Nucor Corp (NUE) 2009 Q4 法說會逐字稿

Good day and welcome to the Nucor Corporation fourth quarter and year end of 2009 conference call. As a reminder, today's call is being recorded. 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 they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. Some of the important factors that may cause actual results to differ from our predictions are listed in Nucor's SEC filings. The forward-looking statements made in this conference call speak only as of this date and Nucor does not assume any obligations to update them. For opening remarks and introductions, I would now like to turn the call over to Mr. Dan DiMicco, Chairman, President and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Thank you, Clayton. Good afternoon and thank you for joining us for our fourth quarter and 2009 annual conference call. We appreciate your interest in Nucor. Joining me for today's call are the other members of Nucor's senior management team, Chief Financial Officer, Jim Frias, Chief Operating Officer of our steelmaking operations, John Ferriola, Executive Vice Presidents Ham Lott, Keith Grass, Ladd Hall, Mike Parrish, Joe Rutkowski, and Joe Stratman.

After reviewing our fourth quarter results, and our ongoing focus on growing Nucor's long-term profitability, we will take your questions. First, and most importantly, as always, I want to thank everyone on our team at Nucor and at our Harris Steel and David J. Joseph teammates, for getting the job done and done safely in 2009. As always, Nucor's real competitive advantage is your strong commitment to safety, teamwork, continual improvement, innovation, leadership, and taking care of our customers.

Unfortunately, this is still a time of hardship and difficulty for everyone on our team. I want to stress how extremely proud we all are of the way you are responding to these unbelievably difficult times. Again, thank you, and remember, no one gets hurt on our shift today.

2009 was a year of unprecedented challenges. The US economy, steel industry, and Nucor. Entering 2009, our team faced both a severe depression in steel market demand, and overhang of high cost pig iron purchased prior to the collapse in the economy in late 2008. With the typical can-do attitude, the Nucor team worked together to successfully manage through these challenges and close out the year with a fourth quarter profit and our fourth consecutive quarter of improved earnings.

The Nucor team's doing a lot more than just weathering the great recession. We are investing in our people and investing in our operations. These investments are driven by Nucor's focus on the long-term, building real, sustainable value for our shareholders, employees and customers. Strength of our balance sheet and our culture enable us to use downturns as opportunities, to grow Nucor's long-term earnings power. A step demonstrated over the most recent upcycle in the steel markets from 2000 to 2008, where Nucor's cyclical peak earnings power increased six-fold. That performance continued our Company's long history of emerging from downturns stronger than we entered into them. Even better, the more than 20,000 men and women at Nucor are hard at work today building long-term earnings power ahead of the next cyclical upturn. They're on the job, taking care of our customers and making Nucor even stronger.

Here are some of the exciting growth initiatives under way that we expect to generate attractive returns in the years ahead. With the annual capacity of 850,000 tons, our new Memphis SBQ mill is allowing us to more than double our participation in the highly attractive special bar quality market. Decatur, Alabama's sheet mill's new galvanizing line increases Nucor value added coated flat roll products annual capacity by one-third to 2,000,000 tons. Our second caster plant, Castrip of Arkansas has begun production. Successful commercialization of new technologies will always be an important catalyst to Nucor's long-term profitability. John will discuss our castrip success at the Arkansas plant in more detail later.

Nucor's global commercial footprint is being dramatically expanded, exports already represent 11% of our total steel mill shipments. Construction is under way to install a new heat-treat facility at our North Carolina plate mill. Is a value added product that will allow Nucor's plate mill group to expand our business, both current and new customers. Our low cost rolling mill in Arizona will start production soon on a one shift basis to produce wire rod and coil rebar, and our most important and highest return investment is being made in our people.

Best example of this is the no layoff practice, that's been in effect since day one. Rather than being competitive disadvantage, this actually is a very important long-term competitive advantage for Nucor. No layoff practice is a direct result of our team's relentless focus on cost, Customer Service and new product development. Also reflects the long-term focus and sustainability of Nucor's business model. During the good times our team runs our business to maximize profits and during the downturns our team positions us to expand our capabilities and take advantage of inevitable opportunities to grow stronger.

I emphasize that Nucor will remain disciplined and patient in executing our growth strategies. Discipline and patience are inherent in our long-term focus. Our mindset is to be selective and take action on opportunities for profitable growth to arise. Execution of our multi-pronged growth strategy has resulted in multiple growth platforms for Nucor. Those growth platforms provide us opportunities to execute our growth strategy and upstream raw materials, and our core steelmaking operations and downstream fabrication and internationally and as you can see from the list I reviewed earlier we are currently presented with a large number of attractive opportunities for growth by optimizing our existing operations and growth by commercializing these technologies. That is exciting to us.

