Steel Dynamics Inc (STLD) 2003 Q1 法說會逐字稿

Please standby.

Good day everyone and welcome to today's Steel Dynamics first quarter earnings conference call.

As a reminder today's conference is being recorded.

Joining us today are Mr. Keith Busse, President and Chief Executive Officer, Mr. Tracy Shellabarger, Chief Financial Officer, Mr. Mark Millett, Vice President, Mr. Richard Teets, Vice President, Mr. John Nolan, Vice President of Sales and Marketing, and Mr. Fred Warner Investor Relations Manager.

For opening remarks, I will now turn call over to Mr. Fred Warner.

Please go ahead sir.

Thank you

.

Good morning and thank your for joining us for this April 22, 2003, conference call covering Steel Dynamics first quarter 2003 financial and operating results.

Today's discussion may contain forward-looking statements.

Actual future events and results may differ materially from the planned projections or statements made today.

You may obtain additional information concerning factors and risks that could cause actual results to differ materially from forward-looking statements made today by referring to our most recent annual report on form 10-K as filed with the SEC.

Specifically, please refer to those sections in the 10-K regarding forward-looking statements and risk factors.

The 10-K annual report and other reports we file with the SEC from time to time are publicly available on the SEC web site www.sec.gov.

Also our SEC filings are now available on our Steel Dynamics web site.

Our recently filed Form10-K for 2002 is currently posted there in readable pdf format and could be found under the investor information tab.

Our 10-Qs and 8-Ks will also be posted on our web site.

And now, here is our Steel Dynamics, President and Chief Executive Officer, Keith Busse.

Good morning, ladies and gentleman, it is our pleasure to be with you this morning and be able to report on our first quarter results.

I imagine most of you folks have those results in front of you.

By comparison to the first quarter of the previous year, SDI's results were absolutely excellent.

But, I think the real comparison we are all interested in is, how does, what's the current market climate and what can we expect in the future, and so I am going to try and talk little bit more about current market climate and the future that I am comparing first quarter results which are very positive to first quarter of 2002, but just a brief comment as you know in 2002, I guess that was what we call the bottom of the late 2000, early 2001 bottoming of the market if you will for flat rolled steels.

The 2001 was the worst business climate that SDI had experienced as a young company which began production in the year 1996.

So 2001 was the worst year we had enjoyed during that timeframe and our first quarter results in early 2002 were reflective of the carryover of the bad business climate from 2001.

We are in 4 cents a share, as you know in this year's first quarter, we are in 33 cents a share, but we are in 67 cents a share in the 3rd Quarter of this past year and so this is a fairly sizable drop in earnings when you compare to our third and fourth quarter earnings, which was the peak at the market place.

I would tell everyone that I believe the

as we speak the bottom of this market.

I know all of this selling into sheet steel market place kept at to achieve $30 per ton price increase early in the year and I would tell you we did achieve the $30 ton price increase from certain customers of the mills early in the quarter, but the quarter principally was bullied by our export sales to China, which were selling values above where the domestic market was at that time.

I think when we had reported to the market place that we believe that $30 ton price increase would stick; that is exactly what we felt would happen, but since that time the market has turned itself and has continued to decline during the months of February, March, and April timeframe, so while all these were obviously hoping for better business climate, it did not materialize and at this point in time, I don't believe our problem is an avalanche of unfairly dumped steels.

I think we just have an economy that has a flat tire or four flat tires and until we can reinvigorate that economy and get it moving forward, I think that the demand side of equation is questionable.

The supply side is a little long not because of foreign activity, but I think because we have seen a lot of restarts of capacity.

ISG which was done a restart as a 4-5 million ton producer with their acquisition of Acme and their new plants to basically rekindle all of the production at the former LTV with the exception of

is now going to merge if you look purely at ISG at probably a 6-7 million ton producer rather than a 4-5 million ton producers.

Some added supply in the market place that needs to be dealt with new

, of course, brought back

is ramping up productivity at

so we have had some capacity actually return to the market place, but we've had some capacity that has disappeared and will not come back in our opinion, Gulf States is gone, Geneva is gone, New Port, I think it's gone.

So the number of players in the flat roll game that are not part of the fabric or the scenery on a go-forward basis, but there is now more supply than perhaps there is demand for these products at this moment in time.

I think that's going to be a nice balance on a go-forward basis as consumers regained their footing or their components and if we can get all our production to ramp back up from the decline of 10 to 15 percent, and housing starts still deteriorate too bad and we can enjoy a better retail sales, etc.

And most importantly from our perspective, if the commercial industrial construction market moving again because I think I said in last quarter's conference call, this is probably the worst commercial construction marketplace I have seen in probably 40 years, but there are signs at this point in time that market is bottoming, and it's starting to turn, starting to see more and more drawing-board type activity, and actually we've seen somewhat better sales of the structural division in just the last few weeks, and let Dick talk about that in his part of the presentation this morning.

So, I think that activity is going in the right direction.

I think we've seen the bottom there.

In flat roll, I think we likewise are seeing the bottom now, but the price increase at this point in time is unavailable to producers and we're back into an area of activity that's in the high 2s rather than the low 3s, and for hot-rolled steels.

It has been reported there are some people selling as low as $250, $260 a ton and I want to tell you that activity is, those statements are correct.

But there also lot of people behaving themselves and selling it $270, $280 a ton.

So, the market is a little helter-skelter at this point in time, and I think from perspective of our earnings and our production on a go-forward basis, Q2 may be one of our less bright quarters if you will we'll talk about that just a little bit more in the future.

But we had a good quarter, we'd very strong shipments and very strong production for the most part, selling prices by comparison to the previous year were up rather dramatically, but they were down by comparison to the fourth quarter.

You noticed in press release, we talked about consolidated selling values of $403 a ton and achieving $363 in the first quarter, so about a $40 decline from quarter to quarter.

It was a solid quarter for us.

I think, Tracy had,... it is only,...it is our fifth best reported quarter since we have been a public company, so still very good quarter.

The structural and real division continued to commission a wide variety of products, and I think today we've rolled steels in the 33-inch web range.

At this point in time, I wouldn't tell you we were successful in all 33-inch sizes, but we have started to commission 30s and 33s on the melt, we have not commissioned 36-inch beams at this point in time, we have chosen because we've been doing a lot of systems to work in that melt to delay the commissioning of the rails for another month or so before we actually produce rails there.

So lot of commissioning activity continues, it can be repetitive, I know Dick was going to talk about this probably, but we shipped 45,000 tons, I think in the fourth quarter and 65,000 tons in this quarter.

So about a 50 percent increase in shipping activity from quarter to quarter he and I were talking before we started the conference call, I believe, he will probably ship in the 100,000 perhaps a little bit more than 100,000 tons in the second quarter.

So again another 50 percent increase.

If we keep increasing our throughput in our shipments by 50 percent each quarter, I think we will achieve capacity in the expected timeframe for that particular facility.

