Nucor Corp (NUE) 2010 Q1 法說會逐字稿

Good day everyone, and welcome to the Nucor Corporation first quarter 2010 earnings 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 obligation up to date them. For opening remarks and introductions I would like to turn the call over to Mr. Dan DiMicco, Chairman, President and CEO of Nucor Corporation. Please go ahead, sir.

Thank you, Loren. Good afternoon and thank you for joining us for Nucor's conference call. As always 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, and Executive Vice Presidents, Keith Grass, Ladd Hall, Ham Lott, Mike Parish, and Joe Stratman.

After reviewing the first quarter results and our work growing Nucor's long term profitability, we will take your questions. First, and most importantly, I want to thank everyone on our team at Nucor and at our Harris Steel and David J Justice operations for all of your hard work in dealing with the historically bad markets that we have been in and getting the job done safely in the first quarter. While somewhat improved, economic and steel market conditions remain challenging and volatile, and that's to say the least. Your focus on safety, working safely, working together, is what drives Nucor's success through the cycle and builds attractive long-term value for shareholders. Thank you again and keep up the good work and stay safe.

Our first quarter earnings of $0.10 per diluted share represents significant improvement from the loss of $0.60 per diluted share reported in last year's first quarter. These results were also better than guidance range of from a loss of $0.05 per share to earnings of $0.05 per share. Profit improvement gained momentum throughout the quarter, finished by a solid performance in March. Excluding the affects of LIFO, our operational results improved substantially in the first quarter of 2010 over the fourth quarter of 2009. In our steel mill segment, the improvement in operating profits was approximately 50%, with our sheet mills improving by 80%. Our overall performance benefited from improving profits at our flat rolled, raw materials, and cold finished bar businesses, and the raw materials segment includes both David J Joseph and our Trinidad New Iron DRI operations.

As expected, the most challenging markets are those impacted by severely depressed nonresidential construction activity. This impact was particularly evident in the fabricated construction products businesses such as metal buildings joist, deck and rebar fabrication. As we discussed on the last conference call, and in last month's guidance press release, first quarter 2010 earnings were also significantly impacted by LIFO inventory accounting. LIFO expense of $24 million for the just completed quarter compared to a LIFO credit of $117 million in last year's fourth quarter and the credit of $105 million in last year's first quarter. This swing is largely due to recent increases in scrap and other raw material costs.

Also as mentioned in our updated earnings guidance, this was an after tax impact of approximately $0.29 per share. Our team also continues to make investments to increase Nucor's long-term earnings power. First quarter results included more than $50 million in start up costs for new facilities. This is up from preoperating start up costs of $33 million in the year ago first quarter and $48 million in last year's fourth quarter. These costs for the most recent period were incurred at a Memphis special bar quality mill, our Decatur galvanizing facility and our Arkansas Castrip plant. We expect our focus on building for for the long-term will continue to reward our shareholders with attractive returns. Nucor has a long history of using economic downturns as opportunities for reaching new levels of growth.

Earlier this month we completed our previously announced plans to acquire 50% equity interest in NuMit LLC. NuMit is a joint venture with Mitsui's wholly owned US based subsidiary. We formed NuMit with Mitsui to be an additional growth platform for investing in steel and steel-related activities, both in North America and globally. Consistent with our long established joint venture growth strategy, the NuMit partnership combines Mitsui's experience in global steel markets with Nucor's operational and technological expertise. Together, we expect to be able to capitalize on opportunities for profitable growth that would not otherwise exist for either partner on a stand alone basis.

Mitsui has contributed NuMit's first investment--all of the assets, operations, and businesses of Steel Technologies Inc. We have received many questions about the valuation of our Steel Tech joint venture investment. I would like to make clear that we are awaiting to disclose the value in our 10Q filing at the request of our joint venture partner.

We are very pleased with the value of this transaction as it reflects the reduced market value from steel related assets that occurred as a result of the severe recession. Our investment reflects 2009 market values. Additionally, Steel Tech is a much larger business today than the company Mitsui acquired in 2007 for approximately $530 million. It is a larger company because our joint venture partner, Mitsui, has done an excellent job of growing and investing in this business. Their strategic investments make this a more attractive business today than when we first considered an invest in 2007. We are excited to be teamed with a company like Mitsui that shares your vision for long-term profitable growth.

These are the additional investments made by Mitsui during this period. They contributed their 50% share of the six Mi-Tech sheet steel processing facilities. They bought out the 10% minority interest of their joint venture partner in Mexico. They added the MSI business, a provider of OEM, inventory and processing service businesses, and Mitsui built two new sheet steel processing facilities, one in Mexico and one in Canada. As a larger company with more facilities and a broader line of businesses, Steel Tech operates with more than $116 million in additional working capital today when compared to 2007 when they were first acquired by Mitsui. The direct transaction itself is expected to be accretive to earnings in NuMit's first year of operations and is not expected to result in any material goodwill.

