Steel Dynamics Inc (STLD) 2005 Q3 法說會逐字稿

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

Today's conference is being recorded.

Joining us today are Mr. Keith Busse, President and Chief Executive Officer;

Mr. Gary Heasley, Vice President and Chief Financial Officer;

Mr. Mark Millett, Vice President;

Mr. Richard Teets, Vice President;

Mr. John Nolan, Vice President of Sales and Marketing;

Ms. Theresa Wagler, Vice President and Corporate Controller; and Mr. Fred Warner, Manager of Investor Relations.

For opening remarks, I would like to turn the call over to Mr. Fred Warner.

Please go ahead, sir.

Good morning and welcome to Steel Dynamics' October 20, 2005, conference call covering the third quarter of 2005.

A second conference call will immediately follow this morning's discussion of third-quarter results.

You may stay on the line at the end of the earnings call to proceed to the second call.

After today's management discussion, we will open the call for questions.

We ask you to limit the number and length of your questions.

Now I will read a cautionary statement regarding forward-looking statements.

Except for historical information provided during this call, statements made during this call are intended as forward-looking statements within the meaning and the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995.

A forward-looking statement is a statement that is not a historical fact and without limitation includes any statement that may predict, forecast, indicate, or imply future results, performance, or achievements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in or implied by the forward-looking statements.

Risks and uncertainties involving business in general and the steel business in particular which may cause actual results to vary materially are discussed in and can be found in Steel Dynamics Incorporated's Form 10-K Annual Report under captions entitled Forward-looking Statements and Risks Factors, as well as other reports we file from time to time with the SEC.

These reports are publicly available on the SEC website, www.sec.gov, and on our website, www.steeldynamics.com.

Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a predictor of actual results.

In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this call, except as may be required by law.

Now I would like to turn the meeting over to Steel Dynamics' President and Chief Executive Officer, Keith Busse.

Good morning, ladies and gentlemen.

Welcome to our conference call this morning.

It is going to be a long call, broken into two parts, as Fred had indicated, the first part dealing with our third-quarter earnings release, and commentary about the market direction and tone thereof, followed by a discussion on the announced potential merger between Roanoke Electric Steel and Steel Dynamics.

As you can see from our press release, our earnings in the quarter were $45 million or $0.92 per diluted share.

I think that in fact is exactly the number that the average of the analysts were reporting.

This was accomplished on roughly $500 million in sales.

Third-quarter results I would describe as steady, but certainly were less than 2004's record quarterly results of 114 million or roughly $2.00 a share in what I would describe as an unusually strong period in the industry.

I think we're going to have periods like that from time to time, so I would not tell you that it was unique and will never be re-accomplished.

But I think it is fair to say that it was -- unusually strong industry conditions prevailed in the year 2004.

Our shipments during the quarter actually were up about 3%, totaled 924,000 tons, from the third quarter of '04; and they are also up about 3% from the second quarter of '05.

I think I had said in our previous conference call that I expected our pricing to be down on a linked-quarter basis.

You can see from our earnings release our average selling values were $540 a ton, down 24% or $68 a ton from the third quarter.

So the, I think, $50 to 60 range that we had talked about early on in the quarter was -- it went beyond that in terms of the decline.

They were down 11% from the second quarter of '05.

Average scrap costs charge was down about 19% specifically.

Scrap was down about $42.

I believe I had told everyone that I expected scrap to be down around 40 to $45, so that -- or 40 to $50, excuse me.

So that was probably in the range of our prognostications early in the quarter.

I might mention that energy did impact the quarter as so noted in the press release.

In fact, our energy costs on a linked-quarter basis -- or excuse me, yes, from the second quarter to the third quarter impacted earnings by about $0.08.

But I would tell you that probably only half of that was the surge in the pricing environment that existed; and the other half of that was seasonally normal.

In other words, we experienced higher energy costs in Q3 generally speaking than we do in Q2.

It is hard to exactly quantify for you what that was, but my best guess is the surge in pricing amounted to about $0.04.

I think Katrina probably impacted our earnings in the vicinity of $0.01 to $0.02.

As you read in the press release, we restructured our debt under more favorable terms and conditions.

Our revolver specifically.

And the restructuring of the revolver as announced in the press release impacted the quarter by about $0.02.

So if you look through the debt restructuring, we probably, on an ongoing basis, we're looking at about $0.94, $0.95 which I think slightly exceeded expectations.

The pricing bottomed in June.

Order entry in flat rolled has been rather robust ever since, surging from time to time, but steady and stable.

At the end of the second quarter, our backlog was in trouble, I guess you would say.

We were probably operating realistically off a two to three-week backlog in business in flat rolled.

Today we can see out two months, which is a dramatic improvement, which speaks to the steady and stable conditions that are out there in the marketplace today.

I think that as most of you know, pricing of flat rolled steels is somewhere in the range of probably 540 to $560 a ton for naked flat rolled products.

We think that that pricing environment is probably going to continue.

I'm not going to make any prognostications about Q1; but certainly continue through the end of the quarter.

I think order entry will remain steady and stable.

In the case of our Columbia City operation, we historically have been working off of a 40 to 50,000 ton backlog of business, generally speaking.

I think one of the reasons for that -- there are several reasons -- economic conditions, the health of the nonresidential construction market, and the fact that we cycle through our rolling schedule very rapidly, I think about every five weeks, which makes it pretty convenient for our customers to engage us on a rather steady-state basis.

But our backlog in structurals recently rose to 170-some thousand tons.

I think today we're at 160-some thousand tons as it changes from week to week and month to month.

But it is by far the largest structural backlog the Company has ever experienced.

I will let Dick speak to the issues of progress on rail and progress at his division a little later on in the meeting.

On a year-to-date basis, we have earned $3.00 a share, 26% less than the first nine months of 2004, which equated to about $3.80.

On a year-to-date basis our sales are up 5% to $1.6 billion, compared to 1.5 billion in the first nine months of '04.

Overall, I thought our quarterly performance was fairly solid.

When you think of things like energy and Katrina, spiking of energy, Katrina, and the restructuring of our debt, probably came fairly close to circling a dollar, which we told everyone we thought was a possibility.

So I think we hit the mark, and we have been missing the mark for the past few quarters.

But I think we were there this quarter.

We have recovered from the problems that the industry suffered from being on allocation relative to Air Products' calamity or disaster that occurred as a result of Hurricane Katrina.

We have purchased equipment, installed it, and have it up and operating and can generate our own hydrogen.

So we are solely, we are entirely self-sufficient at this point in time.

The cost of generating the hydrogen is higher than what we would normally purchase.

So when Air Products comes back online, we expect to reengage Air Products for hydrogen supply and use what we install as a backup for any significant future events.

As I said earlier, natural gas and electrical energy was up sharply.

We had a fairly warm summer.

It seasonally is up, but energy prices have spiked.

I think from an electrical perspective, many folks in the industry are tied to contracts that speak to the highest fuel cost consumed by the generator; that obviously is natural gas and therefore has caused some spiking of electrical energy costs.

Of course the hurricane and other factors have caused a shortfall in natural gas supply and a sharp spiking of natural gas costs.

I don't have any crystal ball for anyone relative to when natural gas might abate, but I would not expect it would be anytime in the near future.

It has had a significant negative effect on the industry.

Minimills, or at least specifically Steel Dynamics consumes about one-fifth of the natural gas in our operations than does an integrated producer.

So even though the impact is significant, it is not quite as significant to SDI as an electric shop as it might well be to an integrated shop.

Speaking as to the book of business, I think we covered Columbia City and Butler.

The environment at Pittsboro, the pricing environment remains stable.

In our first year of operations in our SBQ business we were principally a spot market player.

In a very robust year, we enjoyed very healthy backlogs and a very good return on asset dollars employed.

Earnings have fallen off slightly this year as the spot market has backed up somewhat.

I would tell you, on the other hand, our success in engaging in contract business with the industry that consumes SBQ bars is making significant progress.

We should hope next year that somewhere between 33% and 50% of all the business we do in SBQ bars will be under contract to industries such as Caterpillar and John Deere, the forging houses, the automobile people, and things of that nature.

Order inquiry is up.

Our quotations are up.

Our bookings are now starting to rise.

So we expect a more significant future or a better future at Bar Products in '06 than we had in '05.

As I mentioned earlier, our revolver was restructured; and I forget exactly what was available to us before, $250 million or 220 million; has been restructured to $350 million with fewer covenants and a better pricing grid available to the Company.

This facility is secured by receivables and inventory and not secured by fixed assets.

We have the option to increase the facility by $100 million during the next five years, which would make it a $450 million facility.

As I had mentioned earlier, it impacted our earnings by $0.02, the restructuring did.

I might also mention, as you saw in the press release, that we completed the authorized repurchase of shares and have bought back 7.5 million shares.

The buyback during the quarter was 200,000 shares.

As I mentioned, looking forward, we expect the fourth-quarter conditions to remain strong for the steel industry and our steel business.

Demand as I said has improved for beams.

But more importantly, nonresidential construction activity is up and has positively affected our New Millennium Building Systems' backlogs.

I should report to you that the operation of our brand-new joist and roll forming facility in Lake City, Florida, is in its sixth month of operation and is profitable at this juncture.

So we are very pleased with the efforts of all of those engaged in the fabrication of products and roll forming of products in Lake City.

We have a very, very strong backlog at New Millennium Building Systems, both at the Butler facility and at our new facility in Lake City, Florida.

So we expect shipments to remain strong throughout the quarter and believe that we can achieve, or anticipating, as much as -- and I underline, as much as -- a 20% improvement in earnings in the fourth quarter.

That really concludes basically my comments about our progress during the quarter.

I am attempting to be a little bit briefer.

I might turn the meeting over to Mark Millett now for comments about the operations at our Flat Roll Division at Butler, Indiana.

Thanks, Keith.

Actually just a couple of points.

I think the performance of the mill is extraordinarily good throughout the facility on all lines.

Our initial modifications to push the mill up to about a 2.8 million ton a year operating rate are already taking effect.

Some recent performances have already achieved about 2.6 million.

So the guys are doing an incredibly good job there.

I would like to re-highlight Keith's point on the hydrogen.

I think it shows clearly the adaptability of our employee base.

Within two weeks of getting an allocation, they had found alternative technologies.

