. And so at the end of the quarter scrap prices came down, they came down fairly strong. We will see that carry forward in the latter part of the first quarter, second quarter; those lower scrap prices. But as far as usage goes the numbers there were coming from earlier in the-- purchases made earlier in the fourth quarter and end of the third quarter.

Okay. Listen, thanks, and congrats on the Castrip. It's very exciting.

Extremely exciting, thank you.

You need to take more people through.

That will be happening.

Cool.

Any further follow up, Ms. Applebaum?

No.

Thank you very much. [OPERATOR INSTRUCTIONS]

Let's go to Robert LaGaipa, CIBC World Markets. Sir, your line is open, please go ahead.

Thank you, good afternoon.

Obviously a good quarter. I just had a couple of questions. One, I wanted to follow up just in terms of the guidance for the first quarter. Just in terms of the shipment levels.

Now, obviously we've seen from the first quarter of 2004 was your strongest shipment levels. You've had a couple of acquisitions, Decatur, you've had the Tuscaloosa assets, we've seen about a 12 percent decline in terms of the shipment levels into the fourth quarter and you're looking for sequential EPS decline into the first quarter. What's driving that? Are shipment levels going to stay at fourth quarter levels? Are we looking for lower pricing? What's the largest impact there?

I think it's probably a combination of the potential shipments being impacted by the weather issues that we are seeing. We are very cautious and conservative about our estimates going forward in the first quarter.

As you've seen lately, there's been some pretty radical weather hitting the east coast, west coast, upper midwest. And, so we see that show up first in our fabricating business, our beam business, our joist/deck business, our building systems, the impact of weather on that and that carries through to our other steel products.

And so, if things turnaround, it will impact shipments to the positive. If they stay rough or get rougher, it will have an impact to the negative. So, we are very cautious about forecasting our shipment load going forward. There has been a little bit of a softness in the marketplace that developed in the fourth quarter. That has carried over a little bit into the first quarter. Mostly the softness has to do with inventory overhangs in most product lines. And the weather issues.

Sure.

And so it's a combination of all those things. At this point in time we look at the first quarter earnings projections with a very conservative eye.

And, what would you say is your visibility? Has your visibility improved, deteriorated? Just in terms of your order growth? Is it a month out, a few weeks out?

Maybe if you could just give a little bit of color into that as well?

One of the reasons we stopped publishing our backlogs on the web was because we went from a quarterly order entry for many of our products to a monthly order entry. So we are only seeing a month-to-month visibility by design.

And we may decide to go back to quarterly entry at some point in the future, on plate and on sheet, but at the present time it's a month-to-month order book that we are opening up. We just recently opened our order book for March. And so, that visibility in terms of order entry is on a monthly basis.

Sure.

Two last questions if I could. One just in terms of the inventory levels on the balance sheet, obviously there's a significant increase there. Is there any sense in terms of the volume that's actually in that number? I mean, obviously the pricing has been up, and you've done a fabulous job in terms of holding pricing at these levels by cutting back the shipments.

But, just in terms of your inventory levels that are on the balance sheet is there any concern there at all, or you're pretty confident you will be able to draw those down as the months drag on?

The inventory levels that you are referring to really have to do with our raw material inventories, not our finished product inventories. The finished product inventories are higher simply because the pricing of that inventory is higher.

We have a significant amount of raw material, particularly scrap and scrap substitute units in our inventory by design. We are in very good shape there, we have some very good pricing. And, so what you see in the way of that strong inventory number is really all related to the scrap and scrap substitute side of the equation. And, it's a volume issue more than anything.

Has that mix changed at all in recent months just in terms of how much scrap you are using versus the scrap substitutes?

No. It's remained fairly constant throughout the year.

Okay.

And last question before I let you go and I appreciate you spending the time. Has there been any share buybacks or any talk relative to a share buyback recently?

