Nucor Corp (NUE) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation fourth-quarter and year-end 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're based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy.

For more information about the risks and uncertainties relating to these forward-looking statements may be found in the 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 update 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 Mr. Dan DiMicco, Chairman and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Good afternoon. We want to thank you for joining us for our conference call. As always we appreciate your interest in Nucor. With me for today's call are the other members of Nucor's senior management team -- our newly elected President and Chief Operating Officer and board member John Ferriola; Chief Financial Officer Jim Frias; and our other Executive Vice President Jim Darsey over log products; Keith Grass over our raw material scrap operations; Ladd Hall over our flat-roll operations; Ham Lott over our fabricated product divisions; and Joe Stratman in business development and over our beam and plate operations.

First, as usual and most importantly, we want to thank everyone in our team at Nucor and our Harris Steel and David J Joseph operations for working safely and working together in what remains an extremely challenging economic environment. The talent and can-do attitude of the Nucor team are why our company will continue our long history of emerging from downturn stronger than we entered into them. When a robust and sustainable economic recovery inevitably begins, our team's efforts will pay big dividends to all members of the Nucor family, particularly the people who own Nucor, our shareholders. Again, thank you to all of the 20,000 plus men and women of the Nucor team and most importantly continue to work safely. I will now ask our CFO, Jim Frias, to discuss our fourth quarter results and financial position. Following Jim's comments, President and CEO John Ferriola will report on our operations and implementation of our growth initiatives. And then before we take your questions, I will share with you some of my thoughts. Jim.

Thank you, Dan, and good afternoon. With a loss of $0.04 per diluted share, the fourth quarter proved to be the most challenging quarter of 2010 as we predicted. Of particular note, metal margins at our steel mills declined by $27 per ton from third quarter levels. A sharp escalation in scrap prices late this fall out-paced our ability to realize mill price increases in time to benefit the fourth quarter. The margin compression was greatest at our flat-rolled mills. In our mid-December guidance we reported our expectation that the 2010 full year LIFO charge would be lower than the amount estimated at the end of the third quarter. The fourth quarter LIFO charge of $23 million was down from our average quarterly expense of $47 million at the end of the third quarter, but in line with our guidance estimate.

This decline reflected lower year-end units of inventory compared to the third quarter. Our full year 2010 LIPO charge was $164 million compared with a 2009 LIPO credit of $467 million. Nucor incurred a $10 million charge in the fourth quarter related to the termination of the Hlsmelt joint venture in Australia. This charge was not incorporated in the quantitative guidance we gave in mid-December. While the Hlsmelt technology still has promise, the partners have decided that additional capital expenditures would not be a good investment in the current economic environment. For Nucor we believe our best iron making investment opportunities today are in growing our direct reduced iron, or DRI, production capabilities. We will continue to build on both the knowledge gained from our highly successful DRI plant in Trinidad and on our long-term supplies of attractively priced natural gas.

Fourth quarter results also included $39 million of pre-operating and start-up costs. On a quarterly basis there has been some improvement from the peak level of more than $50 million in 2010's first quarter. For the full year 2010 these expenses totaled $175 million. Nucor typically incurs significant pre-operating and start-up expenses during economic downturns. We view these costs as investments to grow our long-term earnings power. We look for these new businesses to be significant profit generators in the years ahead. That has been our company's experience over many previous cycles. For example, Nucor's most recent cyclical peak earnings of almost $6 per share in 2008 carries sizable benefits and contributions from the start-up projects undertaken during the 2001 to 2003 downturn. It goes back to Dan's point that our team expects to continue Nucor's long history of emerging from downturns stronger than we entered them.

Successful execution of this strategy is how we build long-term value for our shareholders. It is our financial strength that allows us to invest in attractive growth opportunities through the economic cycle. At the close of 2010 cash and short-term investments totaled almost $2.5 billion. Not included in that total is an additional $600 million of restricted cash. This restricted cash resulted from our issuance of Gulf opportunity, or go-zone bonds in November. These tax exempt bonds were authorized by the State of Louisiana and will finance a significant portion of the $750 million DRI plant we are building in St. James Parish, Louisiana. Further to Nucor's strong liquidity, our $1.3 billion unsecured revolving credit facility is undrawn and does not mature until November 2012. We have no commercial paper outstanding. Long-term debt totaled $4.3 billion at year-end 2010. That is an increase of $1.2 billion from the beginning of the year.

Nucor's conservative financial practices and strong balance sheet allowed us to be opportunistic in taking advantage of favorable credit market conditions last year to reduce our overall cost of capital. In addition to November's tax exempt bond financing, we issued $600 million of 12-year unsecured notes with a coupon rate of 4.125%. That transaction was an excellent opportunity to prepare for upcoming long-term debt maturities of $650 million in 2012 and $250 million in 2013. Allowing for these dynamics, Moody's has reported that our debt to capital ratio will be viewed on a net debt basis for any cash balances over $1.2 billion. At year end 2010 that net debt to capital ratio was approximately 29%. That calculation excludes restricted cash. Our operating cash flow performance in 2010 highlights another key strength of our business model, cash provided by operating activities was nearly $900 million in 2010.