They had found used equipment, installed that equipment, and had it up and running.

That is probably before most organizations even recognized they had a real problem.

I think it's an example of the creativity, the ingenuity, and just the speed of reaction of our people that just exemplifies our culture.

Touching on energy, we successfully negotiated an extension of our power contract through the end of 2007.

That gives us power in '06 for about $33.40 per megawatt and in 2007 $34.92 a megawatt.

So about $0.033 a kilowatt hour and about $0.035 in '07.

Obviously, we have been impacted by natural gas pricing.

We are fortunate; we have hedged natural gas as we have in the past through the third quarter at roughly $8.10.

Unfortunately those hedges ended in September, so we're going to see increased pricing pressure there.

We are going to hedge, even at these absurdly high numbers, because we don't see any drivers that will push the gas cost down and want to protect ourselves for any aberrant market behavior going forward through the winter.

I would expect that market impact to perhaps be about $3.00 a ton of hopfat (ph).

Other than that, the mill is operating incredibly well.

The guys are doing a great job.

Mesabi Nugget, we are or have achieved permitting both in Indiana and in Minnesota, essentially.

We're taking our time, I guess, right now to really drill into the capital cost structure and the operating cost structure.

Obviously with the inflationary pressure on iron ore, coal, and natural gas the economics of both Iron Dynamics and Mesabi Nugget type projects are a little under pressure.

We want to make sure that we make a prudent economic decision there.

But those efforts are ongoing and we're still continuing to work with Kobe (ph) Steel and Kreenel Pits (ph).

Thank you, Mark.

Dick?

Thanks, Keith.

Good morning, ladies and gentlemen.

I guess I only have a few items to add to Keith’s comments.

I think again the most noteworthy news from the Structural and Rail Division is the strength and depths of our backlog.

Currently our rollings are closed through year's end, and we're actually filling the rollings for January at a fair clip.

Visiting with customers in the fabricating arena, I am pleased to see that their backlogs are also into the first quarter, and that their bookings are strong and in some cases only limited by the amount of detailing engineering that is available for these projects.

While we have been experiencing this improving structural market, we have avoided rolling rail for the last two months to satisfy as much of the structural demand as we could.

But we will resume producing rail and shipping rail in November and December.

While on the subject of rail products, we have been conducting trials that involve the new rail bloom molds that we had acquired for our casting machines.

We will be casting our third trial this week; and to date we have been very pleased with the improvements in both the bloom shape and the internal quality that has been achieved.

Finally, I would just like to acknowledge the great efforts of both the sales and the shipping departments for the record performances that we achieved in the third quarter.

It was really, really noteworthy.

So with that, Keith, back to you.

Thank you, Dick.

I might mention, and we have mentioned this to everyone previously, that we are contemplating the expansion of the Columbia City facility and hope to increase its rolled output by 5 to 600,000 tons.

That project is being engineered.

It is not formally announced yet.

But we anticipate going forward with that project early next year and increasing the output at the Columbia City facility.

As we think about becoming a larger and larger player in Class One rail products, to the tune of a couple hundred thousand tons of production annually, that would in effect cause us to make decisions relative to what we might be able to roll on the existing facility at Columbia City.

Logically for us, we would take the smaller product lines, the 10-inch, the eight-inch, the six-inch, the four-inch beams, off of what we refer to as the big melts.

Not certainly as large as the Nucor installation at Blytheville, but off of what we refer to as the big mill, and load them onto the new small mill.

Thereby giving that particular effort and underpinning a business right out of the gate.

In addition to increasing our penetration into the light beam marketplace, we would contemplate rolling products such as channels, large channels and large angles, diverse array of products, which we think could bring that mill to capacity once undertaken in a very rapid period of time.

That project is ongoing, and we should hear further news on it within the next three months.

At this point in time, I would like to have John Nolan make some comments about the marketplace in general.

Good morning, ladies and gentlemen.

Nice to be with you.

I'm going to sound very much like my colleagues, in that Keith's remarks specifically about the markets for the divisions and New Millennium are spot-on.

I would tell you that as we look forward we see the strongest potential for at least the early portion of 2006 in the construction market.

With respect to flat rolled, November and December appear to be the first back-to-back months with essentially stable market pricing; and I can't begin to tell you how much I am enjoying that.

We have an opportunity to look forward in a context that we haven't for some time.

On the basis I would tell you that on a linked-quarter basis we expect prices for the fourth quarter to be up about 70 to $80 a ton.

I think that is about all I need to say.

Thank you, John.

Gary?

Okay, we will run down some of the numbers here for you.

Steel operations shipments this quarter for hot-band, we had 270,000 tons.

P&O, 57,000 tons.

Cold-rolled, 33,000.

Hot-rolled galv, 93,000.

Cold-rolled galv, 109,000.

Painted shipments 51,000.

And that is total shipments for flat rolled then at 613.

For Structural and Rail, we had shipments of 236,000.

For Bar we had shipments of 66,000, giving us a total shipments of 915,000.

Our average selling price this quarter for steel operations was $514 a ton versus the 590 we announced at end of quarter two.

So 514.

And the average scrap cost decrease was 42 per ton.

Capital expenditures, this quarter we had 8.8 million of CapEx.

We think we will have about 18 here till year-end, giving us a total for 2005 of about $45 million.

Obviously, that is much lower than the numbers we were talking about at the beginning of this year.

As you are aware that is predominantly because of the change in plans from Mesabi Nugget and that project not occurring on the time frame we had hoped it had, before we began seeking permits, which were slower than we would like.

For depreciation and amortization, for the quarter we had 25 million.

That puts us on track for 92 million for the year.

Interest expense this quarter, 8.3; and that -- we expect about 8.5 in Q4 or 35 million for the year.

The tax rate still at 38.5%.

That yielded cash taxes this quarter of 35.3 million.

We are expecting to approach 120 million for the year.

Working capital issues.

With accounts receivable coming off by about 35 million from June 30 numbers, the bulk of that occurred at the Flat rolled and Bar Divisions.

Some of that related to pricing; some related to volume.

Our Days Sales Outstanding remain steady, and our receivables still look very, very good.

Our lost (ph) results are quite impressive.

We just have very good realization on our receivables.

The inventories came down 43 million.

Now, that is driven in part by scrap inventories, which are lower at the flat rolled mill fairly substantially, and at the bar mill fairly substantially.

Finished good inventories are down at the structural mill pretty dramatically.

The structural mill as Dick indicated earlier had a tremendous shipping quarter and drove down inventory.

We were probably higher than we would really like in the past, and now are fairly lean.

So that is a great job for those guys managing those assets.

Payables.

The increase in payables is really a functioning of timing and nothing else.

With regard to our revolver, as Keith mentioned, we closed on a new $350 million revolver on September 7.

That replaced our $230 million facility.

We did that to both improve liquidity and also because we were able to get much more flexible covenants.

As all of our operations have matured a little bit, as we have brought the new plants up and running and begun to produce results there, it gave us, I think, an opportunity to get better terms, better pricing, and covenants.

Associated with that we had a write-off of about $1.9 million of unamortized financing costs that were associated with our earlier facility.

The other comment we want to make with regard to the revolver is just to express our thanks to the banks that are part of our bank group.

We have just a tremendous group of banks, and they really are there to support us as we grow this business and continue to launch new projects, and constantly bringing us new ideas.

So we just want to extend a thanks to our bank group for being there for us and doing such a great job on this facility.

Obviously, the balance on our revolver has come down.

It was about 30 million at September 30, from 125 at June 30, leaving us with liquidity including cash of about 351 million at September 30.

Our leverage is obviously stable.

We have got 0.93 times EBITDA right now, so everyone is quite pleased with that.

Keith has already mentioned the share repurchase.

So I think with that, I will hand it back to Keith.

Just a couple additional comments before we get into the Q&A.

Mr. Nolan talked about average price on a consolidated basis being up 70 to 80.

I -- just make a comment about scrap.

Scrap was down as we said about $42 on a linked-quarter basis.

It is probably going to be up in the fourth quarter by about as much, somewhere in the $40 to $45 range is where we see it, which means on an up-and-down basis we have not moved very far from where we were at the end of the first quarter, you might say.

As it relates to our scrap inventories, Gary mentioned scrap inventories are less at our Butler works.

It is not so much scrap; it is pig iron.

We had quite a stock of pig iron that we have continued to work down.

We have reordered considerable stock some time ago of pig iron.

So we are -- those inventories will probably be building a little bit again.

The actual scrap on the ground has not changed significantly.

I might also tell you that Iron Dynamics has had a fairly steady-state operating performance, operating at about 20,000 tons of production per month.

Generally speaking, revolving around a cash breakeven.

They're losing money, but generally speaking not cash.

We might have Mark Millett just comment a little bit about the progress of Mesabi Nugget from a permitting perspective, and a timing perspective, and from any other perspectives he cares to engage in.

I think I mentioned a little bit about Mesabi Nugget.

The permits are in hand.

Complete permits in hand in Minnesota.

We have a permit here in Indiana that is undergoing a little bit of a challenge, but should be resolved in January.

So we will be able to move forward in either location early next year.

As I mentioned, we will be incredibly careful this time around to make sure that we drill into the capital cost structure and the operating cost structure, so that we make a prudent decision there.

Iron Dynamics itself, as Keith suggested, the last few months we have been running around about a 20 -- actually a 22, 23,000-ton pace.

The team, as everyone recognizes, has struggled but has remained stubborn in their goal to make it work.

And has a lot of progress.

The rotary hearth furnace this month, for instance, is running at about availability of about 93%, which is almost -- we never thought that would happen just six months ago, I guess.

They also have done a great job in reducing the gas consumption.

The gas consumption on the rotary hearth furnace itself is actually less than 2 dekatherms a ton, which is a lot less than what we ever anticipated and has helped mitigate the surge in gas prices.

But nonetheless, it is under some economic pressure.

We are seeing, as our inventory flows through, increased cost of iron ore and coal.

And as Keith suggested we are kind of marginal at a sort of a cash breakeven basis, as we speak.

The guys, though, are being resilient and adaptable.

We are looking at other sources of iron unit, expanding the use of mill scale.

We are looking at blast furnace dust, that allows a cheaper input of both iron oxide and coal to the process.

