Nucor Corp (NUE) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation's second quarter 2009 earnings release conference call. As a reminder, today's call is being recorded. Later, we will conduct a question-and-answer session. (Operator Instructions) This Webcast may contain forward-looking statements as defined in Section 27A-I-1 of the Securities Act of 1933, as amended. Including statements regarding, among other things, the Company's business strategy and growth strategy. Expressions that identify forward-looking statements speak only as of the date of the statement is made.T these forward-looking statements are based largely on this Company's expectations and are subject to a number of risks and uncertainties, some of which can not be predicted or quantified and are beyond our control. Future developments and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.

In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate. This Webcast does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the Company's stockholders. For opening remarks and introductions, I'd like to turn the call to Mr. Dan DiMicco, Chairman, President and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Thank you. Good afternoon, and thank you for joining us for Nucor's conference call. We appreciate your interest in Nucor. Joining me today for today's call are the other members of Nucor's senior management team, Chief Financial Officer, Terry Lisenby; Chief Operating Officer of our Steel Making Operations, John Ferriola; and Executive Vice President, Keith Grass; over the DJJ Group, Ladd Hall; over our Flat Roll Group, Ham Lott; over our Downstream and Fabricated Products Group, Mike Parrish; over our Bar Products Group, Joe Rutkowski of Business Development and Joe Stratman of Plate and Beam. After briefly reviewing our second quarter results, we will take your questions.

First and most importantly, I want to say thank you to all of the members of the Nucor team for your hard work in what are the most challenging steel market conditions we have seen in our lifetimes. Your unrivaled commitment to safety, continued improvement, cost reduction and taking care of our customers is positioning our team to come out of this economic depression stronger than when we entered it. I realize this is a time of hardship and difficulty for all of the 21,000 men and women of Nucor and our David J. Joseph and Harris Steel subsidiaries.

You have my deepest gratitude and at the same time, I want to reiterate to you my strongest conviction that our working together as a team through this economic crisis will pay big dividends when the inevitable economic recovery arrives. In fact, my confidence grows each day as I learn of new marketplace successes throughout Nucor's diversified product portfolio. Again, thank you and keep up the great job each and everyone of you is doing for the Nucor team. You are a big part of the reason that Nucor's best years are still ahead of us.

Nucor reported second quarter 2009 loss of $133 million or $0.43 per share. Our results were better than our guidance issued last month for a second quarter loss in the range of $0.55 to $0.65 per share. The second quarter also represents a 30% improvement from our first quarter loss of $190 million or $0.60 per share. There's another very important factor to note when comparing our second quarter performance with that of the first quarter. Second quarter results carry a substantially greater burden, approximately $150 million to $160 million, which is roughly double the first quarter level, from accelerated consumption of high cost pig iron and scrap inventories at our sheet metals. Approximately, an $80 million difference in the negative.

As you may recall, these inventories, primarily pig iron, were purchased prior to the collapse of the economy and raw materials pricing in last year's fourth quarter. We made the decision midway through the first quarter of this year to dramatically accelerate the consumption of the high cost metallics inventories. Although this decision is severely penalizing our short term earnings, it is the right decision from a longer term perspective. It has improved both our cash flow generation and our operating flexibility moving forward. Our better than expected second quarter performance resulted from stronger orders, production and shipments as the quarter progressed.

Business conditions bottomed in April. With average weekly steel mill shipments from May up 21% over the April level. And June's average weekly shipments increasing 8% over the May level. The upturn in shipments was led by volume gains at our sheet, plate and beam metals. The second quarter results also benefited from stabilization and metal market spreads during the months of May and June. There is one other very important factor to note. We are proud that we have accomplished all of this without laying off a single Nucor employee or going through what has been called the great recession or the worst downturn experience in our lifetimes.

In addition to seasonal improvements in demand, it also appears that customer inventory destocking has run its course. Our customers are now ordering at the rate that their customers are ordering from them. The uptick we are seeing is because apparent demand is moving closer to real demand or end use demand. However, we do not believe there has been any significant improvement in real demand. This improvement in apparent demand, along with steel price increases, suggest that we should realize some improvement in third quarter results compared to second quarter.

However, the third quarter will again carry a heavy burden from consuming the balance of our high cost pig iron inventories. Our fourth quarter results should benefit from significant improvement in raw material costs. We continue to believe real demand and the steel market is in for a long, slow recovery and there will likely be some bumps along the path to recovery. This prolonged and slow recovery is the inevitable result of the challenges faced in correcting the structural imbalances that created the economic crisis we are in today. These structural imbalances are excessive leverage, artificially induced consumption resulting from the present bubble and [mercurialistic] trading practices and abuses.

The economic challenges ahead for the US economy are serious and what happens in the US still has a tremendous impact on the global economy. Make no mistake about that. The events over the past 10 months have once again made that fact very clear. Quite simply, the time is long overdue for policies in the United States, which will rebuild our balance in trade, rebuild our infrastructure and rebuild our energy independence. That is the road to creating true investments with the taxpayers' money, real investments in America's future. Creating real jobs that add long-term value and lead to substantial economic growth and a better standard of living for our children and our grandchildren.

