Nucor Corp (NUE) 2010 Q3 法說會逐字稿

Good day and welcome to the Nucor Corporation third quarter of 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 during this conference call will be forward-looking statements that involve risks and uncertainties. The words we "expect", "believe", "anticipate" and variations of such words and similar expressions are intended to identify those forward-looking statements which are based on management's current expectations and information that is currently available. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about risks and uncertainties related to these forward-looking statements may be found on Nucor's latest 10-K and subsequently filed 10-Qs which are available on the SEC's and Nucor's website. The forward-looking statements made in this conference call speak only as of this date and Nucor does not assume any obligation to you will date them either as a result of new information, future events or otherwise. For opening remarks and introductions I would like to turn the call over to Dan DiMicco, Chairman, President and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Thank you, John. Good afternoon and thank you for joining us for Nucor's conference call. As always, we appreciate your interest in our Company. With 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 steel making operations John Ferriola, and Executive Vice Presidents Jim Darsey of our bar products group, Keith Grass of our scrap operations, Ladd Hall of our flat-rolled sheet business, Hamilton Lott of our down stream and fabricated products and Joe Stratman who heads up our business development team as well as overseeing our plate and beam operations. After a brief review of our third quarter results and our work growing Nucor's long-term profitability, we will take your questions.

First, and as usual most importantly I want to thank everyone in our team at Nucor and our Harris steel and David J Joseph operations for work safely continuing to battle through the tough times in the economy. Your talent and can-do attitude are the reasons Nucor will continue our long history of emerging from down terms stronger than we're entered them and when the good times inevitably return which they will, our work will pay big dividends to all members of Nucor family. Please stay safe and let's continue doing it together.

Our third quarter earnings of $0.07 per diluted share were consistent with our guidance range of between $0.05 it $0.10 per share. Our results included a LIFO charge of $50 million or some of less than the estimated LIFO charge of $67 million incorporated into our guidance. As you can discuss in our last conference call and late July, again in our mid-september guidance report, the third quarter was impacted by general slowdown across all product lines. Is now painfully clear the overall US economy in recent months entered a new period of uncertainty and reduced economic activity and historically, it takes GDP growth rates of over 3% for steel consumption to rise. More than two years after the on set of this economic crisis the economy continues to sputter with less than 2% GDP growth and unemployment and under employment stuck at alarming levels.

And what is a response of more than 20,000 men and women in Nucor in this extremely challenging environment, we continue to work together to prepare ourselves for the inevitable return of better economic times. We're not in the position to predict when the economy will be return to strong levels except to say it will be measured in years, not months. As the economy strengthens over the next several years, we will be in a strong position to take advantage of it and even better, we will be positioned with increased long-term earnings power as a result of our investments made during the tough times. Down turns are nothing new to the Nucor team. Our Company has a long history of using down turns opportunities to grow stronger. The strength of our culture, our balance sheet, and our business model enable us to do this.

Our focus always is always on the long-term to build real and sustainable value for our employees and the people and buy that use our products and Nucor is doing this again in the current down turn, one of the worst economic environments in our industry and country's history. We are doing this reinvesting in our operations and people. To be more specific, Nucor is expanding its product portfolio to better serve our customers. Nucor remains relentless in its focus on continued improvement in quality and cost and safety. Nucor is aggressively implementing our raw material strategy and Nucor is taking advantage of opportunities afforded by our strong balance sheet to lower its cost of capital and continue its current dividend program. Jim Frias, John Ferriola and Ham Lott will update on you on our third quarter progress on capitalizing on new opportunities for Nucor to grow stronger.

Finally, I would like to comment on an extremely important economic issue that is currently in the news headlines and deservedly so, China's exchange rate policy. The US House of Representatives recently passed the currency reform for Fair Trade Act by an overwhelming vote of 348 to 79. This strong margin is clear evidence the American people and elected representatives in the House get it. They know that China under values currency, and provides other illegal subsidies to exports and blocks imports into its own markets and quite simply China's practices like currency manipulation and the legal subsidies are the most extreme forms protectionism.

It is now time for the US Senate to pass this legislation. It is a job's bill pure and simple, ending China's current manipulation and other practices will go a long way in helping to drive and reinvigorate our country's manufacturing sector in the overall economy, which in turn will reduce our twin budget and trade deficits, but will not happen over night but it will happen. Global trade flows will rebound. Failure to address China's mercantile I say particular trade practices is flat out not acceptable and can no longer be tolerated and I don't believe it will be. The future course of economy and economic policy is undoubtedly beyond our control but not beyond our influence.

One thing is for certain. The Nucor team will meet any and all challenges head on and turn them into opportunities, exactly what we're duke doing today. We have been doing that as a team for more than four decades. At this point in time I would like to ask our CFO, Jim Frias, to discuss our financial position and our qualitative guidance for the fourth quarter. Jim?

Thanks, Dan, and good afternoon. In the third quarter, Nucor's conservative financial practices and strong balance sheet allowed to us take advantage of very favorable credit market conditions. In September we issued $600 million of 12-year senior unsecured notes with the coupon rate of 4.125%. Our debt was priced by the marketplace at a yield spread of just 140 basis points over 10-year US Treasury debt. The availability of such a attractively priced capital provided us an excellent opportunity to prepare for debt maturities in 2012 and 2013.