We have proven over time to be two of Nucor's most profitable growth strategies. The bottom line is that Nucor has the right people with the right assets and the right strategies to continue rewarding our shareholders with attractive long-term returns on their valuable capital. Looking to the first quarter, economic steel market conditions remain extremely challenging. American steel industry capacity utilization rate year-to-date through January 23rd was 64%.

For the economy as a whole, the story is told by a December U6 or real unemployment rate of 18%. That rate includes discouraged workers who have dropped out of the labor force and part-time workers who are unable to find full-time jobs. Kind of like the 11,000 folks that Wal-Mart just let go. Our view remains that real demand is in for a long, slow recovery. Very serious structural imbalances that created this economic crisis will take time to fix.

Our nation worked years, not decades, digging in these deep holes we are in today. Excessive leverage resulted in credit bubbles and artificially induced consumption. Mercantilistic trade abuses and the lack of a balanced common sense energy policy resulted in massive trade deficits. There are no quick fixes. No matter how much we wish for them.

It is clear the previous short-term sugar high approaches have failed. And the Orwellian failure of new economies, services don't make things approach is now proven complete in its devastation and stupidity. These structural imbalances must be fixed with pro-growth policies that focus on the long-term. The time is long overdue for policies in the United States which attack our real problem, the recovery and jobs, jobs, jobs. We can create jobs by improving international competitiveness, reducing corporate taxes, restoring our trade balance, rebuilding our conventional infrastructure and rebuilding our energy infrastructure to drastically reduce our foreign energy dependence.

It is time to meet these challenges head-on and turn them into opportunities. And that is what I see ahead for the Nucor team, opportunities. The talent, dedication and the can-do attitude of my teammates is why I firmly believe Nucor's best days are ahead of us. At this time, I will now ask our CFO, Jim Frias, to share with you his thoughts on our results and our financial position. Jim?

Thanks, Dan and good afternoon. Nucor reported fourth quarter 2009 net income of $59 million, or $0.18 per share, an improvement over losses experienced in the first three quarters of the year. The key swing factor was that our sheet mills were profitable for the fourth quarter. Their results improved after completing the third quarter, the consumption of high cost pig iron inventories purchased in late 2008. Our full year 2009 net loss of $294 million or $0.94 per share carried a substantial burden from the usage of those high cost iron units.

In 2009, our team faced the most challenging market conditions in Nucor's history. Our steel mills shipped 14 million tons in 2009, down by a third from 2008 shipments of 21 million tons. Our 2009 steel mill capacity utilization was a historically low 54%. Nucor's steel metal margin was $290 per ton for 2009. Dropping $179 or 38% from $469 per ton in 2008. Steel joist volume fell 46% in 2009, from the prior year, and our metal buildings tonnages were off 44% year-over-year.

Our 2009 results also included preoperating and start-up costs for new facilities of $48 million in the fourth quarter, and $160 million for the full year. Thee expenses were primarily incurred at the Memphis SBQ mill, the Arkansas castrip plant, the proposed ironmaking project in Louisiana and Decatur galvanizing line. We view these costs as investments that will increase Nucor's long-term earnings power. Our financial strength allows us to manage our business with this long-term focus. The current economic crisis highlights the great value our shareholders gain from Nucor's strong balance sheet, healthy liquidity, and conservative financial practices.

Nucor's liquidity position remains extremely strong. At year end, cash and short-term investments totaled over $2.2 billion. Our $1.3 billion unsecured revolving credit facility is undrawn and does not mature until after November 2012 or excuse me, in November 2012, and we have no outstanding commercial paper.

Debt totaled $3.1 billion at the close of 2009, for a debt to capital ratio of 29%. Our only debt maturity over the next two years is a $6 million industrial revenue bond maturing this year. It is also worth noting that $2.2 billion or 70% of our total debt matures in 2017 and beyond.

Cash provided by operating activities was a very healthy $1.2 billion in 2009. This reflects the outstanding job our team of accomplished, reducing working capital last year. Principally the high cost iron units at our sheet mills.

Capital expenditures were $391 million in 2009, that compared to depreciation and amortization of $566 million last year. For 2010, we project capital spending of approximately $400 million. The major projects included are the North Carolina plate mills heat-treat facility and work to expand capacity at our new iron DRI plant in Trinidad. In the first quarter we should see improvements in both shipments and pricing. However, we also expect a significant increase in scrap costs.

As a result, we project a LIFO expense of about $25 million in the first quarter of 2010. This compares to a LIFO credit of $117 million in the fourth quarter of 2009. We will again follow our practice of providing quantitative guidance in the final months of the quarter. In December our Board of Directors expressed its confidence by increasing the regular quarterly cash dividend on Nucor common stock by 3% to $0.36 per share, effective with the February payment. Nucor has increased its regular dividend for 37 consecutive years. That record provides strong evidence of the sustainability of Nucor's business model. Nucor is in a position of strength to build on our Company's long tradition of being an effective steward of our shareholders' valuable capital.