Facility remains unprofitable to date, and we didn't have such great first quarter.

We have a lot of things going on from a repair and maintenance perspective and we are a little short of our internal shipping targets which scraped past going a little long and had some maintenance activity there

planned and so on and so forth, but I think that it is behind us, and I think these results are going to continue to improve in every month of the second quarter on a go-forward basis.

So things are moving along fairly nicely there, now without bumps in the road, but the same time, no fatal flaws in this technology.

I think that a lot of things have been said in public markets about our technology comparison to

Steel Virginia Mill and I would tell you our mill is not like, I think we need to say that very definitely our mill is not the same comparison.

Our mill shop is entirely different from theirs and it is running very, very well.

Our castor is different from theirs and it is running very, very well.

I joked with somebody the other day that we could run 100 percent of our capacity in the melting and casting arena unit right now.

So if someone cared to buy a million to 100000 tons of beam blocks, we can probably ram on their doorstep tomorrow.

But the marketplace is fragile out there.

It's getting better as you heard me say earlier and we are very pleased with that.

I think that the price increases are sticking and there was some confusion in the market about whether they want one price increase to two price increases, there actually were to run back in sort of the February-March timeframe which is not showing up on the book and records and in products shipped, of $15.

And there was a second one, I think, April the 4, and I am sure there is a little forgiveness on the part of a lot of producers in terms of running people through the gate in the first week or two at old prices, but essentially that was another $15 and we believe that those two $15 increases in our holding and will continue to hold and are reflective of the business conditions that exist in the marketplace today and the costs to resources, we will not see all price increases certainly take effect in April, but as we move forward to May and June timeframe, we should get the full measure of $30 from the comparative quarter, I suspect that is the best way to characterize it.

In the first quarter, as I mentioned in the Press Release, we did ship 129,000 tons of wide-gauge products to China.

Principally, we had shipments to others, but they were the minimum export shipments.

We are going to ship, I suspect, another 60,000 tons or so or thereabouts, 60,000 to 70, 000 tons in the 2nd quarter, some of the 2nd quarter orders were actually shipped early in the 1st quarter, because we had told everybody our 1st quarter bookings were around 65,000 to 70,000 tons and that they really were, but the 2nd quarter bookings were in the 130,000 ton range, may have gone to as high as 140,000 and that was shipped right at the end of March, and is now shipping in early April and some we will even ship in May, so overall our export shipments were probably in the 200,000 ton range for the year and those market places are no longer available to us, and so the domestic market at this point in time is providing all of tonnage in terms of order entry for Steel Dynamics.

We, the team at our new bulk products division in Pittsburgh, Indiana, has just doing a great job.

I would like to tell you that the air permitting process that we're going through down at the old

facility is entirely different from that which we went through at

.

These permits are now going to be issued directly by IDEM, the Indiana Department of Environmental Management, while there has been a major shift there.

They no longer are, I am sure they are reviewable by the Feds, but the final authority unless something has been done inappropriately, rests with the State of Indiana, all appeals are directly there not with the Federal System, and we believe at this point in time that we will have our air permit by August, timeframe may be September.

So, we believe we will be doing foundation work in the 4th quarter of this year and the remainder of the construction work, there are number of renovations to the place that can take place in maintenance type activity and that is ongoing.

We are just about ready to order all of the engineered equipment for the facility.

I am truly impressed at this facility's potential capability and characterize it as about to be one of the finest shaped mills in The United States of America with as broad a capability as any mill opted.

This mill would be able to run small angles and flaps and channels and rounds and

, but it is also going to be very capable of doing a wide variety of SPQ bars with increasing complexity.

And, we tell you in time that we see that facility being dedicated at least 50 percent of its production to the SPQ market and the other 50 percent to the

market place.

It is entirely possible, that we can have the facility up in running in the 1st quarter of 2004.

I believe the startup will be rather rapid and I believe these will deliver a bottom line to Steel Dynamics in the first year of production.

So, that is coming along very, very well.

I will let Mark comment on the state of affairs at the Jeffersonville, which I think are in pretty good shape as well, we'll say that for Mark.

Being

progress is also coming along rather well, and he will talk about that, when he addresses the audience here in a minute or two.

Iron dynamics is with most of the equipment ordered and expecting delivery throughout the summer and expected to commission that facility in the 4th quarter of 2003, and we do believe that we will finally achieve a breakthrough technology in iron making, which I think will bode well for this company's future, both financially and from a volume of melted scrap

unit's perspective.

So, I think it has been a good quarter.

The second quarter isn't going to be finest rate as certainly as the first.

I believe the shipping range will be down considerably, probably in the 520-525 range with production activity in the 560-ish range, which is coming off of its most recent highs in the past couple of quarters, which is reflected of the market.

I think that is going to produce smaller earnings if there is any question about it.

It is way too early to tell we have some orders for June, but our June book is certainly not full, and I would tell you even our May book has some holes in it.

So, we have got to fill that in and for me to give you a definitive picture of the second quarter from an earnings perspective, it is just not possible, but I would tell you the range is probably somewhere on the low side at 10 cents and on a high side at 15 cents, and if I were doing my planning, I probably stay to the lower side of those numbers.

But, I think we will come through the first half of the year with higher earnings, than we actually had in the first half of 2002, and it is far too early to predict the third and the fourth quarter, although John Nolan and his team believes that we will see improving market conditions during that period, and we have already stated that Mr. Teets' structured vision, believes he will see an improved operating environment in those timeframes as well.

So, earnings activity could move up sharply from the Q2/03 levels in Q3 and in Q4 of '03.

So, that is my report today and at this point in time, I would like to turn the report over to Mark Millet, Mark.

Good morning ladies and gentleman, and I thank you Keith.

I guess even with this softening market, we are confident that in Butler, though we can

perform our peers, the teams successfully prevailed through the depressed markets in 1998 and have won, and I think we will use the same practices and controls to curtail

spending, any spending for that matter without materially impacting productivity or efficiencies.

But, despite those challenges and frustrations in the marketplace, I think the two new projects that Keith suggested, the

, and also Jeffersonville will give us further market diversification and margin expansion when the market does come back, that the

line is on schedule for shipment since September of this year.

I think it needs to be emphasized that it is the only

line directly connected with Steel Mill in North America, which creates some substantial synergies and cost compression relative to the existing "hamstring."

Its location in the mill essentially eliminates the $12 or $16 per ton freight to be paid between the mill and the coating facility.

We can exploit the existing infrastructure, whether it be

administration, Sales & Marketing, Engineering & Maintenance, all those things can exist today and can be utilized and essentially cost compressed with the operation, and I think our previous construction and procurement experience will land to a very effective capital price of about $25.5 million, which obviously will limit our fixed cost.

At the same time, the close relationship between the mill and the paint line brings significant advantages to the customers themselves.

It minimizes the supply chain inventory.