We are also considering the possibility of issuing by year end approximately $600 million of Gulf opportunities or Go-zone bonds authorized by the state of Louisiana to finance a significant portion of our recently announced $750 million raw materials project in St. James Parish, Louisiana. In addition to the interest rate benefit provided by their tax exempt status, these bonds are highly flexible debt instruments. While they can have up to a 30 year maturity, it can be issued in multiple tranches and submaturities.

Our capital raising work in 2010 and that of prior years highlights our team's focus on efficient capital management. We will remain opportunistic in taking advantage of transactions that will reduce Nucor's cost of capital. This sufficient capital management focus helps us achieve our strategic goal of continuing Nucor's best in class return on shareholders equity performance through the cycle. This is an excellent example of why we believe our shareholders gain significant value from Nucor's financial strength.

Another note worthy third quarter development was our operating cash flow performance. At the close of the third quarter, cash and short-term investments totaled $2 billion. That is an increase of $865 million from the second quarter level. The gain resulted from a receipt of almost $595 million from our debt issuance and improved operating cash flow of more than $500 million in the third quarter. Cash from operations benefited from inventory reductions of more than $300 million during the third quarter. Further to Nucor's strong liquidity are $1.3 billion unsecured revolving credit facility is undrawn and does not mature until November of 2012. We have no commercial paper outstanding.

As Dan comment, Nucor has a long record of growing stronger during down downturns. We do that by allocating capital to investments that build our long-term earnings power. It is our financial strength that positions us to expand while many competitors are forced to cut back. As a result of this strategy, we typically incur significant pre-operating and start up expenses during economic downturns. These costs were approximately $42 million in the third quarter and about $136 million during the first nine months of 2010. More importantly, we look for these new businesses to be significant profit generators in the years ahead. That has been our proven experience over many previous business cycles.

As we enter the fourth quarter, our markets remain extremely challenging. This is most evident in product lines tied to nonresidential and residential construction. Additionally, the sheet and plate markets are being pressured by both existing over capacity which has been brought back online and the addition of new over capacity particularly in the sheet market. The fourth quarter may very well prove to be our most difficult quarter this year and we will again follow our practice of providing quantitative guidance in the final month of the quarter.

In the long-term, we are very optimistic about Nucor's prospects. Why? Because as a team, we are driven to settle for nothing less. We're also encouraged by what appears to be growing support amongst the American people for policy changes that address the economy's unsustainable imbalances. These policy changes will revitalize the American economy in a way that creates real jobs and increases the demand for steel products and brings a multitude of sustainable benefits to all Americans, and with what's good for America is good for Nucor.

In summary, we see Nucor as being in a position of strength to continue our Company's long-term tradition of being effective stewards of our shareholders' valuable capital. Thank you for your interest in Nucor. Dan?

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

Thanks, Dan. Good afternoon. Let me begin by thanking all team members at our Nucor steel mills and our David J Joseph and New Iron raw material operations for your outstanding commitment to working safely and saying care of our customers. Your dedication and talents, particularly in tough markets like these are Nucor's greatest competitive advantage. Thank you, and please stay safe.

Dan and Jim are right on point with our message that Nucor is growing stronger during these worst of economic times. Our steel making and raw material teams are hard at work preparing for the good times as we work through the bad. I have good news to share on two of our many close initiatives. First, construction is nearing completion at our [Hertford] County, North Carolina plate mills new heat treating facility. Our [Hertford] county team expects to begin trial in December with product availability to customers around the end of the year and plans to accept orders for the first quarter of 2011 deliveries. Heat treated plate in used in applications requiring higher strength, abrasion resistance and toughness with an estimated annual capacity of 120,000-tons Hertford County's heat treat line will have the ability to produce heat treated plate from 316ths to two-inches thick. Completion of this project advances our strategy to expand our value-added product mix in the plate market. Our objective is to provide a full range of plate products to Nucor's customers.

Also during the third quarter Nucor took a major step forward in the implementation of our raw material strategy. We announced plans to construct a $750 million iron making facility in St. James Parish, Louisiana. Nucor Steel Louisiana will use direct reduction technology, a proven technology with an established history of operational success to convert natural gas and iron ore pellets into high quality, direct reduced iron or DRI which is used by our sheet, plate, and special bar quality steel mills.

The Nucor team is very excited about this project, and here are four important reasons we believe investors will also be excited. One, the Louisiana DRI plant has a planned capacity of 2.5 million-tons per year. That capacity when combined with our existing two million-tons per year DRI plant in Trinidad will move us to having obtained about two-thirds of our raw material strategies goal since hurling six million to seven million tons per year of high quality scrap substitutes. Two, direct reduction technology offers very important strategic benefits compared with the alternative, coke oven blast furnace technology for comparable iron units output. These include the carbon footprint that is one third of that for the coke oven blast furnace route, capital costs of less than half that required by the blast furnace coke oven approach and the energy source is natural gas which is more abundant in supply than the metallurgical coal used with the blast furnace coke oven technology. Three, Nucor has already built an extremely strong skill set in applying direct reduction iron technology. After starting production in 2007, the new iron plant in Trinidad has already become one of the world's most productive DRI facilities. In fact, the new iron team has achieved metallization rates and carbon content at roughly the world class levels in DRI quality, and as we have commented on previously calls, we have had a fast payback on our DRI investment in Trinidad. Fourth, consistent with our Trinidad plant's highly successful business model more making DRI, we have secured a long-term supply of natural gas for the Louisiana iron making facility at a very attractive cost. Nucor has entered into an on shore natural gas working interest drilling program with one of North America's largest producers of natural gas. Our long-term supply of natural gas will be at a price such that the total cost of DRI delivered to our mills from Louisiana will be equal to or less than the total cost of DRI delivered to our mills from Trinidad.