And we're still looking for our nation's leaders to recognize the urgency of taking these necessary actions to restore the long-term health of the economy of the United States. Otherwise, we'll be facing the granddaddy of all jobless recoveries. Having said that, the Nucor team looks ahead with both great determination and confidence in our ability to continue to be a steel industry performance leader regardless of the economic landscape. Our disciplined execution of our long-term growth strategy has one objective, delivering attractive long-term returns on our shareholders' valuable capital throughout the cycles. We have proven our ability to perform through the up cycle. That is evidenced by our six-fold increase and peak earnings from 2000 to 2008. And it was also demonstrated with our US steel industry's leading return on equity during the most recent cyclical upturn from 2004 to 2008, which was delivered using the lowest debt leverage in the industry.

Today, we are again proving our ability to perform through the down cycle. The current downturn, unprecedented in its severity, is highlighting the value of our business model. And we only have to look back as recently as what we achieved during the last economic downturn over 2001 to 2003, to see that. Quite simply, we positioned Nucor for our greatest period of growth in our history. That performance record is why I'm baffled and disturbed when I sometimes read commentary in the investment community that describe's Nucor as the defensive name in the steel sector. To the contrary. I believe and see strong evidence that the Nucor team plays both offense and defense exceptionally well. That's the only way you win the Super Bowl.

Most importantly, I expect that strong performance record throughout the cycle to continue. The value of Nucor's business model includes its proven adaptability and flexibility throughout the cycle. Whatever path the economy and the steel industry conditions take in the months ahead, Nucor is extremely well positioned to delivery attractive returns to our shareholders. As you've heard me say before, the keys to our business model are both simple and powerful. They include Nucor's strong balance sheet, Nucor's highly variable and low cost structure, Nucor's diversified product portfolio, our high flexibility production process, and most important of all, Nucor's highly productive people with the can-do attitude. I now ask our CFO, Terry Lisenby, to provide you some details on Nucor's financial position. Terry?

Thanks, Dan, and good afternoon. Nucor's liquidity position remains extremely strong. At the close of the second quarter, cash and short-term investments totalled $2.2 billion dollars. That is an increase of $300 million from our first quarter cash position of $1.9 billion dollars. Very healthy operating cash flow generation has enabled Nucor to maintain strong liquidity, while also funding first half of 2009 outlays totaling approximately $775 million. These were for a long-term debt retirement, profit sharing and incentive compensation payments for 2008's record earnings performance and a payment for 2008 federal income taxes. Additionally, we paid cash dividends to our shareholders of more than $220 million in the first six months of this year.

During cyclical downturns, Nucor's cash flow benefits from a counter-cyclical cushion provided by lower scrap and steel prices reducing the working capital requirements of our businesses. In contrast to a year-over-year decrease of $1.3 billion in net income, for 2009's first half, cash flow provided by operating activities declined by less than $200 million over the same period. Our liquidity position is also enhanced by the fact that we have no borrowings on our $1.3 billion unsecured revolving credit facility. That facility is not mature until November 2012. And we have no outstanding commercial paper.

I will reiterate a point made by Dan, our work maintaining Nucor's strong financial position has been accomplished without laying off a single Nucor employee through this unprecedented downturn. We are proud of that achievement by our team. At the close of the second quarter, debt totalled $3.098 billion dollars and our debt to capital ratio was 29%. The weighted average coupon rate on our fixed rate debt is 5.7%. After $98 million dollars and our debt to capital ratio was 29%. The weighted average coupon rate on fixed rate debt is 5.7%. After retiring a $5.4 million industrial revenue bond in August, our next debt maturity is not until 2012. About $2.2 billion of our debt or 70% of the total, matures in 2017 and beyond.

Our work raising capital in last year's second quarter, $2 billion of equity and $1 billion of long-term debt, was done on very attractive terms. And it allowed us to avoid any costly capital raising this year that would be dilutive to our shareholders. Nucor has earned the highest credit ratings of any North American metals and minings company, awarded by Moody's and Standard & Poor's. And of course, balance strength and industry leading credit ratings give us tremendous flexibility in managing and growing our business. For example, our debt to capital ratio of 29% provides us a significant cushion relative to the 60% debt to capital [CONUT] limit in our credit facility. Capital expenditures for the first half of 2009 were $240 million. For full-year 2009, we continue to project capital expenditures of approximately $400 million.

First half of 2009 depreciation and amortization totalled $278 million and we expect about $590 million for the full year. Our capital spending budget for 2009 represents a substantial decline from 2008 capital spending that exceeded $1 billion, due to the completion of a number of major projects last year. Nevertheless, we remain focused on taking advantage of attractive capital investment projects provided by the current economic storm. The Nucor team looks forward to building on our Company's long tradition of being effective stewards of our shareholders' valuable capital. And we would like to thank you for your interest in Nucor. Dan?

Thank you, Terry. I'll now ask John Ferriola to report on our steel making and raw material operations. John?

Thanks, Dan. Good afternoon. Let me begin by thanking all members of our Nucor Steel Mill and our David J. Joseph and new iron and raw material teams for your outstanding commitment to working safely and taking care of our customers in this very challenging environment. I cannot emphasize enough the importance of everyone staying focused on safety. Nucor's best years are still ahead of us and we want all of our teammates to be around to enjoy them.

The second quarter of 2009 was another period of extremely challenging market conditions for our steel making and raw material businesses. These statistics tell the story. Second quarter steel shipments of 3 million tons were about 50% the year ago quarterly shipments of more than 6 million tons. Our second quarter steel mill capacity utilization was 46%, a slight gain over the first quarter rate of 45%. And our steel mills average selling price for the quarter dropped 39% from the year earlier level.