That more than covered capital spending of $345 million and cash dividends paid of $457 million for the year. In 2011 we will continue to allocate capital to investments that build our long-term earnings power and provide attractive returns to our shareholders. We project 2011 capital spending of approximately $560 million. Included in that total are about $120 million of spending for our Louisiana DRI plant and about $60 million for our natural gas working interest drilling program. As we enter the first quarter, the trend of improving market conditions that began in the fourth quarter has continued. Still no utilization rates have increased. In fact, fourth quarter shipments increased 32% over third quarter levels. We have been able to significantly raise mill selling prices in response to rising raw material costs and some improvement in an end-use demand.

Downstream fabricated construction products markets remain very challenging. Overall we expect a return to profitability in the first quarter. And we believe the positive trend in earnings will continue into the second quarter. We'll 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 to continue building attractive and sustainable long-term value for our shareholders. Our team is working hard and very effectively to capitalize on our company's position of strength. Thank you for your interest in Nucor. Dan.

Thank you, Jim. I will now ask John Ferriola to report on Nucor's operation. John.

Thanks, Dan. Good afternoon. Let me begin by thanking all of our raw materials, steel making, and steel products teammates for your outstanding commitment to working safely and taking care of Nucor's customers. We are extremely proud of the work that you are doing in the tough economic times that have been with us for more than two years. Thank you and please keep it going. My report can be summarized in this one sentence. For Nucor downturns create opportunities. Opportunities for profitable growth. Here are some examples of how we are coming out of the economic downturn stronger than we entered it. Nucor's plate and structural mills are doing an excellent job of growing our market during the current downturn. Highlighting the gains, these mills have shipped a total of 240,000-tons of products that were not even offered in our mix two years ago. Even better, their work continues.

Our Hertford County, North Carolina, plate mill's new heat treat line was commissioned in the fourth quarter of 2010 and it is quickly ramping up to its full capacity of 125,000-tons per year. The product coming off of this line is everything we hoped it would be, great shape, great surface, and right on spec. This investment allows Hertford County to grow into higher margin products, where higher strength, abrasion resistance, and greater toughness are required. Our Tuscaloosa, Alabama, plate mill team has continued to improve our recently added temper line, so that it is now capable of running 1 inch thick plate. This will allow us to sell as much as 250,000-tons per year of higher margin, temper passed cut to length plate rather than commodity hot-rolled coil. Just as exciting, the Tuscaloosa team has used their ingenuity and virtually no capital to start producing discreet plate off the end of the hot mill. We expect to be able to produce as much as 125,000-tons per year of this higher valued, higher margin discreet plate at Tuscaloosa due to these improvements.

Although these projects at Hertford County and Tuscaloosa will not increase our total plate capacity, they will have the combined effect of moving more than 500,000 annual tons of plate output from commodity grades to higher value grades that generate higher margins per ton. That of course means higher earnings power in the future from our plate mills. And we will not stop there in expanding our portfolio of margin enhanced plate products to better serve our customers and generate greater profits for our shareholders. We recently approved the capital to install a vacuum degasser at Hertford County. Commissioning is expected in the first quarter of 2013. This will further broaden our product mix to include armour plate and certain alloyed plate grades. Our bar mill group is also growing Nucor's long-term earnings power with a number of projects that have started up during the current downturn. These include our new SBQ mill in Memphis and our wire rod and coiled rebar rolling mill in Arizona.

The Memphis mill more than doubles our capacity to serve the SBQ markets, while also expanding our product range into the highly attractive three inch and 10-inch larger diameter segment. Memphis continues to gain product qualifications and production volumes for OEMs in the construction equipment, automotive, heavy truck, farm equipment, and energy markets. In December our Memphis team set a record for shipments of rolled finished goods. With the addition of our low cost rolling mill in Arizona, Nucor can now serve all regions of the country with our wire rod products. Our Nucor steel Kingman team also set a shipment record in December and recently expanded from a single shift to double shift operation. Reflecting our culture's drive for continual improvement and profitable growth, there is more to come.

For example, Nucor steel Nebraska will be adding a downstream processing line that provides new growth opportunities in even higher quality SBQ products than they currently offer. Additionally, our bar mills in Texas, Utah, and South Carolina, along with our Nucor model beam mill have established NQA1 quality systems that will allow them to supply steel for nuclear power plant construction projects. Nucor's sheet mill group is also continuing to move up the value chain with margin enhanced products that grow long-term earnings power. Building our Nucor steel Berkeley success with selling value-added vacuum to gas steel, we will be installing a second sheet mill vacuum degasser at our Hickman, Arkansas, facility. As a western most flat-rolled facility in the United States with a vacuum degasser, Nucor Steel Arkansas will be strategically positioned to take advantage of the growing markets to the west, southwest, and in Mexico.

Already over 20% of all degas steels currently sold in the US are purchased by OEMs located in states adjacent to Arkansas. In addition to the opportunities to expand our current market share with existing customers in automotive, HVAC, and oil country tubular goods, the Hickman degasser will enable us to develop new customers in target markets, such as mode [alaminations], garage doors, and lawn and garden. We expect commissioning to occur in the fourth quarter of 2012. I will close my report with our thoughts on current market conditions. The market environment for our fabricated construction products business continues to be extremely challenged and it has been for some time. We have been working throughout 2010 to raise prices in each of the industries in which we participate with varying degrees of success. In addition to seeing some measured success in achieving price increases, we have seen our market share increase strongly in several of our downstream businesses.