I will close my report with our thoughts on the current business conditions. As Jim point out, nonresidential construction is very weak, and new flat-rolled capacity is being brought online at a time of stagnant demand. This will result in a very challenging fourth quarter in the steel market. The Nucor team has been preparing for this challenging time by developing new products, new customers, and new geographical territories. Thank you for your interest in Nucor. Dan?

Thank you, John. I will now ask Ham Lott to update on you on Nucor's fabricated construction products business. Ham?

Thank you, Dan. Demand for fabricated construction products remained extremely weak in the third quarter and there is no evidence to suggest any material improvement in the coming months. My career in this industry began in 1975, and I have never seen before seen nonresidential construction markets as depressed as they are currently. Obviously this has severely impacted our deck, joist, metal building and rebar fabrication plants. The volume decline experienced by our bulk press steel joist business tells the story. From the cyclical peak reached in 2006, our joist tonnage has dropped by more than 50%, and that actually under states the weakness in construction activity because over this period bulk wrap gained market share. All of Nucor's fabricated construction product teams are working hard to take advantage of this downturn to grow stronger. We continue to improve our operations and strengthen our position in the market while many of our competitors cut their capabilities for serving customers. Most importantly, I want to say thank you to all of our team members at Harris Steele, New Consteel, New Core Building Group, Nucor building group, for your excellent work managing through these unprecedented market conditions. You are positioning Nucor for continued attractive growth in our long-term profitability. Dan?

Thank you, Ham. Like to emphasize at this time a few positives before we turn over to your questions. The recent information indicates that the architectural building index for the first time in awhile is now over 50%. While it is not as high as we'd like it to be it is a sign of growing demand in the market. Once you get over 50%, so that may be beginning we hope of some continued positive numbers with respect to that index.

Trade cases continue to grow in the industry's favor. The China currency issue will be dealt with on a global and US basis. We continue to invest and build for the future. Our teammates are deeply into continued improvement both on a personal and operational level. Our customers are strong supporters of Nucor and we at Nucor are stronger with us than ever. We continue to grow our market share in many of our down stream businesses. We are the number one rated metals and mining Company on the strength of our credit position. We have a solid dividend policy that is well supported by both our cash flow and our long-term view of growing shareholder value.

In short, Nucor's best years are in front of us, we will continue to produce industry leading shareholder returns and returns equity over the business cycle just as we have for the last 47 years. We now would be happy to take your questions.

(Operator Instructions) We'll take our first call from Timna Tanners with UBS.

Hello, good afternoon.

Good afternoon, Timna.

I wanted to ask about your dividend policy and dividends at Nucor is very high and the strongest I think in our group. Just wanted to ask in light of the free cash flows that we have seen probably this year, extrapolating into the fourth quarter. And, given the cautious guidance into next year, do you think it's -- the cash flow levels are -- have free cash flows been below, at least this year, what your outlay is for dividends and could potentially repeat this again into next year. In light of the A rating that have you on your balance sheet, how do you reconcile the potential shortfall in free cash flow again next year to your dividend?

Well, as I stated in my prepared remarks, our dividend policy is strong and will continue to be so, going through this year, next year, and going forward. Our position, our credit position and liquidity position is very strong. We have cash flows, that are more than sufficient to cover the dividend policy and our capital expenditures. And, that's a situation that we believe will continue to improve, even in this difficult market for a number of reasons. Jim, would you like to add to that?

Well, I would just reinforce that what Dan said, Timna, and say we're not contemplating any reductions of our dividend at this time. And, our policy isn't based on our short-term quarterly earnings. But, it's instead based on our long-term business perspective. Our cash flow from operations is a positive $216 million for the first nine months. And, that's with working capital using cash of almost $600 million -- well, $560 million in that period. And, if you look at the third quarter alone and we subtract out of the benefit of our debt issuance, we grew our cash position by about $270 million. And, that's after paying dividends of $114 million and CapEx of $75 million in the quarter. So, we have a significant position of liquidity, $2 billion, and in cash and short-term investments combined. And, we remain committed to paying a solid based dividend, through the business cycle.

Okay. That's very helpful. Can I ask another question, please?

Go right ahead.

Okay. I wanted to ask about exports. It seems like with the weaker dollar and the Brazilian's having very strong demand, being less of a presence in the export market, Nucor would be well positioned to supply more of the Central American -- Latin America market given your geographies. Can you give us more detail on your export activity and your vision there?

Sure, I will ask John Ferriola to make that comment.

We agree. We call it the three reads -- the three C regions basically South America, Central America, is a great opportunity for us. 60% of our steel making capacity is on deep water ports, which gives us the ability to export well. And, in addition to that with the dollars declining, we've seen increased opportunities in those areas. Currently year-to-date, we have exported about 11% of our total steel product, which is in line with what we've done last year. But, in the last several weeks with decline of a dollar we've seen renewed interest in that market.