However, as Dan mentioned in his comments, we are encouraged by the improving trends in orders, production and shipments that began during the second quarter. April was the bottom. May was stronger than April. And June was stronger than May. While second quarter capacity utilization was up only modestly from the first quarter, there was significant improvement in monthly mill utilization rates for each product through the second quarter. And with stronger demand, we are implementing price increases in each of our products for the first time in about nine months. These stronger business conditions have continued into July.

Across all of our steel mill products, we believe the catalyst for this upturn in demand is the result of service centers completing their inventory destocking cycle. Service center inventories in June was 6 million tons, their lowest level since August of 1983. Service center inventories have been reduced by 46% from their peak level in August of 2008. Months of supply across all products were 2.4 months. Flat rolled months of supply were even lower at 2.1 months. As a result, service centers have recently increased their buying to match end use demand. At the same time, we see little indication that end use demand has improved. Our expectation is for no significant improvement in end use demand over the balance of this year.

Very simply, we see a steel market environment in the months ahead that favors producers, such as Nucor. Here's my reasoning behind this important point. With inventories at historic lows and any inventory building likely to be restrained by tight credit conditions, customers will increasingly value the services of suppliers who can meet their needs for steel quickly. And they will look to suppliers who have sufficient financial strength to weather tough economic times.

Another important component of our value proposition will be our product line diversity that offers one-stop shopping opportunities for customers. Our steel mill assets and most importantly, our people, put Nucor in a very favorable position to gain market share and build our long-term earnings power. Our electric arc furnace production process can be turned on and turned off very quickly. And with our longstanding no layoff practice at our steel mills, having continued through this unprecedented downturn, our people are ready today, not tomorrow, not next week or next month, to take care of our customers.

I will now briefly review the fundamentals of each product group. Nucor's bar mill group achieved impressive bottom line performance despite the first half of 2009's very tough market conditions. First half 2009 shipments decreased 44% from the year ago period. However, second quarter 2009 shipments increased 16% over the first quarter. This was the result of seasonal demand strengthening in construction markets and attractive export market opportunities. We have announced two price increases for bar products. The first increase was effective in June. The second will be effective in August.

While demand has improved somewhat in recent months, we still expect overall bar market conditions to remain challenging. We have two exciting bar mill group growth projects to update you on. Our new Memphis SBQ mill expands our product offerings to include rounds from three inches to nine inches in diameter. And it positions Nucor with the broadest, highest quality and lowest cost SBQ product offering in North America. Memphis has been melting and casting for a year, with as-cast blooms shipped to customers in the US, Western Europe, Korea, India and Mexico. And in January, our Memphis team started shipping prime rolled bars to customers. Our SBQ mills are excited by their opportunities to grow Nucor's business in energy, automotive, heavy equipment and service center markets.

Equipment improvements have been completed at the previously idled Kingman, Arizona wire rod and bar mill. With an investment of just $65 million and an annual capacity of 500,000 tons, the Kingman facility allows us to better serve our wire rod and rebar customers in southwestern US markets. We look forward to beginning production when there is sufficient improvement in market demand. In the meantime, we will continue to increase our presence in this region using products from our other bar mills.

Nucor's structural steel group also performed well in an extremely depressed market. First half of 2009 shipments decreased 56% from the year ago period. However, second quarter 2009 shipments increased 12% over the first quarter. Even with the capacity utilization rate below 40% for both the second quarter and the first half of this year, our beam mills have remained profitable over this period. Our teams at Nucor Yamato and Berkeley are doing outstanding work on costs in this very difficult market. Demand for beams has been improving since bottoming in April. In addition to customers filling holes in their inventory, we are seeing project activity increase in such markets market segments as hospitals, power plants, government buildings and schools.

We have announced two price increases for beams. The first effective in June and second effective in August. While there has been a slight uptick in demand, we expect beam market conditions to remain difficult for the balance of 2009. Nucor's plate mill groups' shipments for the first half of 2009 decreased 51% from the year earlier period. We believe the plate market reached bottom in May. The improvement is the result of nearing the end of our customers' inventory destocking and an increase in project-related buying for the energy sector, specifically wind towers. We have announced two price increases for plate, the first effective in June and the second effective mid-July.

Building on our strength of product breadth and diversity, both of our plate mills, Hertford County, North Carolina and Tuscaloosa, Alabama, are doing extensive product development in both new grades and new sizes of plate to grow our product offering. Particular emphasis has been placed on X grades and high-performance steels that will expand our opportunities in end-use markets such as energy, bridge and ship building. Our planned new plate heat treating facility at Hertford County is another exciting opportunity to grow Nucor's plate business. In the second quarter, we completed our equipment purchase agreements. Our plate heat treating project team did an excellent job on both pricing and quality. This project will greatly enhance our product offering to our plate customers.

Nucor's sheet mill groups' shipments for the first half of 2009 decreased 57% from the year earlier period. However, with improved order entry, we have announced a series of price increases for sheet products effective in July. The improved order entry is the result of the winding down of service center destocking and an incremental improvement in demand from the automotive and HVAC market segments. During these very depressed market conditions, our sheet mill teams have also been extremely productive in developing new products and strengthening customer relationships to prepare for the better days ahead.

And our new galvanizing facility at our Decatur, Alabama sheet mill is already proving to be an excellent growth platform for us in the value added coated sheet steel market. In fact, I hold in my hand as we speak, a piece of the first prime galvanized coil from our new galvanizing line at Decatur. This line started up two days ago and their first full coil at the start-up was prime quality. This line is truly a Cadillac and will enable us to expand the products we can offer to the galvanized market. And it increases Nucor's sheet mill groups' total coated steel capacity by 1/3. Congratulations and thanks to the entire Decatur team for a great start-up and a very timely one. In addition to running qualification trials, the line will be running overflow orders from our three other galvanizing lines, which are at full production. We are excited about the potential this galvanizing line gives to our team.