No, there has not been any share buybacks recently and as far as talk of that goes, I wouldn't make any comment about what we might or might not do there. We said all along is that if we continue to see the opportunities to grow our company profitably through acquisitions and the numerous raw material projects and now Castrip, we would be very cautious about using our capital and our cash for things other than those acquisition-type opportunities and greenfield opportunities.

We did increase our dividend this year. We are constantly evaluating what's the best way to return to the shareholders value and we will continue to do that. But specifically we've always said that thing like share buybacks are probably lowest on the list of things to do.

Until we get to the point where we feel like there aren't the kind of opportunities out there that Auburn, Birmingham, Tuscaloosa, Trico and on, and Fort Howard and so on, when they dissipate then we will look at things differently. Right now we don't see that as being the case.

Terrific. That's fair. Nice quarter. Thank you.

Thank you.

From UBS, Timna Tanners your line is open, please go ahead.

[inaudible] Good afternoon. Wanted to ask you 2 questions, one of them is, just in general we are hearing more from your customers and maybe this is just given the times, but they're hearing more and more about substitution and looking for other sources in general for steel, either outside the U.S. or talking about substituting plate for other products, that kind of thing. Can you talk to us about what you are hearing from them, whether or not you think that might be chatter or posturing?

Well, first off, any time prices increase on any commodity product, whether it be aluminum, steel, scrap, scrap substitutes, people always turn up the thought process about, "Okay, is there something out there that I can replace this with and give myself a better cost structure?"

And, but in general what we've seen happening over the last year plus now, is that all commodities of all types from lumber, to concrete, to copper, to nickel, to aluminum, they are all extremely high. And, so while there's always that to and fro going on with respect to competing materials, by and large it's not something that's significantly impacting the marketplace and the volumes of steel that are going into applications.

Where there is a little bit at this point in time might be some of the very low rise commercial construction where wood might have gotten a little bit of a competitive advantage. But, those prices continue to be volatile as well.

Okay.

In general I think that, yes, people are looking at those things, they always do. We do the same thing. From our supply standpoint, when scrap goes to 300, $400 a ton but in general the things that are in place stay in place.

So, not saying that there's a lot of options for them in terms of substitution or imports for replacement.

From an import standpoint, if you look at just comparable products-- steel products, right now steel prices in Europe and China are higher than they are here.

Right.

So, you know, it's a thing that goes back and forth but in general, the United States does not have the highest steel prices in the world today.

Not today, right.

And, then, just a quick question if you could give us any guidance on the Castrip pre-operating and startup cost for 2005, how we should be thinking about that?

No, not at this time.

Okay. Great. Thanks again.

From Morgan Stanley, Wayne Atwell has our next question. Your line is open sir, please go ahead.

Thank you and congratulations on a good quarter.

Thank you, Wayne.

You talked about breakthrough technologies, obviously Castrip is breakthrough and you've got several in the scrap substitute areas. Is there anything else that's breakthrough technology that you are working on?

There are some things that we are working on. We are not in a position to be talking about them yet.

And I wouldn't say they are on the order of a Castrip or a HIsmelt, but they do bring tremendous benefits from a operating cost standpoint and we will just see how they develop. Also from a new product standpoint.

Okay. Now obviously you've got 2 scrap substitute projects overseas. That's about it. Are you thinking at all of going offshore?

You've certainly acquired a lot of things in the United States and done a pretty good job, but one would think that you are getting towards the end of what's available here. Are you thinking about going offshore in your acquisition effort?

One would think that, but there's lots of opportunities that come into play for various reasons which I won't go into. We actually have 3 iron unit oper-- projects overseas, Wayne, with Trinidad, Brazil and Australian projects.

And as we've said all along, our focus on growing capacity whether it's domestically or internationally, has got to be driven by these, development of these new technologies and through joint ventures, using these new technologies and forming partnerships in a way similar to what what he did with Yamato Kogyo in our Nucor-Yamato joint venture which has been extremely successful venture. And we haven't strayed from that.

We did take a look at Posco-- not Posco excuse me, at Hanbo and when we saw that some other folks in Korea decided the bid on that. We decided it wasn't worth continue going to forward with.