I would add, that we've not only seen renewed interest from the Western Hemisphere, but also Europe and other places in the world. And, as very well discussed in the press today, the QE2 policy will probably do nothing, but put the dollar in a more competitive position globally. Despite what people say, it is still much stronger than it was in the 90s. And, it's just down from heavily over valued levels that we saw, during the bubble era of the early part of this century. And, so, long-term we think the Fed policy is going to be one where the dollar is more competitive globally. I wouldn't call it weaker, I would just call it more competitive, back to where it had been for most of its history. And, that will do nothing, but encourage our export activity , around the

And, I would also like to add that it is not just the South America and Central America area that we're interested in. We do have sales offices in Brazil and Columbia and also we have sales offices in the Middle East and in the Asian area. And, we've had quite a few exports into those two regions, also this year.

Okay. Great. Thanks for the help.

Next question.

We'll take our next question from David Gagliano with Credit Suisse.

Hello. I just want to ask about implied conversion costs per ton. It looks like, if we're doing our math right, implied conversion cost per ton, i.e.The non-scrap related costs, increased about 6%, sequentially? Does that number sound about right to you and if so, what's driving the cost creep and how should we be thinking about that moving forward?

First off, good afternoon.

Good afternoon.

And, what was that percentage you said again? It kind of got muffled.

We backed into about 6%, sequentially.

Dave, I'm not sure, how you get there -- This is Jim Frias. But, if you wait until our segment reports come out in the Que, you might get a better handle of the break down of our profits from steel mills versus products businesses. And, that may be part of what you're missing. But, as we look at it, and we just the took difference in metal margin, -- our metal margin was down it about $15 a ton in the prior quarter and that was a $60 million decline. That was the biggest single factor that affected our performance. Our energy costs we said were up $4 a ton, that's another $16 million. I think that on balance our conversion costs were probably flat or down.

Okay. We'll check numbers on our side then. And, just as a follow-up, how should we be thinking about LIFO in Q4 versus Q3. And, also the start up costs in Q4 and into 2011 relative to Q3? Thanks.

You could make a heck of a lot of money, if you could predict where scrap was going to go for the quarter. -- And, our inventories and raw materials and finished goods, which our team is doing a very good job of managing. But, the volatility in the scrap market, up one month, down the next month, up again, down again, we don't see that really changing going forward. And, it is influenced by a number of factors, the demand domestically is going to continue to be soft. But, there is a demand from exports that come in and out and that does add to a month to month variation. Where it ends up by the end of the year, John, do you have any cleaner concept of that?

No, I think you are going to see more stability in the fourth quarter, than you have in the previous three quarters. That said, there still will be volatility. I would say that we're going to see it maybe flat or flat sideways to up slightly as you move through the quarter.

Jim, do you have any comments?

Yes, Dave on LIFO if you look at the year-to-date number, we booked about $141 million through the first three quarters. If you divide that by three that gives you a pace of what is it? --

$45 million.

Yes, it about $45 million in the fourth quarter is the pace that we're on right now.

Okay. And, then it's just on the start up costs.

Start up costs,.

Moving forward, what should we be expecting?

Well, our division's forecast is in the neighborhood of $40 million, so a little bit of an improvement.

Next question.

Okay. Thank you very much.

Your welcome.

We'll take our next question from Michael Gambardella with JPMorgan.

Yes, good afternoon.

Good afternoon, Michael.

Had a question regarding the Louisiana project.

Sure.

What's going to be the source of the irone ore for the project?

At the current time period it will be just, as it is for the Trinidad operation, where we have three or four sources for our iron ore pellets and the iron ore that goes into those pellets. It will be on the open market. And, just as in Trinidad, the thing that we have the best control over is our natural gas situation, but the iron ore will be at market prices, at least for the foreseeable future.

And, then I think for the -- for quite awhile you were focused on not a DRI plant but a blast furnace operation there. --

That's correct.

Is that correct?

Yes.

So, given that you knew about the carbon footprint, the capital costs, and the natural gas versus the MIT coal all along, what made you change your mind to go to a DRI plant?

A couple of things, Michael. First off, the natural gas situation was not all along. The natural gas situation has improved dramatically, over the last twelve months, in terms of the forecasting of what reserves there are, new technologies that continue to be improved, as we continue to learn from our own partners, in that business today. That was a game changer.-- One of the game changers from the standpoint of taking a look at the blast furnace route versus the DRI route in the first phase of our study. And, I will caution you, that the second stage which is permitted, does include a blast furnace and coke ovens. The first phase that we are going to do will be at least one DRI plant, possibly two. And, it is the natural gas that's really driven that decision making. You're correct that the carbon footprint issue has been with us for a couple of years. And, although, it's taken a turn in terms -- towards sanity in Washington, in the last twelve months, it's still an uncertain thing for the future. So, we felt like it was best, with the way things have gone with natural gas and the things that we've learned in our Trinidad operations. To significantly improve the quality of the product and to reduce the cost and use of the DRI versus pig iron in our EIS, all of that together pointed in the direction that the DRI thing was the way to go. Add to that the fact that, John said, it was about half of the capital costs of a blast furnace, coke oven route. It is more like a third. So, somewhere between a third and half less cost for the same amount of iron, all of that in this environment just said DRI, DRI, DRI.

And, last question is the natural gas deal that you have, is it somehow linked to those costs of your Trinidad delivered product?

No. It is not. It's just that statement was just our way of pointing out, how competitively priced it would be, with the current and long-term agreement that we have with our natural gas partners. Okay. Great. Thanks a lot, Dan.

You're welcome.

We'll take our next question from Tony Rizzuto with Dahlman Rose.

Hi, Dan and team.

Good afternoon, Tony.

Good afternoon, Dan. I've got a couple of questions here. First one is how much steel did you guys export in the third quarter?