Typically you can see about four months of inventory being stored either at the mill ahead of the coating line, post paint, ahead of the consuming industry; and we should quite easily reduce that to perhaps, six weeks may be eight weeks.

Whereas the customer, one-stop shopping, they come to us they get the substrate, they get the paint.

So if there were to be any deficiencies in product down the road, they come to one person, that is the

as opposed to a lot of the industry pointing fingers today; and it will also let him to push the full

does not yield it to the paint process at another facility.

So again I think these synergies will have an incredible impact on the market, it is going to bring savings to the customer, and increase our margins at Butler.

Jeffersonville, I think it is an incredibly exciting venture for us.

The facility was purchased for $19.5 million which is an incredible savings and in effect to diffuse the capital GalvPro originally spent by $49 million on the facility.

Again that will limit our fixed cost and overheads.

The line, the game will operate as the third line of Butler and given the efficiency of communications nowadays, again purchasing, procurement, accounting, sales, marketing functions will take place at the Butler facility, again, compressing cost.

We hope and anticipate to run the facility by 40 people.

GalvPro, back in 1998, ran it with about 80 people.

So again, a lot of efficiencies there.

As

product diversification, the line will end

gauge, which is a little lighter than the total galvanizing line at Butler and it will let us to really exploit the technical knowhow, the process know-how, of our people, at least those that have involved over the last four five years.

I think it is really the location also gives this great advantage.

We have negotiated a very attractive volume freight between Butler and Jeffersonville, and if you couple that with river freight we can access the Houston market at round about $25-$26 and allow us to expand geographically our market base also.

So it could be quite an exciting opportunity.

The management team there that has been selected, we are currently interviewing for operators and the lines should be up and running in July of this year.

So good things are happening even though we are under a little bit of cloud relative to the market.

Thank you Mark, I would just like to mention a little further guidance to it.

I see pricing in Mark's division to be down $20 a ton from basically Q1 through Q2; at least that is what we are prognosticating at this point in time, and I, in the past historically stopped talking about scrap cost.

Scrap costs were, I think up a dollar or two.

Trace will give you that number.

One is

tells this $1 from the 4th Quarter to the 1st Quarter of this year and I think they are probably going to fall on the order of $5-$10 on a quarter to quarter average from the first quarter of 03 to the second quarter of 03 and that fall could be more dramatic which obviously could impact the bottom line very plausibly.

There are those out there who believe that the bids as we move forward into May deliveries are going to be down a minimum of 10 to 12 and I suspect the May bids going into June could be down another 10 to 12.

So, there could be some good news on horizon from resource cost perspective.

All of that would not be factored into the projections for the second quarter because we have considerable staff inventories on hand, but to some extent would affect the May numbers, would certainly completely affect the June numbers and probably even some of the July numbers.

I think resource costs are declining.

As I said, I think that the market is reaching a bottom and will come back in the third and fourth quarters to higher levels which are yet to be determined.

At this point in time, I would like to have Dick Teets comment on our structured division that

Thank you Keith.

Good morning everyone.

There is enthusiasm at Columbia City based on a number of things that Keith has already touched on.

As he mentioned, we have put out there our second price increase of this year and all early indications are that there is a very disciplined market place and it will hold on orders taken after the increased state.

Order rates also I think are very positive from Columbia City's perspective.

It is the fact that the rates have increased which to us reflects an acceptance of our product especially in the mid western markets which again I think shows some discipline in the sales field.

Work side of the fact that we are now actively pursuing fabricator business which in the past had been limited because of our

capabilities but we commissioned all of the

equipment and tracking equipment so therefore it is a new field of customers that are available to us and we are pursuing those with great amount of interest.

Because of that, we are seeing an increase in order activity and inquiry activity and I think probably the educational and the medical fields, meaning schools and hospitals and so forth lead the way as far as projects that are out there a lot of private money hasn't really been flowed into the market yet but some things are opening up.

Keith did mention also that we have commissioned more products, we have now commissioned all of the

through the 8s, the 10s and the 12s which we had one

yet to do the last time we had talked and so now those are complete.

We will for the end of this quarter round out the 33s and 36s that Keith eluded to and also on the small size go after the 6 inch and then everything from 6 to 36 will be completed.

We are working with our equipment suppliers to look at opportunities to expand the ranges of the products that we currently make and that will continue to differentiate ourselves, as Keith had pointed out, from the competitors mill that were supplied by the same equipment supplier but based around a different technology.

The very near net casting technology that

had developed in the past was employed in Virginia, and based on the technology itself has limitations from a product offering perspective that we currently make in, and will again differentiate our self even more in the future from a rolling perspective.

From a rail's issue we are currently this week commissioning the degasser in the melt shop.

We have already commissioned the induction stirring and the new moulds in the casting arena.

We have commissioning engineers here to assist us in bringing the rail handling equipment on stream and the

hardening equipment so as much as we have probably put off the actual commissioning until later this quarter.

We will have a full range of complimentary equipment available when we bring it on.

Again some of these rolling differences that, even though rail is a big one, between ourselves and Chapparal.

In fact that they have the very near net shape beam black as a starting material.

They in their

area put a horizontal and vertical mill and where we have a balloon product as well as larger beam blacks and that allows us to make angles and certain shapes that are not there in their compliment.

They also have additional stands where for the finishing of the sheet piling, should we pursue sheet piling the way we designed the mill we can do without those three additional stands.

So there are a long list of differences that set us apart from our competitor.

I would tell you that we were also excited because the amount of down time that was associated with certain mechanical items in the mill had been put behind us in the first quarter.

The straightener was a source of a lot of headaches in the fourth quarter and first of 2003, but in late March we fully retrofitted that with some improvements and I don't know that we had more than a couple of minutes of downtime in the second so far and we are excited about those improvements.

I would tell you that we have just about a full compliment of employees.

We have a few shipping people and still need to be hired and training is ongoing and we are very positive about the future

.

Thanks

.

The only reason we wanted to emphasize differences between this mill and the other,

attempting to speak to the technology employed by Chapparal, but rather to speak of the technology employed by Steel Dynamics and certain individuals since suggested that the two mills are alike, one experiencing considerable amount of difficulty up to this point in time and the other, ours, not experiencing all that much difficulty.

There are significant differences.

As

pointed out our melt shop is entirely different than that deployed by Chapparal in Virginia.

Our caster is definitely different.

You heard me earlier, say we can produce a full capacity in these areas at this point in time; but our rolling mill, it is also been suggested there is a

or not, or a tandem mill, that is very different in our tandem mill.

Our roughers are very different than their rougher and obviously were laid out entirely differently to accommodate rail production.

In fact our straightners are definitely straightners, although

suggest that we have some and had some problems.

They are behind us.

were done, employed this in the first quarter.

We are running very very well right now at the new structural

.

and his comment

John, I have talked about the market, a little bit earlier.

John is our VP of marketing.

I thought you might like to hear from him and he might like to comment on the market place as well.