Our team is focused on turning the challenges of today's economic environment into opportunities for long-term and profitable growth. Thank you for your interest in Nucor. Dan?

Thank you, Jim. I will now ask onto report on our steelmaking operations.

Good afternoon. Let me begin by thanking all team members at our Nucor steel mills and our David J. Joseph and Nucor raw material operations for your outstanding commitment to working faithfully and taking care of our customers. I am extremely proud of the work you are doing in these very challenging market conditions.

I will again emphasize the importance of everyone staying focused on safety. Our hard work today is going to pay big dividends for Nucor in the future. We want all of our teammates to be around to enjoy the benefits from their hard work. Market conditions remain tough. Although demand is showing slow improvement.

While demand is soft in the nonresidential construction markets, there are other market segments showing relative strength. These include power transmission, wind energy, bridge construction and automotive. We are also encouraged by the recent US international trade commission decisions regarding illegally traded OCTG products from China. Energy related pipe and tube is an extremely important market for both our sheet mills and our plate mills. Another positive is that service center inventories are at relatively low levels. For December, month of supply for all products on a seasonally adjusted basis, were 2.3.

Our mills continue to see expedited orders, due to lean customer inventories. Any incremental increases in steel demand will have to be met by increased mill production. With our highly flexible business model, the Nucor team is ready and able to respond quickly to our customers' needs for high quality steel. Nevertheless, our expectation remains that it will be a long and slow recovery in the economy and the demand for steel.

For Nucor, downturns create opportunities. As Dan mentioned, we have a number of exciting projects under way to continue Nucor's proven track record of coming out of downturns stronger than we entered them. Our steel mill and raw material teams are continuing to grow our earnings power for the years ahead.

Here are some updates on a few of our projects. Our work growing Nucor's international sales and trading platforms is already paying off in a big way. Nucor is uniquely positioned among US steel producers to capitalize on attractive export opportunities. Over 60% of Nucor's steel production capacity is on deepwater. Compared to the 2009 level of 11%, our goal for 2010 is to ship 15% of Nucor's total steel production into international markets.

Nucor's steel Decatur startup of its new galvanizing line has been a great success. Surface quality of both galvanized and galv-annealed product has been excellent. A third crew has been trained and is ready to take the facility to a 24 hour, seven day a week operating schedule beginning February 1st, in order to serve a strong first quarter order book for galvanized steel.

Castrip, Arkansas, has already shipped product to customers just four months after beginning equipment commissioning. The transfer of knowledge and experience from our first castrip facility in Crawfordsville, Indiana to the new Arkansas plant has been tremendous. Our Arkansas team successfully produced a strip on only the second attempted cast. Our Nucor Siemens steel team has completed commissioning our rebar and wire rod mill in Arizona. Siemens investment in property, plant and equipment is less than $50 million and annual production capacity is about 500,000 tons. This mill is a very attractive asset that expand our bar mill group's geographic reach and product breadth. We expect to begin operations early in the second quarter on a one shift basis to produce coiled rebar and wire rod.

I want to again thank all members of our steel mill, David J. Joseph Company, and NuIron teams, for your hard and extremely productive work and as always, please stay focused on priority number one, working safely. Thank you. We appreciate your interest in our Company.

Thanks, John. I will ask Ham Lott to update us on Nucor's fabricated construction products businesses. Ham?

Thanks, Dan and good afternoon. As you can tell from the statistics that Jim cited, demand remains extremely weak, fabricated construction products through the fourth quarter of 2009. However, it appears that pricing has bottomed out and is starting to rebound. Also, our metal building group is becoming optimistic. We have seen an increase in orders for the last several months.

Nucor has over four decades of experience in managing through down cycles and fabricated construction product markets. Our people take advantage of the downturns to improve our operations, and to strengthen our position in the marketplace. And that is exactly where our energy is focused in the current economic turmoil. I want to say thank you and keep up the good work to all of our team members at Harris, Nucon, Nucor Building Group, Duferco, and Volcraft. Dan?

Thanks, Ham. Joe Rutkowski, our Executive Vice President leading Nucor's business development work announced his plans to retire at the end of February. It has been a long-held goal of Joe's to retire at age 55 and he didn't waste any time. Throughout his 21 year career with our Company, Joe has made outstanding contributions to Nucor's strong record of profitable growth. And the results of his leadership of our business development activity speak for themselves.

Just look at our growth record over the past decade. While he is maybe retiring, Joe will forever be a member of the Nucor family. Joe has had success throughout his career, throughout our operations, and here in Charlotte. And we know that won't be the last that we hear from Joe as he moves into retirement.