And there are opportunities that pop up from time to time, there are rumors out there about this middle and eastern Europe that supposedly we were bidding on. That's nonsense, but we won't rule out the fact that there might be some opportunities. But principally, they will be done through joint ventures with people who have successful business plans and operating businesses in those countries around the world and not as standalones.

And then, lastly could you repeat what was said about contract pricing? I don't know whether I didn't hear it correctly or didn't understand it. Could you once again repeat what you are doing with contracting in '05?

What John stated was that in our flat-roll product, which will be somewhere over 9 million tons in 2005, we have a minimum of 65 percent of our business tied up in long-term 12-month-type contracts.

And we told you all on earlier conference calls, our target was to get in the range of 70 to 80 percent, and we got to the 65 plus percent and we are comfortable with that in the current market environment.

And I assume that would be at a fixed price with a scrap escalator or a number of escalator that would go up, or possibly down depending on what happens to those indexes

Absolutely.

Fixed price and fixed number of tons.

Great, thank you very much.

Your welcome.

Thank you, sir. From Adage Capital, Frank Dunau. Please go ahead, your line is open, sir.

I have just a question. I want to go back to the inventory. I must be doing-- just tell me where my numbers are wrong. You ended the year at like 1 million 2-- 1,240,000,000 of inventory and if I just look sequentially from the third quarter, you ended the third quarter at 950 million, that's like 290 million increase in inventory.

Yes.

And I'm having trouble-- and, so if that was all like scrap buying, that means you bought an incremental million tons of scrap and put it into inventory, or what did I miss, there?

That's about right. Quarter of a million went into scrap in Q4. So something over 2 million tons but remember that's less than a month and a half of metal.

Right. So, I mean-- But, if you did that if the fourth quarter when I-- depending on what you did in the fourth quarter, scrap prices are now lower than they were in the fourth quarter or did you get an incredibly good buy at the end of the fourth quarter or why did we do that?

Keep in mind that our buy is-- comes from a number of sources not only domestically but internationally.

Right.

And, so some of that product that went-- increase in inventory came from purchases at much lower prices, earlier from offshore sources.

Okay.

So, whether it's pig iron or scrap or HPI or DRI, that had a lot to do with it. And, it was part of a strategy that we are very happy with the way its executed so far. John, you have any comments?

The only other comment I would make is that towards the fourth quarter we always get a little heavy weather conditions. Again, you want to make sure that the flow of the scrap keeps going during the winter months. You can have rivers close, and we need to make sure that we have scrap available to fill our customers needs.

All right, so given all that and I will ask Terry this and I will never understand the answer, if you can answer it, how does that run through the LIFO crediting or charge or whatever? Does that happen when the inventory runs through the system or how does that work or-- ?

Really, it really impacts it more when it runs through.

Okay.

But remember, we are doing-- we're doing the last purchases on LIFO, so in terms of impact for '05, it won't really have any. It will all hinge on quantities and purchase price at the end of '05.

And, did I miss-- or did anybody give-- you're giving pricing outlooks for a lot of grades, did anyone give one for structural steel, like wide beam stuff coming out of Nucor-Yamato, and stuff like that?

Yeah, Joe had mentioned in his presentation that-- you want to just go over that again, Joe?

Basically, Frank we've been pretty steady for about 6 months now. Whenever the surcharge is going up or down we've adjusted base pricing so that basically the transaction price stayed the same.

Some of the trade sources are saying that inventory seems to be building and wondering whether pricing is going to break at some point here?

Well, I think that will-- a lot of that will depend upon what actually happens with respect to the nonresident construction pickup. The same folks on the service kind of side that may be saying that to you. I don't know if that's where it's coming from. On the fabricator side, where the steel gets used, the beams get used, they are seeing a lot of activity and projecting a healthy uptick in business as the weather moderates.

Okay. Thanks.

