Steel Dynamics Inc (STLD) 2009 Q3 法說會逐字稿

Welcome to today's Steel Dynamics third quarter 2009 earnings call.

Just as a reminder, today's call is being recorded.

Joining us today are Keith Busse, Chairman and Chief Executive Officer.

Richard Teets, President and Chief Operating Officer of Steel Operations.

Mark Millett, President and Chief Operating Officer, metals recycling and resources.

Gary Heasley, Executive Vice President.

Theresa Wagler, Executive Vice President and Chief Financial Officer.

And Fred Warner, Investor Relations Manager.

And now, at this time, for opening remarks, I would like to turn the call over to Mr.

Fred Warner.

Please go ahead, sir.

Welcome to the Steel Dynamics third quarter 2009 conference call.

The call is being web cast live, October 20, 2009 from Fort Wayne, Indiana.

Later today, you'll be able to replay the call from our website and download it as a podcast.

Today, our management may make various statements that are forward-looking, all statements regarding anticipated future results or expectations are intended to be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements which, by their nature are predictive and not statements of historical fact, are often preceded by such words as "believe, anticipate, estimate, expect", or other conditional words.

These statements are not intended as guarantees of future performance.

We question that actual future events and results may differ materially from such forward-looking statements or projections that may be made today.

Some factors that could cause actual results to differ include general economic conditions, governmental monetary or fiscal policy, industrial production levels, changes in market supply and demand for our products, foreign imports, conditions in the credit markets, the price and availability of scrap and other raw materials, litigation outcomes and equipment failures.

You may find additional information concerning a variety of factors and risks that could cause actual results to differ materially from today's forward-looking statements.

Refer to sections entitled "forward-looking statements and risk factors" in our most recent annual report on form 10-K and in our quarterly reports on form 10-Q as well as in other reports we file from time to time with the Securities & Exchange Commission.

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

After today's management discussion, we'll open the call for questions from those who have informed us they desire to ask questions.

Today's call begins with comments by Keith Busse, Chairman and Chief Executive Officer.

Keith?

Thanks, Fred.

Good morning, ladies and gentlemen.

Thank you for joining us this morning.

It is certainly very refreshing to be reporting on some very positive results as it relates to third quarter earnings.

As you all know, it has been a trying past 12 month period of time to say the least and we reported losses for the last three quarters in a row, almost returning to profitability in Q2 but not quite getting there.

But it certainly is exciting to be reporting a $0.30 profit per share.

That's diluted.

In the third quarter of '09.

Still remind all of us though that we have lost $0.18 on a year-to-date basis and $35 million on a year-to-date basis.

As we said in our press release, we expect to maintain a fairly consistent level of profitability and report a profit in Q4 and for that matter, a profit on a year-to-date basis.

There might be some question as to the word profit in the fourth quarter.

What we meant to say is net profit after tax profit will occur.

We do believe at this time, will had occur in the fourth quarter and give us say -- we know it will occur in the fourth quarter.

It will give us a year-to-date net diluted profit, not only in dollars but in per share earnings.

So, wanted to clarify that.

We had net sales during the quarter of $1.2 billion.

Might point out that that's an annualized rate of nearly $5 billion.

Up sharply from where we were in earlier quarters.

And our shipping volumes during the quarter were about 1.2 million tons, significantly increasing from the second quarter and again annualizing it at near five million tons per annum in shipments.

In the second paragraph, we talked about the average scrap cost for net ton charge decrease -- excuse me, increased $49 compared to the second quarter.

Might note we still had very good scrap costs.

I think by comparison, perhaps to our peers, in the second quarter.

But it was up quarter over quarter.

It will, again, rise.

Need to be clear about that.

The scrap cost per net ton charged and to our furnaces will increase during the fourth quarter in spite of the fact that scrap prices are coming down now.

We had increases in June, July, August, and September and those increases will be, to some extent, reflected in the operating results for October and November with declining scrap costs being reflected in operating results for late November, December.

So, for those of you in your mind thinking about scrap going down, quarter over the quarter, it certainly will.

I think scrap this past month on primes declined about $30 a ton.