Successive planning is an integral part in our work to build sustainable long-term value for Nucor shareholders and for that reason our team is excited that Executive Vice President Joe Stratman will add business development to his responsibilities. Joe Stratman is a proven Nucor leader, who has strong experience both at operating divisions and as a member of our senior management team. He is well prepared to help our team build more platforms for profitable, long-term growth.

We will now be happy to take your questions.

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). We'll pause for just a moment to assemble the queue. We'll take our first question from Kuni Chen.

Good afternoon, everybody.

Good afternoon,.

I guess just a question on Trinidad. I see it's down there for a couple weeks. Can you just give us some color on the maintenance process and when that's expected to come back? And then kind of in conjunction with that, looks like you're starting to replenish some of your pig iron inventory. Is that really just around the timing of when Trinidad comes back or is that perhaps maybe starting to hedge some tightness in the scrap markets? Just comment on your views there.

Well, the good news -- the bad news is we took the plant down for a couple of weeks. The good news, it started up Sunday morning. John, you want to take a shot at those questions?

I might add to that, Dan, that we did take the opportunity while it was down to replace a belt that was going to have to be -- that was required to be changed in the near future in any case. So that was about a week to a week and-a-half job that we were able to incorporate in the current downturn. As far as the pig iron goes, we have been making pig iron buys consistently throughout the process. These are regularly scheduled buys and we're confident that with Trinidad coming back online last Sunday and operating well, starting up well, we'll be able to get through this period without having to buy additional pig iron.

Currently, John, we're actually been operating at a full rate of capacity, have we not?

That's correct.

So the start-up has gone well and just to reemphasize, the pig iron purchases are due to market demand that we see, and not associated with the outage at Trinidad because it's not an extended outage. Ladd, anything you want to add to that.

No, Dan, that wraps it up pretty well.

Okay. Does that cover it all?

That's good. Thanks.

You're welcome.

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

Hi, good afternoon, guys.

Hello, Luke.

Just a quick question on -- hoping you could give us your views on what's happening this year in the construction space overall. Kind of can you gives us what we should expect compared to last year and would you normally even see any pick-up this early in the year anyway?

The reality is, the early part of this year will probably be worse than last year. Mostly because the fact that backlogs have been worked out already through the fabricators and the architects and the what have you, and so it will take time to rebuild those backlogs with business. The nonresidential construction market is not projected to have a significant upturn here in the first half of the year. We have not really seen much of anything from the stimulus, the first stimulus package on infrastructure. People have been projecting we would see that in the second half of 2010. And that remains to be seen. We are seeing some increased work in bridges and what have you and -- but overall, the long products, construction market will see some softness in the early part of this year due to normal seasonal issues, and the fact that the fabricator backlogs and the jobs, the backlogs have been worked down. We expect to see an uptick as we go through the year, but it's a little bit too early to be forecasting anything. Mike, Joe, you have anything you want to add?

No, I think that pretty much covers it, Dan. I think the commercial sector will not improve as rapidly as the nontraditional let's call it the industrial or power plant infrastructure work. I think that's in for a little bit longer recovery, but essentially, that's where we'll end up the year.

John, anything you want to add? Next question, please.

We'll go next to Michelle Applebaum with Steel Market Intelligence.

Can you hear me?

Hello, Michelle. How's the cruise going?

Okay. Now I forgot my question. I wanted to ask about Louisiana. Can we get an update? And before you tell me that it's a crazy question, --

That's not a crazy question.

I would point out that --

Not a crazy question at all.

Can we get an update?

Certainly. Ladd, you want to take a shot at that, the Louisiana project?

Sure. Right now, Michelle, we're still waiting on permits. We continue to work on that. We think in the near future it's going to come to fruition. The project is still being looked at. We're just waiting on permits right now.

John?

I would add we still have concerns about cap and trade and the long-term impact that that would have on the project. And in addition, we said right along that we're waiting to get a better picture of what's going on in the economy, get a clearer picture of what's going on in the economy, and I'm not sure we've seen that yet. So between the environmental permitting issues, our concerns over cap and trade, and our concerns over the general economy, we are still working on the project, actively keeping it going, but at this point, we are moving very slowly.

As you know, Michelle, we have purchased the entire piece of property down there. Several thousand acres, as a measure of our commitment to the state of Louisiana to put a project there and we firmly believe we will. But until we have the permit in hand, it's taken longer than we thought because of a few minor skirmishes, nothing that's going to prolong this thing much longer but typically with permitting processes you have to jump through a lot of hoops and as you should, to make sure things are done properly. And so we're still looking at the project, something that we will do on a go-forward basis. But still, we're just -- we're kind of sitting there spinning our wheels until that permit gets done, until we find out as John mentioned what happens on those other two key issues.