And they are striving to reduce the repair and maintenance cost that has been a little inflated over the past months.

For now (indiscernible) progress; it is unfortunate that the economic or the raw materials drivers are there.

But hopefully we will overcome them.

Thanks, Mark.

Angela, I think we're ready for the Q&A component of the earnings call this morning.

(OPERATOR INSTRUCTIONS)

Angela, again before we get started I want to remind everyone that any questions relative to the potential merger with Roanoke Electric Steel will be handled in a separate call immediately following this Q&A.

Thank you, sir.

John Tumazos with Prudential.

Congratulations on all the progress.

I am particularly interested in your $0.035 power rate for '07, which I think is spectacularly good.

Is your supplier coal-only based?

Is it interruptible?

Does the supplier have a coal contract continuing beyond '07, or gas contract hedged, etc.?

A concern of mine, since natural gas is $13, $14 and coal price is more than doubled, is that coal contracts in the coal industry are typically one to three years.

Gas is often sold spot.

And the electric utilities don't always have their raw materials set up to support their sales contracts with customers, which creates an instability if the power supplier is not as strong as a good customer like Steel Dynamics.

John?

The contracted power at Butler is in force for another couple of years at about the $0.035 rate, and then will be renegotiated.

There is a standard interruptibility feature of about 180 hours a year in that contract.

That power is physically fed from the -- we have a dual feed at Butler.

The source to the north is AEP's nuke plant;

I forget exactly which city in Michigan it is in.

The feed to the south generally speaking could be multiple feeds, but generally speaking is a direct tie to Rockport, down on the Ohio River, which is a coal-based facility.

In the case of Columbia City, we run on, you might say, open market purchases there, and have because Dick's melting capability is in the 2 million ton zipcode and his rolling capability is in the million ton zipcode.

Therefore much of his melting is done at nights and on the weekends, which historically -- prior to some significant spiking because of heat and natural gas -- has kept his power costs underneath that of Butler.

As we move forward into our future discussed project, we are in the process of negotiating a more fixed position at Columbia City.

It is only just speculation as to where we might be.

I would tell you it is not likely going to be $0.035; but it's not likely going to be $0.045 either.

So that is my comments about Columbia City.

As it regards Pittsboro, we have been on real-time pricing ever since our birth there, with a similar situation where we had more melting capability than our learning curve would allow, and therefore ran on nights and weekends.

We are also talking to Cinergy about a fixed rate deal in the same zipcode as I just described for Columbia City.

When you in your prepared remarks described $0.035 for '07, was that Butler only or the entire Company?

That was Butler.

Now the Company wasn't much different than that on the whole.

Glenn was a little higher and Dick was a little lower, so therefore our performance and this year is at that level.

But on a go-forward basis '06 is going to be $0.035 for Mark.

For Dick and Glenn it may well be -- who knows -- $0.04 or it might be 3.7 or it might be 4.2.

We just don't know yet, John.

Just to give an example of a background concern I have, the aluminum smelter that Inco is buying has a 15-year power contract.

Alcoa in Québec has a nine-year power contract.

The electric utilities sometimes make very long-term promises, but their raw materials purchases are very short duration.

Yes.

Are you aware or could you describe anything about whether the electric utilities match their inputs with their sales to you?

So that they are on a solid footing.

I guess if you are buying spot, running at night, it's a totally different situation where it is spot to spot short-term.

But where you have longer-term agreements, what is the footing of the utility?

I think as you just described, their deals are generally three-year kind of deals; could be a five-year deal, whatever.

We used to have seven-year deals.

I don't think we're going to be in that zipcode.

I think we are going to be looking at three to five-year deals, which is going to match up with their long positions and purchases.

Thank you.

Wayne Atwell with Morgan Stanley.

A couple quick questions.

Could you give us your thoughts on volume for the fourth quarter?

I think is going to be probably up just slightly, Wayne.

Dick might actually be in the same zipcode, Butler.

I would just tell you it's not likely to change a lot.

I would not forecast a major change there.

In Columbia City, could you give us a little more detail on that?

Where do you stand in permitting?

Can you give us a rough estimate of capital cost?

I assume this is a rolling mill, so it will be a structural rolling mill.

What kind of -- the 6, 700,000 tons?

Could you just give us a little more color and detail?

Probably 5, 6 -- Dick, go ahead.

You can address that.

From a permitting perspective, the permit has gone through the public comment periods, and the comments have been addressed.

It's basically in the writing stages.

I hate to use the term any day; but we could've gotten it yesterday for all I know.

I was traveling.

So it is that imminent.

From a capacity standpoint, we look at it from a -- that this project involves a reheat furnace and a rolling mill; therefore an expansion of our existing caster will be required to utilize most of the capacity of the arc furnaces and the LMS (ph).

That would raise the capacity through the melt and cast to about 1.6 million.

And to Keith's comments about 600,000 ton rolling mill, the rolling mill itself would have extra capacity; but we don't look at utilizing it, because we have to be cognizant of what the market will bear and what products we really want to bring to market.

So as we make smaller and smaller sections and more of them, that somewhat limits the amount of tonnage that would be delivered.

Capital cost 75 to 100?

No, Wayne, capital costs would be approaching 200 million.

200 million?

Yes.

When you include the modifications to the caster and the rolling mill and other ancillary facilities, it is approaching $200 million.

And timing, 15 months?

Fair estimate.

Yes, that is fair.

If I'm not mistaken, this mill has between 1.8 and 2 million tons of melting capacity.

So conceivably, you would not be using all of your melting capacity.

It probably has more than 2 million tons of melt.

You are right, we would not be using all of it.

The design for the second mill would incorporate the opportunity to backward-integrate a second casting machine that would supply billets in smaller sections, should we went to pursue those markets.

So you have the opportunity then to add another rolling mill later if you chose?

No, no.

That is the unutilized capacity in the second mill that would be able to be tapped through the addition of the second cast.

Okay, so you have the rolling capacity but not the caster capacity.

So if you added another caster, then that would open up the rolling capacity.

That is exactly right, Wayne.

Great, thank you very much.

Andrew O'Connor (ph) with Wells Capital Management.

Keith, I wanted to know when you say volume is up slightly in the fourth quarter, 2%, 3%?

Oh, I don't know that it will be that much.

It is going to be pretty much in the same zip code.

Mark could be up slightly, Dick could be actually down slightly to sideways, and Glenn could be up a little bit.

I wouldn't think that Glenn's numbers -- Glenn's numbers could get better by 10,000 tons;

Mark's could get better by 10 or 20,000 tons.

So it's not a monumental increase.

Okay, so if you guys are looking for a 20% sequential increase in earnings from 3Q to 4Q, it is mostly pricing driven; is that right?

Well, I thank you heard John comment that prices could be up $70 to $80, and you heard me comment that scrap could be up $40, 45.

There are other costs, energy-related costs, deal costs, lots of other costs involved in making just a back-of-the-envelope calculation.

But if you went to the bottom side of pricing, the top side of scrap, I think you'd get the absolute total outer parameters of anything realizable.

Okay, and then secondly, is it too soon to take a stab at CapEx for 2006?

Would you have a guesstimate at this points?

Well, I think normal CapEx spending for us on projects contemplated, some not announced, etc., etc., would be in the $50 million zip code, somewhere around there.

That could increase by 20, $25 million for Mesabi Nugget should that come online.

So you could end up with -- and if you had an early launch, if you had the rail effort launch, you could see with the new -- not rail, the new structural effort -- you could see $200 million in CapEx.

But without it, you could see $75 million, so it is that broad of a range.

Okay, and not including Roanoke?

Correct.

Okay, that's all so we have.

Thanks very much.

Michelle Applebaum with Murray (ph).

Hi, Michelle Applebaum with Michelle Applebaum Research.

I just wanted to ask you a question in terms of the power costs, and it's fascinating looking on a go-forward basis.

I know that historically, we had some very long-term and somewhat capped power costs in the minimill sector.

Can you sit back a second and look at the impact across the industry, of what you think is going to be happening with power costs on the minimill side and the integrated side in the next year?

Yes, I can, Michelle.

At the latest Steel Manufacturers Association meeting, that was probably the hottest topic discussed, was energy.

A little concerned about the overinvolvement of traders such as the Enron nature type trading mechanisms that I think are out there today that lead to higher pricing.

So there is some concern about that.

There is concern in our industry about the generation being split off from transmission, and all of a sudden we are ending up with all kinds of funny money charges in the transmission world that were nonexistent before.

So you wonder what kind of games are being played.

There is certainly a fairly significant underway by many producers to try and price future energy deals off of, you might say, their peak fuel, whenever that might be.

One could speculate it might be coal, but right now it is gas-driven.

I don't think there's any doubt about that.

I think we had one energy expert in at the meeting that believed that if we weren't driving all of our marginal energy production in this country off of gas peakers, that the price of natural gas may well be $4.00 again.

It is that significant.

So we have obviously done the wrong thing, at least I think as a nation, and put too many eggs in the peaker basket and not enough in the nuke basket.

Because there are -- there is a new generation of nukes that are quite sound and safe being engineered by the government as matter-of-factly.

Encouragingly we're starting to see a lot of things on the news today about -- even advertisements supported by environmental groups -- that are talking about the real future is nuclear, and that is where the best cost position in the future might be.

But there is some concern that future pricing contracts could be driven off of peak highs in the specific fuel.

So it is going to be an interesting future.

I think a lot of people that had long-term contracts are coming to an end.

There will be people out there that might have five years left, three years, two years, one year, no years.

I've talked to a couple of the manufacturers that just renegotiated their deals; and I won't name any names, but they were in the $0.04 range.

Up sharply from where they were historically.

But we are living in a different world today.

What would you guess, if you are trying to sit there and look at the whole industry in the United States in particular, could you possibly guess the per-ton impact of rollovers in the next year?

Because obviously the guys who have the most longer-term contracts will have a little bit of an umbrella for the next year or two as those things come out.

But they will roll in at market.

So there is going to be some industry pass-through of cost increases.

Could you possibly --?

Well it's not unreasonable to assume that it could be as much as $10, kind of thing.

I don't have a --

On electricity, right?

Well, on gas.

No, all --.

Including natural gas?

Yes, all energy sources.

Okay, that's great.

Obviously that is a hot button.

Thank you.

Could be 15, I don't know.