In our Vulcraft Verco group we achieved significant market share increases in both joists and deck in 2010. In our metal buildings group we obtained an even greater market share increase. We also signed up a large number of new builders. Builders are the distribution chain in that industry. And we bought fabrication, we purchased several small fabricators in the southeast and another one in Texas. We want to thank all of our teammates in those businesses for their excellent work in making the best of a very difficult environment. Despite the challenging times they are unrelenting in demonstrating the Nucor can-do spirit by working safely, working hard, and staying focused on continuous improvement. On the steel making side we're encouraged by recent signs of some improvement in wheel demand. However, it is difficult to determine how much of the overall increase in apparent demand is driven by steel buyers reacting to increasing raw material and steel prices. Fortunately, service center inventories through December remain at relatively low levels. It is our belief that real demand will continue to grow gradually throughout 2011. The December AIA, Architecture Building Index, suggests nonresidential construction activity may start growing again in late 2011.

We view 2011 with cautious optimism and optimism anchored by our ongoing view that the US economy is likely to experience a gradual recovery due to structural imbalances that must be addressed by our elected officials. In addition, we are keeping more than a watchful eye on imports that continue to have too great a share of the US market at a time when our low cost domestic industry is still running at only 70% of capacity. We are focused on taking pre-emptive trade action as a more supportive administration and Congress has shown a willingness to do. But whatever direction the economy takes over the short-term, our team is primed and ready to utilize Nucor's position of strength and our extremely flexible business model to continue to generate long-term earnings for our shareholders. Thank you for your interest in Nucor. Dan.

Thank you, John. There is one loud and clear message coming from these reports from Jim and John. The Nucor team is building long-term value for our shareholders and we have had a successful record that extends over nearly five decades of doing just that. It is worthwhile to look at the long-term value we have generated over the last cycle. From the cyclical trough when our stock price reached in September 2000 when a new executive team started, to 2010's closing price, our long-term shareholders enjoyed a more than 7.3 times increase in the value of their investment including dividends. 7.3 times. Speaking of dividends, in December our board increased our regular quarterly cash dividend for the 38th consecutive year. And over the period from 2000 to 2010, Nucor's base dividend has increased approximately ten-fold.

These returns to our shareholders through growth in our stock price and paying cash dividends did not just happen by accident or by riding a cyclical up turn. They were achieved by building sustainable business that has generated the highest returns on capital in the North American steel industry over that 2000 to 2010 time span and that reflect our team's unrelenting focus of being effective stewards of our shareholders' valuable capital. And our long-term focus and approach to managing our business has been constant through this most recent severe recession. Nucor's continued to make substantial investments that position us for new higher highs and cyclical earnings power once the sustainable economic recovery arrives. That is exactly what we mean when we say growing stronger during downturns.

From 2007 through our expected 2011 capital spending plans, we have invested more than $6 billion of capital, including both capital expenditures and acquisitions. That is a lot of capital that Nucor shareholders will get paid for through attractive returns as we move into the next up cycle. Our team is very optimistic about Nucor's prospects for rewarding our shareholders with attractive long-term returns, just like we have been doing. Why? Because as a team we are driven to settle for nothing less. Finally, I will close with some very exciting news received just today. We have received the final permit for the two 2.5 million-ton DRI plants in Louisiana. These facilities will product high quality DRI to use at our SBQ plate and sheet metals.

Initially we will build one DRI plant with plans to expand to the second facility shortly thereafter. These plants will enable us to continue to allow for greater self-sufficiency, controlling more of our own raw materials, along with assuring us a high quality raw material feed. We anticipate starting construction immediately and we have placed orders for the major equipment items already with our suppliers. We have an anticipated start up of mid-2013. The Nucor team is excited to be part of the St. James Parish community in Louisiana and bringing in the type of high-paying jobs that will help make us an integral part of this community. We appreciate all of the help and support that Governor Bobby Jindal and all the other state and local agencies have given to us to help this process come to fruition. Once again, thank you for your interest in Nucor and we will now be happy to take your questions.

Timna Tanners with UBS.

Why the follow-up on understanding that scrap price movement. So, scrap price has been one of the primary reasons you've talked about higher steel prices in your announcements to customers. Just wondering can you remind us about the timing of when you see higher scrap prices? You only saw 1% increase into the fourth quarter, so how does the revenue recognition work there again, please?

Well, Timna -- .

Are you talking about revenue recognition for our scrap business?

Sorry, when does the cost hit your P&L when you pay the higher price for scrap is what I am asking.

Starts hitting the P&L heavily as we move through the end of December into the first quarter.

Okay. So, you had a 1% increase third quarter to fourth quarter, so I am just trying to understand -- .

Here is where you are missing the point.

Yes?

You are talking about usage versus purchase price.

Right.

Okay? So when you say we only saw a 1% increase in usage, right, we had already seen significant increases in the price that we were paying. And it will just take it over the several month period, it will take that period of time for all the higher priced scrap purchases to work through into our actual usage numbers. And in addition we worked very hard to get pricing in our steel products up to keep as close a pace as we could to the scrap movement so our raw material price increases will coincide with finished steel price increases, substantial ones on both parts, and both those moves should allow our margins to expand from where they have been reported in the fourth quarter.

Exact timing of those things, it just it is not feasible to pinpoint those for you. As we stated, you will see that occur throughout the first quarter and there may be a month, maybe two lag between the peak and pricing achieved on steel products, probably closer to a month, versus the peak in raw material pricing. And as we get into the second quarter, they should be in lock step and we're foreseeing a fairly stable pricing environment for both raw materials and steel prices as we move through the second quarter.