Are you still looking at doing potentially a piece in Brazil?

Brazil is still an option. The reason that it's still an option is because unfortunately if something does move forward on cap and trade without a global component to it where everybody's got to play by the same rules, having the opportunity to do something in Brazil might provide us with an alternative option, not a preferred one, I might add, but an alternative.

Okay. Can I ask a related question sort of? If you -- if you're looking at 15% exports this year which is a terrific number, and pretty much consensus view is that there's got to be some kind of revaluation of the R&D in China this year, is there any way you can let us have some guide posts on if the Chinese were to allow maybe a 10% flow to the RMB, how much better your cost position would be and how much more export you could do because of that, because of your -- you're exporting near record amounts, would be where it is. I presume that if there was some kind of more competitive situation, this country would be exporting a lot more. Is that a fair assessment? Or no?

In general, it's a fair assessment. Revaluation of a currency that has been manipulated for a decade now, against international trading obligations, is an important component of being globally competitive, particularly with the Chinese steel industry that is north of 600 million tons and still growing. So -- but as you well know, Michelle, the currency issue is one of several issues regarding heavy subsidization that are anti-export agreements, that the Chinese have entered into but ignore, and so it would be a very important component but we would need to see that they adhere to all of the other agreements regarding subsidies with respect to export business. Now, if they use the steel within their own country, and subsidize it, that's not an issue. But if it's exported around the world it is so maybe half the problem would be with respect to currency and the other half of the problem has to do with givebacks, bad rebates, heavy government subsidies on energy, transportation and other issues. I believe the world is going to do that. I think the world is in a situation today where you can see throughout whether it be the European union, or South America, or Mexico or Canada, or Asia, that folks have had enough of the mercantilistic trading practices and we'll hold them accountable.

I agree with you.

Thank you. I need to move on to the next question.

We'll go to David Gagliano with Credit Suisse.

I have two quick questions. First.

Good afternoon, David.

Hi, how are you?

Okay.

Good. Just about the qualitative comments for Q1.

Yes.

Given the timing differences for prices versus scrap costs, do you expect your overall reported margin per ton will be lower in Q1 versus Q4? Is that the read we should be getting out of these comments?

No, I don't think you should be getting that read. They are as we have been doing consistently for a couple years now, qualitative in nature. We worked to highlight a couple of key things that will have a major impact, one will be increased shipments, one will be increased selling prices. We will also see increased scrap prices based upon the January buy. But remember, we have two more buys to make during the course of this quarter and those are both unknowns at this time so to be able to forecast what's going to happen with margins, if we could do that, we'd give you a quantitative number today.

The LIFO issue is something that comes with increasing raw material costs. And increasing steel prices, so that's something that we wanted to highlight for people in terms of how it relates to the previous quarter. But we will update things when we get out of here about another month and-a-half or so and, now, we are seeing as John mentioned an uptick in some businesses and we're seeing weakness continue in some other businesses. And at the end of the day, now, margins have a good chance of being healthier but it's too early to really predict that.

Okay. Thanks very much. Just the follow-up question, any additional start-up costs expected in Q1? Just want to make sure that that's --

Yes, there will be. Jim, do you have that quantified?

We think it's going to be in the range of 35 to $45 million.

And that was $48 million in Q4; correct?

That's correct.

All right. Thanks very much.

Thanks, David.

We'll go next to Mark Parr with KeyBanc Capital Markets.

Hello, Mark.

Hey, good afternoon.

Happy new year.

Happy new year to you too. And I was -- my question was pretty much along the line of what David was asking, and I guess, you -- another way of maybe getting some more clarity, Dan, do you have a feel for approximately what sort of utilization rates you could expect out of your steel production operations? In 1Q?

We're definitely projecting higher utilization rates in the fourth quarter. But I don't think at this point they would be higher in the third quarter. So probably on the -- John, do you have an approximate range or thereabouts?

I would say that giving an approximate range, we'd be looking at somewhere between 60 and 65%.

Obviously some product lines will be lower than that, some will be considerably better.

Okay.

And, but there's still too many unknowns in the marketplace. We still have to deal with the import situations, going back to the question about margins that you said you also had an interest in, we've got some conflicting interest in the marketplace in obtaining -- getting back and calling back the increase in raw materials in some product groups so we just have to see how things progress during the quarter.

Okay. Just another follow-up along those lines. To Ham's comments about deck and joist pricing and metal building order rates, I mean, it -- could you give us a little more color on that? Is the deck and joist situation more a function of just rising raw material costs or is there -- are you indicating that maybe spreads are starting to recover on that business?