And on cut grades, it was $20, $25 a ton.

On shredded, it was about $30 a ton.

I would expect in November that the price for industrial scrap will be down sharply again as will probably pricing for the cut grades and shredded materials.

At least that's what we see at this point in time is that the delivered cost in November will again be less than the delivered cost in October.

Way too early to look at what delivery costs will be in December.

But right now, scrap costs are trending down.

I would remind everyone they do impact the margins at the metals -- as it regards to metal recycling segment of our business.

Because what Mark and his team, in effect, purchased in August at a higher -- excuse me, in September, at a higher price was being delivered to customers in October at a lower price, et cetera, et cetera.

So, when you're traveling down the hill, you always have that one month delay.

So, last month's purchase price is being reflected in next month's delivered price.

So, there will be margin compression until that bottoms out or proceeds back up the hill, if you will.

As we noted, the scrap costs increased by $49 and the selling values increased on an average by only $33 during the quarter.

That's the steel segment.

Therefore, you would have to conclude that the margin compression we enjoyed with the significant increase in volume and with the cost control efforts that our employees have engaged in over the past nine months to a year have paid big dividends because the bottom line increased sharply.

I think it is -- in the fourth quarter, we see prices going up on the whole quarter over quarter.

Scrap costs will follow.

It is a matter of timing.

The scrap then purchased in the fourth quarter will largely be reflected as a set in December, January type in results.

I think it is also significant to note that the operating profit per ton returned to a very excellent level of $105 a ton in Q3.

And it is also a significant to note that OmniSource's operating profit was at about $50 million during the quarter.

That would not net to that because the loss was at a break even or thereabouts at Iron Dynamics and the losses at Mesabi Nugget.

Business conditions, as I said, in the text of the press release, remain relatively steady.

Our backlogs are fairly stable.

Order entry week or a two week period then gained a head of steam last week as we gathered about 50,000, or 55,000 tons of orders during the past week which is about the -- our capability in terms of a run rate.

So, what we did have order entry slack for about a two-week period of time before it picked back up again.

Our outlook is that flat rolled may or could would be the correct words, regressed just a little due to the seasonality in terms of production shipments.

Although, right now, we don't see anything that would lead us to believe that that is a substantial number.

Production will be down slightly.

Shipments will probably be up slightly as with regard to flat roll.

Overall though, shipments quarter over quarter will likely go down from the 1.25 million ton vicinity or range to something just north of 1.2 million tons and that's probably 10,000 tons in the flat rolled arena which would include the text, 10,000 tons or thereabouts, structural 10,000 tons or thereabouts in merchant shape.

So, we're reflecting fewer shipments for the entire segment as we go forward.

During the fourth quarter.

But not necessarily in flat roll.

As I said in the text of the statement, this is conditions -- business conditions remain good and flat rolled and with the text, we're running at about 60% to 70% of our capacity and the merchant arena and as a regard of SBQ and the structural relative division although it has seen a modest improvement, it is modest with a capital M with the utilization rates in the low 30% range which is now being measured, I want to point out, against 1.8 million tons of annualized shipping capability.

Or capacity.

So, that's our current run rate there.

The outlook for structural is not all that good.

In the fourth quarter and perhaps in Q1.

We could see momentum again by the spring of the year in the construction arena.

And the planning for that will go on early in the year.

And we could see increased operating activity in that arena beginning sometime next year.

But right now, it is fairly dismal out there in terms of nonresidential construction activity.

In the last paragraph on the first page, we talked about the fact that our earnings could be off slightly, off somewhat from quarter to quarter.

And that's due to some seasonality coupled with the slight slowing and market momentum and margin compression and recycling and start-up costs related to Mesabi Nugget.

But most, from a modeling perspective, most of the regression, if there is any, and operating results will come from recycling whereas I said you're always delivering last month's purchases the following month.

So, during the months in October and November, we're fairly sure the margins will be down in recycling.

Too early to tell in December.

But any backward regression in earnings per share momentum probably would be largely tied to recycling and to start-up costs at Mesabi Nugget and other sundry expenses that might occur.

So, that's really the crux of where we're at from where we were in the third quarter.