Okay. That's helpful. It sounds like it is a little tricky for us to figure out from outside, so that's a little more information. And then just if I could just any other information you have, of course, being a big player in the construction market, hearing some signs that things are starting to stabilize and wanted to get your take on that, what's causing maybe your downstream to perform a little better if that ties in?

Well, first off, 2010 was actually the year that we saw the bottom occur and the downstream construction markets and it wasn't 2009 it was 2010. And, yes, we do believe we have reached the bottom and we are seeing some positive demand signs, but they're not rapid and they're not large. We have seen some improvements in the architectural index. One of the faults of that index is that it includes all of the architectural activity, whether it is domestic or foreign. So, you have to be very careful judging the actual uptick in non-res and construction. Just from the AIA numbers you have to take into account more factors than that, but indeed we have seen things improve. We have come off the bottom, but it is going to be a slow, gradual climb. Because, there is really nothing going on out there that's going to change things in the dramatic fashion in the first quarter. But we do expect to see steady improvement throughout the year and we do expect to see the ability to maintain strong pricing to cover our raw material costs throughout the year.

Okay. Thanks a lot.

Brian Yu with Citi.

Dan, my question relates to the structural business. So when we look at the minority interest charge, the profit sharing suggests that your overall profits are very similar to 2004 and 2005 levels, but back then shipments were a lot higher than it is today. First, can you discuss your first half outlook on structural. I know you commented a little bit earlier in terms of demand, order entry rates and then anything else you could share with us about what's changed in the structural business that's allowing this whole process relative to shipments?

Well, my comments with respect to the structural beam business and the operations at the mills that produce those products aren't any different than what I just shared with Timna in the answer to her question. With respect to what's changed, John Ferriola specifically addressed the fact that our market, the products that we are marketing today and the higher value-added mix of those products has had a significant positive impact on the earnings. So while we are producing less tons than back in '04, we are producing more higher margin tons and that has allowed us to maintain a very good profitability. John, do you have any other comments you want to add?

The only other comment I would make is you asked, Brian, about how we see it going forward. We see the structural market very stable going forward and we would expect the first half of 2011 to be similar to our performance in 2010. Again, to Dan's point with the higher margin profits, although the volumes will be the same, we expect to see higher margins from that business.

Okay. Thank you.

Saul Tharani with Goldman Sachs.

You used to have a significant portion of contract business on the flat-rolled side. I just want to understand if you still do that and are you realizing similar prices in those and what's the percentage of contract are you have on right now?

John, do you want to address that?

Our percentage of contract for the last half of 2010 was about 35% and as we go forward into 2011, first half of 2011, we're expecting it to be a little bit lower. It will be about 30% during the first half of 2011.

And these contracts, the price is work off the surcharge (inaudible) for BAM, is that the way it works?

We have two types. Actually we have three types. Some are scrap rebate programs where we take scrap in and value it against the scrap used to produce the product that we then ship to the customer. We have some that are scrap surcharge based and we have some that are CRU based.

Okay. So the realization of the prices on that is even a little more delayed than the your method. The first quarter prices will be more reflective of what's, if it is a CIU index what happened in the fourth quarter for those?

On the scrap rebate program and on the contracts that are tied to scrap surcharges, we see it immediately. On the CIU there is usually a delay of about a month before we realize the price increases that would correspond to spot pricing.

And my second question is about the Arizona. John, you mentioned that you have increased, is it two shifts. First, I want to understand the product mix. Is any rebar in there? And second, is that increase in the shift on the volume is it something changing in the West Coast industry in terms of demand or is this you gaining market share from some other people?

Well, it is first of all in terms of product, it is wire rod and it is coiled rebar. And in terms of whether we see the market increasing or whether we're gaining market share, I would say our team is doing a great job of gaining market share in our region.

Great. Thank you very much.

Sal, one further clarification. We move in and out of the contract business and the percentages that we have contract versus spot. A lot of it has to do with just the dynamics in the economy and how fast things are changing. And there have been times when we have had 70% contract business and times we have been at 25% and we usually determine how much of that we're doing by the expected volatility that we see going forward. And right now the best mix for us is to maintain something at the lower end of our total production in the contract market.

Thank you, Dan. This is very helpful.

Mark Parr with KeyBanc Capital Markets .

Had a just a question and I do appreciate all the color that you have given. It is very helpful. I was curious about the Memphis operation, which you, I think it is either you or John, specifically mentioned. What's the utilization of that facility right now?

That facility is continuing to ramp up. The speed at which the ramp up has gone is directly related to the length of time it takes to get approved the various products that mill is specializing in, working with our customers, the CAT tractor and John Deere and energy business elsewhere. Currently we're running at, John?

We're currently running at about 60% of capacity and now I would just build upon what you said and add that the Memphis team has done a great job of gaining qualifications from all of those OEMs. It is a long difficult process and I can tell you that our team there is doing a great job of getting qualified in more and more, both -- more and more OEMs and in more and more market segments every day.

This is an operation that really expands the, call it, the large end of your SBQ business in a very meaningful way, then, over the next couple years, right?

It absolutely does. When you look at it, working side by side with our Nebraska plant, we'll be able to supply SBQ bars from about one-quarter inch up to 10-inches and that's a great span of products to be able to offer to the market.

Of course we're also supplying forging quality semi-finished to the forging industry in very large sizes of blooms and rounds. What's the largest one we're making there now? About 13-inch square.