Steel Technologies LLC today operates 23 sheet processing facilities with 14 in the United States, six in Mexico, and three in Canada. It provides high value added sheet steel processing, supply chain services to customers in the automotive, appliance, HVAC, lawn and garden, construction, and other markets. The automotive market represents about 50% of total volume, and the appliance market provides about 25% of total volume. Steel Technologies is North America's largest provider of exposed automotive blanking.

Cold rolled strip is another important market in which Steel Technologies enjoys a leadership position. While it's fiscal year ended March 31, 2010, Steel Technologies net sales were approximately $1.3 billion, with shipments of 1.4 million direct process tons and another 650,000 total process tons. Steel Technologies will continue to operate as an independent unit, with the current management team maintaining responsibility for the performance of the business. This management structure will allow Nucor to continue its long standing supply chain relationships with other sheet steel processing companies, while at the same time allowing Steel Technologies to independently manage its supply needs.

Our team has over four decades of experience successfully managing vertical integration between steel mills and downstream businesses. Consummating the NuMit joint venture with Mitsui is a major strategic step forward for Nucor. We expect it to be a long and profitable partnership, one that has the potential to significantly stand its reach into steel making, raw materials and downstream businesses around the world. We are particularly excited about the immediate growth opportunities that NuMit provides us in high value added sheet steel processing and in Mexico. Also Nucor's previously announced project to build a green field sheet processing facility in Monterey, Mexico, will be implemented by the joint venture. And all of NuMit's assets greatly expand our sheet mill group's ability to take care of our customers and grow profitably. I will now ask our CFO, Jim Frias, to update you on our financial position and our qualitative guidance for the second quarter. Jim?

Thanks, Dan. Good afternoon everyone. As Dan mentioned one of the keys to Nucor's highly successful and sustainable business model is our long-term focus. Our long-term focus is in integral part of the Nucor culture. It is reflected in many ways including in our strong balance sheet and our conservative financial practices. Here are some highlights of our financial strength at the close of the first quarter.

Cash and short-term investments totaled $2 billion. Our $1.3 billion unsecured revolving credit facility is undrawn and does not mature until November of 2012, and we have no outstanding commercial paper. Our debt totaled $3.1 billion for a debt to capital ratio of 29%. The only long-term debt maturity over the next two years is a $6 million industrial revenue bond that matures this year. Further, 70% of our long-term debt matures in 2017 and beyond.

Nucor holds the highest credit ratings of any North American steel maker with single a rating from both Standard and Poors and Moodys. Our team remains committed to Nucor's long-term tradition of being an effective steward of our shareholders' valuable capital. That is why we practice discipline and patience in executing multipronged growth strategy. We view our recent acquisition of a 50% investment in a NuMit joint venture as excellent example of that discipline. As Dan noted, Steel Technologies is a much bigger company today than when first acquired by Mitsui in 2007. This is reflected in the working capital balances that increased by approximately 70% since that time. Dan further noted that we are making this investment at reduced 2009 market values.

As another point of reference, our investment is priced close to the book value of those assets. While public companies steel processors typically trade for 1.6 to 1.7 times book value. Nucors first quarter capital expenditures were $54 million. Depreciation and amortization totaled $146 million for the quarter. For the year we continued to project capital spending of approximately $400 million. The major projects for this year or the North Carolina plate mills heat treat facility and work to expand our very successful new iron DRI facility.

For the second quarter we expect an improvement over our first quarter results. This is supported by the first quarter trend of stronger operating performance with each successive month. That was particularly true for our steel making operations, our raw material operations including both the David Joseph Company and our new iron derived plant in Trinidad, and cold finish bar businesses. Metal margins at our steel mills should benefit from recent price increases and a slower pace of scrap cost advances. We expect continued challenging conditions for our products sold in nonresidential construction markets, particularly in our downstream construction products businesses. We will again follow our practice of providing quantitative guidance in the final month of the quarter.

In summary, we have been able to sustain all of our operating capabilities, avoid layoffs, and have continued to make investments in our facilities and earnings powers through a very severe recessionary period. We remain well positioned to take advantage of opportunities and to deliver long-term and profitable growth for shareholders. Thank you for your interest in Nucor. Dan?

Thank you, Jim. I would now ask John Ferriola to report on our steel making making and raw material businesses. John?