Thank you, sir. From Prudential, John Tomazos has our next question. Your line is open, sir, please go ahead.

Congratulations with all the accomplishments and cash and I'm sure you will find great new ways to put it to work.

Thank you, John.

In terms of your earnings guidance, I have the greatest admiration and respect in your second and third quarter guidances and I sympathize with the business of forecasting earnings.

Given that you are on a 1-month order cycle and don't have the visibility that you did when you had quarterly orders, I guess your first quarter guidance has 1 level of certainty and your second and third quarter guidance is that it would be better than the first quarter, have a reasonable basis, but are not sure things. Could you characterize how much of your business you have volume commitments for, or at least an understanding with the customers on the second and third quarters, noting that the fourth quarter volume did come in a little light?

Yes, as far as the last part-- it's a good point that you're bringing up John. And there's counteracting influences on the first quarter where there is, you see the month issue more clearly on your order entry but you also have the uncertainty of the weather and the shipment issue, okay? And that-- those things counteract one another a little bit.

As far as the longer term second and third quarter goes, yes, it's further out, yes, we don't have the firm picture that we have on a month-to-month basis that's impacted the first quarter. But, in many respects-- and our flat-roll business is an example, what we've already mentioned is, over 65 percent of our tons are known and the margins are known going into second quarter, third quarter, and even fourth quarter.

Some of the softness that you saw in fourth quarter 2004 were more related to long products, that's sheet, but there were some outages that we took and we discussed in our previous conference call that had an impact on that.

Do you have any volume contracts for product other than long products to speak of? And could you describe your long-- your sheet product contracts by end markets, how much might be-- what fraction might be welded tubers versus distributors versus other end users?

John, I'll-- we will address that latter part in a second but not probably not definitively as you would like.

One thing to keep in mind, we are in constant discussion with our customer base. We know where the plate market is going. We know that the beam market is going to be strengthening going forward. The nonresidential construction market is going to be strengthening going forward. And so, we are not completely blind on what's going on from a demand standpoint.

We are also looking at the import numbers which will impact second and third quarter that we've seen a dropoff in December and continue to see it here in January. And so, there is a lot more visibility than was indicated by answering that original question about the quarterly order entry or the-- doing it month-to-month. So, there's a lot more confidence in that second and third quarter number that would be indicated just by a month-to-month order entry level.

As far as other products that we have firm contract business with tonnage and pricing commitments, really it's principally the sheet business, not the bar, not the beam, not the plate. But the plate market is extremely strong and a blind man can see that one.

As far as the sheet business and the breakdown on that, John will give you a little bit of an insight on that.

Just give you it in broad terms. We have about a third of it goes to OEMs, about a third of it goes into the energy field, mostly pipe and tube, and about a third of it into service centers.

Thank you.

Thank you, sir. From Inwood Capital, Michael Christodolou, your line is open, please go ahead, sir.

Yes, Dan, you've done nice job talking about what you are doing in scrap and some of your initiatives there. My questions relate to another critical input for you, which is the graphite electrodes. We are hearing of some shortages in needle Coke and pitch and talking of some 30 to 70 percent price increases going through with surcharges on graphite electrodes.

And, my questions are-- how far out is Nucor buying? Are you paying those surcharges? Would you ever think of buying from some of the second tier suppliers like the Chinese or the Indians or the Russians?

Actually, we are doing all of the above. We are buying overseas when it makes sense to do so. We're trying new suppliers when we have to. A lot of our electrode-- it's all over the map, but a lot of our electrodes are on contracts span a year or 6 months. So, we have seen some of the price increases you are talking about out there, but, most of our buy has been protected and consistent. One of the things that has made us much less sensitive although not totally insensitive to the swings of electrode pricing is that our consumption per ton of steel-- pounds per ton of steel produced on electrodes has steadily come down and down and down through the use of DC furnaces, modern steel-making techniques in our EAS, and-- compared to 10, 15 years ago where a fraction of our consumption was.