Round.

Round. And the other thing to keep in mind there is the quality is so, so important. It takes so long to get approved, but once you do get approved you tend to have a very solid customer base that continues to grow with you into new and more products. One of the most satisfying things that I've heard most recently about the quality, being a former metallurgist, is how our customers are basically coming to us saying, your quality is as good as the quality we're seeing out of the Japanese and other foreign producers, which has normally been regarded as the tops in quality in this area. So, it is very satisfying to see that our team is really focused on making the quality products that the customers are getting and opening their eyes wide to the fact that we can do things they didn't really think could get done in the domestic market here. So, it is a big opportunity for us to continue to grow our customer base in a positive way.

Okay.

And I might add that -- excuse me, I might add that it is in a great location. It is located very closely to two of our potentially large customers, Whirlpool and Electrolux, that are both located right there in eastern Tennessee.

It is just that the mill just kind of sat there for so long, it is just really nice to see it under good stewardship now. Congratulations on that progress. I have one other question if I could. I was wondering if you could give us an update on scrap. Have you seen, in the last week-and-a-half have you seen the prime end of the scrap market be stable? Has it strengthened a little bit, has it weakened a little bit and do you think the weather that we're getting on the East Coast could have an impact on the February number as it unfolds here over the next couple of weeks?

Let me put it to you this way. Nobody in this business, whether on the scrap side, the analyst side or the steel producer user side predicted what was going to happen with scrap over the last couple of months. And so being that we have such a stellar track record, we're going to refrain from predicting what we think is going to happen to scrap over the next couple of months.

John, what I always said, the key to good forecasting is to forecast often. ( laughter ).

What I will say is that there has been a tremendous run up in scrap prices and we do believe that we will see a more stable environment for scrap pricing going forward. Not that it won't have moves up and down, but in general it will be much more stable.

And an elevated level.

And it will be at these elevated levels and a lot of our scrap market behavior is dictated by a lot of exporting that's been growing and growing year after year, and while they're not necessarily real consistent about when they come to the market and when they go away from the market, so that's added element of volatility over the past year as prices have gone up. But again, we do see more stable environment going forward and whether it goes up $20 or down $20 or what have you over the next couple of months, we have seen the lion's share, we believe, of the volatility, although it is still at risk for that in the future. But right now we just predict a more stable environment going forward.

Okay. Thanks for that color and good luck on the first quarter. Congratulations.

Thank you, Mark.

David Gagliano with Credit Suisse.

I just have a couple of quick number questions. The $560 million CapEx in 2011, I was wondering if you could just divide that up by major project and how much of that is sustaining as well? That's the first question.

There is a large chunk of that that will be in the DRI project in Louisiana. I forget the actual number.

As we said 120.

About $120 million of that plus or minus. It could be more than that if we -- now that we have the permit in hand and are going to move forward aggressively on the project. A lot will depend on equipment deliveries and what have you.

$60 million for drilling on the working interest program, Dan. There will be $60 million related to our working interest drilling program for gas supply.

Okay.

And those are the two biggest items. I don't think we have the details anything beyond that at our finger tips.

John went through a litany of new projects from vacuum degassers to all of the items that he mentioned throughout the various product groups that will all add to it, but those will be the two most significant ones in terms of dollar amount. The rest are spread over the entire Corporation, anywhere from $0.5 million to $20 million.

Okay. How should we think about sustaining CapEx within that $560 million?

I think you have to think about the DRI project as being a -- it is going to increase in the following year and then it will fall off after 2012. And then I think you can expect the working interest drilling to be at a steady state going forward, so I think the rest of the CapEx will be fairly steady from that going forward.

Okay. Fair enough. And then just the $175 million of start-up costs in 2010, how should we be thinking about that number for 2011, there is usual -- obviously there is going to be a bit more on the start-up cost line. Again, in 2011 -- .

Initially for the first quarter we expect it to go down to about $35 million. We really haven't taken a view beyond that in detail, but our view is it is going to go from $39 million in the fourth quarter to somewhere in the $35 million range in the first quarter.

Will it eventually go to zero or is this -- ?

Never has. We keep finding new things to invest in that have start-up costs associated with them.

David, typically in these down periods Nucor has invested heavily in its operations using our strong balance sheet and preparing for the next up turn. If you go back and listen to all the things that John mentioned that we were doing and plan on doing, you can get a sense for that continued investment and the future in our operations and new products, new markets, and so that's going to continue. And as we're dropping projects off or adding new projects, so I would expect that you're going to see a continued level of new projects and start-up costs for those new projects as we go through the year. Exactly where we end up I don't know, but they will continue at a pretty good pace.

Okay. Thanks.

Mark Liinamaa with Morgan Stanley.

Just on the pig iron facility, could you revisit a little bit here your iron ore and gas arrangements and maybe talk a little about expected cash cost to production there once it is all done?

First, the project that we have approved now by the state is direct reduced iron. It is not pig iron.

Sorry. I apologize, yes.

That's okay, that's okay. And you're right, the two variables that go into that are iron ore and natural gas. Natural gas we mentioned in our last call we have a very good arrangement that keeps natural gas prices at very competitive levels comparable to what we've seen over the last twelve months going forward for 20 plus years. We're not going to get into the actual numbers, but I gave you a frame of reference there as to where pricing has been the last twelve months on natural gas. And as far as iron ore goes, we stated that up to this point in time it will be spot market, purchases in the open market like we do at our current DRI facility in Trinidad.