Our raw material assets, the David J. Joseph company Company and our new iron DRI plant, are an extremely important part of Nucor's success. Their importance and value to Nucor grows every day. First and foremost, as significant long-term profit generators for Nucor. And secondly, by providing us valuable scrap market intelligence. While D.J. Joseph's brokerage and processing volumes have been approximately 50% of year ago levels, improvement was noted in each month of the second quarter. And the third quarter is off to a stronger start, as well. Demand for our transportation-related assets and for nonferrous metals has improved. That's good news, as both tend to be leading indicators for our industry.

In conclusion, our steel making and raw material teams are working hard and working together to grow our competitive advantages and our long-term earnings power. We are excited about the opportunities we see ahead and we greatly appreciate your interest in our Company. Thank you. Dan?

Thank you, John . At this time, I would like to ask Ham Lott to update us on Nucor's fabricated construction products businesses.

Thanks, Dan. And good afternoon to everyone. Demand was extremely weak for our fabricated construction products in the first half of 2009. Compared with last year's first half, steel joist production decreased 54%, steel deck sales tons declined 42%, and metal buildings volume fell 49%. Our fabricated rebar tonnage increased 13% compared with last year's first half, as a result of the volume contributed by the Ambassador Steel fabrication plants, acquired by Harris, in August of 2008.

Nucor's growth in fabricated construction products began more than four decades ago. We are well experienced in managing through economic and construction market down cycles. In fact, our Company has a long history of taking advantage of the downturns to grow stronger. We grow stronger, while many of our competitors cut their capabilities for serving customers and that is exactly where our energy is focused in the current market. Nucor's growth opportunities and fabrication construction products have never been brighter than they are today.

Most importantly I want to say thank you to to all of our team members at Harris Steel, NUCONSTEEL, The Nucor Building Group, Verco and Vulcraft for your excellent work managing through these unprecedented market conditions. You are positioning Nucor for continued attractive and our long-term profitability. Dan?

Thank you, Ham. At this time, I'd like to open up the call for questions.

(Operator Instructions) I will go first to Kuni Chen with Bank of America Securities.

Hi, good day, everybody.

Good afternoon.

Just a first question on the pig iron issue, what would you say is the minimum utilization rate that you would need to run at in the third quarter to completely work down these excess inventories?

Ladd, do you want to answer that?

Somewhere around 50%.

So, 50% gets you completely worked through this quarter?

Correct.

Great. And just one other sort of strategic question. On the M&A front, obviously, there's a lot you can do given your cash position. Can you just talk about whether or not you're seeing opportunities developing in the market? And kind of where your priorities would be, whether that's sort of upstream, downstream, other mills, international? Just give us some perspective there, please.

I can sum it up with a one-word answer. Yes. As we've said several times, it's way too early, based upon the success that the industry had prior to this financial collapse and economic crisis, to be thinking about actually moving forward with acquisitions. We think that we've said all along that that would be a 12 to 18 month kind of time-out period between when this collapse took place and when you start to see that kind of activity. And we haven't really changed our opinion on that.

We are maintaining all our contacts with everybody that we were talking to before the economic and financial collapse last fall. Those discussions are alive and as we mentioned back then, we had somewhere between $1.5 billion to $2 billion in acquisitions that we were looking at, at yesterday's prices. And those conversations are keeping the doors open when everybody feels more comfortable and when things start to show that the economy is truly on the mend, which we have not seen yet. And so, as far as any sense of urgency to do anything, we have none. And we will act when we feel a lot more comfortable in what we see out there with respect to our economy and the direction that the country is going.

Thanks. I'll turn it over.

Thank you .

Thank you. Next we'll go to Michael Gambardella with JPMorgan.

Hello, Mike.

Hi, Dan. Dan, I just got a question with something that you and a few of the other executives mentioned in terms of your view of the market being -- purely restocking. And I don't know how you can say that when the automotive production numbers that people are talking about are up over 40% in the second half versus the first half. And I know you don't do a tremendous amount with automotive but other guys do and other guys get a little bit more busy on automotive, it frees up a little bit if space in some of your areas as well. So can you comment on that? It just doesn't seem to jive that you would be seeing just a restocking if automotive production is up so much in the back half of the year.

Well, first of all, Michael, we haven't seen the 40% increase. Okay? So beware of overly optimistic forecasts. So far, through the fourth quarter and the first half of this year, most overly optimistic forecasts have been proven to be grossly incorrect, whether they be in our industry or elsewhere. And secondly, the automotive industry is not of the size that it used to be to drive the overall steel consumption in this country. So, you've got a couple of things that you have to be wary of. If there truly is a 40% increase in production of automobiles and hence, a corresponding increase in the amount of steel consumed, Nucor will benefit from that because we have a larger footprint in automotive today than we've had in the past 10 years. Okay? But -- and that footprint is not only in flat-roll, it's also in special bar quality and forgings and what have you.

But the reality for our economy is that this is going to be a very slow, gradual, up-trend. And so far, we haven't stopped passing along the bottom and in some cases, we haven't stopped going down. So at this point in time, to be forecasting any kind of serious optimism for the second half of the year is very premature in our estimates. Certainly, people are free to make those optimistic or more optimistic calls but we would not be so quick to do so. And we would -- so far, we've been very cautious and our caution has paid off to be more correct than that.