So we have technology improvements and operating improvements that are working to continue to counteract that increased cost impact that may be coming there. But, no doubt there will be some additional cost to us there. Just as there is on the energy side.

Given that it is a small portion of your input cost but nonetheless critical, would you everything about just buying out 2 or 3 years if you had a read on needle-- needle Coke and pitch prices?

We wouldn't rule anything out in the past. We have gone out at some of our divisions pretty far. And, but, I wouldn't say we've gone out more than 2 years. But we certainly wouldn't rule that out if the circumstances dictated.

Thank you, gentlemen.

Thank you, sir. Next on our roster, Daniel Roling of Merrill Lynch. Your line is open, sir. Please go ahead.

Hello, Dan.

Hi, how are you doing, Dan?

Good, thanks.

Could you give us a ballpark range on the capital cost of the Castrip plants you are looking at?

I will give you-- again, depending upon the location and whether or not it has a steel supply already in place, we will make the assumption that it does at this point, we would say that all in would be about in the range of 100 million.

Okay.

That would be for about 500,000 give or take 100,000 tons. And obviously the first places that you look to apply this technology are places where there is already existing excess smelting capacity.

Right. Second, we've heard a lot about China becoming a net exporter which statistically is true in the last few months, but-- and we know they are adding a lot of new capacity.

Could you just give us your views on what you think the outlook is as far as China, either being a disruption or not being a disruption on the world market in the short run?

Well, that's a good question. I've heard 20 different experts give 20 different explanations. In the short run anything can happen right now. I would say that the impact that we saw at the end of last year is dissipating a little bit. There economy is going strong.

They are still having a lot of issues over there with infrastructure and movement of materials, power. We have people coming back telling us that they are running electric furnace shops without any electricity, strictly with oxygen. Running it like a POF (ph) furnace. There are a whole host of issues, raw material issues and what have you. But in the short term anything can happen. Right now we don't see it as being a major disruptive force.

As we mentioned already the import situation has been moderating in December and again in January. We see that continuing. We see prices for steel outside of the United States continuing to increase, particularly as iron ore prices go up. And they will go up for everybody, that are out there using blast furnace technology.

And long-term, China is going to be adding capacity, subtracting capacity, consolidating, growing demand. It's going to be a dynamic situation although it will have its moments of terror and moments of elation. And I think that over the next number of years it will be more positive than negative.

Okay. I agree. Thank you.

Thank you, Mr. Roling. Next on our roster, John Hill of Smith Barney. Your line is open sir, please go ahead.

Very good. Congratulations on the strong results.

Thank you, John.

I was wondering if you could provide us with an update on the second vacuum degasser at Crawford that seemed to be something you were really focusing on in the fourth quarter, I was just wondering how the operation is going, the marketing, penetration of customers?

I can give you an update on that. The startup was excellent. Frankly we had a lot of help from all of our divisions and it was almost a flawless startup. It's in operation today. It's feeding primary the Castrip operation and we started on schedule, on budget. Going very well.

Very good.

Also curious, just to revisit the contract question which seems to have been beaten to death, just wondering, there obviously there are some margins built into those. I was wondering, is there some continuity from Q3 and Q4 or is there any step function higher that we should look for as of January 1?

There's always certain contracts that come in and are changing but I would say that the contract pricing from fourth quarter to first quarter is consistent. I wouldn't see a step function.

Very good.

And, last one, you talked in the past, obviously with some pride and great credibility about creeping capacity within the system, 3 million tons plus or minus as a stretch goal over the next several years. Is that still something that we should be focusing on.

Our operations will definitely continue to find ways to produce incremental increases in production at our plants and obviously the more plants we have, the more that contributes to the overall numbers. So whether it's 3 million tons or not, time will tell but we certainly have a lot of opportunity at Decatur and several of our other plants. So, including Tuscaloosa.

Very good. Thank you.

Thank you, sir. And our final question comes from Charles Bradford of Bradford Research. Your line is open, sir. Please go ahead.

Hi. Good afternoon.