Including nat gas?

Yes, always including gas in my thoughts.

I am impressed that you are hedging at these levels.

I think that is a conservative strategy.

Do you get a sense from talking to your peers that others are as well?

I am surprised at how unhedged the industry is as a whole.

The industry largely was unhedged.

There were a number of producers that had hedges.

We did, some rather good hedges.

We have very few remaining, as Mark said, few to none.

We have some $8.00 ones and about to enter into some $12 ones, kind of thing.

But I sense that there are very few people who could have anticipated this dramatic rise that existed.

Therefore, we were all hopeful that when it got up to $8.00 or $9.00 it was going to back off to $7.00 or $6.00.

And it didn't happen.

So you want to make sure you don't run out of gas and you can operate your business.

There are those that are impacted to a far greater degree than we are on, certainly, natural gas.

Wow.

Those are really big numbers.

So when you talk about $10, there are people out there in the steel community that are living with probably $50, $60.

So it could be huge for some people.

Aren't there some substitution kinds of things, though, that like maybe in the third quarter they couldn't move that quickly, but there's a little bit of an offset, isn't there, to how they utilize their different fuel resources?

Or will that 50 to 60 have to be baked into the cost structure if gas doesn't back off?

Well, I am just thinking of the integrateds and the burden they are carrying relative to natural gas.

That is significant.

If our natural gas -- I don't even know what it is -- but if it were $8.00 a ton of product manufactured and it doubles, it's 16, then if the other guy is five times greater than we are, then he was -- or four times, he was looking at $30 and if that doubles it is 60.

So my goodness.

There are some burdens being carried out there in this industry with natural gas.

I think that -- I don't want to speak for the other guy, but I think that probably had a lot to do with some of the concern over earnings, was in certain sectors of this industry the rise in electrical energy costs as well as natural gas.

Fascinating.

Okay, well it is obviously a hot button.

Thanks, Keith.

(OPERATOR INSTRUCTIONS) Aldo Mazzaferro with Goldman Sachs.

A question on the bar side.

I noticed the shipments of bars were down a lot, but I would guess that was because you were transferring more to New Millennium.

Would that be the reason?

As you look sequentially at the bar shipments.

No.

That really had to do with a fairly dramatic drop in the spot market.

Glenn was taking time to practice rolling new products.

So his melt shop was in good shape.

We were shipping -- could have shipped a few billets but didn't.

We were not a preferred billets supplier to a couple of companies that had been buying our billets, which impacted his shipments slightly.

But it is mostly just we were totally exposed as a spot player.

I think you heard me say that won't be the case in '06.

But that is life.

As you prepack (ph) products in this market.

I think they have done a really good job of responding to some very exotic alloy grades successfully, and I think they will be honored with some business by the OEMs next year.

Okay, then the other question I had is what do you think about structural pricing fourth quarter versus third?

I know you have been holding the line while the scrap price has been dropping.

I am guessing that that is going to have some impact on the average price, if you look fourth quarter versus third.

I am just wondering if you could give us a feeling as whether you are seeing that, in terms of what kind of an increase in pricing you might see there in structural?

I think with a healthier nonresidential market, and I would suspect we're not the only guys carrying around a healthy structural backlog at this point in time, that there might well be an opportunity to increase transaction values.

But at the same time, I know we and others need to be cognizant we're not the only guys in the world producing beams.

The foreigners produce them as well.

You get too far out of the world market for these products -- although I would point out they're all electric shop driven; they're all burdened with the same energy problems, the same scrap problems that we are -- and I doubt that their cost structures are competitive to ours or Nucor's or Chaparral's.

But at the same time, you get too far left of center in the road and you invite imports.

But I think we're looking at a robust market and there is a potential to see transaction values go up.

I don't certainly expect them to get any worse.

Finally, Keith, do you have a feeling as to how much your average selling price in the third quarter may have been impacted by a mix change compared to the price index change?

I was expecting it to be partly hit because you had the hydrogen problem; and I see your hot-rolled shipments picked up relative to second quarter.

I am just wondering.

I didn't quantify that, Aldo, and maybe we should have.

But when I said, geez, prices could be down as much as $60, they were down $68.

It kind of surprised me too.

But we reached some pretty down and dirty numbers in June.

But I would tell, you are right.

That much more of our product mix was tilted towards hot-rolled than (ph) hot-rolled pickled and oiled and products like that, which have lower transaction values and that had some steerage.

I don't think it was certainly $8.00 worth, though.

Do you think you're going to bounce back more or less to the first and second-quarter type mix?

I think so.

Okay.

Thanks, Keith.

Tony Rizzuto with Bear Stearns.

I just have a couple questions for Keith.

First of all, the tone of the negotiations that you guys have been having with customers, have you been getting a lot pushback on the energy surcharge?

Just all this conversation about surcharges in terms of the energy situation.

I don't think so.

I think there has been general pushback to some degree on surcharges, period.

I think it's a fair statement to say that our customers are getting sick and tired of the volatility that exists in the market.

I think it's a fair statement to say we are sick and tired of the volatility, and we will let the scrap community, which generates much of that volatility, to speak for itself.

But the crazy markets we see are sometimes really hard to understand.

How can scrap go up $60?

I think it had a lot of fluff and puff and air built into it, all to see that air come out the very next -- I mean, the behavior here sometimes is called into question.

I know it drives us nuts and more acutely our customers.

I think our customers know that we are carrying an energy burden around.

We have not announced an energy surcharge.

If you look at just it being based on scrap, there is an energy component almost that's baked in there, but not dealt with other than through base pricing.

John, do you have any other comments?

No, nothing to add, Tony.

Keith covered it.

All right.

Just a question on the automotive situation.

In light of the potentially watershed breakthroughs we're seeing now, as it involves their labor, healthcare, pension, all that stuff, how do you see this playing out, and with specific implications for the steel industry?

I don't have an automotive crystal ball that is huge.

I know that a lot of us were concerned about economic issues in that industry, bankruptcies, concerned about discount programs and whatnot that really reached about as far as the automotive guys had a capability of reaching.

Into employee pricing, and did that really pull up '06 buyers into '05?

Gosh, I don't -- anyone has a firm answer for that.

Same time, we have all these natural disasters which probably create about 600,000 shredded cars in the end, that not only add to the scrap supply potentially downstream, but maybe not all bad news for the automobile guys.

But I think John said earlier we expect our opportunities in nonresidential and the construction markets to be up significantly.

If there is to be a shortfall in automotive, from our perspective, we think we could work through it handily.

All right, Keith.

Do you think that longer-term there might be -- certainly this could lead to a more viable industry and maybe more rational type of pricing structure longer-term, as maybe that industry is more rationalized and the behavior becomes instead of just beating all suppliers down over their heads to get cost reductions each year?

We all try and lever our suppliers for cost reductions and want them to be ingenious, if you will, and have ingenuity.

But at the same time, we all have duties and responsibilities to look in our own house and make sure our own cost structures are not forgotten either.

That would include the automobile guys.

I am sure they're doing a lot of soul-searching about how can we streamline production and reduce our costs.

The suppliers are certainly paying a heavy price at this point in time.

I don't know where these guys are going to end up.

A lot of structurings went on in the steel end of the business, and with all of the bankruptcies, restructurings, and consolidations, and that has really been healthy for this industry.

I think as there is better behavior and better discipline, it is an outgrowth of all that today.

I hope you're right and hopefully we will see that too.

Thanks for your insights.

I appreciate it.

Chris Olin with Longbow Research.

Keith, a couple questions on the supply side.

First, what do you think the impact would be from the potential restarts of the North American idled blast furnace, or any capacity out there?

Second, do you have any concerns about foreign imports in the first quarter of '06?

I can only tell you I don't have concerns about the fourth quarter of '05.

Obviously, those kind of tidal waves can be mustered in a short period of time, as we have seen in the past.

Right now, there doesn't seem to be any hard evidence that there is going to be that kind of misbehavior in the global markets or avalanche of unfairly traded goods, or fairly traded goods for that matter.

So I don't know.

Right now, there is a calm out there.

Relative to the comments about blast furnaces coming back online, I would tell you that even though the economy is not running as hard as it was in '04, it's still is moving forward.

I think progress economically is to be had in '06.

I think '06 could be a better year.

The operating rates of this industry are down around 86%.

Yet.

I certainly think there is room to get to 90%, so I think it can be accommodated is how I view it.

So the wild-card, as always, remains imports, imports, imports.

And the big question, as always, is China, China, China.

But we haven't seen any solid evidence of the Chinese intending to misbehave and wholesale dump on the U.S. market.

I wonder if we're looking at a mirror image of 2004, though, where you have a slowing economy potentially related to energy cost.

You have a lot of inventory build by distributors that might not be necessary.

Then you are looking at another drawdown in early '06, that would suggest that there's going to be too much supply in North America.

Have you looked at that at all?

I think the inventories you will find came down faster than even the guys that stock them thought they would.

I have talked to people in this industry who were shocked at where their inventories ended up.

And they are theirs, not ours.

They said, my God, we are down to 1.5 and 2; and it was just yesterday we were at over 3.

So I think inventories are at more manageable levels.

I don't think right now there is any double ordering going on that is creating any kind of a panic or run-up in costs and pricing to the $800 level.

I think we would all be ill-advised to march done that path again, because we all know what happens.

You do invite imports.

I think when pricing is in the 5 to $600 range, it is not likely to invite a lot of imports.

Under 500 it is probably very unlikely, and above 600 it becomes certainly more likely.

Fair enough, thanks.

Michael Gambardella with JPMorgan.

I have a question.

When you saw pricing kind of bottom in the summer, how much of your, say, fourth quarter did you book at those low prices, if any?

None. (multiple speakers) answer.

So for the fourth quarter order book, you have pretty much booked the entire business post the prices starting to recover.

You have captured that.

Yes, we do have some long-term supply agreements in place that were renegotiated.

Those maybe at above or below today's values, but they are different than, if you will, yesterday's values.

Approximately what percent of the order book would that be for the fourth quarter?

Michael, this is John Nolan.

I would say it would be on the order of probably somewhere between 20% and 25% would be my guess.

Those that were subject to some renegotiation.

There are those that were not.

So the total long-term sales agreements are a little greater than that; but those are the ones I think John was speaking to, the renegotiated.