Okay. But automotive, by trade publications, is about 20% of demand, usually, in domestic shipments. Is that correct?

Well, usually? What's usually about today? All right, we're running --.

Well, I'm just saying, if it's 20% and they've been operating at such low levels and drawing down inventories. And if people's projections and the companies' projections are somewhere above 40% increase in production, I would think that's got to have some impact other than just the restocking.

I know but Michael, you have to look at 40% over what?

Over the first half, which is a low level. I'm just saying.

We're talking about very low levels. So in absolute terms, you're talking in very low levels of tons or units.

It's low levels of tons on a low level of consumption market. Everything is low levels.

Well, I don't know if you've seen some of the information out lately about the auto parts suppliers and their predicaments, their inability to get funding. There have been a couple of articles regarding that. I think the automotive industry is far from out of the woods. I think their supplier base is far from out of the woods. And that's all due to the fact that the economy is far from out of the woods. I don't know what else to tell you, Michael. I don't want to get into a further disagreement with you on that --.

I just had one other question, just on the pig iron.

You asked me for my opinion and I gave it to you. So what's your next question?

My next question is on the pig iron, Dan.

Okay.

How much did you lock in on the price and volume back in December?

December of last year?

Well, I thought that's what you had said. You had locked in --?

No, we said before the drop-off occurred. Our purchasing of pig iron occurred well before the drop-off that we saw in the fourth quarter. In fact, it occurred well before September of last year. Probably most of that pig iron was ordered in the second and third quarters of last year, more towards the end of the second quarter. If you -- if I reread to you what we said is that we were talking about -- the wording was, before the fall-off in the fourth quarter. So those purchases were all made well before that. We made no purchases in the fourth quarter.

Okay. Just back, say, then in the third quarter, then, how much did you lock in and was that through fixed pricing?

All pig iron purchases are fixed pricing, first of all. They're all bought on a stock market. They're all bought three to six months ahead of time. And when we were buying pig iron, the market was going great guns, there was no financial collapse on Wall Street or anything like that in the cards. And the forecast for fourth quarter was for the some downturn seasonally in operations but nothing like the 60% fall-off that we saw. And so, what we'd said way back when, if you go back and check the previous calls, Michael, you'll see that what we said was we were going to end up with twice amount of pig iron that we needed. And as things got worse, as we indicated, utilization has got down to the low 40's, high 30's for the industry. And at those levels, those pig iron supplies take a long time to work through the system. So we said way back when that it would be until third quarter that we would get through the excess pig iron and the high-priced pig iron.

So again, there were no purchases in the fourth quarter. Most of the purchases were second quarter, maybe beginning of third quarter. And they're all done at a fixed price at the time that you execute the deal and it just takes months before they actually show up. And the timing of the collapse in September, October, just was not conducive to being able to avoid that. And we weren't interested in canceling business with people that we've done long term arrangements with because they've honored them in the reverse in years past. So, it's one of those things where you've just got to bit the bullet, take your medicine and move on.

Thank you.

Other than that, Michael, I don't know how to answer your question. You and I seem to be having a little bit of trouble today.

Well, you've got to get it from someone, right?

What's that? Thanks, Michael.

Thank you . We'll go next to Timna Tanners with

Two straightforward questions hopefully. Export opportunities you alluded to on the bar side, I'm wondering if you can give us a little more detail overall on the export opportunities, given some differentials we're seeing in the market? And if you can comment on any evidence you're seeing of stimulus-related spending?

I'll take the second one first. Zero.

Okay.

Having an impact. Very concerned as to whether that will materialize at all before the end of the year. The states don't have a whole lot of money to match funds or what have you. So, as we said at the beginning, the stimulus package was extremely week on conventional infrastructure and really infrastructure of all types and very little of that money has been spent to date. And so it's -- people claim it's all going to be back end loaded, we'll see. But I'm very concerned about the fact that it's taking much longer for what little stimulus we got in infrastructure to work its way into the system. And so far, it's zero.

The only place where maybe you could say there's been some benefit is with the automobile companies haven't been restructured and in the process of being restructuring and being saved by the government and the taxpayer, in particular. That that's helped maybe some on the automotive side. But as far as construction, non-residential, residential, commercial, there's been very little, if impact at this point in time. As far as exports go, Mike, John, you want --?

I'll take that one, Dan. Overall, our export percentage of our total product is about the same, a little bit off from last year. Last year, we exported about 10% of our products. This year to date, we've exported about 9.3% of our products. The breakdown is mostly billets. They account for about 75% of all the exports. And the rest is between sheet and plate, a little bit heavily weighted to sheet product.

And can you just comment on where and what -- where you're shipping to and how that -- those -- how you expect that market to transpire?

Sure, North Africa is a pretty heavy market for us. Central and South America have always been good markets for us, given our locations in the south. And that's where the most of our product is going.

Thank you.

Timna, one last thing on exporting opportunities. Certainly, the dollar has, again, started to weaken. Unfortunately, with good reason based upon our economic situation and the slow recovery that is being forecast by most economists. So as the dollar weakens, that does open up more opportunities as the global economy picks up but those opportunities at this point in time will be few and far between. But they, hopefully, will be growing opportunities as we move forward. Next question, please.

Next, we'll go to Michelle Applebaum of Michelle Applebaum Research.

Sorry, I lost my voice. Hi.

Good afternoon.

A couple of questions. First up, we're looking at your conversion costs in the quarter. And it seems like you had a very significant decline. Your operating rate was unchanged and I was kind of surprised by that. Can you tell me what specifically contributed to that? And how -- will you be retaining those cost reductions going into the upcoming quarters?