And would it likely be US sourced?

Well, currently the Trinidad operations are mostly outside of the US. Canada is the closest we get to being in the US and the rest comes from pretty much Brazil and we anticipate a similar type of mix going forward for the second and third facilities.

And then just quickly, you talked a little bit about keeping a close eye on imports. Can you give any update on what you're seeing on that front? We heard mostly that imports haven't been a problem.

Not a problem, has to be put in quotations. The industry has operated at average operating rate of 70% last year and imports were up some 40% to 50%. That makes no sense whatsoever considering the how cost competitive we are in the marketplace. There have been trade cases filed because of some of that and we are looking and working as we speak filing some proactive cases. The amount of imports coming in are way too high and you don't see that anywhere else in the world to that level. And the cost for making steel around the world has gone up as fast if not faster than in our domestic market for many of the domestic producers. So we don't believe we're going to see a massive increase over the levels we have seen, but the levels we have seen are still too high.

Thanks, guys.

Sal.

Dan, I just wanted to send the Louisiana project CapEx, especially you said it is going to be at $3 billion if you build both, once the two phases are completed. So my guess would be that the first phase will be slightly higher because you are going to built more infrastructure. If I assume $1.8 billion, you have spent $50 million in the first, in 2010, $150 million in 2011, so that's $200 million, that leaves $1.6 billion. Should we assume that 2012 will have the brunt of it, close to $1 billion or more for this project?

Sal, I think you might be, this is Jim. I think you might be confused with the original scale of spending that was associated with the initial project, which is a blast furnace.

Which is actually closer to $6 billion in the total three phases of the project.

And the number that's in the news release, which I don't know if our news release is out yet. It is out. Regarding the St. James project refers to $3 billion in spending and that includes some of the follow-on spending beyond the two DRI plants as well.

What will be the cost of each phase, I mean first phase?

The first phase we've said -- the first phase is really the only one we have priced out, it's $750 million.

Okay. (multiple speakers)Go ahead, I am sorry.

Sal, you answered your question. You can expect that the second phase, the second DRI plant will go in at a lower cost than the $750 million because the handling equipment and the port facility that will handle both of those operations will be put in there for the first operation. And the original permits that we have in hand and that has been modified for the first phase now, to be the two DRI plants, the original permit covered three phases and currently the second phase is still planned to be a blast furnace, coke oven, operation, and the third phase to be finishing and rolling, maybe steel making operations dependent upon how the market develops over the next several years.

And so the total investment could be significantly greater than $3 billion and you have seen numbers in the past that were size $6 billion, but those numbers included doing a blast furnace and coke ovens and associated support equipment, power plants for the first phase being blast furnace as opposed to now being two DRI plants. So, there are a lot of numbers that are out there. The latest number that we have in the press release covers predominantly the two DRI plants and potentially a palletizing operation at that facility and all the material handling equipment.

The second phase will depend on what the first phase runs or you can start that before the first phase is finished?

One of the reasons we went to DRI instead of the blast furnace, coke oven route is because of the uncertainty over what governments in the world and our government are going to do with respect to carbons. And the amount of carbon given off in a DRI plant is significantly less than a blast furnace, coke oven route. So, as we see how this develops with respect to carbon issues in Washington and around the world, that will have a lot to do with whether or not we do a blast furnace, coke oven in the second phase or we do more DRI facilities.

Okay . And lastly, the building project or drilling joint venture CapEx, will that be recurrent or is that what you're going to do for in 2012 with $60

It will increase probably somewhat from 2011 into 2012. It will probably level off in 2012 at that higher level.

Okay, great. Thank you very much.

You are welcome.

Michelle Appelbaum with Steel Market Intelligence.

You have a huge amount of non-res and construction exposure in your business mix and you're saying that that remains weak and that is the weakest piece that we're seeing, but you seem to be having as robust a book of business as anyone else. Could you explain how that works?

Well, first of all, we're more diversified into flat products than all you analysts seem to focus on or at least most of you.

Thanks.

We have worked hard to educate, not you personally, but the community in general that out of our 25 million-tons of capacity we have 10 million-tons of sheet. We have well over 3 million-tons, or around 3 million-tons of plate, but when you roll in our downstream businesses, which are predominantly construction related plus the bar beam segments of our business, then we definitely are more heavily weighted towards that, but not as heavy as many people think. And so, at the end of the day we have a more balanced product mix than people normally anticipate. John, you want to comment?

Yes, I would just add that in the products that you mentioned, Dan, in plate and in sheet, we have also worked and succeeded over the last several years in moving up the value chain and moving more into OEM applications and away from the nonresidential construction. For example, we talked a lot about appliance and automotive and those other agricultural applications for our plate business, all of which remain very strong.

We're also the largest coal finished bar producer in the country and so we have product mixes that go beyond, even in the long products that is go beyond just the construction. But at the end of the day, you can talk to any of the CEOs and the straight skinny on that is they're all dependent on the construction segment and even in the sheet product mix there is a lot of sheet that goes into construction or it doesn't go into construction depending upon the market. So, just being in appliances and what have you, lawn mowers, refrigerators, air conditioning systems, if there is no construction going on, all the sheet that goes into those markets isn't doing very well either, so -- .