I think what Ham was alluding to was that he feels things have bottomed pretty much from apprising standpoint. Raw material pricing is going to translate into higher product pricing. It has to. And obviously the market is working to accomplish that. Whether we do or not depends on the positive information and sense that we're getting from some of our people out there continues to be translated into improved orders now as we go through the quarter. Ham, you want to add to that?

Yes, I would say that was basically it. We did see a little bit of market share increase in metal buildings.

Okay. All right. Thanks for that additional color and good luck working through the first quarter, guys.

Thank you.

We'll go next to Timna Tanners with UBS.

Hi, good afternoon.

Afternoon, Timna.

Thanks for all the great detail and the project updates. I really wanted to get your take on kind of capacity utilization. If I look at your fourth quarter, and compare that with your capacity, I get to below 60%. And then at the same time, we're seeing some other steel companies restarting operations. I'm looking at a press release that came out yesterday. I'm trying to understand how you guys look at that given the capacity at your mills and you're exporting more.

I didn't quite catch the first part when you were talking about capacity. Let me -- let's take a shot at the second part and if someone else here understood the first part,.

You said you had spare capacity. How do you look at that when you look at other steel mills that are restarting sheet mills relative to spare capacity that you have at your facilities.

There's no other way to look it the capacity other than the fact that the market stinks, that the beaucoup capacity out there on everybody's part and we're ought all going to be out there doing our best to get our share of the market that exists in all product lines because no product group, no product type, no end market is anywhere near back to where it was two years ago. So there's excess capacity everywhere. And while you see people restarting things, remember that, restarting from extremely low levels. What people actually end up operating at is going to be totally determined by the strength of the market of each product group and each market segment. And Nucor will be there, getting our fair share of that market as we always do by being competitive in the marketplace.

Raw material costs are putting pressure on everybody. Not scrap by any means. It's all kinds of raw materials. Whether it be alloys or whether it be iron ore or whether it be coal or coke, electricity costs, other gas costs have gone up. So, you know, this is a very similar situation to what we've seen in the past. Typically, historically, as raw material costs go up that translates into higher steel pricing.

This is a unique environment because of the depths of the downturn and the bounce off the bottom is mostly inventory related, people catching up with the real demand versus the apparent demand. I think we're still shaking that whole thing out. We're still in a period of where markets are working to stabilize themselves but growth is going to be slow and arduous.

Is it safe to say you're more worried about domestic oversupply or imports at this point?

You can't be ignoring imports at all. When you have a situation like there is in the world today, where nobody's running at full capacity except maybe the Chinese and even there I'm not sure they are, you have to be concerned about imports. You have to be concerned about international competition. And there, the concern and the actions that will be taken will be consistent with supporting our markets and our customers and also consistent with the immediate trade action that's required. The President's already done a 421 on tires.

We see that as a fact that that means that he's willing to do it with when the need arises as just an aside and so we will be very diligent, watching what happens with respect to imports, where they're priced and where cost structures are around the world. But you have to look at the whole thing. When you're in a situation globally like we are with the economic crisis, financial crisis, the low utilization rates everywhere, you have to be concerned about all your competitors, both domestic and international.

Thank you.

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

Good afternoon. Just wanted to get some texture on the construction market, perhaps you or Ham can elaborate. Generally we see some pickup always in the springtime. Do you think that we will have a similar seasonality effect this year, despite that we are off course from a very low level?

Yes, I would -- the winter has been so tough so far, I mean, it's been, weather-wise, it's been one brutal winter. So if nothing else, you ought to see some pickup from what's been delayed over the last month of two.

You think of the people preparing for that or -- you said there has been some uptick in orders recently.

The uptick in orders was mostly in the metal building and that was mostly a market penetration. Certainly the next 60 days are going to give you a really good idea of what's going to happen.

Sal, those potential seasonal adjustments are real. As Dan mentioned, particularly because of the extremely cold winter, harsh winter that we've had around this country. I don't think we're done with it yet. But the overall nonresidential construction market is weak. All right. And unless there are some major changes in how we approach infrastructure in this country and how we invest in our future, it's going to be a long, slow build back on nonresidential construction.

Okay. And one question for Jim. Any comments on working capital for the 2010, what are you assuming this year?

Well, obviously if pricing does keep going up for both scrap and our selling prices, there's going to be some increase in both inventories and receivables. So we'll see some uptick. We don't have a hard number on it but I think you can see by the balances that we have, what kind of relative risk there is.

Thank you.

Or lack thereof.

Yes.

Thank you, Sal.

We'll go next to Michael Willemse with CIBC.

Hello, Michael.

Thank you. Good afternoon.

Good afternoon.

Just wanted to follow up on the scrap market. Are you having trouble securing scrap or is this just a matter of the supply chain being tight and the members of the supply chain trying to push prices in order to move product?

I just want to clarify one thing. You did say scrap?

That's right.