It is very, very good third quarter report.

I do believe.

And we're not seeing any substantial reduction in order entry in the steel segment although we are being cautious at this point in time.

At this point in time, I will turn the conversation over to Dick Teets who will give you more color and detail in the steel segment arena.

Thank you, Keith.

Good morning, everyone.

I would like to just add a few comments to what Keith and the press release have already stated.

But first, I would like to thank all of our employees for their continuing efforts to improve our safety performance.

I don't want to jinx anyone but both the Roanoke bar division and steel West Virginia are on track to achieve the best recordables and lowest lost time performances in their history.

Congratulations.

I would also like to acknowledge our team's efforts that improving our costs.

The shop floor has no control over our sales price but we do continue to receive great suggestions for continuing improvements in both production and maintenance practices.

Now, to the products.

Flat rolled and at both the texts as well as Butler continue to be well booked as Keith said.

We see incremental improvements in almost all of our markets.

Except commercial and residential construction.

The automotive markets are yet to be determined for the full fourth quarter.

At Butler, we did set production records in both the melting and casting as well as the hot strip mill departments.

This was due to the completion of our furnace expansion projects.

The structural rail division's rate operates rate has continued to improve slightly as we add additional products from a rail perspective.

We also have added channels to their product mix.

Work continues on the number two castor, utilizing most of our employees and we continue to work there because of the differential casting sections that will be produced.

They'll give us an opportunity to continue to add even additional sections through the use of the medium section mill at Columbia City.

In Pittsboro, we've continued to grow our market share in the automotive sector.

We're anticipating that our off-road/construction equipment customers will begin seeing the benefits of economic improvements in developing countries.

Pittsboro has also expanded their product diversity to now includes merchant shapes by producing angle sections.

They're also expanding their rebar offerings.

Improvements to their de-scaling and bundling areas have contributed to improved safety, quality, and cost.

At Roanoke, they're probably the steadiest of our performance from an operating rate perspective, as Keith mentioned.

Their flexibility toward deliveries and service are noted by the customers and continue to have a solid backlog as a result.

The Roanoke melt shop will be taking a two week shut down in November to tie in a new bag house but the rolling mill will not miss a beat as they plan to have the inventory on cast billets hand.

Steel of West Virginia has continued to add sections to their product mix also.

A new product solar panel support structures have proven to be a popular product this year, reflecting the attention to alternative energy sources.

A new off-line straightener is being commissioned for the number one mill and during the November maintenance shutdown, a new in-line straightener for the number two mill will be installed.

Both of these projects will improve safety quality and cost performance.

Keith?

Thanks, Dick.

Mark?

Good morning, everybody.

Given the continued subdued steel economy through the quarter, I believe our OmniSource recycle metals division provided a very, very strong performance, increased domestic steel mill utilization provided the opportunity for increased volumes, ferrous shipments being 1.3 million tons for the quarter.

54% increase over Q2.

Ferrous flow is currently about 75%, 80% of our normalized capability.

Similarly, nonferrous shipments grew to 217 million pounds, a 28% increase from Q2.

That's side of our business is running year-to-date about 22% behind in volume over 2008.

But it is good to see volumes coming back.

The increased volume and continued focus on cost compression in combination with an appreciating transaction values through the quarter both in ferrous and nonferrous provided margin expansion with an associated $50 million of operating income.

I think it is a terrific performance by the whole OmniSource team.

Looking forward, as Keith suggested, the recent market softness would suggest margin compression is likely through the fourth quarter.

As electric arch mill utilization rates ease somewhat.

Without any export pressure, scrap pricing will likely follow steel mill pricing in a downward trend.

Copper will probably have continued volatility due to fund activity and perceived supply and demand issues.

Although we feel both domestic and global real, physical demand is flat.

Domestic consumers are keeping inventories low and our own volume against actual sales, supply is abundant from increased warehouse stocks and a surface of scrap flow relative to demand.

In contrast, slight contrast with the aluminum markets continue to be relatively strong.

Recent automotive demands increased the appetite of secondary smelters, their orders are pushing forward into November and December, a far cry from past months.