Thanks Dan. Good afternoon. I want to begin by thanking all of our team members at our Nucor steel mills and our David J Joseph and new iron raw material operations for your outstanding commitment for working safely and taking care of our customers. I'm extremely proud of the work you are doing. I will again emphasize the importance of everyone staying focused on safety. Our hard work is going to pay big dividends for Nucor in the future. We want all teammates to be around to enjoy the benefits from their hard work. As always, the focus of our steel making and raw material teams remains on safe, efficient, profitable growth. Here are some updates on our on going initiatives for profitable growth.

In March, David J Joseph team completed the acquisition of Ocala Recycling. This adds four scrap yards in north central Florida with an annual production exceeding 100,000 tons to DJJs scrap processing platform. Since DJJ joined the Nucor family in March of 2008, they added about 1.1 million tons of scrap processing capacity and 27 locations through five acquisitions and two green field yards. Congratulations and thanks to our DJJ team, for another successful acquisition, and integration.

Our Arizona wire rod and bar mill began production this week. This mill is a very attractive asset with an excellent cost structure that expands our bar mill groups geographical reach and product breadth. And this asset with about 500,000 tons of annual capacity was added at a very attractive price, approximately $50 million and that includes the start up costs. That's a deal that's hard to beat. Thank you, Nucor Arizona team, for a safe, fast, and very economical start up.

The heat treat project at our Hartford County plate mill continues on time and on budget with expected start up in the first quarter of next year. This growth initiative will support our existing plate business by enabling us to offer our existing customers as expanded product portfolio, and it will also get us into new markets and applications such as abrasion resistant grades using the mining industry, and high strength grades used mainly in agriculture and construction equipment. Our Castrip technology continues to improve and grow. Our new facility, Castrip Arkansas, has continued its excellent startup. During the first quarter, they delivered their first prime order for Vulcraft. These coils were produced at Castrip, Arkansas, cold-rolled and galvanized at our nearby Hickman, Arkansas sheet mill, processed at Vulcraft South Carolina into sheeting and decking material, and will be used on our Hartford county heat treat project. Not only is this testimony to the excellent startup at Castrip Arkansas but its another great example of one Nucor in action.

Also during the first quarter, Castrip Arkansas delivered the first export order for Nucor Trade. That prime material will be heading to the Middle East. And while we are on the subject of Castrip, I am very proud to announce that in March we passed the one million ton milestone of Castrip production. What an accomplishment. A million tons produced by a process which many said would not work and many others gave up on. Congratulations and thanks to both Castrip teams, all of our teammates who are supporting the Castrip effort, and our customers for their support while we are commercializing this technology.

Here, here, John. Congratulations.

Thank you. Also, on the sheet side of our business we are in the process of installing tension levelers at both Berkeley County and at Crawfordsville. This equipment will allow us to produce a higher quality product to sell into higher valued markets. And our new galv line in Decatur continues to successfully produce higher valued products for the automotive and appliance market, and they are doing it at a much quicker pace than we anticipated. These initiatives are evidence that Nucor continues to be committed to profitable growth, and continuous improvement even during economically challenging times. We will do what we have always said we will do--come out of this downturn stronger and more profitable than we entered it.

Looking at current market conditions, overall demand has improved in recent months. However, it is definitely an uneven recovery. The flat roll business seen the most improvement, due to stronger demand from our customers in the automotive and energy segments. The automotive upturn is also benefiting on mills that serve the SPQ and cold finished markets, however, extremely week nonresidential construction continues to depress demand for more products. We are encouraged that service center inventories remain at relatively low levels. For March, months of supply for all products on a seasonally adjusted basis was 2.2 months. That is down from 2.3 months in February and down from 3.3 months in March of last year. Whatever the direction the economy takes in the coming months, we will outperform in taking care of all of our customers. That includes our teammates, our shareholders, and the people who buy and use our products.

Nucor steel making and raw material teams are in a position of strength that results from Nucors highly flexible production capability and that is extremely important in today's market where customers want to keep minimal inventory yet do not want to miss a single sales opportunity. Another strength is our highly diversified product portfolio which enables us to offer one stop shopping to our customers and our most important strength, the Nucor teams 'can do' attitude and high energy level. These strengths are evidenced by capacity utilization performance.