Not a word where the scrap dropped off. I was confused between whether you were talking about raw material market. Keith, you want to take a shot at that.

I'll take the first shot. There's been really no difficulty in securing material. I think that was the theme was that we were able to do it. We've had no problem. In fact, in the last couple of months obviously as the mills, Nucor systems demand has increased, had no problem meeting those demands. I would say we have seen in the last 60 to 90 days domestic US pricing sort of move upward to meet international pricing and become close to on par as to where that's been so we've seen sort of an evening out of the domestic and international markets. There's been a fair amount of trade in and around those levels and we've been a participant in and around those levels.

I might just add, although it's hard to imagine with the current weather, spring is right around the corner. And with spring, things do tend to increase as the weather improves. So we're hoping to see some of that again this spring.

The fact the automotive industry has geared up production to fill up its lack of inventory, will also provide more prompt scrap to the market as well.

You're expecting there should be a little more supply to the scrap market they the next few weeks or few months?

Two weeks is a little --

in that region of the country?

Few weeks, next two to six weeks, depending on the region of the country will see natural increases in flows as we've seen in our facilities over the last few weeks as well.

So just one more quick question. The tax rate was pretty low in the quarter, obviously a catch-up. Any thoughts on the tax rate for 2010?

I know you really mean to direct that towards Jim and not Keith although Keith will be happy to jump in. I won't let him. God only knows what he'll say.

I'll start. I'll let her fill in and correct me when I'm finished. But we're operating at such a close to breakeven level that the tax rate is very, very difficult to predict and that's why the rate seems so out of whack when you look at both the fourth quarter and the total year. Having said that I'll let Beth see if she wants to add anything to that point.

I think that's accurate, Jim.

Does that answer your question?

Understandable. Thank you.

Okay. You're welcome.

We'll go next to Mark Liinamaa with Morgan Stanley.

Good afternoon.

Regarding cash drift, can you talk a little bit about the quality of product that you're getting from I guess mainly the Indiana operation, given the other's just starting up and what end markets you see that getting into?

Well, as a former, former metallurgical and quality engineer, I would tell you that the Crawfordsville quality is very, very good and the quality coming out of the plant in Arkansas is in order of magnitude even better. John, would you agree with that.

Absolutely. The startup at our Arkansas facility was phenomenal. That's a real credit to the team in Arkansas and to the team in Crawfordsville, Indiana. They worked hand in hand, did a great job with exchanging technical information and experience and the startup at Arkansas was virtually seamless. It was a great startup. The quality coming out of Indiana is very, very good. The quality coming out of Arkansas is very, very good. In Indiana we continue to expand the product range, applications and we're much earlier in the process at, just going through the startup, but it's going very well. The products that we have produced have been received well by the customers in the trials that we are going through currently.

John, would you say that -- or not -- that based upon the experiences at Crawfordsville you've been able to incorporate so many more improvements into the new facility that certainly at a comparable period of time we are ahead on quality?

Frankly, it's not even close. There were over 500 improvements incorporated into the facility that the team in and in you Crawfordsville developed jointly. Just to give you some scope of it, we mentioned that we were able to get a firm strip after the second attempt in. I can tell you, having lived through the experience in Crawfordsville as the general manager there, we did not do it on the second attempt.

Frankly, it took us almost a week to accomplish where we could get a firm strip and today in, they can form strip on demand at any time. That took us frankly a month to be able to accomplish that in Crawfordsville. We already have a full coil produced and shipped to a customer out of. That took us several months to accomplish that task in you Crawfordsville. So the improvements have led to a much smoother startup and frankly, a much quicker progression of the quality in.

It's not unusual to expect that even with a new technology when you start up your second plant for things to go a lot quicker, a lot smoother and to be able to get to a higher level of quality a lot quicker. And that's the good news. We've actually done that and we've done that even further than what our expectations were. And considering the lousy state of the market overall, to have made that kind of progress in a short period of time and at this point in time it's probably the market more than anything that's hampering any further production and development at the Arkansas plant. But we're very excited about it. And looking forward to building our next one.

Thanks for that. And just quickly, you mentioned a strong 1Q order book for galvanized steel. Can you comment on what's driving that, where you're seeing the product go? Thanks. And that's it.

John?

The order of that's probably going toward automotive related applications.

I would add to that, appliances, has been strong for us. So between those three, that's been the reason. Galvanized business has been very strong for the last quarter and into the first quarter. And you have to also look at the fact that there's been a significant dropoff in imports of galvanized product over the last year as there should have been.

We'll go next to David Lipschitz with CLSA.

Hey, David. How are you Dan?

Getting better. How are you?

Can't complain. Question for you. Asked a question about the restart and things like that. People have been lauding the steel industry for the discipline they've had, keeping off production. Since this thing has prolonged, people are saying we need to bring production back on line, are you worried about the discipline in the industry?