John?

Michelle, it's a good question and a good observation. There's no one specific thing that I can point to. What I can tell you, it's an example of our culture and what -- the experience that Nucor has in operating in these environments. Everyday our team mates are finding new ways to shave a few pennies off of making a ton of steel. And as I visit our facilities, they share these ideas with me. And I can tell you, every one of them will be sustainable as business conditions improve.

Okay.

Some of the areas that are paying off for us, we've been -- we're always continuously looking at ways to reduce our energy consumption. And learning how to run and schedule yourself efficiently at lower capacity utilization rates, our team has done a great job of that and they keep getting better at it. And obviously, we've been working very hard with respect to supplies and services and getting our costs of materials down and getting our suppliers to participate in getting through this difficult market. So it's been a host of things. But I agree with 110% with John and the rest of the team. Our people out there have been extremely creative in cutting costs dramatically and they will be sustainable, those cost cuts. And I wouldn't be surprised if there's more.

Okay. The next question I wanted to ask, Timna was asking about exports and I think John, you were answering year-to-date. And I didn't get a sense of where you thought the export opportunities were going to go to in the second half because I think we've all noticed there's a big discrepancy. Pricing offshore is higher. Do you expect to see more of that or did you already answer that?

We expect to finish the year out pretty close to we were at last year at about 10%. We don't see a big difference in second quarter -- second half over first half. We think it will be up a few percent. We continue to work with our Novosteel team to find those opportunities and take advantage of them. In the second half, there might be some potentially some more opportunities on the sheet side for export, while billets will continue to be strong.

We've really focused -- a new focus area for us, I've mentioned the South America and Central America. We also have a good team located in Asia and we see opportunities for us growing in Asia. That's a target area for us. And we are in the process of opening up our first international office in Dubai to open up some more opportunities in the Middle East for us. So, we're excited about the export opportunities in the second half.

Okay. Great. And for the record, I thought that your outlook was, considering where we've come from, very optimistic.

Thank you, Michelle.

Thank you.

Next question, please.

We'll go next to Luke Folta with Longbow Research.

Hi, good afternoon, guys. And thanks, again, for all the color on the call today.

Good afternoon.

My first question, I wanted to get a feel for where capacity utilizations might be going in the third quarter. Are you able to us some color regarding each of the businesses and where you might be seeing gains and where not?

Well, as we've stated in our printed material and in our script, the bottom -- we started out the first quarter and every month throughout the first quarter, utilization rates went down because order entry was going on. It turned in April. And May and June were all upticks. We ended up finishing somewhere in the vicinity, averaging around mid-50s in capacity utilization overall. And there should be the ability to maintain those.

We're a little cautious about forecasting significantly increased utilizations throughout the fourth quarter because we're still concerned about real demand making its move. We may see some uptick in automotive but we may see some downtick in some other areas, whether it be appliance or in non-residential construction and what have you. And as you know, we're a very diversified product mix Company. We're just about in every market. So, at the end of the day, the net-net might be where we're at in June in terms of capacity utilization in the mid-50's to slightly up. But if there's the opportunity, obviously, from demand in the marketplace, to do more that, we'll be at the table with everybody else to get the increased utilization.

But we are very wary of the economy overall and you have to be very careful to disassociate the stock market from what's actually going on and demand in the economy. And markets are always looking down a road considerably and what we're talking about is over the next quarter or two. And we think there will be opportunities for improved utilization but we don't think they'll be significant.

So do you expect, moving forward in 3Q, there to be a much greater flat roll contribution compared to what we saw in 2Q?

We think our bar products will continue to make good solid increased contributions. We see the flat rolled has the potential to be better in third quarter. Fourth quarter is up in the air because you don't know how the automotive companies and the manufacturing community is going to deal with their holidays and end of year stuff because the whole year has been pretty well mish-mashed. When they're normally down, they haven't been down. They've been down more than not but when they actually take more time out, it's a little unknown at this point in time. But we should see an increasing contribution from flat-rolled as well as bar products.

However, at the end of the day, overall construction, both non-res, res and commercial are still suffering. And if you take a look at the Architects' Index and you take a look at all of the projections there, that's still getting either worse or in very bad shape from the standpoint from improving backlogs, looking out towards fourth quarter and into next year. So if we get a kick from what infrastructure spending there will be in the stimulus package or if they come out with a stronger infrastructure spend, as the Civil Engineering Society has recommended, that could turn around. But we will see kind of a balance between those two.

Throughout the second quarter, as John mentioned, all of those areas, beams, plate, sheet, bar, saw improving utilization rates. But again, we believe that's based upon the inventory adjustments. So watch real demand because that's what's going to dictate everybody's order book from here on out, in all product lines. And I hope that answers your question.

Yes. If I could ask one more quick one.

Sure.

And a one word answer will be fine on this one. But in light of the cost reductions that you've been able to achieve, the price increases and even modest improvement in capacity utilization in 3Q, should we be considering at or -- at or above break-even levels, even in our probability distribution for what we should be thinking for 3Q?

Well, we definitely see an improving earnings environment in 3Q. But as far as pinpointing any further than that, you're going to have to do like always, wait until the midpoints between our conference calls for our best shot at our guidance. You saw how close we were this time at giving our best efforts. We were, fortunately, significantly better than our late quarter guidance. The utilization rates can make so much of a difference. And when you get a very strong end of quarter performance and end of the quarter shipments, it can impact even those late quarter forecasts. But right now, we do see an improving earnings environment. But listen, guys, it's all relative. Improving versus second quarter, yes. But nowhere near where we need to be. And we've got, as an industry and as a Company, a tough road ahead.