Nucors first quarter average steel mill capacity utilization across all product groups was 73%, or five percentage points higher than the industry average rate of 68%. We achieved this above average utilization even with the weaker long product mills accounting for over 40%, of our total steel shipments. Nucor strengths are further evidence by continued success in exports. first quarter 2010 exports were over 500,000 tons are more than double the year ago quarter's export buying. Nucor is uniquely positioned among US steel producers to capitalize on the stronger economic recoveries being experienced in other regions of the world. Over 60% of our steel capacity is on or has access to deep water. In a still very unsettled economic environment we will continue to capitalize on these unique strengths to earn a larger piece of today's smaller steel market. I want to again thank all members of our steel mill, David J Joseph, and our new iron teams for your hard and extremely productive work. And please, as always, stay focused on priority number one--working safely. Thank you, we appreciate your interest in our Company.

Thank you, John, and once again, congratulations to the entire Castrip group for their accomplishment. More to come. I will now ask Ham Lott to update us Nucor's fabricated construction products businesses. Ham?

Thanks, Dan. Good afternoon. Demand for fabricated construction products remained extremely weak in the first quarter of 2010. Recent competitor announcements of facility closures and plans to exit businesses highlight the turmoil in the marketplace. Nucor has over four decades of experience in managing through down cycles in fabricated construction product markets. We view cyclical downturns as opportunities to grow stronger and build long-term earnings power. We achieved that by focusing all of our energy on taking care of customers with product quality and service they expect. Recent indications that we are earning market share gains in several businesses. I want to say thank you and keep up the good work to all team members at Harris Steel, New Con Steel, Nucor Buildings group, Virco and Vulcraft. Dan.

Thank you, Ham. At this time we will be happy to take your questions.

Thank you sir. Today's question-and-answer session will be conducted electronically. (Operator Instructions) Our first question is from Kuni Chen with Banc of America Securities Merrill Lynch.

Good afternoon everyone.

Good afternoon.

Just to start off on the steel products side of the equation, I guess two questions there. First can you comment on the sequential decline in rebar fabrication volumes? It seems to run a little bit counter to what you would normally expect to see from a seasonal standpoint. If you could give us color there, and should we expect that to sequentially improve going forward from a seasonality perspective? Then the second part of the question is just more general for that overall segments, with steel prices going up, can we expect to see some additional margin pressure going forward from here?

I think you're mistaken. Rebar fabrication is normally going to be the lowest in the Q1, and that's almost entirely due to weather. And of course, with the winter we had, I can't say that I'm surprised to see the decline. In regard to your second question, we are seeing rising prices and we are seeing both in our raw materials and we are seeing indications in the marketplace, that prices are rising for the finished products as well.

Okay. Then just a follow up on the flat world side, can you comment on order bookings, has that remained pretty consistent as you look out into May and potentially June?

Yes the auto bookings are strong on the flat rolled products, particularly in sheet ordered by automotive, appliance and energy. OCTG in particular, because of the recent ruling, has been very strong, and our backlogs are very strong at this time.

Thanks.

Our plate, the order entry on plate is also doing well. You saw our utilization rates are very high for plate. Our pricing is a little bit weaker in that market but it is improving as we move forward and we expect it to continue strong. Our backlog in plate is also very strong at this time, for both of our mills, Tuscaloosa and Hartford County.

This is Dan. Just to add to Ham's comments, theres no doubt raw material pricing is going up throughout the chain for steel companies. Also going up obviously because steel companies in operations passing through costs to the downstream business units, both to our customers and internal customers. And we are going to have to do a good job of passing those costs along from our downstream operations to their customer base because it's entirely being driven by raw materials of all types including coke and coal, iron ore, scrap, alloys, you name it. So this process is not too different from where we were back in late 2003-2004, and we are going to have to work to pass those prices along and we believe we will be successful in doing that. In spite of the difficulties in the market because of the situation where the raw material price for everyone is going up. Our next question, please.

Our next question comes from Michael Gambardella with JPMorgan.

Good afternoon. Have a question regarding the sheet business, just overall I think in the past nine months your sheet shipments have doubled or more than doubled now to 2 million tons in the quarter. And the inventories at least at the service center level really haven't gone up and we are hearing that end market consumer inventories are not really going up. So when did we see the turnover, the transition, from pure restocking of inventories to real demand?

I'm not sure we ever saw a restocking of inventories Michael. I think people took to inventories down and have been managing very very competitively. I think what we seen is real demand in the apparent demand to get to the point where they are equal, so that what our customers are seeing orders, they are ordering from us as opposed to a year and a half ago when our customers were ordering from us based upon the difference between what they had in excess and inventory and what their customers demanded that they didn't have. If you remember back conversations on our calls a year and a half ago, we made the comment that our customers had seen business drop off to the tune of about 35%, so they were somewhere in the range of 65% to 75% of the normal utilization and order entry from their customers but the mills were at 35%. And that was that due to that difference between apparent demand and real demand.