Great.

Last question, I just want to ask, and this may overlap a little bit into the next conference call, but can you talk about your priorities for cash going forward?

I think we would rather save that to the next conference call.

Okay, very good.

Wayne Atwell with Morgan Stanley.

I know you sort of touched on this.

Do you have a firm estimate on how much gas you use per ton, or what your gas costs are today?

I think we actually do.

Theresa, I think you might have that data, do you not?

We do.

We use, on a per-ton produced basis, and it includes the three steel divisions, for the first quarter and the second quarter it averaged about $12 a ton.

In the third quarter it actually jumped to $15.

Okay.

Wayne wanted to know consumption in KWH and probably gas consumption.

Mark, you can speak to that, generally speaking.

I can speak to Butler.

Power consumption currently is running around about on a gross basis about 680 to 690 KWH per ton.

For all tons, Wayne, not for hot-rolled.

For all tons.

Obviously when you look at gas consumption, it depends on the specific products itself.

In September, the hot-band, we were around about $5.00 give or take a little bit.

About $5.00 a ton for the hot-band.

Going forward, and that is with gas hedges around about $8.10.

If you figure on a gas hedge of $13, $14 through the fourth quarter, that would be about a 70% increase.

So your $5.00 would go to $8.50 or thereabouts.

Again, that is hot-band.

Okay.

Changing the subject for a second, New Orleans, I assume you really haven't sold any steel particularly yet that would go into the rebuilding of New Orleans.

Do you have a thought when that might happen and how much volume that might generate?

I don't.

I can tell you I made a trip to Indianapolis the other night and passed 13 mobile homes all with the FEMA flag being proudly displayed.

That does involve some small beams that could actually be produced by -- who knows -- Roanoke, Steel of West Virginia, some of our small product.

I think there is going to be an impact.

We have a few distribution centers who had badly damaged roofs that have ordered new roof systems, if you will, from New Millennium Lake City, Florida, plant.

I would guess that we're at the early stages of what we are about to see there.

But in general for the structural market, this could take six to 15 months to pick up.

It takes quite a long to design, get approval, get financing. (multiple speakers)

Exactly, Wayne.

We have supplied steel for a couple bridge repairs over I-10 down in Biloxi.

But other than that, those were just basically replacement in kind.

So there wasn't that time frame required for redesign and so forth.

But other than that I think you're right on the timetable.

Wayne, this is John Nolan.

You have to consider that the methodology will be to drain the swamp, get the insurance folks in, whether it's residential or commercial property, and adjudicate that.

You got to get engineers and architects to draft up new concepts.

Once they decide they're going to go back in there and then source that -- I think you're talking about a much longer timeline than the press has indicated at this point.

Great, thank you.

David Lipschitz with Merrill Lynch.

Keith, where do you see spot prices right now for hot rolled?

Do you see them like slightly up, or do you think they will go down into the low 500s from probably the mid-500s?

Well, I don't know where they're going to go next year.

I think they're going to be fairly stable, as a matter-of-fact, and may go up somewhat next year.

But that is not based on any hard evidence, other than the economic indicators we're seeing and the market activity we are seeing.

Right now, pricing is at about 540 to 560 plus extras on hot-rolled.

That is just in that zipcode.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Brett Levy with Jefferies & Co.

Can you guys talk a little bit more about, as you roll out Columbia City, what the product mix is going to be?

Sort of how much merchant bar as you start out?

How much and what kind of merchant bar?

I think you mentioned large sections or angles.

Then talk a little bit about kind of where the rail approval process is going.

Last one is, some update on your thoughts on the West Coast.

The last topic first.

We have no additional thoughts about the West Coast at the moment.

We have been preoccupied with other things, nothing new to report.

I think the best way to look at Columbia City is globally.

If Dick is going to get to 1.5 million tons or in that vicinity, and he is at 900 or whatever, what is the other 600?

I would tell you, it is our hope and desire that about 300,000 tons is rail production that is not currently part of the baseloading of the mill.

The penetration of small beams might be another 100,000.

Angles, big angles might be 100,000.

Large channels might be 100,000.

That kind of product.

Plus flats.

And the other thing, when we expand the existing caster we're going to redesign it to allow us to cast a bigger beam blank.

The fourth strand will be designed to do that, and we will modify the other ones, and that will allow us to make some larger column sections.

So some extra weight capacity will be forced back upstream into the heavier sections too that we don't currently make.

So ultimately, some of that additional 300,000 is supposed to be beams?

A little bit.

Most of it.

Again we call it structural members.

We aren't making any channels right now and there is a demand for larger channels.

We will be able to make those.

We don't make any flats or any angles.

So we will be designing to do all of them, and we will basically apply our efforts towards where the markets will best receive them.

I guess the best way to say it is, if we're making 200,000 tons of little beams now, we might make 300,000 tons of little beams 15 months from now, kind of thing.

Or two years from now.

It is not a huge increase in little beams.

It is mostly an increase in rail products and other structural members, big channels, and big angles.

The last part of the question was, how is the approval process for the longer rail product going?

Again, we haven't made a whole lot of progress on it, as we were waiting for the delivery out our new rail bloom molds.

We received them about a month ago or so, a little bit longer than that now.

Have run two successful trials.

The results of those trials have been as we predicted them.

I think the molds are working exactly as the supplier wanted them to.

Now it is just a matter of producing the right bloom, and then take it down to the rolling mill and running it out.

So we have had ongoing discussions with the railroads to keep them informed of what we're doing.

But we haven't spent time rolling any rail when I haven't had the bloom section that would make the prime rail segment, the prime rail product.

So I would tell you that we believe we will be successful here in rolling prime rail product the balance of this year, and initiate the approval process immediately.

Thanks much, guys.

(OPERATOR INSTRUCTIONS) Charles Bradford with Bradford Research.

Two weeks ago or maybe even longer than that the senior purchasing guys at General Motors made a comment about how they were going to use the minimal car (ph) since (indiscernible) companies want big price increases for next year.

Have you guys straightened out your relationship with GM?

What do you think the potential is?

How about zero?

I think we will continue to be of value to Chrysler Corporation, Ford, and other transplants.

We do probably do some business with General Motors through the back door.

I don't really foresee anything through the front door.

But any rekindling of a relationship would be welcome.

Thank you.

Mark Parr with KeyBanc Capital Markets.

I just was wondering, first of all, if you could give a little more color on the scrap situation for the fourth quarter?

You are talking about it being up $40 to $45.

Could you talk a little bit about the difference between, say, pig and prompt and obsolete grades?

Well let's take pig iron.

I don't think there are currently any red-hot deals on pig iron out there, as we would view deals.

But I think a lot of people engaged in pig purchases in the 225, $230 range.

No lock here, some time ago, with many boats on the way.

We haven't done any buying since then because the price has been at unacceptably high levels from our perspective.

The scrap situation, Mark, I think is -- October is over with; it went down.

I think we are anticipating, and I think in early conversations with some of the providers in that industry, two of them I have talked to said zero to $20, okay?

Is that up or down for (multiple speakers)?

Up (multiple speakers) November.

That is their thinking.

I would tell you that that is probably a likely possibility, which is kind of what we factored into our projections, mindful of the fact that December could be sideways to up.

Historically generally it's a little more up.

There been some surprise years when it was down.

But December's delivery would not impact our operating costs.

That actually would impact January or February.

So all the scrap we have on hand or would be purchasing for delivery in November would get us well through December, possibly January, and maybe longer.

So if there is to be December impact it wouldn't show up until the first quarter, for sure.

Right, okay.

Terrific.

I have one other question related to Pittsboro.

You have had a successful initial commissioning phase.

You really deserve congratulations, and Glenn's whole team deserves a lot of congratulations for that.

I know that one of the things that you had talked about, going back, was a very flexible finishing train that could produce different kinds of products.

I am wondering if you plan on bringing any of that to bear into your '06 shipment mix; and if you could give a little more color on what your plan for Pittsboro is next year, I would love to hear it.

I think we will continue to negotiate time to time spot deals on billets with certain providers and maintain that capability.

We even have a rolled billet, if you will, that has been popular with the purchaser.

Glenn has the capability.

He has to cut the rolls to produce angles and other products.

We have not produced any angles, and should the contemplated merger take place, then I doubt that he's going to.

It is our desire to basically be an all SBQ type facility.

He also has the capability, he has demonstrated that capability, to produce rebar successfully.

We certainly don't envision that being an activity that we would engage in, other than in extraordinarily weak markets maybe for SBQ.

But no, we think that mill will be an all SBQ facility.

Okay, all right.

I appreciate that color.

Thank you very much.

Michelle Applebaum.

I got blocked a little bit, but I don't think this question was asked.

I know that has historically the minimills sold spot market customers on a spot price basis.

Nucor last year started selling spot market customers on a contract price basis, which was sort of new and different.

You guys had not done that.

Is that something that you would contemplate doing?

Or have you increased your activity on a fixed price basis?

On a fixed price basis?

Yes, the way they have the fixed price with surcharge kind of thing.

Well, they have got some pretty creative, what I call, commercial solutions out there, Michelle.

By the way, this is John.

We have dabbled in several that seem to work for us and our customers.

We don't have a specific or let's say a single methodology or commercial solution in the market at the moment.

In some cases, we are selling on a base plus surcharge.

In some cases we are providing what we call ship when ready pricing.

In some cases we are providing a firm either multi-month or quarter price.

In some cases we are going a little bit longer.

We're trying to bring solutions to the market that work for our customers.

Has it given the Company any more cushion if we get another spike down, the way we did last spring?

Well, we would obviously like to believe that they would.

Whether that in fact comes to pass is yet to be determined.

Truthfully as I look forward, I don't know that the hugely unstable and disruptive circumstances that we experienced last year we're going to see going forward.

But again, one thing I have learned about life is never say never.

You have never not seen them.

Yes.

Okay, great.

Thank you.

Like I said before, we are enjoying back to back months of some (multiple speakers) calm and stable circumstances.

The longer that goes on for me, the happier I am.

Do you recall the last time we had two months in a row of the same steel price?

Ever?

That was probably 2003 sometime would be my guess.

Unbelievable, isn't it?

Absolutely.

Okay, thanks.

Angela, we would like to, if we could, cut this off at this point in time.