Can I ask you a specific related? Sometimes I have seen in the past when you see a pickup in things like automotive, what happens is that a lot of the, particularly the midwestern mills up by May, a lot of that product leads the spot market where you guys play and goes into those OEMs which creates kind of a vacuum of supply sometimes in the past and some of that product that will be sold to the OEMs doesn't have pricing flexibility, so that you kind of become, the spot market sort of becomes the tail wagging the dog. Those guys leave the spot market and there is fewer tons. Are you seeing that this cycle?

Some of that goes on, but we've also moved more heavily into the OEM business ourselves and so I am not so sure that it is that big of issue right now.

Okay. So your mix change is a bigger real right now?

Yes.

Okay. Can I ask another question?

Sure.

I get asked this question like, I don't know how many, ten times a day where people throw the 72% operating rate at me and they say can you just explain 50% price increases with the 72% operating rate and I have got some theories, but I would like to hear yours.

Well, it is really not very scientific and difficult to understand. Raw material costs of all kinds are going through the roof and principle ones, obviously, that everybody is aware of are iron ore, coking coal and scrap. But that's not all of it. Energy costs and what have you have gone up. None of the steel industry in this country for sure is making much of any money and if you look around the world, even in places where things are going well, I wouldn't call the companies that are involved wildly profitable. So, you have a situation where raw material costs are going up and even though utilization rates are fairly low, you still have to cover your costs otherwise the losses become extreme. And so the industries both here and around the world been working to get their prices up, so you take a look at priest increases, they're currently all around the world, not just here. They may have occurred a little faster here, but the rest of them are catching up. John, do you have any comments.

No, I would just agree with what you said there, Dan. When you look at world pricing, it is raising rapidly and following what we're seeing here in the United States.

Okay. Can I ask one more?

Okay, one more.

On the scrap increase, so there was just kind of tiny $2 a ton scrap price increase in the fourth quarter, which I think I didn't really and maybe I just zoned and missed some of your answer. But if you are on LIFO, last in, first out, right, in your steel mills primarily, almost exclusively, then the highest price scrap is already -- is what goes through, right? And so I was just wondering, I know quarter to quarter your mix of different types of scrap and then your mix of DRI and all this other stuff that and pig iron stuff that you buy, it varies a lot. So, can we really say that the fourth quarter scrap cost didn't rise, because we might not have enough information to know if it is apples-to-apples?

Michelle, I think you're confusing a few things. We record the LIFO adjustment here in Charlotte separate of our scrap accounting. Certainly scrap prices affect the LIFO calculation, but when we say scrap cost used was X, that was scrap cost used on a FIFO basis. So the numbers that we reported are the scrap cost used on a FIFO basis. Now, the thing that John emphasized when I think he was asked this question earlier is that there was a timing issue that scrap prices increased, or maybe Dan talked about this, over the quarter, we had purchases of scrap that were higher than the scrap we used. A lot of the inventory that we were receiving in December in new scrap deliveries didn't get into the scrap that we used yet. It will be part of our January cost structure. So there is a little bit of a lag effect between when prices rise in the marketplace and when they hit us in our usage numbers, but we try and get the pricing matched in a way that we're neutral and as we said, we had a squeeze this time. Prices went down initially in the market, then they started recovering, but scrap ended up overall going up.

so, what you 're -- .

That's scrap usage.

Yes. Scrap parts.

Not usage

Would your LIFO charge have reconciled that 359 a ton to a more realistic number so that there isn't a massive uptick coming in the first quarter or how would that work?

No, LIFO is not going to -- there is so much that goes into LIFO. You can't just tie -- certainly scrap is the biggest single driver, but you can't make direct correlations like that, Michelle. You should think of them as two separate things.

There's the inventory levels of other than which includes inventory of scrap, work in process, finished goods inventory, the movements in the actual tons in inventory also have a major impact on the LIFO calculation. It is not just the price of scrap. It is the price of what's gone through the entire system and where it sits. And so it is not a simple thing to be able to say, oh, LIFO did this, scrap did that so LIFO (inaudible) that should cover what's going on in scrap. At the end of the day what you and the analysts and investment community should be focusing on is that scrap prices have gone up, steel prices have gone up very strongly, and what we're saying to you about first quarter and second quarter of the year is that we will be getting to the point during the quarter that the steel pricing is covering the scrap costs, even the increases that you haven't quote, unquote seen in our usage numbers yet.

Those will be going up in lock step and we see expanding margins to go through the first quarter into the second quarter and that's why we're forecasting a profitable first quarter and continued strength and profits moving into the second quarter. So it is not like I heard you say I think some other people may have said it earlier and I didn't comment on it is there is going to be this huge giant disparity between steel pricing and scrap pricing in the first quarter that's going to hit us. There is going to be increased usage costs, but there will also be increased selling prices.

By more than the difference.Thank you.

You're welcome.

Tony Rizzuto with Dahlman Rose.

You obviously have a lot of pent-up earnings power and appreciate to hear all the efforts on upgrading your mix, et cetera. Haven't heard a whole lot specifically about Nucor Yamato, I was wondering if you could maybe share with us what your operating rate was for all of 2010 there and where you exited the year and if you can give us any visibility in the first half maybe directionally for operating rates, so that would be helpful. And then my second question would be do you guys have any plans to maybe breakout and give us a little bit better transparency on your recycling operations, your metallics operations, because it would be very help, I think, to helping us get a better understanding of what you guys are all about?