What we've seen happen now is that the apparent demand has gotten to the point where it's equal to real demand and we've seen in some sectors an up tick in the real demand. Whether that up tick continues or flattens out remains to be seen, but that's really what has driven the up tick in business on the durable goods side, plus as John mentioned on the energy side, with the winning of the trade cases against the illegally dumped material from China and elsewhere, the energy sector has worked off its excess inventories of pipe of all types and as the increase in business due to the stoppage of that dumping and the working off of those dumped inventories has translated to increased business as well. John, would you like to add to that?

I would just add to support what you said, Dan. Service centers are buying just what they need. They're keeping their inventories very light. Buyers remain cautious and we see this evidence in the number of expedited orders that we receive on a weekly basis. Of course our process lends itself to that type of a market to respond very quickly and meet those expedited orders so it's playing our strength.

I thought in a couple of previous calls when the shipments were going up you kind of eluding to that it was more restocking than real demand.

No. What we were saying was it was the apparent demand from our customers going up because they were done with their restocking, Michael. And they were just now beginning to order more and more from the mills opposed to taking more and more out of their inventories. It was actually a destocking situation. They never restocked. We never said they restocked.

Okay. One other question, just on the scrap side, have you guys been importing scrap or are you now?

We will do that as the market dictates, pricing and available. Keith, you want to comment to that?

Throughout the Q1 we were active in importing certain grades of scrap. Starting probably the end of the Q4 in to the beginning of the Q1, and we do that, as you alluded to, on and off based on market dynamics both here and and abroad.

How much scrap did you bring in, in the Q1?

As much as we needed. But it's not trivial, it's measurable.

I would say during the Q1 we averaged between six to ten cargos, and the only reason I give you that range depends on when they were shipped and when they arrived. But that's the basic where we've been.

Is that something that's a sustainable thing?

It has been on and off for years depending on what we needed to offset what our short falls have been here domestically or whether pricing arbitrages make the most sense.

Would say that the thing that drives that is the market conditions. We look at pricing, we look at availability, we look at what our needs are. We take a look at what we think is going to happen in the future and make our decisions based upon that.

It's been a pretty regular activity for us on and off.

I would reemphasize what Keith just said, this has been going on for years. This is nothing new. When I was at NucorYamoto ten years ago, we were doing it there, bringing scrap in from offshore.

As John talked about having 60% of steel mills on deep water gives us an advantage exporting and give us an importing scrap as well.

Thank you.

Thank you, Michael.

Our next question comes from Timna Tanners with UBS.

Good morning. Afternoon, sorry. I just wanted to ask a little bit more about the scrap price because the price relative to what we were seeing on the spot market looked favorable. If you could talk a little bit more about your strategy there and in mind with that about the update on the pig iron project?

Keep in mind, there is a difference purchased scrap pricing and used. The scrap that we are using of course during an upward movement in scrap, stuff we are using is definitely lower priced than the stuff thats coming in, that you are seeing in the spot market. And with the moves that we seen, sometimes as high as $70 a ton, it's not too far from realm of reality to be able to see why there might be a $50 a ton differential between spot and usage, and that's pretty much what we saw.

I would add to that, depending upon the particular operation, we have different levels of scrap on the ground. (Inaudible) mills is looking at a couple weeks, where as on the sheet mills it's much further out. The point is well made that it's a function of when the scrap is being brought in and when the scrap is being consumed.

And also, Timna, we add a steady stream of low cost material coming in from our Trinidad DRI operations which goes specifically to our sheet metals and one of our plate mills.

Okay. That makes sense. Sorry, about the Louisiana status of the project there, please?

We are waiting for the last with the weeks of the public commentary to be over with, and hopefully we will be proceeding with the permit and then we will be announcing our plans for the 4000 acres that we bought in Louisiana at that time. We continue to monitor the carbon debate in Washington which is a significant cost impact on steel making operations in primary end of all types whether they be pig iron, or they be just making liquid iron at facilities that are integrated and even though DIR plants are 50% less in terms of CO2 production, it does impact the economics of those as well. We are watching that, we are watching economic conditions. But we really can't do anything in terms of moving forward until we have the permit in hand.

Great, and then just one follow up if I could, on the public sector side we starting to see some signs of life and some return from stimulus and I was wondering if you are seeing any of that yet or what you might expect there? What exposure you might have?

You say public sector, what do you mean.

I mean the stimulus, spending on highways, spending from the government on public construction?