Well Keith I think we have covered on all aspects of the market as we are seeing currently very thoroughly.

If I would add anything at this point, it would be just conjunction.

I am turning it over to you.

Thank you Keith, I would like to just rundown a handful of numbers for you in no particular order and as usual, if I miss something, please drag me back into it.

Our flat roll pricing, I think Keith mentioned was a mixed average including secondary excessive

of $365 a ton in the quarter and that was off about 40 hours from the fourth quarter.

Scrap price was $128 that is per net ton charged for about a $135 per ton of hot beams produced during the quarter and that was essentially in line before it was in the fourth quarter changed by about a dollar.

The shipments of the flat-rolled mill were as follows.

The hot-rolled shipments were 276,000 tons, pickled and oiled were 61,000 tons, cold-rolled 54,000 tons, hot-rolled galv 95,000 tons, cold-rolled galv 67,000 tons and our post annealed products 23,000 tons.

And as, I believe Keith mentioned, we did have a little over 65,000 tons of shipments from our Structural and Rail Division during the quarter as well.

EBITDA for the quarter, you can calculate, but it was about $50 million.

It is a little bit difficult to project it going forward based on the marketing comments that Keith has made already.

That should be clear, but we are expecting something around the $200 million range that will be slightly less than what we saw in 2002.

I think we had about $219 or $220 million in 2002, but was still put us at a high teens low 20s kind of margin for EBITDA, which I think will continue to be the best within the industry.

Our interest charges during the quarter, our gross interest expense was about $10.6 million, reduced by about million and a half dollars of capitalized interest.

We were required again to capitalize interest associated with the Rail Mill and the new bar Mill under construction and that was about equally split between the two that yield the $9.1 or $9.2 million interest charge that you saw for the quarter.

We do continue to project the net interest expense in 2003 of right around $40 million maybe a little less, but that has not changed.

Our liquidity first of last year remains unchanged from the end of the year that is not exactly true because we had the acquisition of the Jeffersonville line.

It marks

to a little bit earlier that obviously came together fairly quickly, and that is really the only change we went from about $100 million at the end of the year to just under $80 million at the end of the quarter.

The cap ex numbers for the quarter you saw, were about $37 million.

I remind you in 2002, we had about $143 million of cap ex, and we continue to believe that the 2003 cap ex number is going to be in the neighborhood of $110 million or so.

We would expect the next couple of quarters to drop down into the $20 to $25 million range each quarter and the fourth quarter to come back up to maybe $30 million or so.

There are essentially several projects, the paint line obviously is the major one that Mark said was going to be started in the third quarter or so, that is going to be about $20 million for the year.

The Jeffersonville galvanizing line acquisition and some retrofits that we are doing down there, are going to come in around the same $20-22 million number.

We expect at this point to be spending somewhere around $45 million or so down the fifth

retrofit, obviously depended in large part on the timing of the permit.

The balance are relatively small numbers that are split almost equally between IDI and the structural metal, as they continue to either restart or finish up depending on the case of the particular project.

Our accounts receivable remained essentially unchanged for the quarter from the end of the year.

It is up about $3.5 million, but our aging is about in line with what it was then, which is good news.

We are seeing a fairly steady flow of cash from our customers.

Our inventory did increase by about $14 and $15 million that was primarily related to the structural mill where we saw about a $11 million of increase and finished goods, as they continue to ramp up their product offerings or testing, and laying the product down to supply the customers a little bit better fashion.

Depreciation and anodization was $16.3 million for the first quarter and again I continue to tell you that our estimate is going to be around $70 million for the year, may be as much as $72 and $73 million and they will be slightly ramping up throughout the year.

So it is just under $18 million in the second quarter, just under 19 in the third quarter, and just under 20 in the fourth quarter representing the continued ramp up primarily of the structural mill.

It is a good report.

Thank you Rochelle, we are ready to take any questions and respond to them.

Thank you, the question and answer session will be conducted electronically.

If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touchtone telephone.

If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

We will proceed the

signal us, and will take as many questions as time permits.

Once again press star and 1 to ask a question, and we will pause for just a moment.

We will take our first question from Mark Arewith McDonald Investments.

Good morning Keith.

Very good morning Mark.

Good morning guys.

I was curious about the, if you could talk a little bit about the sources of in demand weakness in your reduced

outlook for the second quarter and also we would just like to get some more color as far as the pricing weakness, do you expect it to be spread across the board or you know, it is going to be a more or less weakness on some of the value-added areas for the Butler Milk product mix.

Well, John and I did not rehearse this, but I will take a

, and he can refine it.

I think the weakness in pricing is pretty much across the board.

It is a little deeper and hot rolled, then perhaps the value-added products, but the value-added products are likewise under pressure at this point in time, but I think, the biggest decline has been hot rolled, which is about what happened when we saw the market place declined so radically in the era of late 2000 and early 2001 or throughout 2001, responding at the very year end of 2001, but we are receiving the clients.

I do not think from an expected OEM business perspective, we are doing all that badly.

Our post anneal business is holding up.

Our auto business is doing okay.

Construction marketplace is definitely declining or in the state of decline.

It has been for some time.

But I think it is the service interactivity from our perspective that we are seeing, a reluctance to place large volumes of orders.

I suspect time to the

inventory that conditioned to a large degree.

John, you want to....

Mark, I think Keith has drilled in on it pretty well.

I would add, regarding the decline in hot roll pricing, again you've got actually back in the market, you've got the former trickle facility back in the market and operated by

that are the kick up and supply there, I think it is expected that that should probably maybe suffer a little bit more than the value-added products.

Regarding on-demand, you know, again it is a mixed bag principally constructed as you pointed out Mark, and I would tell you that our service and our contacts are a little bit guarded about where things are going and they are pushing their inventories down so that I think that was reflected in the MSCI numbers that were published just recently as well.

Alright, okay.

Thanks for the comments and happy birthday Keith.

Oh, thanks.

Its one of these birthdays you don't necessarily want to remember.

That is because of the

.

Aha, no, that doesn't reveal the

.

Just age.

Wayne Atwell with Morgan Stanley will have her next question.

Thank you, a couple of quick questions.

You told us to expect 520,000 to 525,000 tons in the second quarter.

Was that flat rolled or total?

Excuse me.

That is just flat rolled.

That still remains the bulk of our business and as your model and plan, that's the number it is going to affect bottom line the most as you heard his comment, Dick's shipments were actually going to probably increase by another 50 per if not more in the second quarter.

So he is going to ramp up Mark and the soft market is going to come down, and I expect the 520 to 525 to be his shipping range.

It could be better than that, but it can produce better results, but we are right now, with the weaknesses of the market, we are not expecting results any better than that.

Okay.

Now you can produce more than that.

Would you be building inventory or would you cut back in production.

Actually, both.

Inventory is naturally going to get built in this

.

People just are not as excited about taking the product in this timely fashion as had been

used normally in soft market, see inventories push up a little bit.