All right. Well thanks a lot, guys, and good luck.

Thank you.

Thank you. Next, we'll go to Mark Parr of Keybanc Capital Markets.

Hi, thank you very much. Afternoon, guys.

Hello, Mark.

How are you doing? You sound pretty good today.

When we started this conference call, the operator made the mistake of saying that this was going to be our second quarter 2008 conference call. And I -- we all started laughing here and crying at the same time, saying yes, we wish we were back in the second quarter of 2008.

I think we all do.

Well, having said that, please ask your questions.

All right, I've got a couple of pretty quick. First, could you give us a sense of, if you've got September order books open in any of your product areas or kind of where you are from a lead time standpoint?

Ladd, do you want to talk about flat rolls?

Yes, we just barely opened up for September. So we don't have a real good feel yet, other than the contract times that we had already in there. We'll know in the next couple of weeks how that's going to turn out.

We're just going to go around the table. Mark, so if you'll be patient, you'll get feedback from each of the product EVP's.

Okay, thanks.

Mark, this is Joe Stratman. On the plate side of the business, we are still taking orders into August but we're also taking longer-term contractual type project type orders into September on plate. On the beam side, we're running essentially a published four-week cycle. Now, that can move based upon if we get more tons, we can expand days on the mill and add capacity utilization but we're basically running our published four-week cycle.

Mike.

Mark, on the bar side of the business, of course, it's a mixed bag with rebar and merchant bar and SBQ but in generally, we're probably out 1.5 month and to two months depending on the vision and the product group.

Okay. All right. Thanks for that. I really appreciate it. Just if, Dan, I don't know, do you have anything that you could share with us, any color on where you think August scrap might end up relative to July? And I'd also like to get an update on Louisiana and the raw material integration strategy.

Well, the raw material integration strategy is evolving, as we had already -- always said it would but the big iron project in Louisiana is still on hold. Nothing has changed there. The last couple of calls, the feedback we gave you then, still holds true. We have not have not got unencumbered permitting yet from legal challenges. That's still on track for the end of the year, first quarter of next year. As we've said to the Governor and publicly, the cap and trade legislation is a big unknown. That will have an influence on when and if we go forward with that project. Also, the state of the economy coming, the time that we get the permitting officially in our hands, in our pockets without legal encumbrance. If the economy is not significantly better than today, that will delay it. But we're still moving forward. We've got other raw material strategies in place that we're looking at and discussing and doing studies on. So, the overall strategy of being a producer of roughly 6 to 7 million tons is still intact. And as far as as what was the first part of your question?

The August scrap.

August scrap, well, let's see, it should be down $100 a ton, I think.

You really don't want to say that.

Our friends at Sims and [Schmitzer] and even DJJ just cringed. No, we don't get into forecasting what's going on with respect to scrap. It's -- been a little surprised by the strength of the scrap market considering how capacity utilization in this country is still down very much, certainly, the export activity, to self-support that. But Keith, do you have any comments to clarify that a little bit for Mark?

Probably, just from the standpoint, Dan, over the last 45 days we have seen domestic pricing move up, just basically to match where export pricing had been. And enable us to redirect flows back into the domestic markets, which we've successfully done over the past 30 days. I think into scrap processing facilities, we seen a steady increase, as John alluded to earlier, of volumes through the yards of suppliers come up off of scrap. And at this point, it seems to be somewhat in balance as we've felt over the last couple of weeks.

Do you think there's an opportunity for some supply constraints on the prompt side to emerge in the next several months?

Well, the reality is they've probably already been there. and if our friend Michael Gambardella, analysts are correct about the oil industry increasing production by 40%, the opposite should happen. There should be more prompt scrap coming into the marketplace. And we all certainly hope that's the case, that we do see those kind of upticks in automotive production and also to prompt scrap. Probably the biggest determiner of scrap pricing, I don't think Keith would disagree with this up to now and the trade pretty much has talked about the exporting strength in places like Turkey and China and what have you. I think the Turks have probably gotten a little ahead of themselves, from I've read, about their markets for finished products. So, how consistently they interact in our market going forward is a question mark.

There's some argument that the Chinese strength has been mostly due to they're trying to get the best possible drop in iron ore prices, so they've increased their scrap consumption. Time will tell whether that had any play in what we saw in the amount of scrap going to China. And certainly, as the integrated steel producers bring on blast furnaces, there's a to and fro balance between how much scrap they use per heat but also, they're probably utilizing more scrap overall. So exactly what impact that would have on the market is an unknown. But there is some potential for things to kind of sell out a little bit here in the next month or two and we'll just have to wait and see.

Okay. Thanks very much.

You're welcome ,

Thank you. We'll go next to Michael Willemse with CIBC World Markets.

Great, thank you. Good afternoon.

Hello, Michael.

I was wondering if you could give me your average cost of purchased scrap in the second quarter? Not the scrap that went through cost of goods sold but what the average purchase cost was?

That's not something that we give out. We do give out what our usage numbers were and that's it.

Okay. And on 150 to 160 million in pig iron that was worked down, that would have went through the scrap costs line, correct?

That's correct.

Right, okay. And then next question, just on -- if I look at bar and structural shipments, it was up quite a bit in the second quarter versus the first quarter. And maybe you touched on this a bit in the introduction and I missed it. But a 16% increase is quite a bit. Was that entirely due to inventory adjustments and seasonal? Anything else there?