We haven't seen much of anything float through to nonresidential construction. If you take a look at the commentary by people in local papers around the country about the number of potholes and what have you that are out there and not being fixed, I don't think there has been any stimulus dollars make it into creating jobs in the nonresidential construction sector. Now we've said all along that the second half of 2010, if we were going to see a measurable impact it wouldn't be until the second half of 2010 which we have yet to get to. It's a good question and you should continue to ask as we go through the year. It's extremely frustrating with all of the jobs that have been lost and the continued poor jobs claims numbers and the commitment to focus on jobs out of Washington is a top priority to see that we are not focusing on jobs and not creating them. It's very frustrating and it's going to have an extremely negative impact on the rate of recovery and job creation over all. We got 25 million jobs to create over the next three to seven years we're just not doing it, or if anything, we're making things a little more difficult for private sector business in general. We've got a long way to go before stimulus dollars of any kind or programs have an impact number one, and number two, if you recall, and we've talked about this before, of the $800 billion first stimulus package only $60 billion was in conventional infrastructure and job creation. So we are thinking that it just hasn't showed up yet because of the length of time it takes and also because of the lack of revenues that the state has to match the federal funding that would come along. So we are basically nowhere and it's been a year plus since that passed.

Okay. Thank you.

Thank you. Next question.

Our next question comes from Mark Parr with KeyBanc Capital Markets.

Thanks very much. Dan, how are you? You sound good, glad to see that.

You don't sound too good.

I've been talking lot. I've been busy.

Got to listen more.

I always like listening to you guys. That's a nice break in the action, trust me.

That was a joke, Mark.

All right. Dan, could you talk about metal spread trends as the Q1 progressed and how you see metal spreads moving through the Q2?

General we are working we are behind working hard to pass along the increased raw material costs, we are going to have to do a better job of that going forward. We think we will. There's been a lot of price increases across many of our products we are seeing the benefit of that. By in reality we are still behind the rapid rise in raw material costs. We expect that to improve dramatically as we go through the Q2 but I will let John give you more flavor on that.

The only thing I would add is that we anticipate that we might see scrap pricing stabilize a little bit, with the break in the winter weather. It's been a particularly harsh winter, and that greatly reduced the flow of scrap. With spring coming, we hope to see the increased flows and we anticipate that bringing a stabilizing affect on scrap pricing. As Dan mentioned, we have several product price increases already out there so as scrap stabilizes and when we collect price increases, we should see some increase in margins.

It's fair to say that in your qualitative commentary for the Q2, that you would expect some improvement in the metal spread situation relative to the Q1?

Yes. And more so obviously in the products outside of nonresident construction. You can see some there.

Terrific, thanks very much.

Thank you, Mark.

Our next question comes from Luke Folta with Longbow Research. Please go ahead, sir.

Good afternoon everybody. My first question was, I was hoping you could give us some feel for what the contribution was from the sheet and plate side of the business versus the long product side. I know you don't typically break that out, but I'm trying to help me quantify what the potential ramp when it comes could be as far as on long products run?

Luke in my opening remarks I made some comments and I will repeat them. We said that in our steel mill segment improvement in operating profits was approximately 50% over the Q4 of 2009, with our sheet mills improving by about 80%. That's about as close to an assessment as we are going to give out on relative profitability of the two segments. But you can take a look at what our total product mix is. That information is out there. You can ascertain how much of it is sheet, how much is nonsheet and get an idea from those ratios I just gave you how much of the improvement was in the sheet side of things relative to the overall number where the other ones are. Little bit of math, little bit of home work you can work that out. But that's pretty much the information that we are providing at this time.

Okay, and secondly, if we do get some pause or pull back in scrap prices here in May and potentially over the summer, do you think it makes sense to go for metal spread expansion at that point and try to extend margins or use that lower cost to your advantage and maybe go for more market share?

We will respond based upon what the market tells us we need to do. If the market says expand margins we will expand them. In the market tells us we can't, we will use it to be competitive. And the market I'm referring to is both domestic and the international market because of the level of imports that we see every year and also because of what we are doing in the way of exports. Obviously, we've got ground to make up on scrap costs and other raw material costs even if scrap plateaus and if it goes down some that will help. We would like to be able to make up that ground. The market is going to tell us what we can do and not do. And our folks will be out there reading the market on a daily basis.

Thanks a lot.

Our next question comes from Michael Willemse with CIBC.

Thank you, good afternoon. Following up on the comments on the exports, 500,000 tons in the Q1, is that a good run rate for the rest of the year or do you think that will keep going higher?

We set our goal for this year to export 15% of our product. If you look at this number, that's just about 11%. We still have to ground to make up. We are continuously improving and building our international sales team and our trading company. You might recall last call we mentioned that we had opened up an office in Dubai. It takes some time to get into the market and to get your name known in the market. But that's going very very well. So we expect that to continue to improve as the year goes forward.