Appreciate your questions. We have no plans to breakout the raw material segments any different than they are today. The good news is they are just the Company is continues to be profitable and profitable at a rate that more than justifies the metrics we had for our IRR's on the acquisition. And as far as Nucor Yamato , we don't normally breakout individual mills and that's what Nucor Yamato would be. All our beam business is not at Nucor Yamato it was at Berkley as well. And so I am not going to give you a utilization rate for that facility other than to say that as was pointed out earlier, the profitability has been strong, surprisingly so because of the additional value-added products that bring us bigger margins similar to where we saw things earlier in the middle part of this decade. But you can -- the overall loan products business has been in the 50% to 60% range,

Right.

And so we'll leave our comments about the utilization to fall within that range.

Okay, Dan, fair enough. And just if I may have one just quick follow-up. With respect to looking at trying to gauge trends and leading indicators, obviously aside from the AIA, the Architectural Billings Index, and looking at the weekly utilization rates and talking to people in the construction industry, things like that, what other indicators should we be looking at that you guys really focus on? Obviously, you have got a lot of downstream business with fabrication. Is there anything else we should be looking at to gauge a leading indicator or others that would be helpful to helping us understand when that turn is going to take place?

Well, you're not getting a rapid response. I will let someone else if they feel like they have something meaningful to add on that that's not out in left field. John, you have anything you want to add?

You mentioned the publications that we look at that you look at. We look at the same ones. McGraw Hill is out there. Those are really all we have to go on.

Yes.

And Tony, listen, this is not rocket science. It is pretty straight forward. I think sometimes people try and find out the magic formula for predicting what's going on. Where is the GDP growth rate in the economy? If it is not above 3%, steel demand is not growing. Okay? You know what's going on in the residential housing which impacts the nonresidential. You know how bad things are there. We watch the housing starts and what have you. All of -- there is a million things that we look at.

But at the end of the day you know how well the economy is doing and if we don't see economic growth north of 3%, then things are going to grow slowly for steel consumption, whether it is in manufactured goods or it is in construction products, construction related products and the best gauge that we can give you is listen to what we're telling you because we have been very conservative and pretty spot on as to what is really going on from time to time to time and we're saying to you today that, listen, things are getting better, but they're getting better slowly and there is -- if anybody is providing contrary information to that, then I don't think they're giving you accurate information. And the main things we look at are the things you mentioned. Okay? We can't predict what's going on go on with scrap. Our track record there is poor, even though we have a major scrap processing and brokerage Company within the Company, scrap is not the same environment, doesn't have the same environment today as it had 20 years ago. Scrap moved $10, $15, $20 a year, it was a big move. All right?

That's not the case for the last seven years. It is because of global demand, has become much more volatile. If the predicting when that is going to happen is still difficult to do despite our best efforts, because we don't control really what goes on in these markets in the global world. It is much more complicated than that. But, at the end of the day if you don't see GDP growing over 3%, it is going to be slow growth for the steel industry.

Dan, I appreciate those thoughts.

Dave Martin with Deutsche Bank.

The first was on pig iron. A couple months ago I believe Valley had a [cord allen] outage, which I think continues to persist down in Brazil. I am just curious whether you've had any delays in getting pig iron?

No. We haven't had any problems getting pig iron. Of course, we're using less of it today than in the past, because we're using a good bit of our, a good mix of DRI in our charges.

Okay. And then secondly I just wanted to ask about the sheet mills. I guess given your overall market commentary we can conclude you're operating at pretty close to full capacity. I am just curious are you still selling for February or are you into March or April at this point?

I will handle that one, Dan. We are not selling for February. We have closed February and we have just opened March.

He just opened March, which means the orders taken for the month of March will be at the highest pricing levels that out there in the marketplace.

Okay, that's fair. Thank you.

Brian Yu with City.

I think in the prepared remarks you mentioned that you are trying to raise prices in downstream and seeing varying degrees of success. I am wondering what you're hearing from your customers on the sheet side and then also for your, specifically for your steel products business any light at the end of the tunnel for when that segment might be able to breakeven?

The answer to the last question is no, but if we continue improving as we go forward, but it is just going to be slow. There is not going to be some massive inflection point that occurs because the demand is very low in construction and construction related products and in the marketplace. What was the first part of your question.

Just along the same lines of steel price increases, what kind of feedback you're getting from customers on their ability to pass on these rapidly rising costs?

They're passing them along. They have no choice. This is not the first time that the market in this country and around the world has been faced with these rapidly rising prices due to raw materials and this took place in '03 and '04 and continued through the last peak up and down from quarter to quarter, year to year, and so people are pretty well adjusted to the fact that they've got to get these prices passed through to their end-users in the quickest way possible and they do a pretty good job of it.

Okay. Thank you.

Thank you.

And that does conclude our question and answer session. I will turn it back over to our speakers for any closing or additional remarks.

I want to thank everybody for the questions and the interest in our company. And once again, I want to state to our shareholders and employees, of course, the best years are ahead of us. Things don't always go as fast as you'd like, but as long as you're doing the right things to build for a profitable future, you will have a good solid future and we look forward to the next up turn providing the kind of earnings growth that we saw from the last downturn to up turn, '01, '02 and '03 to '04 through '08 and in a bigger way than it took place back then. Thank you to all of our teammates. Stay focused. Keep working together. Keep working on getting better. Thank you.

Ladies and gentlemen, that does conclude our conference call for today. Again, thank you for your participation.