If there is someone who is just dying to ask one more question, that would be great.

But we need to get on to the second half of the conference call.

Sir, that was actually the last question in the queue at this time.

Great.

Well, let me just thank everyone for attending the first half of the call.

I hope you stay around for the second half.

I would like to begin that at this point in time or shortly.

I am going to pause for about 30 seconds and come right back with the group.

So stay on the line if you choose.

Okay.

Again, good afternoon, ladies and gentlemen.

As we previously announced on October 18, 2005, in the press release announcing the entry into a merger agreement between Steel Dynamics and Roanoke Electric Steel, SDI and Roanoke are pleased to host the ensuing discussion regarding the proposed merger.

Again, I am Keith Busse, President and CEO of Steel Dynamics, and with me to discuss some of the basics of our proposed merger are the following individuals.

From the SDI side of the street, Mark Millett, Dick Teets, Gary Heasley, Theresa Wagler, and John Nolan.

And from the Roanoke Electric organization are its Chairman, Don Smith; its President and Chief Operating Officer, Joe Crawford; and the President of Steel of West Virginia, Tim Duke.

Having said that, I would like to turn the meeting back over just for a brief moment to Fred Warner, so he could read the appropriate disclaimer or forward-looking statement.

Thank you, Keith.

Except for historical information contained in any document that has been or will be filed pursuant to SEC Rule 425 in connection with the proposed transaction between Steel Dynamics, Inc., and Roanoke Electric Steel Corporation, which was announced on April -- on rather October 18, 2005, and except for historical information provided during this call, statements made during this call are intended as forward-looking statements within the meaning and the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995.

A forward-looking statement is a statement that is not a historical fact and without limitation includes any statement that may predict, forecast, indicate or imply future results, performance or achievements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in or implied by the forward-looking statements.

Risks and uncertainties involving business in general and the steel business in particular which may cause actual results to vary materially are discussed in and can be found in Steel Dynamics, Incorporated's 10-K Annual Report under captions entitled Forward-looking Statements and Risk Factors, as well as in other reports we file from time to time with the SEC.

These reports are publicly available on the SEC website, www.sec.gov, and on our website, www.steeldynamics.com.

Additional risks and uncertainties regarding this proposed transaction include, among others, that the stockholders of Roanoke may not approve and adopt the merger agreement and this transaction; that we may be unable to obtain regulatory approvals required for the merger, or regulatory approvals may delay the merger or result in the imposition of conditions that could have a material adverse effect on the combined Company or cause us to abandon the merger; that we may be unable to complete the merger, or completing the merger may be more costly than expected; that there may be unanticipated problems in successfully integrating the combined businesses, which may result in the combined Company not operating as efficiently or effectively as expected; that the combined Company may not be able to achieve the desired synergies and the merger may involve unexpected costs or liabilities.

Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a predictor of actual results.

In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this call except as may be required by law.

Thank you, Fred.

I would like to just make a few opening comments, and then I'd turn it over to Don Smith for a few comments.

As you know, this potential merger agreement was announced on October 18, Tuesday, and contemplates the exchange of 0.4 shares of Steel Dynamics stock plus $9.35 of cash consideration to the Roanoke Electric shareholders at the date of closing -- I'm sorry, $9.75.

I stand corrected.

The timing is certainly subject to regulatory filings, approval by regulatory bodies, as Fred pointed out, such as SEC, Hart-Scott-Rodino, obviously proxy statements to the Roanoke shareholders, approval by the Roanoke shareholders, and so on and so forth.

We do not contemplate any real problems in that regard.

I think one of the questions might be, do you see any Hart-Scott-Rodino issues?

I would tell you I see no Hart-Scott-Rodino issues.

I think the obvious question would be, what does this do for you and what does it do for Roanoke Electric Steel shareholders and employees?

Obviously, for us, it diversifies our product base.

So if there is any protection in diversity, some additional protection is afforded.

We will be involved with other products that the steel community has historically been involved with, and probably have one of the more diverse supply bases of any producer in the steel community.

Save only one product -- we do not produce plate.

Other than that, we offer about every product that is offered in the industry today to our class of customers.

I think not only do we add product diversity, we get involved in OEM markets that we have not been involved with historically.

As we look at Steel of West Virginia, they do a lot of unique OEM-type business.

I think that -- and they are involved in downstream fabrication as well as the production of steel.

So we need to understand that Steel of West Virginia is not just a steel mill; they fabricate steel products as well and distribute them to the market.

So it gives us a new look into those markets.

We think we can be very supportive of those efforts at Steel of West Virginia, as well as Roanoke Virginia.

As it would regard the fabrication business, I think there's just tremendous synergies there.

I think all of you know we intend to grow in that segment of our business.

We have two highly respected -- I think considered the most efficient joist and girder fabricating businesses in the United States of America.

One of them located in Butler, Indiana, and the other one in Lake City, Florida.

The Roanoke facilities are located in Ohio, and in Virginia, and in South Carolina.

The Ohio and South Carolina facilities go under the name of Socar today; and the Roanoke facility generally operates under the handle of Hancock.

Two very old, very respected names that have a good customer following.

But if you look at our ability to graphically supply the needs of the customers in this country, certainly east of the Mississippi we would have a very, vary broad presence, which when you think about people that buy on a national scope or a national level, such as Home Depot, Lowe's, Wal-Mart, and people like that, I think we could be a very significant player, be very attractive to clients like that, because of our more or less East of the Mississippi River national scope of supply.

So I think combined, some of the unique things that we have done in the production of these products and some of the unique things that Roanoke has accomplished are just going to match up very, very well.

We have a plan in place, a thought process, relative to supply of standard joists, as well as a plan for truss and girder type fabrication that I think is going to dovetail together quite nicely and provide enhanced opportunities for all.

As to the merger and its value to shareholders, we believe that this contemplated deal is 3% accretive to earnings, and we believe there are good synergies involved with this deal.

I think it's been publicly stated we believe there are somewhere between 5 and $10 million available annually in synergies.

I think that is probably, as we walk forward in time, potentially a low number.

I think right out of the gate we might enjoy $8 million a year, is my kind of guess at synergies without any substantial reassignment of people in these organizations.

A number of people have asked, geez, quite a few people involved with Roanoke Electric Steel; there's like 1,800 people involved with SDI; and 1,600 with Roanoke.

What about that?

I think the answer is you can't just look at employees.

The fabrication business is very intense.

We have more employees in our Columbia City steelworks as it relates to man-hours per ton of steel produced.

We have more employees at Pittsboro relative to man-hours of ton of steel produced.

Only at Butler have we certainly been able to achieve the highly regarded 0.3 man-hours per ton.

Obviously, many more people are engaged in our fabrication efforts per ton of steel produced than at the steel mills.

I think what we have to focus on is the return on assets employed.

I think we can achieve very good return on assets in all of these business units.

Are there perhaps some opportunities to continue to grow our business collectively and redeploy people?

I think there are, and I think there will be.

There may be some movement of people or headcount through attrition.

There could be some movement of people through opportunity.

As we expand our Lake City plant, we're going to need more people with experience in the fabrication business.

As we expand our Butler plant we are going to need more people.

As we expand Columbia City we're going to need more people.

As we potentially expand Pittsboro someday we're going to need more people.

So if indeed, there are quality people that want to enjoy opportunities and other parts of our Company, certainly those would be open opportunities to advance yourself personally.

We don't have any message about we are going to cut 2 or 300 jobs overnight.

There are no plans to do that.

There are plans to grow this Company.

If we can become more efficient and more productive through investing in these facilities and helping these facilities become more productive in their product fields, then we may well require fewer people.

But as a growth Company we are going to require more people in time.

So people with experience are valuable to us.

There has also been some question relative -- and I think inappropriately raised -- relative to how this might strap us from a cash perspective.

I think that is a meritless comment, to tell you the truth.

If you look at our current level of earnings, our '05 level of earnings at Steel Dynamics, if we were able to achieve those, or hopefully greater than those, on a go-forward basis, then SDI is going to generate on a cash-flow basis, the existing SDI, somewhere between 75 and $80 million quarterly of cash-flow.

Somewhere in that zipcode.

Roanoke Electric Steel, on the other hand, has demonstrated a capability to generate 15 to $20 million quarterly of cash flow.

If you take the light side of that, that is $90 million; and the heavy side maybe is $100 million.

If you annualize that, that is 360 to $400 million of potential cash that can be generated annually, potentially, in '06.

If you look at the need for cash, we talked in our first conference call this morning about our new rail project.

That might well be a $200 million project.

But at the same time we're not going to spend $200 million next year.

We might spend $120 million; might even spend 150 potentially.

I doubt it, but you could.

If Mesabi Nugget got off the ground next year, we could spend $20 million with Nugget.

If we borrowed $110 million to effect this deal against our revolver, and intended to reduce that revolver to zero, we could redeploy $110 million of cash in the effort to not be into our revolver.

If you look at the announced revamps that are intended, the capital spending for Roanoke facilities which we said could be between 80 or 50 and $100 million; and you went to -- is 50 million potentially possible next year?

Yes, it is.

And added that in.

And if you added in our normal CapEx of $50 million, by my math you would come up to about $350 million worth of cash consumed, and 360 to $400 million worth of cash generated.

So I suspect the next question we're going to get 12 months from now is, what are you going to do with all your cash in '07?

Clearly, it is possible to not be in our revolver by the end of '06.

That is a possibility that exists.

I am not warranting that;

I am just saying it is a possibility.

As mentioned, we have a $350 committed line and the potential to expand that line to $450 million.

So we're not going to be cash contained in any fashion.

As I said earlier, this deal we believe is accretive and we believe there are good synergies associated with it.

There is good product diversity.

We think it just makes all the sense in the world.

So with those comments, I will turn it over to Don Smith, and he might offer some additional comments.

Thank you, Keith. (inaudible) and our team here today, Joe Crawford and Tim Duke, we're delighted to be here.

This is an exciting time for our Company.

We are in our 50th year, and through the years we have looked and talked about we are one of the few standalone companies out here.

We feel like what we bring to the table will be a tremendous asset for Steel Dynamics, as well as for Roanoke Electric Steel, for their employees, and (inaudible) shareholders.

Steel Dynamics has a large customer base.

Roanoke Electric Steel has about 350 customers and 450 locations.