When I was in elementary school, the nun was never far away to smack us on the back of the head. The market in this case is the nun. The market will force discipline upon the industry. Restarts are not unexpected. The issue going forward is you how well will people including our ourselves be able to run as the dynamics in the market level out with inventory adjustments, whether it be in the manufactured products segment or what have you.

And how we see the real demand improve, and right now real demand is still struggling. And struggling mightily across the board. At some point in time we will find out exactly what is driving the market and the inventory part of it will phase out and will be tied with real demand. Many products we already are there. I think you're seeing a delayed reaction in automotive and we're still getting an inventory reaction to car builds and cars on lots and what have you.

Hopefully we'll see real demand but again, we are very, very cautious about the speed at which recovery will take place, steel consumption will take place. At the end of the day, the market will be the disciplinarian and people will have to react to the market with how they're running and what capacity utilizations are running at. The benefit that Nucor's had that I will reemphasize and companies like Nucor is they haven't laid off their employees, they have a very flexible production process. We've been able to get in there immediately, to meet customers' needs or some of our competition took time for them to be able to gear back up again. And we've benefited from that and we will continue to benefit from that. John, do you have anything you want to add?

I would like to add one thing, building upon Dan's comments of no layoff process. As a result of that we used the difficult times last year to develop new products. We expanded our product range in virtually every one of our product groups. And that has helped us weather this storm and will help us weather the storm going into 2010.

Just to quickly follow up. Are you seeing any prebuying with scrap prices going up and things like that. We saw inventories rise in December. Are you worried that people have started to prebuy before surcharges kick in and things like that.

That's a very smart, intelligent question and the answer is of course. Our customers are not dummies. They're very smart, thank goodness. Not all of them, maybe, but certainly the vast majority of them. And they see the handwriting on the wall as raw material prices move, it was very transparent. It always is very transparent with the information in the marketplace, particularly all of the discussions out there about iron ore and coal and scrap, energy and what have you, people are very well informed.

So yes, I'm sure there was a measure of let's get some business on the books and bring it in before pricing goes up too much further. That's why I say you have to be very cautious going forward to see how things really shake out on the inventory side and where the real demand picks up. And it's way too early in the year and a very ugly economic environment to be making wild forecasts, so we're not. We're being conservative as usual.

Thank you.

We'll go next to Debra Fine with Fine Capital Partners.

Good afternoon, Dan.

Good afternoon, Debra.

I also had a follow-up question on which is now more specific questions. At the height of the stress, at the height of the crisis, there was a lot of potential scenarios playing out where different assets were going to become available for sale from distressed sellers and I'm wondering now if with, given there isn't distress that there is in the market, if you don't see more opportunities for consolidation given that lots of folks are restarting capacity potentially at inopportune times.

Well, certainly the scenario could play out where more stress could be going into the market and more stress on weak players. We don't think by any means we're anywhere near being out of this thing and we said all along that it would take somewhere between 12 and 18 months for people to forget how rich they were in 2007 and 2008 and recognize how poor they are today. And so we don't think that we've got to the point yet where the opportunities are going to show themselves in any way close to a peak form and that's why we said we're going to continue to be patient and things will develop.

Okay. That's suitably vague. Thank you.

You're welcome, Debra.

Go next to Bob Richard with Heathbridge Investments.

Good afternoon. Thanks for taking our call.

Good afternoon.

Concerning your pending FBQ mill startup, what level of dialogue have you had with your potential customers and could you comment on maybe the level of success you've had?

Dialogue has been dramatic and it's been positive. Our team's done a great job. Mike, do you want to give a little flavor on the customers we've talked to, the approvals we've gotten?

We've had great progress on getting -- supplying trials and getting qualifying with ring rollers, and seamless tube manufacturers. Got some great large OEMs that we've got some great relationships now and have been qualified. So things there are going very well from that perspective and we just need to get larger and more orders right now and we've also done things around the world and shipments around the world too, with India, Germany and Mexico.

Okay.

Part of our domestic OEMs are -- we're in conversations with them. Mike, as I understand it, about doing business with their operations overseas. Is that correct?

Okay. Thanks very much and best of luck.

Thank you.

There are no other questions in queue at this time. I'll turn it back over to Mr. DiMicco for closing comments.

Thank you, Clayton. Thank you all for your interest, your questions, thanks to all of our teammates out there for doing their job and doing it safely. Thanks to our customers for working with us through this tough time and our teammates for working with our customers and let's hope that we get the right things going on on a macro scale in our economy going forward and the right focus on jobs and recovery so we can all be talking more positively about job creation and improving these conditions. Thank you all very much.

This concludes today's conference call. Thank you for your participation.