What would be the best export markets right now?

Clearly in terms of geographical area, South America, Columbia is very good for us. Central America, the Caribbean. That's definitely outside of NAFTA, Within NAFTA, Mexico of course is very strong for us. If you think about the location of our facilities in the southeast, logistically we can reach Mexico, South America, Central America, very well. So those have been the areas we are focused on. Of course again within NAFTA, going in the other direction, you have Canada, and we traditionally have put a lot of product and continue to grow our business in Canada, both through the Harris organization and with our bar products and billet sales into Canada.

One more question, the preoperating and start up costs of $50 million in the Q1, how should we look at that going forward? Are we going to start to see that decline next quarter?

It will decline slightly is our expectation, not a lot.We think in the $40 million to $45 million range right now.

When should we see that really start to fall off?

Should be falling off in the third quarter, throughout the rest of the year but we will see.

Okay, thank you very much.

Keep in mind we're talking about the Memphis SPQ facility, the Castrip operation in Arkansas, and the galvanizing facility in Decatur. And ramp ups on those things are going very well but it just takes time to penetrate market and buildup a customer base and buildup production capabilities and proficiency. We're doing a good job and they're on track but we're not there yet.

Our next question comes from Sal Tharani, please go ahead.

Good afternoon, guys.

Hello, Sal.

John, is there any down time expected in the Q2 in any of these mills you have?

We will have some down time but it will not be major. In our bar and long products with the operating utilization rates at what they are at, we do a lot of the maintenance during the normal operating period when we have to time. On our sheet mills and in our plate businesses, we're not expecting any major shutdowns on our plate business and we've already had a few both on the plate and sheet side, so we are not expecting any major shutdowns in the Q2. But particularly versus Q1, we've had a couple of weeks of shutdown in the Q1.

Thanks. The discussion about final and apparent demand has been going on a long time and you commented many times. I remember in March in the SPV conference, you had made a comment that it will take another quarter or so before we realize if apparent and final demand was matched by apparent demand was higher than final demand was higher at that time, looks like today you are saying that it appears that they have matched and now people are buying what they need, is that the correct way to thing you would position yourself?

In general I would say that today we see that our order entry is tied to real demand now. Not so much from any differences between apparent and real demand. Although the service centers customer base are keeping inventory particularly lean and at some point in time there may be some additional buying if, as we go through the Q2 get reinforcement, things are getting better, as opposed to plateauing or going down slightly. Remember there is not a stimulus, theres some segments of the economy that have allowed things to look a lot better than they have. We've had cash for clunkers, both in the automotive sector and in the appliance sector. Something I read just yesterday that was very disturbing was that in the appliance sector, the cash for clunkers or the energy efficiency trade ins, have been strong for about three plus months, but all of a sudden they started to drop off dramatically in terms of what the appliance makers are getting in the way of orders. So we have to watch and see if this is a short-term slowdown or if that's typical what we saw in the automotive side after the cash for clunkers disappeared. The other thing to be cautious of on the automotive side is that we had strong Q1 and that is because the automotive guys are rebuilding inventory, also because of incentives in place for orders for the future. So there's some staying power questions with respect to the automotive side as to whether or not the Q1 build rate will carry through the rest of the year or not. And we're just going to have to watch it as we go and see how demand is in the real market. But more than in the past, we do believe that our order entry is tied to real demand now as opposed to being impacted by artificial inventory destocking or restocking.

Great. Thank you very much.

Our next question comes from Charles Bradford with Affiliated Research Group. Please go ahead, sir.

Good afternoon.

Good afternoon Charles.

Hi, could you address the issue of the strong loony and what impact that's had on Harris and also your ability to export?

The Loony, didn't that go extinction or something?

Well, that's what the Canadians still call their money.

I don't think it's had a severe impact on the business relationship.

I would suspect it would help your export. Does it hurt the Harris business?

Well in Canada, and again I don't know if Dan wants to speak to this a little more or not, but in Canada most of their business is being done in Canada. Our export business to Canada certainly has benefited from the strength of the Canadian dollar. But in terms of where Harris stands, I think a big driving force behind the rebar fabrication business has just been the lack of business, and the fact that backlog has disappeared throughout the chain and it's going take time to build back up again.

We don't export either from the United States or from Canada to the other country on fabricated rebar. Where the bar is fabricated is where it's sold, it doesn't come across the border.

Could you also give us some ideas of what you're thinking about all the capacity that's being re-opened, looks like about 9 million tons of flat rolled, and whether that might not be too much for the market?