John.

It was inventory restocking. And as I mentioned, we also saw some incremental increase in project activity, what I mentioned, schools, hospitals, those type of projects. We've seen some incremental improvement in those areas.

More government-related?

Let's just say public work related.

Right, right.

Far and away, it's inventory adjustments. Inventories getting back in line, where our customers are reordering based upon their actual demand, not actual demand less what they pick out inventory.

Okay, great. Thank you very much.

All right. Next question.

We'll go next to David Lipschitz with CLSA.

Good afternoon.

Hello, David.

Just a quick question. Most of my questions have been asked and answered. In terms of your contract business, how much do you have contracted for the rest of the year in your flat roll business?

In our sheet business, it's between 30% to 35%.

Okay. Are you -- are people looking to do more contracts right now or are you looking to sign more contracts or where do you guys stand?

Well, the contracts that we would be talking about now would be for next year and frankly, it's too early in the season to begin any serious negotiations. That will take place sometime around the September time frame.

Okay. Thank you.

You're welcome.

We'll go next to Sal Tharani with Goldman Sachs.

Hello, Sal.

I have two quick questions. One on LIFO, Terry, should we take the average of the first two quarters for the next two quarters or $115 million credit each quarter?

That or little less for the third quarter, it's a little too early to tell for Q4, yet.

Okay. And, Dan, on the international JV you have, can you give us some color on what's going on over there? Maybe there was some new mill you were going to build over there and also the Mexican distribution center?

Nothing has happened in Mexico up to this point in time. It was put on hold back in the fall. We put everything else on hold. As far as our JV partnership with Duferco, the new mill that you're referring to was a bar mill that was built being built in Sicily. And Joe, would you like to discuss that?

Sure. Sal, this is, Joe. First of all, the market condition over there, as you know, the Duferco -- the Nucor mill is right now a structural mill. And you can just mirror the structural business here in the States and the ride it's had with what's happened in Europe. As for the merchant bar mill, that mill will be ready to start up by the end of August. And basically, we will be making a market judgment at that time as to when is the right time to start it. That mill is located at the same site in Sicily as one of the beam mills now and they actually run right in parallel. So we'll have the advantage of using a one, the same crew, same personnel. And we could run either structural or bars, depending upon which market is stronger. So that's a decision we intend to make here late summer, early fall.

Great, thank you very much.

Thank you. Next, we'll go to Debra Fine, with Fine Capital Partners.

I'm glad you were in Michael's face instead of mine this call.

Hello, Deborah.

Hello, Dan. I have a -- if you think that most of the restocking -- most of the order increase has been restocking and I agree with you and you obviously know more about than we do about this. And that if demand still remains very week, if you see significant more capacity coming on, particularly the Thyssen plant, does it not appear to you that significant capacity has to go out of the US for all of you to get back in a normal sustainable level of profitability, if you're as embarrassed as you sound?

Well, as you know, Debra, what you see is what you get with me. So, yes, I'm as embarrassed as I sound. And as far as the capacity going out, you've heard more than one CEO talk about the fact that when this whole thing turns around, we expect overall steel usage to be down from previous peak cycles. And so, yes, we do believe there will be capacity that disappears. And those -- the capacity that might disappear, the likelihood of that occurring will increase as we go further along here. There's absolutely no doubt that you're going to see a very slow recovery in steel consumption, as well as in economic activity and GDP growth in our country as we go forward. We're talking about years here, we're not talking about months. We're not talking about quarters. So, yes, there will be a shake-out. And yes, there will be a smaller domestic industry.

Hopefully, we'll be able to make some of that back by getting more support from Washington on trade issues, which it appears we will be getting. In which case, what used to be coming in at the levels we've seen over the past five or six years will be greatly reduced as a percentage of the market. But even with that, we will see substantial capacity disappear.

The longer that it takes the capacity to go out, as you're aware, the longer -- if there's any way to encourage that process, it will be beneficial to everybody.

Well, as you know, Debra, the market will take care of that and shake things out on its own. And obviously, we're strong believers that at the end of the day, the strongest and most efficient will get through, unless governments step in and change that course of activity. And so, with our position, our strong balance sheet, our increasing cash position, our ability to borrow, our high credit ratings and our very low-cost efficient operations, we will stand to benefit along with several others, when the shake-outs do occur. But it's hard to envision that shake-out not occurring.

As far as the Thyssen Krup start-up goes, I think that's been continually been pushed back. I don't know really where it stands right now. I think Thyssen Krup has had its hands full with the untimely death of one of their really top young leaders in that plane crash out of Brazil, a really super individual. And so, everybody is kind of getting their handle on what's going on out there. And so, when they actually start that facility up, I think they will be very careful about doing that, if things go as we believe they will go. So time will tell.

Thank you, Dan.

You're welcome.

Thank you. And with that, we have no further questions. I'd like to turn the program back over to Mr. DiMicco for any additional or closing comments.

Thank you all for your questions, and yes, I even mean you, Michael Gambardella. I'll be happy, Michael, to further discuss those questions with you to make sure I give you the best answers possible. And I have one last thought, the most important one. And that is, to share with you before ending our call, that the work the Nucor team is doing in 2009 will definitely be laying the foundation for future record years to come. And our best years are still to come. And I want to thank all of our teammates for working safely, working smart, cutting costs and taking care of those customers. Thank you, all, and have a good day.

That does conclude today's conference. Thank you for your participation.