Good afternoon, Charles.

We are hearing a lot of stories from Mexico of a lot more steel from the U.S. in the form of hot-rolled heading south, which brings up the issue of exports. With the domestic market on the soft side have you re-entered the export market and can you tell us-- much about it, what kind of tonnage, what kind of price?

We continually move in and out of the export market. It's not unusual for us to do a lot of business in it ourselves. I know a lot of steel producers probably have-- are doing it for the same reasons.

And Mexico is 1 example in the year end, and I will let Mr. Ferriola address that issue. Just 1 point I'd like to make about the movement of steel into Mexico. Just for the record, in 19-- 2004 there was 2.3 million more tons shipped from Mexico into the United States than was shipped from the United States into Mexico. That's 2.4 million more tons.

So, the numbers that we've seen some folks send around in e-mails around to the analysts and the investment community, they don't-- they don't speak of those kind of tonnages at all, they are much much smaller, more year-end adjustment type things. But as the dollar strengthens-- weakens, excuse me, versus the Euro and other currencies, there are export opportunities that we take advantage of from time to time, but the pricing on those are usually very good. And again, some of the numbers that we've seen show up in e-mails are probably-- are way on the low side.

John, do you have any comments?

The only comment that I would add Mexico specific, we are in Mexico. We sometimes do additional business there. We have very, very good customers, very steady customers there. We've been doing business for the last 2 or 3 years there and it's been growing. As more of our domestic customers move to the Mexican environment they ask us to follow them and we do. So, we have customers relocating there that we continue to sell to. That increases the number of tons going into Mexico.

Frankly, with the addition of Decatur to our sheet group it's forced us to move the pickling tons a little bit further west so that's caused us to go into Mexico. As far as your comments about going out of the Mexican market, I hope that doesn't happen, we have a salesperson assigned specifically to market. If we move out of it too quickly and for too long he and I will be discussing it.

Can you also talk a bit about the growth potential in Brazil?

For what kind of product?

The green pig-- the green pig project, ?

There's significant growth potential in Brazil with-- working in conjunction with our partners at CVRD, from an ore supply standpoint. We have earmarked a potential doubling of capacity at the Faragousa Carazache operation and we are looking at other opportunities as we speak, down there.

Joe, do you have any additional comments would you like to make?

One thing about making pig iron in Brazil, most of it's charcoal based and the charcoal comes from various sources, from what they call biomass which would be from lumberyards or from clearing or from various number of ways that they harvest wood as well as from cultivated forest. And, as we look to expand Faragousa, we also have to have a plan on expanding our charcoal production.

Our current furnaces-- I'm sorry, our current forests will under, a conventional kiln design will be able to service our needs. One of the things that we're working on quite a bit, and honestly we have a couple of guys traveling this week looking at some different technologies, and we've been working on our own technologies for how to make charcoal more efficiently and also improve the yields.

We are also looking at the forest yields themselves and how we will replant as we harvest. So, as we get that plan together we will be able to -- and it's going to take a little while. We will be able to project when we can expands Faragousa.

But you are going to have to have the raw material, in this case, charcoal, and forests, to be able to do that. So we've got a lot to learn. Quite frankly, I'll tell you, we feel like we are extremely educated at this point in time in charcoal production and yields and technologies. And, we are going to try to pioneer a number of technologies in that field.

Thank you, Chuck. That brings us to an end of the question and answer period.

All right, then, sir. I would like to turn the call back over to you for any additional or closing remarks.

Again, I would just like to thank the entire team for their support and for the success we've had this year. And 2005, while there is some uncertainty out there in the marketplace, looks like it will be another strong year for us. And let's continued to our jobs extremely safely out there.

[inaudible] working safely in our workplaces and being able to go home at the end of the day feeling good about what we have done then all the rest of it is meaningless. So, let's work safe, let's work together, and thank you all very much.

Thank you, sir. This concludes today's Nucor Corporate fourth quarter earning release conference call. Thank you all for your participation. Have a great day.