Not that I have ever spoken in a factual straight forward manner on questions like that. I don't think I will change now. Our opinion on this is that, listen, if true demand is really increasing by that much, well fine. We have serious concerns that capacity being brought back will get ahead of the demand in the marketplace because the economy really isn't growing. You are not creating jobs. We are not seeing a lot of commercial construction and nonresidential construction. And so it's a concern and it should be a concern for everybody and anybody that says it's not an issue is kidding themselves and trying to kid you. Nine million more tons coming back in, plus if we start to see a pick up in imports, thats certainly going to have an impact in the marketplace unless demand increases commensurate with that. We have concerns about that. As you know, theres going be another mill starting up sometime this summer in Alabama, (inaudible) in Germany, and it's just more capacity coming in at a time when people really aren't running across the board at 100% utilization by any means, even on flat roll. There is so much domestic capacity that can be brought back. So if it all comes back and the skinny is demand doesn't go up with that, it's going to have an impact. Right now, the odds are it will have an impact.

Thank you.

Our next question comes from Mark Liinamaa with Morgan Stanley, please go ahead, sir.

Hello, mark.

Could you comment at all on what the impact of Trinidad was on the Q1 and provide any commentary you could on the state of the pig iron market as you see it now? Thanks.

John, you want to address that?

Well, pig iron pricing has been increasing steadily. It has increased quickly over the last year. Probably in the neighborhood today of about $500 a ton, somewhere in that ballpark. So with that, of course, our Trinidad operation becomes more valuable to us. The Trinidad operation has been running well, recently running at full capacity and continuing to push the envelope as Dan mentioned in his comments. One of the areas that we are going to be expanding are operations is in Trinidad to improve and to increase the output of Trinidad. So it's had a very positive impact on us through the first quarter.

Was there an outage cost in the Q1 that thinking about sequentially what the affect on earnings could be?

Outage cost?

Yes. Was there anything flowing through the P&L on that end?

From DRI?

Yes.

In Trinidad?

Yes.

Yes, absolutely.

Could you put a number on it at all?

No. No.

Okay. Fair enough. That's all I had.

Nice try.

Our next question come from Luke Folta with Longbow Research.

Just had a follow up on Trinidad. Is there anything that would stop you guys from maybe doubling the capacity over there or making dramatic expansion? Would you be able to keep the same favorable natural gas pricing that you have on the operations currently if you were to make a meaningful expansion there?

We are going to make a meaningful expansion but meaningful doesn't mean doubling. I think we are looking at about a 10% increase in production there with what we are doing now. Yes we are exploring that opportunity, that opportunity does exist. Under certain conditions and we have explored that and will continue to explore doing that in Trinidad and elsewhere.

Okay. Then you said earlier about regarding the Mexican mill, and I've heard you talk about in the past and I'm not sure if your comments were immediate in nature, but can you give us a feel of what the scale of a project like this might be and a sense of time?

You said Mexican, you meant Louisiana project?

I think you had mentioned (inaudible - multiple speakers).

Oh, Mexican processing. Steel processing opposed to a steel mill.

We talked in the past I thought you said something about there being a potential for a sheet mill down the road there.

We talked about that in a very long-term sense. But we not said anything about building a sheet mill down there today or in the near future, although we won't rule that out. But no, what we have been doing and talking about in Mexico is benefits coming to us by having joined the Mitsui in our joint venture at NuMit and the six steel processing operations in Mexico that are part of that joint venture now, and the fact that we will be building a modern state of the art steel processing facility in Monterey that will be significantly larger than anything down there today. And it will include as I recall some processing further down like...

Pickling, that's the big advantage we are going to be having when we put our processing center in Mexico. In addition to having a great market for pickling there it will allow us to bring our product into Mexico more easily and distribute it better from Mexico after we pickle it. It's additional processing, further downstream processing that will support the current Steel Tech processing in Monterey and other areas of Mexico and the pickling facility.

We haven't really talked publicly about putting a mill there. So I'm not sure where you are getting that from, but it may be a confusion between the steel processing and pickling facilities, and the concept of a steel mill that would have finishing facilities attached to it. This is strictly a processing venture at this time.

Thanks a lot, guys.

You're welcome.

This concludes today's question-and-answer session. At this time, Mr. DiMicco, I will turn the conference back over to you for any additional or closing remarks, sir.

Thank you, Loren. I would like to thank everybody who participated in the call both at Nucor and in the investment community. Appreciate your questions. Appreciate your interest. I would like to thank all thank all of our Nucor teammates, shareholders, and customers for your support of Nucor and helping us to continue to improve our operations and our profitability in these challenging times and our best years are still in front of us, both for shareholders and for our teammates. Thank you.

This concludes today's conference, thank you for your participation you may now disconnect