John mentioned a percentage.

11%.

11% of 4 million tons.

Okay. And --

So, 440,000 tons, -- 400,000 tons to 500,000 tons, somewhere in there.

425,000 tons to be precise.

There you go.

Thanks very much, John. And, just a follow-up question on the Louisiana DRI facility. Can you just go over the timeline and how far along are you in the permitting process? Have you received all of your permits at this stage?

We have the permits -- Well, John, why don't you comment on that?

We have the permits in place. We've had to make modifications to them. And, we're in the process of going through that right now. We expect to have all of that completed by the end of the year. We have begun some small amount of dirt work on the site currently. And, we plan to begin full operations once we receive the permit,-- full construction once we receive the permit at the end of the year.

The reality is we have the permit for the blast furnace, coke oven route. It has already been approved. The modification that we're looking at, has to do with substituting the two DRI facilities, for the one blast furnace.

Okay.

And, from an environmental standpoint it should be a no-brainer. Especially, from a carbon footprint standpoint. But, also from about every other environmental aspect that you could look at. And, so, we're very confident that will take place before year end. And, we're in the midsts of all the equipment discussions and -- with vendors. And, looking at a couple of different technologies. And, so, we'll be ready to go in very short order.

Well, we're looking at about -- once we begin construction, we're looking at about a two-year period, to complete construction and begin operations.

Well, that's great. And, then just a follow-up on the natural gas supply. I would assume that you guys probably have locked up more than the seven years. Is that -- Would that be correct to assume?

We have an agreement that takes care of our natural gas situation for 20 plus years.

20 plus years, and can you give us an idea how it would be -- is it pretty closely tied to spot or -- and some indices?

I would tell you that it is very competitive with the price you've seen in natural gas, over the last twelve months. And, it is predicated principally, -- not on the spot price (Inaudible) the time, but the cost to produce the gas.

Thanks very much, Dan and John. I appreciate it.

We'll take our next question from Mark Parr with Keybanc Capital Markets.

Hello. Thanks very much. Good afternoon.

Good afternoon.

Good afternoon.

Good Afternoon. Thanks for having me. It's always nice to get an update from you guys. I was -- One thing I was curious about -- curious -- and, I may have missed this. Did you give some indication of capacity utilization for your flat rolled operations right now?

I don't think we actually broke it out by product group. Our overall utilization at the steel mills was 68%, for the third quarter versus 71% for the second quarter.

I can break it out if you would like me to run through it. For sheet products it was about 73% capacity utilization for the third quarter.

Okay. Alright, John, I appreciate that very much. I'm curious, we've seen pricing soften a little bit. And,you talked in your release about excess capacity in the market. How much movement do you think the industry needs, given the current demand outlook to stabilize this supply demand balance?

First of all, there's massive over capacity based upon the level of demand. And, add to that, the import numbers, which still boggle my mind, that they're even showing up on our shores. And, so, we have a long way to go before the industry gets to the point where the existing capacity in the market place is being fully utilized. And, you get to see the industry numbers from the AISI on a regular basis.

Right.

So, any additional capacity that is brought online in the next -- in the coming months or coming years, will just add to that issue of over capacity.

I'm just -- I guess, -- maybe I didn't ask my question right. I'm just -- we're seeing negativity around pricing and I guess the reason for that is, there is too much capacity being utilized.

Correct.

Do you think things would balance themselves out if, utilization rates went, say, to 65% or do they need to go to 58% or --

I hear what your saying. First off, in general I would say that it would make common sense for utilization to balance out with demand somewhere along the way. But, that's an issue for each company to determine independently, how they're going to run their operations. And, so, part of it -- the situation that complicates this whole utilization, -- what's going on in the marketplace today, is that when you have things like scrap being volatile the way they are, people tend to hold on to their orders, don't place them if they think scrap is going down, or other materials are going down, or to place them in a hurry if they think they're going up. So, you have to -- we're going to have to look at this thing over the full course of several quarters, to get a good handle on where things really are at. But, in general there's a total lack of demand in the economy. I mean, Mark, we're growing at 1.6% GDP. Steel consumption, doesn't increase at those levels. In terms of how far the industry would have to go back to, to balance supply and demand, I wouldn't want to hazard to guess at that. But, it certainly is a lower level, than what we're seeing today.

Okay. Just if I had -- I have a couple of other follow-ups. So, do you --

Great.

Could you talk, first of all, about your existing scrap inventory compared to 30 days ago. Meaning, do you have more scrap on the ground or less. And, then do you have any thoughts about where the scrap buy for November might go relative to October? Any thoughts you can share there or maybe Keith has a few thoughts he would like to share or not? Yes. We have tape over Keith's mouth, so he can't talk right now. [Laughter] No, of course Keith will give you some input and John as well. John, do you have anything you want to say?

We'll start off by saying, I'm not sure how our scrap inventory compares month over month. But, over the last several months we have been working hard in accomplishing, reducing our scrap levels. So, if I compare it to three or four months ago, our scrap inventory is down from three or four months ago. As we said, -- as I said earlier, as you look forward into the fourth quarter, I suspect that we'll see sideways or slightly higher scrap prices, as we move through the quarter. Although domestic demand will be lower, the pressure on exports, because of the lower value of the dollar, will be high. So, how that all plays out, we think it will be basically sideways to up slightly.

Keith, do have anything you would like to add to that?