So, I suspect that they will push us a little.

No.

I was talking about your inventory.

So you build your inventory at the middle?

We will at Jeffersonville, Wayne.

We are going to put some rather standard gauge material with material down there, and obviously been talking to customers about supporting Jeffersonville, so we will have an inventory built at Jeffersonville.

But, we are also going to see, I think a little bit of an inventory build, because of the soft markets, as I said the clients just don't take the product in as timely a fashion.

At least, that's what history tells us.

But we also will be cutting back on production, because we do not think that putting that kind of pressure on the market is warranted in determining the bottom line.

Imagine we could go out there and be a bottom figure and go searching for tons, but would not like to answer at this point in time and so we are going to continue to focus on

market after two things, one I tell you we are not a player in this market, but I do not think we got to change the market around, so anticipating some decline in productive activity in the shop.

At the last in Jeffersonville, what is your capacity there?

Well, its capacity is, once its full capacity is probably close to 30000 tons a month but it is certainly won't start up that way, we would be happy in first month or two, if it was 10, 15 or 20000 tons but it will get to 30000 in shorter.

Mark made one comment about the state of readiness down there, what you think you can achieve?

It is all dependent on line gauge, that line I think we will focus and exploit its ability, as I suggested earlier

facility

and there are certain building sectors that you can get some appreciable value added than to

away.

So it depends on the mix, if it is lot of a 008, then it may be tough to get to 30,000 tons.

It will be somewhere between 28 to 30000 tons I would imagine.

And

with Prudential Financial will have our next question.

Good morning.

Your shipments to China are probably a very big fraction of the total US shipments, and I am one of these, not even

that reads the AISI statistics some times, but does not know whether or not to believe it.

The AISI reported exports, were in round numbers 8000 tons in December, 6000 in January, 25000 in February.

If your narrative earlier was accurate, then your company alone, if AISI data is accurate, might have been 100,000 tons in the month of March and 60000 tons that sounds like process in April and-May.

Are there ever periods, where you use ship more than what AISI reports for the month and could you just guide us a little bit about your monthly exports to China and the accuracy of the data we republished.

John, I have never furnished AISI any data on our China numbers and I do not know whether they are talking about other members of AISI that would be exclusive of STI where Mr. Melvin has furnished to me numbers, he is shaking his head no, so I do not really know where they are getting the data, but what I can tell you is that we did ship a 129,000 tons in the first quarter, some of which was second quarter business shipped early and we are going to ship another 60000 tons or so in the second quarter.

It is possible Keith that the trade association gets

data from the ports.

I supposed to its members the month of January and February, how much did you ship?

I am just trying to get a favor, so whether the AISI data is any good

.

in January and February that I can recall.

Mark acknowledges or affirms that most of what we ship went out in March.

We have had no prior experience in taking products offshore, so I really can't comment as to how that information has arrived at.

You need to talk to Andy or some of his people down in Washington.

.

Thank you very much.

Next we'll hear from Andrew O'Connor with Strong Capital.

Morning Keith, morning gentlemen.

I wanted to know if the weak near term demand and pricing outlook causing you guys to simplify, modify or potentially even to consider scaling back any of the expansion or new development projects that you've reviewed for us today?

The answer is essentially, no.

We might take our time rather than rush things at Jeffersonville but the bulk of the capital expenditures are already out of the gate, and then the modifications to that facility are only $2 or $3 million dollars, so we would not modify our spending habits whereas it is a small amount of money, and we would get it ready for productive activity in the June timeframe as expected or July, we might lag a month or so.

The

line is we've got a, I think a good book of business for that, and it would make no sense whatsoever to delay any

line activity.

The few capital expenditures we are left with

just got to cleanup work, so you're really left with the subject as I see it of the by-products division down at Pittsboro and I would tell you how to ground any danger of piercing any liquidity, having a liquidity crisis in this market.

We may not be able to pay down debt as much, but right now, it still looks like I think the prognostications that Tracy had earlier in the year, being able to retire some more debt in this year, could be still a possibility, but to me it would make no sense to delay sending a quarter or so at the by-products division, and cost ourselves and start

$5 million or some number like that when we could have had it ready earlier and get it to producing a net income.

I think that ramp up is going to be fairly rapidly.

So, delaying that would only delay the inevitable bottom line, which I can't imagine is in our shareholder's best interest, but I'm not sure we are going to be able to move this fast as what we were saying here, instead of $45 million, well and may spend $40 million, but once you order that equipment, make those down payments there are progress payments that are necessary and if we get the air permit, we're going to start, yeah, a foundation-type activity at that facility as soon as we possibly can.

I think it does makes sense, Tracy.

Andy, this is Tracy, I want to echo some of what Keith said, and we do talk about that.

We talked about as recently as this morning, and as Keith and I went through the list of capital expenditures, you know, I agree completely that the

line we're expecting to give us some positive impact almost immediately and certainly this year, and there is not much left there anyway, talking about $215 million in Jeffersonville, the book of that is already spent, you got a couple of $3 million left there.

We also think that will have a very near term payback to us, and so you wouldn't want to slow that down.

You are left really with iron dynamics, most of which has been set at motion as Keith said, and will reap some benefit to us as well and then

and as I said before, and as Keith said again just a minute ago, I think this roll-mill is very much dependent upon the timing of the permit and it does not make sense, though, to slow it down, given that you are just going to get whacked with some start up cost if you can still manage to get through all of our covenant structures and that sort of thing, and I did not speak of that a little bit earlier, but I will tell you that we are in great shape with all of our credit statistics with regard to the covenants and we have got lots of room there, and as we project through the end of the year, we still have plenty of room under all of those.

So we will continue to look at liquidity, but as we sit right now, it just does not make an awful lot of sense to slow down too much.

as I said the by-products of this is a totally different market place and I tell you that the

market that could not seriously decline as well, but I think it is a lot healthier at this point of time than the flat-roll market.

I think by products and pricing is beyond where sheet pricing is today, and so are structural models.

.

I think that the very mention could, within a six-month period of time, start to earn some money down there and that is what we are all interested in.

Okay, thanks for your comments.

My question was directed more towards by products and then secondly Keith, did I hear you suggest an earnings range for the second quarter?

Yeah, I did, just be careful.

What I mean is that since the second quarter is not totally filled out, this is my own calculation.

We are somewhere in the 10 to 15 cents assured range, and I totally

the lower end of that probably.

Okay, thanks, very much.

And we will move on to Leo Larkin, with Standard Employers.

Good morning.

Do you have any cap ex number for a DD in

.

Well Leo, we really do not.

We have not looked out for it yet.

Is it fair to say it should be less than 03 if everything proceeds.

But right now we do not have any Capex projects on the table that extend into 04, other than the ramp up of things that are going on most notably the Pittsboro mill conversion, may be a little bit at the structural mill vis-à-vis the rail project there dependent on how that ramp up goes this year, but we are talking probably between those two.