With this product range that Steel Dynamics offers and what our Company offers, I think this will be a wonderful opportunity.

In looking at preserving Roanoke Electric Steel and growing Roanoke Electric Steel, we feel like we have the best fit that we could ask for, to be with Steel Dynamics.

Again, it is a delight to be here.

We look for a long-term success for our employees and our shareholders.

Joe, (inaudible) ?

Good afternoon, everyone.

Again, we do appreciate the opportunity to be here today to speak to this group of folks.

We are excited about this opportunity.

We are looking at it as an opportunity for not only Roanoke Electric Steel but Steel Dynamics.

We feel strongly, after talking to these nice folks for a good part of this year, that it is indeed the best combination and the best fit for our two Companies.

We are certainly looking out for the best interests of our shareholders, but also the best interests of our employees and the facilities that we have been operating, as Don said, some for 50 years now.

We have feel strongly that this combination that we're talking about is going to ensure the continued survival, success -- not that we were not going to survive otherwise -- but it is going to ensure that survival 20 to 30 years from now.

We are extremely excited about this opportunity and look forward to working towards completion of this deal.

Thank you, Joe.

Tim, anything you would like to add to that?

Sure.

Good afternoon.

I am very excited about the transaction.

Steel of West Virginia back before 1998 was a standalone public company.

Very small footprint.

In the winter of '98, Roanoke Electric Steel purchased us.

We became a bigger company, and it's been a successful merger at that time, and looking forward to this one now that we even become a bigger footprint.

So the Steel Dynamics team has logged experience in new technology, and I look forward for that to help Steel of West Virginia continue to be accretive in the future.

Angela, I don't know that we have any additional opening comments.

I think it is appropriate to open it up to Q&A component of this half of our meeting.

(OPERATOR INSTRUCTIONS) Michael Corelli with Barry Vogel.

This is Barry Vogel.

Congratulations to everybody for this deal.

I think you're right, Keith, it is a perfect fit.

I have a couple of questions for Joe Crawford.

Joe, can you tell us what your -- at your Roanoke Electric mill and your Steel of West Virginia mill, what the capacity is both in rolling and melting currently, and approximately what will be your operating rates for year ending October of '05?

The same question for your joist capacity.

If you can tell us what the tonnage is, and perhaps break it down by each of the three plants, and tell us what your operating rates approximately will be for '05.

Okay, I will speak to the Roanoke plant and the joist plants; and I will let Mr. Duke speak to the West Virginia operation.

Our capacity at Roanoke is currently on the melting side 750,000 tons.

Their rolling capacity is currently 450,000 tons.

We are currently operating at I would say 95% of the rolling capacity; operating at about 80% of the melt capacity.

The reason for that is we have a small furnace that was just restarted about a little earlier than this time last year, that has not been running at capacity it's only running between, I would say, three to four days a week for most of this year.

The large melting furnace that we have at Roanoke that is complemented by a ladle met station is operating 6.5 days a week or taking a small amount of time down for maintenance.

On the joist side, our two companies, the Hancock joist plant capacity is roughly 50,000 tons a year.

They are operating slightly less than that, probably to the 40 to 45,000 ton range.

Socar production capacity is about 45,000 tons; and they are operating currently around 40,000 tons per year clip.

Okay, Keith, I want to go back to you on this, because of your -- obviously you have a strategy in mind.

Beyond acquiring Roanoke, which gets you to five joist plants, assuming everything goes well, do you have any future expansion plans for joist plants as well as deck plants?

Yes, it would be our intention to construct a roll pouring facility at the site of the Virginia joist facility, giving us a presence on the East Coast for not only joist and girders but roll form products as well.

That would be one of the growth initiatives.

Relative to the fabrication business, I think we certainly have looked at and are contemplating construction of a facility that would serve the Western marketplace thereby giving us a truly national supply scope to the industry in time.

That would certainly not be an '06 project, but could be a '07 project potentially if approved.

So that is kind of our thinking as to where we are going there.

Tim, do you want to add something about your capabilities?

Sure.

Barry, we have 300,000 tons capacity net of yield loss at our two rolling mills in Huntington.

We will probably ship a little bit shy of 270,000 this year.

In terms of our melt shop, our melt shop is running at 160 hours a week, so it is at full capacity, producing about 280,000 tons a year.

That was the synergies in selling, if you remember, ourselves to Roanoke back in late '98, because we purchase lot of their billets to supplement our shortfalls.

In addition to that, we do ship on our own a lot of billets, and we will probably to a little bit more than 50,000 tons.

So our total tonnage out of our plant, both in Huntington and the fabricating unit in Memphis, Tennessee, is about 320,000 tons this year.

Thank you.

Barry, we would all hope, collectively, that through exchange of common knowledge, and practices, and investments that we might be able to even wring a few more tons out of these divisions, just like we always attempt to do at every one of our facilities.

We are very hopeful that we could get -- that Joe could get Roanoke Electric Steel up into the -- consistently into the 450,000 ton rolled range, and perhaps Tim could squeeze a little more out of West Virginia, as we attempt a squeeze more out of our facilities every day.

Michael Gambardella with JP Morgan.

Yes, when do you anticipate the transaction will close?

It's possible -- it's tight, but it's possible that it could happen by 12/31 if there were no regulatory issues of any substance.

It may not be likely, but it is possible.

I think that is certainly a goal.

But if not, we're all contemplating that early first quarter is certainly -- may be a little bit more likely probability.

And the $8 million a year number right off, right out of the gate that you mentioned, can you break that down in the major components of savings?

Yes.

Some of that, much of it would come from the reduction in salaries and bonuses and benefits associated with individuals who are in the course of retiring or who have announced their retirement that would be, if you will, duplicative of nature.

I suspect that could be as much as $4 million by itself.

You might save $1 million on public company costs, legal, financial, Sarbanes, etc. etc.

You might -- I think there are probably material purchasing efficiencies in the range of 1 to $2 million and other sundry benefits that might add up to 1 million or 2, which leads me to the conclusion there is about $8 million potentially available on a synergy basis without too much difficulty.

Now we grow and restructure our organizations as we become more productive, as I said earlier, could impact the population.

But we are not going to go out there and start whacking heads.

That is not our style.

We're going to grow the Company.

There are people that have spent a lot of time with Roanoke that will be retiring; and over time; etc. etc.

So if we can become more proficient producers there is an opportunity to reduce headcount.

You can only dream about those kinds of things, and if through growth and reassignment we streamline things by 200 people, that $70,000 kind of thing, then you have got $14 million annually that could be enjoyed, if that could happen, throughout the course of time.

That is certainly not a year one event.

But in the course of time, over the years, through growth we could probably enjoy that much of a savings.

Thanks very much.

Andrew O'Connor with Wells Capital Management.

Guys, congratulations.

Keith, in your press release, you had indicated 50 to 80 million to spend to improve and upgrade the Roanoke facility.

So I wanted to get a better sense for what are the first areas of priority for the 50, 80 million to be spent?

Then the synergies that you're citing, is this the result of the 50 to 80 million to be spent?

The spending, I think, to a large degree is going to be involved in fabrication.

The facilities were constructed some number of years ago.

And I think Don and his team have been through our facilities, as other producers have been, and would tell you that the game plan, if you will, the engineering blueprint and operating blueprint that we operate by at New Millennium is probably going to yield the best overall financial results.

So we would contemplate restructuring much of the Hancock facility in time, line by line, in upgrading it.

So a fair amount of the 50 million could be spend there.

We're going to build a new roll form facility on that site.

So collectively, you might spend $30 million just right there in that project.

I think as I recall, Joe, a new baghouse is contemplated for Roanoke Electric Steel.

It is.

And something that would not only provide better regulatory efficiency, but perhaps better operating efficiency as well, kind of thing.

So there will be other expenditures in the steel mills.

In time we said we would study potentially a new melt shop at Steel of West Virginia.

Their melt shop is showing some age and is a little disjointed from the rolling mill.

Not right next-door, in-line if you will.

So activities like that we're going to engage in.

There will be some money spent in the Socar operations.

But these don't come out of synergies necessarily.

We don't think of it that way.

It is just these are the kind of CapEx immediate requirements we can get to, to drive efficiency and additional bottom lines at these facilities.

Okay, can you elaborate maybe just a little bit more?

What would you look to get from the monies laid out, the 50 to 80 million?

Our target has always been at least a 15% to 20% return on asset dollars employed and 20% to 25% return on equity.

We certainly are not going to change our standards.

We think these -- I think their steel operations can easily enjoy that, and the bottom lines at these facilities can be further enhanced by these investments along those lines and that criteria.

The joists plants have realistically suffered some ups and downs over the years.

They're profitable now.

But I think we can just be additive in that regard.

I really think you can take a look at something north of a 20% return on assets for the joist operations, which I think historically they have not always enjoyed.

Okay, thanks very much.

Brett Levy with Jefferies & Co.

In the course of due diligence, did you guys see a lot or, I don't know, any significant amount in the way of potential customer breakage across the production mix here?

Or even potentially on the upside some cross-selling opportunities?

That is sort of one side of the question.

The other one is, is Roanoke going to be a restricted sub?

Or is it going to be a guarantor of the notes and the bank debt?

Gary, you want to tackle the last part of that question?

It is not going to be restricted subsidiary.

It is going to be a part of the Company.

Steel of West Virginia will be a subsidiary, a wholly-owned subsidiary that will likely not be part of any of that.

But there will be no guarantees involved on the part of Roanoke shareholders or SDI shareholders.

Okay, and then can you tell --?

What was the early part of the question again?

Basically breakage or cross-selling opportunities as you look across the customer mix.

I think they're dramatically enhanced in the joist and girder and roll pouring business.

I just think there are significant opportunities for us to be of better value to all of our clients in the fabrication end of the universe, so to speak.

Steel of West Virginia has some very unique OEM-type business that we are excited about participating in.

There probably is just a little overlap of small beam production that could be manufactured at Columbia City and is currently manufactured and distributed at West Virginia.

But it is not that huge, and quite frankly, I would think that our customer base would welcome a little more diversity and regionalism there.

There is really no overlap of products in the bar business or the merchant shapes business between us and the Roanoke Electric Steel shop in Roanoke, Virginia.

Thanks much guys.

(OPERATOR INSTRUCTIONS) Aldo Mazzaferro with Goldman Sachs.