No. John's comments are right on. And, the only thing I would add, is we are heading into a seasonal time of year, where traditionally you start to see a fall off of in-flows in to yards, both obsolete scrap and industrial scrap. So, as John said, it's not the domestic demand that is going to push us. It's really more of those other two factors, the reduced supply that we typically get and the changing -- the lower dollar is really changing international buyers sourcing patterns, and putting a little pressure on that.

Mark, I might add, -- I might add, that the reason for being very cautious about the fourth quarter is, -- along the lines that Keith is talking about, the seasonality that comes in the fourth quarter typically is unknown. And, so, -- And, that's part of the reason why we feel cautious,-- very cautious about the fourth quarter and our guidance -- our qualitative guidance at this time.

You know Dan, particularly when you tie the seasonal impact with the low inventory levels that everyone has on the ground, an interruption in the flow of scrap, in the November to December time period could have a significant impact on pricing.

Any other questions, Mark?

I've, always got more. But, I'll pass it on, and I appreciate the time you shared. And, good luck on the fourth quarter.

Thank you. Next question, please.

We'll take our next question from Brian Yu with Citi.

Great. Thanks. Good afternoon.

Good afternoon, Brian.

I am not sure if I missed this. But, did you discuss your order book for the major product groups, (Inaudible) structural plate. And, what you're seeing now versus maybe what you experienced back in the third quarter?

I don't think we made a specific comment up to this point, Brian. So, I don't think you missed anything. John, do you have any comments?

My comment would be that we saw during the third quarter, our order entry rate is very short-term based. Our customers live hand to mouth. Orders come in this week, for deliveries that they need in the next couple of weeks. So, it's hard to project out for the fourth quarter an order entry rate, because as I said, it's done on a very short-term basis. Right now our order entry rate is similar to what we have seen in the last several weeks. We don't know how that will play out, as we go further into the quarter.

And, then --

(Inaudible - Multiple Speakers)

Sorry.

I was just going to add that there's no doubt those rates as the third quarter was, are down from the second quarter.

Absolutely.

And then a follow-up. When you look at the minority interest charge that you recorded for the quarter about $25 million. It was up fairly materially, from the $15 million in the second quarter. And, it seems to me this would suggest, that the Nucor Yamoto is doing quite well. I am wondering if this applies to the rest of the long products business. And, if that's the case, where was the biggest source of sequential weakness in your results?

I think you can imply that the Nucor Yamoto's business is profitable for sure. I would not call it an historical terms, strongly profitable. I don't think there is anything strong about profits in any segment, in any steel company, at this point in time. However, I think in general, our long products business has been fairing better than our flat- roll business, and our down stream businesses.

Okay. Thank you.

We'll take our next question from Michael Willemse with CIBC.

Thank you. Good afternoon.

Good afternoon.

Back to the questions on exports. You mentioned year-to-date you're at 11% of shipments, yet 60% of your steel making capacity is on the ports. So, if we see another step down in the US dollar, what do you see as a reasonable potential for a percentage of sales? Could we get to 20% or 30% of production being exported? If the kind of global economy moves that way?

Well, in general the global economy is not in the greatest of shape. There are certainly areas and significant areas that are doing well. But, even there the steel industries are slowing down a little bit. Some of the latest data out of China, shows the production down, sequentially and GDP growth rate down in the recent numbers, although still very strong. So, I think that you have to couch the export opportunity, in the fact that globally, in Europe and several other areas of the world, steel consumption is still struggling. However, having said that, there's no doubt we're seeing additional inquiries, because our competitive position has improved. John, do you have any (Inaudible) --

The only thing I would like to add, Dan, is that we've really done a great job, -- our international commercial team has done a great job working with our trading company in developing markets and developing supply lines. And, we see that getting stronger, and stronger, as we go forward.

One other thing that we see lately is a strong interest on the part of the Department of Commerce to work with US based industries to stimulate exports. And, I think that's starting to bear some fruit.

And, just one more question on acquisition activity. I'm just curious as to the appetite. Is there any potential targets that are looking to sell right now or is everyone just sitting tight and what's Nucor's appetite for acquisitions? Are you just waiting to see where the economy goes, before you do anything significant?

I think our appetite has been fairly consistent for several years now. But, that appetite is definitely moderated, by how we see the economic situation out there and looking forward and also by people's willingness to enter into discussions. As we've said all along, figure it was going to take 18 to 24 months, for that type of activity to start to re-emerge. I don't think we changed our opinions on that.

Alright. Great. Thank you very much.

You're welcome.

We'll take our next question from Michelle Applebaum with Michelle Applebaum Research.

Hello.

Good afternoon, Michelle.

Hello. I have a couple of questions. You said -- in your prepared remarks you said something about maintaining your dividend policy, not maintaining your dividend, right?

One in the same.

Well, no, not necessarily because your dividend policy has been to increase your dividend.

Well, what we're talking about there is maintaining the current dividend and our policy to -- you're absolutely correct, to look at our increasing dividend, as we have historically, is still in tact.

Okay. So, that's still your policy. Do you want to give me an insight into whether or not, we might think about another increase? You can say no to that.

Are you talking about an increase in dividend or increase in steel prices? Are we talking dividend?

Dividend.

We typically have a certain time of year when we do that and you will know it when we do it.

Okay. Can I ask another question?

Sure.

Okay. My other question is on the DRI facility, I thought I, heard two different things, and I wasn't sure they seem to conflict. I thought I heard you say that you -- you're building the DRI facility, which by the way congratulations it's a great thing.