We are talking probably less than $20 million.

So it is not like going out in 04, I do not think.

Could be a little more than that.

I suppose there could be 30 million or so, just at bar products and finishing it up, but at the same time all of it together is going to be rather the minimus, and would have been running well over a 100 million and it is going to run 150 million in 04, actually said half that, could be #30 million dollars.

If I just hazard a guess about the DNA number 2004, that is going to be around #80 million, but that is pretty much against at the moment, and I am basing that on what we will see in the fourth quarter of this year.

So I think we are going to probably throw off a lot of cash in 04.

That is what I am getting to, I am just wanting it, it is an estimated 50 million next year would be reasonable.

No, I think it is probably even higher.

I am just guessing though.

Thank you.

Wait a minute.

Fred,

Could be higher.

No.

No its higher.

I am very sorry.

I am saying 50 million is high.

Thank you.

Your welcome.

And Aldo Madafero with Goldman Sachs will have our next question.

Thank you.

Good morning Keith.

Good morning Aldo.

Hi.

I just to clarify on his scrap cards you are seeing.

I got the comments where you start to see some declines in the market place.

I am wondering, did you say that scrap cards might be down in the second quarter versus the first or do you think it might still reflect the higher prices in the first quarter.

Well, the early part of the second quarter will reflect the inventory positions that we have at the end of March, which were almost at the peak, and so that will flow through principally into April.

We saw some decline in the market last month with some of that will flow into May, and we did not cover all of which were made

at that time.

I was running these projections, and so we are going to see if some benefit of the April bids for May delivery plus some of that declined from last month's bid, everything we see in June will be down money, and the speculation is that June is going to be down, the late May bids for June will down another $10 or $12.

You could see a $20 scrap decline in May and June, and I think half of that kind of number could show off in our statistics for May and June, but not for April so when you put that all in the mixed bag as it's somewhere between $5 and $10 quarter to quarter decline.

It could be well

as possible, I don't think it is at all going to be short of 5. madafero: Okay, thanks.

In terms of the pricing, you are seeing

, how do you say the pricing you are seeing today in the month of April compares with the average price that you just recorded with that 363, are you already seeing prices down, pretty much 10-20 bucks from that number.

I think we are going to see the pricing in Q2 down as I said $20 - $25.

Right, but in terms of the progression from right now, do you think they are still seeing weakness in the market?

Well, I think the weakness is out there absolutely right at this particular moment, I think what we said is we believe this is the bottom and one of the numbers is going to push up a little, Mr. Nolan when do you think that is going to happen.

I think there is a seasonal flow down in July.

I will tell you that am expecting based on conversations it is going to move probably sometime late July, may be mid third quarter and start sending

in the year.

All right, and then Tracy could I ask one question on the

I know there was about half a million of dollars of start up costs was there anything else related to your acquisitions possibly or start-ups that might have caused that number to be a little higher.

You know

500,000 that you had reported as start up.

No, in the

there was nothing extraordinary related to the acquisitions although we did have about a $ 1.6 million or so profit sharing, but then that number just fluctuates all along as the case may be and keeps us

down from the level of the year ago, that primarily

start up costs.

So, now it was fairly constant.

I think that it was about $ 12 million or so,

.

I am sorry, about 14.5 million extra startup.

That is right.

And an year ago extra start up would have been about 8 million.

No, 16.5 or some like that an year ago

then it was about $5 million, once it was about $10,

... in otherwords, the unusual item

But you have got a ramp up of the SG&A activities that the Structural Mill had bought products in other facilities and obviously

a high number or increase number of sales, so the percent of sale they will get is fairly constant.

Okay, thanks.

One thing I would like before,

you go to the next question is point out to us, maybe we were a little bit confusing about answers of Leo Larkin's question, so at the risk of being redone, I just like to tell you what we were talking about was key for suggesting that the $50 million of capital expenditures for all four

will be fairly conservative and what I was suggesting was that $80 million of depreciation and amortization is what we could expect, did I say cash flow?

You said conservative, I don't think we are going to spend $50 million.

Right, is it a high number.

High number.

Right, thank you.

Okay.

We will move on to

Asset Management.

Hi, can you just follow up on your comments on scrap and the possible significant decline that you are looking for and I am just wondering if that is just sort of normal seasonality that you are looking at, whether you are seeing changes in China's buying patterns for example, which, it has been an upward push on scrap or is it a certain amount on the demand or supply side within scrap market that is leading you to their expectation?

Thanks.

I think the export markets have dried up and China wasn't the only market.

Turkey was a major buyer.

Obviously, we had HBI who will stop flowing out of Venezuela.

Russian scrap was not a bad winner, wasn't flowing.

It is flowing now.

HBI is flowing now.

The Chinese command has tapered away to almost nothing.

I do not think Turkey is buying a lot.

So I think the export opportunities today are not what they were even a month or two ago, and with domestic demand being down and aggregate production for the steel community being down that is on you, we are building mountains of scrap in the scrap yards because the scrap people would argue that the flows are down a little bit too.

But I think what they are telling me is the flows are actually not that bad, and without a scrap market they understand that with our operating rates declining in the industry that there is going to be a decline in the bid price for the scrap and so speculation coming out of their very own mouths from whatever it is, it is going to be down 10 to 15.

That is their expectation.

Great, that is very helpful.

I appreciate it, thanks.

And we will move on to Adam Graf with Bear Stearns

Good morning John and thank you very much for a very good presentation.

I did have questions about scrap, but they have more or less been answered, but I had a question there for John Nolan.

I came in late, maybe this has already been covered, but I just wanted to know what John saw in the structural price, pricing market and you guys are sort of new to that market, but I was kind of hoping you could add some color there.

You are right Adam.

We did answer that before.

Let me do it again.

I apologize.

We are seeing the February $15 increase and the

confusion about whether or not there is one or two $15 increases.

The $15 increase, the first one occurred in February, and you might say started to hit the books by March.

The second one took place on April 4, and is still throwing into the system now.

So by the time you get to the mid second quarter, prices should be up nearly $30 from where they were.

Those price increases are warranted in our holding.

I think you add one thing that Keith commented earlier that he sees a lot more discipline from the supply side in that market, than we have met in the past.

So who is going to speak well

Very good, following up on that.

Going forward, are you guys going to give average realized structural pricing, considering its, you know obviously behaves very differently from your flat rolled pricing.

I think we probably will right now, as a new party into the market with limited offerings that we've chosen until we have a full array of products and the mill is more or less fully commissioned and we're an integral part of market, not talk about pricing to a great degree other than its up or down from where it was.

All right, would you expect to start talking about pricing say in the fourth quarter or first quarter next year?

Yes, I would think later this year we will start talking about pricing.

Very good.

Thank you very much.

Chuck Harris with Solomon Brothers, will have our next question.

Good afternoon.

I just want to follow-up Tracy on, I think you said guess estimated EBITDA for this year around 200 million, was that correct?