Keith, just a quick question on the labor front.

I know there is a union at the Steel of West Virginia.

Can you say what the size of the employee base is there and whether there's any other unions, and also what the details of the contract are in terms of expiration?

There are no other union operations inside of Roanoke other than at Steel of West Virginia.

I might just comment, and I will Tim comment on it, when we walked through that facility, I have got to tell you, I was pretty impressed with their work ethic.

They're a dedicated group of people.

Hard-working people, and doing their best to provide value to the company.

So that is not a major concern to us.

I will let Tim speak to the issue of their contract, and when it expires, and how many people are employed there.

Sure.

Total employment between our Memphis facility and Huntington, West Virginia, is 548 employees.

Of that total, in our Huntington plant only, because our Memphis facility is non-union, but in Huntington, there are 446 bargaining employees.

Contract expires in June 9 of 2006.

Just to expand a little bit upon what Keith just said, it is about as close as you can come to being a union but with non-union work rules.

Basically seven work rules in the plant.

No restrictive restrictions in terms of moving people around.

We move them around.

Management sends people where their best qualified.

Even though that we were the only unionized facility of Roanoke, there was never any consequences to Roanoke.

During our time frame we have lived with the union.

They are our partner, and we have been accretive to Roanoke since the day they purchased us.

I would just add to that, as I said earlier, I think it is an excellent workforce.

We operate, as everyone knows, and much of Roanoke Electric does, in a non-union environment.

We're not going to attempt to change anything.

That is not our style.

If the people at the Steel of West Virginia facility believe that there are more benefits available to them by living under a different umbrella than the one they have, that is a decision they have to make.

If they want to continue to live under the umbrella they have with an excellent relationship with the management and with the company, that is their prerogative.

But we think either way it is going to work out just fine.

So it sounds like the compensation schemes are probably incentivized at both places, but they will be under their own specific incentivized plan.

Is that --?

I think it might be easier to install our style of incentives, if you will, in other parts of the organization.

We certainly are going to dialogue about it.

Certainly not in any attempt, in any way, shape, or form to carve anybody's pay back at Steel of West Virginia, but rather to give them an opportunity to earn more not less.

But sometimes, incentive programs our style are not always as warmly received, although our people love them.

Maybe it's an educational process, and maybe even with the union representing the bargaining employees, it might be possible.

These might be great opportunities for breakthroughs in how we pay people and how we incent people.

So I just don't see downsides here.

All right, I have one other quick question, Keith.

I don't know if you can tell us; where there any other acquisitions offers being considered by Roanoke in this deal?

Were there any other what now?

Were there any other acquisition offers that Roanoke was considering?

I am not privy to that, so I think that is the question I won't just leave on the table if you will.

Great, one thing I forgot on the labor side, is there any pension fund or OPEB or anything like that, that would show up as a liability?

Know there is not.

Okay, thank you.

Michelle Applebaum with Michelle Applebaum Research.

Just a quick question.

The union that is there, does their existing contract have neutrality in it?

No, there is not.

Okay, has there ever been attempts by the steelworkers to organize the other pieces of the company?

No, there has not.

Okay, great.

Thanks.

Mark Parr with KeyBanc Capital Markets.

Most of my questions have been answered.

But one thing I was wondering is if Roanoke management might want to talk a little bit about current business conditions, and perhaps what their outlook is looking like for the fourth quarter, consistent with the kinds of things that you have been mentioning, Keith, in the earlier call.

We will be happy to comment on that.

Our last public filing was as of July 31, and we are within 10 days of completing our fiscal year-end.

So we have to be very careful as to what we say during this period of time.

But I can say that business conditions -- and echoing Keith and his group's sentiments -- have been extremely good.

After a brief summer lull, as we termed it, we have seen order entry in all of our segments improve, as well as pricing.

So we are looking to have an outstanding fourth quarter, if I can say that.

My attorney is not here, but --.

I won't tell.

But we are -- obviously, 2004 was a record year for Roanoke Electric Steel, and we are going to be putting out some very impressive numbers for 2005.

Okay.

One follow-up question if I could, just on Roanoke's operations.

Could you give us a little color on the competitive landscape for Roanoke, please?

Well, as far as the Roanoke mill -- and again I will let Tim talk about the Steel of West Virginia side -- but the Roanoke mill, our finished products go primarily to the steel service center industry; over 60% of our output.

We sell roughly 30% of our output to the construction related companies or the bar joist division.

And another 10% to the OEM markets, 10 to 15%.

So our competitors are the people that are in those particular markets selling those products, which would be Nucor and Commercial Metals, Gerdau Ameristeel.

I might add, Joe, that you currently supply angles to your fabricating division in Roanoke, Virginia, and to Socar.

Obviously, we would be looking forward to a supply potentially out of the Roanoke mill for Lake City and for Butler as well.

But to follow-up on that comment as well, we have been in the business for 50 years and we have an excellent customer base and a diverse customer base that we have been serving for many of those years.

We feel like we do have good competition out there.

I don't expect that to change on our mill side in Roanoke.

But we feel like this combination is going to put us in a better position just due to the product offerings that we're going to bring to the table now, where we were somewhat limited compared to some of our other peers in the industry.

Okay.

Tim, you might want to make some comments.

Sure.

In terms of our major competitors, basically in the North American market, that would be Gerdau, both in Cartersville, Georgia, and also their mill in Manitoba Rolling Mills up in Selkirk, Manitoba.

Then in terms of our other niche products, primarily its competitors would be over at Corus Steel, over in Europe.

Then merchant products and some of our guardrail post, a little bit with Nucor Berkeley.

Okay.

(OPERATOR INSTRUCTIONS) Timna Tanners with UBS.

Just a few questions, and thank you for all the detail.

I think that I misunderstood some details from the press release.

But if you could go over a little bit the cost structure maybe of Roanoke versus Steel Dynamics at some of the businesses that, for example, the joist mills that you kind of have in common now.

And drill in a little bit better for me, if you could, how you might be able to adjust the cost structure at Roanoke to be more like Steel Dynamics.

Then the second question would be really about billet sales.

I'm just trying to understand what -- I don't know much about merchant billet sales in the U.S. and how the competition might be from overseas, if that's an issue.

Thanks.

Tim, I don't know there is a relevant comparison inside of Steel Dynamics for their steel businesses.

Certainly not for Steel of West Virginia?

As Tim said, their competition is kind of unique.

So the benchmark or blueprint or standard is hard to speak to.

Relative to Roanoke Electric Steel, I am not sure that I can tell you best practices and best standards and best operating costs at either any of the Nucor shops or at the SMI shops or Gerdau shops.

But I would guess that they are competitive.

As it regards the fabrication business, I would tell you that, as I said earlier, I think we can offer some real improvements in productivity there, with some investment dollars that could have a good return on asset dollars employed.

Okay, great.

Then about the billet comment, is it true there is merchant billets sales and who they -- is that a problem in terms of imports?

Is that an issue at all?

This is Joe.

I will speak to the billet situation.

Roanoke has been a billet sales -- having a billet sales effort for probably the last 25 years, in that our melt capacity does still fairly exceed our rolling capacity.

Which was one of the reasons that we bought Steel of West Virginia in 1998, to utilize some of that excess capacity.

But the billets is the midpoint between the melting of steel, melting of scrap into molten steel, and the actual finished product, as most of us tend to think about it.

We sell those billets to other mills that either do not have any melting facilities of their own, or mills that have to supplement their melting operations, just like Steel of West Virginia.

The market for billets I would have to say is somewhat volatile.

Some mills that are buying billets occasionally, in better times, when things do slowdown, the first they may do is revert back to their own internal billet production.

So we have to be cognizant of that.

But on the other hand, there is a number of steel companies that have continued to rely on outside sources of billets.

Roanoke has been, as I said, selling those products for 25 years now, and has built a good customer base.

We sell a good bit over to Huntington, to Steel of West Virginia.

So, Tim, you have also --.

I would just comment a little further.

Most other North American steel mills would prefer buying from a local source.

We have sized our product range so that it is not -- you really can't get billets just dumped in a port and then find a home for it.

It is a certain chemistry grade and size for just-in-time delivery that leads you to have a steady stream of orders in good time.

Exactly.

I will comment further that the margins on steel billets are not what they normally would be on other finished products, but they do allow producers to maximize their efficiencies and reduce unit costs, which is what Roanoke has employed for years.

Did that answer your question, Timna?

Yes, great.

Thanks a lot.

Michael Corelli with Barry Vogel.

Yes, this is Barry Vogel again.

Keith, it is evident that Roanoke's mill in Virginia has 750,000 tons of melting capacity, but only 450,000 tons of rolling capacity.

I know that the company has contemplated over the last five years a possibility of making a decent sized capital expenditure to match the rolling with the melting.

I know that having Steel of West Virginia as an acquisition, that uses some of the excess melting capacity.

But because of the difficult times prior to last year, they didn't have the wherewithal to do that.

Would you say that one of the things you might be contemplating is to match or better match the melting capacity at Roanoke with their -- with new rolling capacity?

The melt shop has part A and part B. They have, let's call it, the A battery which is a fairly new and very capable battery.

They have the B battery, which is older, which could be utilized to augment output at the facility.

So there are probably two strategies that could be deployed.

One could be not operate the B battery; just juice all 450,000 tons of production or thereabouts out of the A battery.

But we are willing to look at -- and I am sure our Board is -- any opportunity to deliver the appropriate bottom line from a capital investment perspective.

So if that management team believes that they can sell that output, build that mill, and earn a decent return, we are going to look at it.

But there are no plans at this point in time certainly -- we haven't got that far in our thinking -- to do anything of that nature.

Joe, anything additional?

I can't add a thing to that.

Thanks very much.

We do not have any further questions at this time.

I would like to turn the call back over to Mr. Warner for closing or additional remarks.

Let me close by saying thank you again to everyone for joining this rather lengthy call and being patient.

The questions were spot-on the money.

They were good questions.

We appreciated hearing from everyone, and look forward to visiting with you here, either on the road in the near future or in the next conference call that we have.

But again, thank you for continuing to be of interest -- be interested in our Company and our progress.

Good afternoon.

Once again, that does conclude today's teleconference.

We do thank you for your participation and have a wonderful day.