Thank you.

You're building the DRI facility and then you may build a second DRI facility instead of a blast furnace. And, then I thought I heard you say you could build the blast furnace also with the DRI facility and I know you didn't mean both. Which ones would it be?

Actually, we do mean both.

Oh.

Let me clarify for you.

Sorry.

Remember, all along we said there were three phases to the project. The first phase was a 3 million-ton a year, blast furnace, coke oven. Second Phase was a 3 million-ton a year, blast furnace, coke oven. And, the third phase is -- would be potentially steel making operations in downstream activities. So, what we're talking about changing is only the first phase. The other two phases are still permitted and in tact. And, will depend upon conditions at the time that we decide to act on those, -- on the second phase. And, the first phase instead of being just one blast furnace and coke oven, is now being permitted for two DRI plants, of 2.5 plus million tons a piece.

Okay. And --

Does that help clarify?

It does. And, I have got to say nice job on responding to the dramatic changes in DRI production costs, because obviously the whole gas thing, blows up the economics in a meaningful way.

Absolutely.

Compared to two years ago, so having done all of that permit work. It's great to see that you were flexible enough as an organization to say, hey, we need to do it this way. Now, I'm going to ask you a tough question. You can actually say no. You don't have to answer this one, but do you guys want to take a shot at comparing the economics of DRI in Louisiana with the Mesabi Nugget facility?

Well, listen -- we -- Steel Dynamics is looking into developing some new technologies. They work on their iron making and on the Mesabi Nugget. And, we give them full credit for being entrepreneurs and risk takers. As you know, Nucor has also looked at similar types of projects, over the years. Most lately, our ICE Melt project, which while we felt it was eventually going to pay off, our partners decided they needed to belay that project for the time being, so it is on hold. And, our familiarity with what it takes to develop technologies and commercialize them it would not be proper or even correct for me to try and compare the two yet, because one is still developing. What we know about the DRI process, is that we have become extremely comfortable with it. We have actually been able to improve its' -- the quality of product above what is typically produced around the world. So, that it allows to us reduce the cost and use differential between pig iron and DRI that used to exist, by more than half. And, so, based upon how we see the raw material picture going in the future, on natural gas, we think it is very, very strong case for doing DRI. Having said that, we're still keeping our eyes open and discussions going on the alternative iron making technologies. But, the cost of those things and whether they actually do get to be commercial, have yet to be proven.

Great. Okay. Thanks.

Next question.

We'll take our next question from Sal Tharani.

Good afternoon.

Good afternoon, Sal.

How are you? First, for Jim quickly, the CapEx guidance for 2010, does it still stand at $375 million?

Yes, that's the ballpark range, yes.

Okay. Thank you. John, can you give us a brief comment on the start ups you are working on -- the couple of facilities, the SBQ mill and the Alabama facility, as indicator of how it is going and how long we should expect the start up costs to continue on?

Let me start. I'm going to defer to Jim Darsey for an update on our Memphis facility. Jim.

Okay. On our FBQ mill in Memphis, I would like to share that our teams have a production and shipment record in September of this year. We continue to focus on the ramp up of that facility. And, as we have gone through a lot of trials last year and this year, we have gained significant number of product approvals and are moving product into heavy equipment, energy, auto and agricultural manufacturers so we're making a lot of progress in Memphis with that start up.

Thanks, Jim. Ladd, any comments on the Galv line at Decatur?

The Galv line continues to ramp up really well. What we lack more than anything else is more orders and we're working on that. We have gone all the way up to 72" wide, our galvan mill has started off with a success, that we're selling that commercially. We're in trials today, with some of our automotive customers, with some of our appliance customers. So, we're very, very, excited about the start up and where we're at right now in that Galv line.

Just one more question, Dan. How is Duferdofin doing in Italy? How is that project doing?

The project economically is experiencing the same difficult market conditions, there is that we are here. But, in terms of the how the operation is running and the how it is integrated into the Nucor family, as a joint venture partnership is going very well. We have several people over there working with them. We have crews going back and forth, so that we can best mark and learn from each other and that's all proceeding very nicely. As we are everywhere else, the market makes -- basically sets the tone for how well economically their doing and the market is still very difficult in Europe and the United States, when it comes to the construction side.

Great Thank you very much.

We'll take our next question from Debra Fine with Fine Capital.

Good afternoon, gentlemen.

Good afternoon, Debra.

I have a comment and a very simple question. The prior -- your comments about how consolidation isn't optimal right now because things -- the outlook is kind of bleak. When the outlook improves, the pricing isn't going to be nearly where it is right now, and that's the luxury of having a robust balance sheet. That you should be able to take advantage of things when they're not -- when the outlook isn't clear?

That's correct.

Okay, could you guys just address why the tax rate fell so dramatically this quarter?

Yes, Debra, this is Jim Frias. I will talk about that. Our third quarter rate did benefit from tax reserve reversals. But, before breaking down that benefit, I think it makes sense to try and communicate about, how to compute our effective tax rate in a meaningful way. When you look at our income statement presentation, due to the issuance of FAS 160, the income or losses related to non-controlling interests, now falls below the pretax earnings line. And, so, to come up with a more typical tax rate you have to add back the earnings or losses from non-controlling interest to our pretax income to compute the tax rate. And, if you do that for the first -- for the third quarter, the rate adjusts up to 25.4% and year-to-date it's at 35.5%.