Yes, I said that.

Okay, if we take Keith's 10 cent number for the second quarter as a conservative number, that gets us to that 85 million for the first half, right?

Plus or minus a little bit.

Tracy added

that sounds reasonable I guess.

Yes.

I am just trying to figure out, and I just guess what this does with the hazards of third quarter which is found seasonally weaker.

You have inventories coming.

I'm just wondering whether 200 is assuming a bigger second half than, and you know, the fourth quarter may be really good, but I'm just worried that the third quarter doesn't give us a whole lot, and that 200 therefore seems a tad of a stretch.

Chuck, I'll let Johnny and Keith speak to the markets again, but we are anticipating the third quarter should be better than the second and that the fourth quarter will be incrementally better than that hopefully.

So, we're seeing a stronger second half than we are in the first, there is no question about that.

Okay.

There is no doubt to check at the fourth quarter is, will be the better quarter I do believe.

And as debt continues to get better and better, it's not just all about market at that point in time, and what's happening

, Dick will start to lose less money and its still not out of the question that we couldn't be in the black in the fourth quarter, which will be a significant change.

Now, when I say that, please understand very largely in the black small numbers, but that's better than big losses, you know..

oh yeah, absolutely.

... and so that does produce better earnings results.

We are still modeling some fairly weak numbers into the third quarter, but overall the third quarter should be better than the second, and the fourth better the third.

And Chuck, I got to tell you, I feel a lot

to come back and tell you again to remember Keith cautioned early on, that it's really difficult to sort of project even the second quarter right now and certainly the third and fourth.

I was just trying to give you some sense of what our thinking was, but in this market felt this

and all things could quickly change.

and just looking that same do it when added up the number, so it left me a little bit ...

... encouraged, right?

It was very encouraging, exactly.

It is a way of

it.

Thank you.

Thanks guys.

Charles Bradford with Bradford Research, will have our next question.

Good afternoon.

Hi.

Where do you guys stand with the roll-mill real output now?

Do you have the

in place, and when do you think first production will occur?

Dick will be happy to answer that for you.

We still intend to run our trials in the second quarter through the rolling mill, and so if all things go well, we would have shippable products early in the third quarter.

We had always projected just a few tons in 2004, mostly for acceptance into the special projects, but we have not changed any of those for cash.

We still expect them to occur.

Do you think it will take about six months for the product to

?

Well, I think being

depends in the markets, the class I

have very different requirements than regional short lines and mass transit projects do, but I would tell you six months is a fair amount of time.

The way they are buying in the real industry goes as a normally than go out in the fall of each year and look forward to the

who will be available for the next year's projects and so we want to do is get product into their hands.

I do not know that will be fully accepted by the time the bidding is there but I think we have been solicited repeatedly by the railroad, so they know we are here and I think they will work with us.

Dick, one more question regarding the gasser.

Just the fact that we are probably going to run a heat throughout this week.

We are checking at everything out today and this week so we were expecting at the end of this week to run a heat through for the first time.

Chuck, I have spent some time recently with Norfolk and Southern and CSX management and this project is not lost on the management team.

They are very, very aware of this project and looking for dusting his flier to their industry.

I have been hearing the same thing, but getting on to China there, I have been hearing also, maybe almost two months that the Chinese have the

close for further imports.

They are claiming on

but it may very well be that you get cheaper products elsewhere.

Have you been paid for the products that you have been shipping.

Your Letters of Credit or what is the circumstance?

Yes, we do.

We are fully covered.

It turns around when it gets some extra China, it is somebody else's problem.

In fact, it will be somebody else's problem a long time before that.

Yes, that is true Chuck.

We have heard rumors about Chinese banks freezing L/cs and doing a variety of things.

I am not sure where those rumors come from because our experience has been anything but that.

The L/cs are in place, the forms are irrevocable, we have met the conditions to the L/cs.

They are

if you are familiar with inca terms and whatever happens to China when it gets there frankly becomes the responsibility of the receiving party in the Chinese mainland.

Yeah.

This has happened before when product become available at lower prices and what they are paid is very often may have found excuses

.

But it is good to hear that you got paid.

I am sure they are looking for every opportunity at every supplier, but we are working with quality companies.

We have not had that type of experience and we do not expect to have it.

light gauge and it is more in demand than just quarter inch

steel for any old suppliers, so you have to weigh that in or go for bases.

We have not stopped looking for opportunities.

I think hot-roll at this point in time has dried up.

Cold-roll, we are still doing good cold-roll business and we have just asked

40,000 tons of cold-roll business, which runs

so it is not a totally dead marketplace by comparison now to how robust it was.

It is pretty flat right now.

Just like Russian scrap didn't make it

some hot roll.

Yes.

Now it is, anyway, thank you for your time.

We will move on to Peter Marcus, with World Steel Dynamics.

Hi, gentlemen.

The #1, congratulations on reporting profits in what may improve to be a sea of losses here and secondly, extending that Keith given the industry's lack of access to capital, the losses that may be produced, the weaker dollar which helps the cause here is somewhat, which is an opposite thought.

Did you think it is possible we're going to have more reductions of capacity in the U.S. than you may have been talking about.

Why are the merged companies have less production on a permanent basis as they consolidate to the lowest cost units.

Peter I think you're going to see some entities get into further trouble in this kind of a market climate, and I think one of the remedies for the industry would be to see some capacity reduction short-term and I think you are going to get them to some degree, but more importantly, will people rationalize capacity, it is my belief that with the acquisition of national by U.S. that the U.S. steel folks will rationalize some of that capacity.

I think they are game plan for granite city and

in combination as certainly different and Mr. Ward's game plan would have been, so we may get some rationalization capacity.

I have not heard a conversation with Rodney certainly about what their plans are capacity wise, but I think you might see in time, as they get firm grip on their assets, and value those assets.

A little bit of rationalization there as well, but I think you could see certain other folks, you know, come under some real pressure.

I was extremely disappointed that the government left $250,000,000 into the wheeling pit effort.

I think that was entirely a politically driven event that made no natural sense whatsoever.

Putting electric hot furnace in over there is sort of a brain dead idea, bad idea.

I am not so sure that you are not going to see certain people who don't have good liquidity have some trouble on a

I can't tell you which ones, but certainly

was not in good shape until they got that government loan guarantee and I don't know that if your losses are, you know, $30,000,000 or $40,000,000 a quarter, you are going to be in good shape very long, and I don't know what anybody's losses are going to be, but I think you're going to see some capacity go backwards.

You still may see some trouble there in this kind of market climate.

You're right, the dollar is in fact a little weaker, I think it has got ways to go, I think it needs to weaken some more very definitely, the dollar is still too strong, but I think the combination of the import tariffs what's left of the two-one program and the weaker dollar will not cause imports to be a huge problem,

its about time I say that it will become a huge problem, but right now, they haven't been.

John, do you want to make a comment?

No,

.

You've covered a number of the points that I was hoping to get through during the call, you know, it is all about supply.

You got imports down our service center customers are reporting inventories down.

We have got a weak market, certainly some of our competitors could be quickly impacted by that and the dollar, it still trades 15% above traditional levels, but has improved and

of trend to keep imports out of the market for a period in time particularly at current domestic market prices and all of that gives us a better snapshot for the second half than the first half.

Okay, I am just terribly disappointed that we could go across the pond if you will and negotiate with other governments to end foreign subsidies and turn around and have our government in effect a turn of $250 million in the wheeling.

That just doesn't make any sense whatsoever to me.

My next question.

I wonder if you could give us a feeling for your, either your operating or your pre-tax cost for hot rolls band, either at present or in the first quarter and if in fact the price of scrap were to come down by $20 by early summer, which looks like it is happening, say scrap is down by 20 would your operating course define about two-thirds of that amount.

Well, you know, our operating

costs and that's way I like to think about it since the time had reached a low of what I think a sub 210 number at one point in time with a totally different scrap preparation.

Scrap costs are lot higher and right now I would think our holding costs are, I have measured to be probably somewhere between the $240 and $250 a cent on hot roll.

That is for hot roll.

Okay, and then if the price to scrap would drop by 20 you might save two thirds of that or something, right?

Yeah, you are not going to see all of that scrap defined because a lot of scrap is generated internally.

Pig iron isn't going to change as part of the mix, so you're right.

You might see two-thirds of that.

Okay.

Now you said before your interest expense if is $40 million a year and $30 million where it is high and $25 in the hot roll band business that will be about $10 or $12 a ton per scrap, right?

For scrap.

for interest expense.

I think that is a pretty close number

.

Okay.

Then depreciation Tracy, if you said is going to be 80 this year 70, so 40 that would be 15 of that would be depreciation for the hot roll business maybe.

For hot rolled only, not cold rolled products?

That is probably pretty close.

So we take 245 and subtract with a 26, you are claiming apparently that your cost, EBITDA cost might be somewhere around 220 in this high scrap price environment?

Yeah.

I haven't done that calculation.

It sounds sort of correct.

Did you go through it?

Okay.

Well, that is quite a number and Thank you.

Okay.

We will move on to Wayne Atwell with Morgan Stanley.

Thank you.

Could you give us your thoughts on tax rate for this year and next?

Wayne, we are continuing to look at that and right now I don't have any further guidance for you other than to suggest that 37.5 is still, we are going to guide you towards, make your aware that our state taxes have increased.

We want to set that with some other planning ideas that we had going on but as I can't really tell you exactly what is going to be but I will update you in the future if that changes.

Okay.

And just reviewing what you told us about Columbia City that basically might be breakeven by the end of the year, I guess you are going start shipping a modest amount of product in the third quarter, any thoughts on what you might ship for the year and are you likely to be breakeven by the end of the year and commissioning of rails is going to start shortly?

Well, I did talk about the volumes for the year that he is expecting but I do believe that they still have a shot at very, very small profit before quarter.

I think that your comment about the, you will verify my comments, I believe, on the rail commissioning so forth, it still stands,

by the end of the year, we had expected to fish up around 12,000 tons.

It was again just the amount that would get us into our customer's line of sight and we think that is still on target.

We are increasing our shipments in each quarter and hopefully month over month, I guess we have had some shipment issues internally where we have learned the hard way that loading a truck with 4, 5 or 6 bundles of beams is a bit different than putting a 20-ton coil on a truck and sending out the door.

So as our shipment issues get resolved and I guess I am glad that they are man-made in their internally generated issues.

We will be increasing our shipments, I think substantially through the second quarter and then into the third and fourth.

So I think we are looking for a number to target.

I think shipments can be in excess of half-a-million tons and something a little more than that

Then I think that that would put us by the end of the year when it is certainly 66-70 percent of the capacity but it is probably more market driven at this point in time, which is suggestive of the fact that we are not going to still

into what markets left out there, would run at a reduced rate, but I think by the year to the year

this capability would be well beyond two-thirds or 75 percent of this

that the market may not be fully back in place at that point.

For modelling purposes should we assume a loss of maybe $5 million per quarter in the structure mill

I think you should assume a little bit more than that, somewhere in the order of $7 or $8 million or what averages on.

what do you think?

I do not know

.

How about the 1st quarter

The figure that I am looking that up right now

, however.

The operating was about $6.9 million loss.

Okay, great, thank you.

We are talking two different numbers now, Tracy.

You are talking about operating

when I was talking about all in,

Right.

Okay.

Can you put them on the same basis?

interest allocation in there?

Right.

That will be with....

With the interest allocation and the second quarter

it was little over $10 millions.

Okay 10 million, and then that was scaled down to 7 or 8, correct, yes I guess.

Okay.

Great.

Thank you.

Next we will hear from Mark Are with McDonald Investments.

I just had a quick followup of, what is you expectation for start of costs in the second quarter.

Mark, I do not have that number and I do not know if Tracy does or not.

Mainly there is a question

we have heard with the strokes and

was, again we will report that on an operating cost basis.

I think there are lot of people that see new facilities marked as startups and reported as a startup cost, we do not do that.

Once that facility is engaged in production it is just an operating loss.

Yes,

again we would look it at about $4 million and bar products.

Now we guess, there is going to be another million or so, so I will guess it 5-5.5 or something like that Mark.

Right, I guess I was looking the first quarter was

about a half a million in terms to start-up expenses based on the release.

Well, but that is because, I drew all of the

in the second quarter that I just told you and clearly the

has not been classified to start-up since the second quarter of last year.

Right, now it is not worse, so you just, maybe there is a modest increase in the losses associated with Pittsboro.

Yes, there will be.

Okay, that's what I was trying to get at.

Okay, I am sorry, I missed the point.

Right, is there anything incremental out of GalvPro that we should be looking at well?

It seems small Mark, several hundred thousand dollars.

Okay, all right, thank you.

and we have one final question in our queue and that will come from

Good morning.

Your estimates of volumes for the

plant, does that include the possible impact from the recent

or do you think from the outside that it will not

for a while.

Chris, I was unaware, but Dick is I guess.

Yeah, I mean that is a short term issue, the fire down there, from what we understand was contained in the transformer area at the rolling mill and that is a 2 to 4 weeks fix, I tell you right now all of us are shipping mostly out of inventory based on the market conditions, and so I don't think the shipments would be significantly reduced and between ourselves and your model could make up those tons without a long term impact.

Okay, thanks.

I am sorry, I just wanted to let you know there were no further questions.

Great.

Ladies and gentleman thank you so much for joining us, and I think you know we were fairly

as a management team and if we didn't fully answer your questions we certainly would attempt to, if we need to, provide further clarity, but we thank you for your interest in our company and for supporting our company.

Have a good day.

That concludes today's conference call, thank you for your participation.