Okay. So, could you -- what were the tax -- what were the reversals? What were they related to?

I was about to get there.

Okay. Sorry.

So, if you look at that rate differential of 25.4% or 25.4% in the quarter and 35.5%, the net difference ends up being around $3 million between those two tax rates. And, it's a combination of some benefits we received from received from things falling off, due to the expiration of the statute limitations, offset by some other adjustments, so the net adjustment --

I'm sorry, the statute of limitations what?

On tax -- potential tax liabilities. Our reserves are based on what -- on things that we think are possible, that could happen in the future, relative to audits of our returns. And, as things pass a certain date they fall off, in the third quarter, because of that being our major filing period, is when most typically those things fall off the list of possibility liabilities.

Okay. So, was there discretion on when, you would take those reversals?

No, there is no discretion. You have to take it in the period when they fall off, due to the statute of limitations expiring.

There is zero discretion.

Okay. I am happy to hear that. And, was that -- did you -- given the timing of when the statute of limitations on some of the stuff ran out. And, I understand it is a much smaller number than I originally, looked, when you just calculate the tax rate. But, was that in your original guidance and that you were going -- that the tax rate was going to be 25 versus -- the adjusted 25 versus 30 or whatever the numbers you just said were?

No. We didn't have that specifically in our guidance.

Alright. Great. That's very clear. Thanks very much.

You're welcome, Debra. Next question.

We'll take our last question from Michelle Applebaum with Michelle Applebaum Research.

Hello. I didn't expect another question. I was just going to ask on the LIFO, was there something particular going on that the LIFO dropped from 67 to 50 for the quarter? Was that just you didn't have -- you just didn't know until the quarter end?

Well, there's a couple of things, Michelle. First of all, when we give guidance we give data for our divisions based on their end of August position. And, some inventory balances, were a bit lower at the LIFO specific divisions at the end of the quarter, than what we -- than they were in August, than what we thought they would be at the end of the quarter. And, the value of scrap pricing went down as well. So, the trend of raw material costs went down. And, we're basing our LIFO accrual based on where we think the balance will be at the end of the year. So, our view on where things were heading at that point in time changed a bit.

And, I'm going to ask the same question that is almost a request, as did I this morning at Reliance, which is, is there any chance you guys can go to a quarterly true up basis, because the volatility is just making people like me absolutely insane?

You would still have -- you probably would have more volatility if we did it every quarter based on the balance sheet at that point in time.

You know what, you would have -- you potentially would have more volatility in earnings. But, you would have more of a matching in terms of the trend line.

Not really.

Not really? Okay.

Remember, this thing all gets trued up at the end of the year. That's when everything else is just a forecast to that point in time, best guess. And, one of the reasons why it went down, as Jim mentioned, and I mentioned earlier, we've been -- our team has been focusing on inventory management, just as our customers have. And, so they actually did a very good job of getting our inventories across the board, to be more consistent with the actual market demand, which is something that is continuously moving up and down. And, so that's the major reason why, along with the scrap drop that took place.

Got it. Okay. Thanks.

You're welcome. I understand that was our last question. There is one other clarification I want to make that was brought up in one of the analyst early reports, regarding new capacity coming online. I am going to ask John to address the issue of any one particular additional capacity position and how it might affect the industry or Nucor preferentially, John.

The added capacity is being added in the Southeast, okay. And, we feel confident that Nucor, will not bear the brunt of that added capacity. When I look at marketplace, I believe that the more in-efficient high cost mills located in the Midwest and by the way Midwest galvanizes that are heavily dependent on the exposed automotive market, will be more impacted than Nucor. The non-automotive customers understand, that long-term PK's priority will be supplying particularly German automotive manufacturers and may not consider them, as a long-term reliable supplier. In general, they will impact the market for sure,-- the general market and we'll be impacted by that general market impact. However, the mills in the North who have counted on the higher growth Southeastern Mexican markets will struggle to compete more, with that added capacity in the Southeast, because of their freight disadvantage.

I will also make a comment that we have known about this for several years. And, we have been preparing for this in several ways. First and foremost,our One Nucor initiative that we mentioned on many of these calls, is having a great impact on minimizing the added capacity's impact on our business. 53% of Nucor's customers, buy multiple products from Nucor. The One Nucor initiative is a powerful motivator for those customers. I would also point out that Nucor, has an extremely short lead time. We have very efficient supply chains and that provides a competitive advantage, against a approximately 5000-mile supply chain from Brazil. And, we have been in this business -- the sheet business for quite some time, since 1989. And, we have -- and in that time we've worked hard and we have accomplished building deep, customer relationships, which will serve us well as we face this additional capacity.

The only other comment I would make to that, is that as we see with the imports that come in from the around the world. The movement of steel is not really deflected by borders, whether they be States, or they be countries. And, steel all the time moves from North to South, South to North, East to West. And, at the end of the day it's really one market and it is more differentiated by product type than it is by geography.

So, having said that, to answer to some of the concerns that I heard expressed in some of the endless comments earlier and their write-ups. I would like to thank everybody for participating in the call. Our employees for doing a great job, our teammates for sticking together, working together, and getting the job done. For our shareholders, you will continue to be rewarded. We're a long-term strategic company, not a month- to- month quarter- to- quarter company. We will do things to add value to our shareholder returns over the business cycle that will be leading the pack. Thank you for your support. Thank you for your questions and your interest in the Company.

That concludes today's conference. Thank you for your participation.