Chinese activity remains fair with good export opportunities for [Zorba] and concurrently with the market in contain gel, whereas financial deals are lofting up primary metal business, thus taking near supply out of the market.

These improved market conditions in aluminum have positively impacted our superior aluminum division, allowing it to be profitable through the recent quarter as the order book strengthened and margins expanded.

This business is seeing increased activity of late as customers are searching for secure material supply from financial -- financially stable providers.

In dynamics, continue to perform well through the third quarter with total shipments to the Butler sheet mill of about 59,000 tons.

The liquid peg iron supply has become an -- truly integral to the recently realized three million ton annualized operating rates that the Butler team so successfully achieved.

Crews out there are doing an absolute phenomenal job with the new furnaces.

Mesabi Nugget construction, commissioning progress, is progressing well.

Iron concentrate has been introduced to the system.

It has been dried to the required moisture content.

We've mixed it with grand coal, grand limestone, pelletized it, made green balls and those green balls have been successfully dried.

So, the front end is being commissioned very, very well.

We actually work to the hot furnace is progressing and is near completion.

We expect dry out to start as expected in November.

And barring any unforeseen glitches, preliminary nugget production is anticipated in December.

And for the few that have actually seen the facility up there, it is an absolute phenomenal achievement given the scale of the facility.

Commission activities will increase operating expenses for SDI to about $6 million projected for the Q4 relative to that $3 million incurred in the recent quarter.

But progress is good.

Thanks, Mark.

You and your team have done a great job with Mesabi Nugget and we held our third quarter Board meeting up on the iron range and our Board of Directors had an opportunity to preview the facility and I can tell you they were impressed!

It is an impressive facility.

We're looking forward to a great start-up.

You've assembled a great team there and spent a long time and coming.

I think it is going to be a very important part of our resource activity in the electric ARC arena.

Team has done a phenomenal job.

Gary, let's talk about fabrication and what little bit of fabrication is going on out there today.

Good point, Keith.

There is not a lot out there.

Shipments for the quarter were 35,000 tons down slightly from second quarter shipments.

Sales of $33 million down about 11% from the second quarter.

As Keith alluded to, industry conditions have become more difficult as nonresidential construction has continued to weaken and slow.

Shipments of joists and deck remain off significantly from earlier years.

It is a very tough market.

Now, in the face of that weakening market, we've seen pricing soften significantly with some producers pricing joists well below costs in an effort to generate sales in region where is competition is particularly fierce.

Obviously, the nonresidential construction weakness is going to remain into 2010, the fourth quarter as well and into 2010.

We are seeing projects being quoted several times.

What used to be quoted once or twice is now being quoted five or six times as projects are being delayed and builders seek to reduce project cost.

We believe that kind of quote activity indicates there's some degree of pent up demand that is waiting for financing to become readily available or for owners to become more confident in general business conditions before they move forward with projects.

New Millennium will continue to use its advantage as one of the most efficient joist producers to remain aggressive in the market and the new millennium team remains focused on reducing costs and returning the units profitability regardless of market conditions.

I want to thank all of the employees of New Millennium for their hard work and dedication and for going the extra mile in face of what are some pretty daunting conditions.

Thanks, Keith.

Thank you, Gary.

Theresa?

Thank you, Keith.

Good morning, everyone.

Notably, in the third quarter, we increased our liquidity position from $650 million at the end of the second quarter to over $770 million at the end of September.

Our first lean leverage covenant was actually 0.4 times and our interest coverage was 1.9 times.

We generate cash flow from operations of $138 million.

Working capital increased $33 million during the quarter as well with trade receivables increasing 32%.

However, those receivables still are maintained at a very quality level as 95% are current or less than 60 days past due.

Additionally, our inventories increased about $97 million.

Most of that increase was due to increased pricing in scrap, not necessarily volume-related.

And finished goods increased about $26 million.

And that was a function of both volume and pricing.

It was predominantly our product mills.

Capital investments during the quarter were $96 million.

Over 65% of that was related to the completion of the Mesabi Nugget project.

Our current thoughts for the fourth quarter of 2009 are for investments between $70 million and $80 million.

And again, as Mark mentioned earlier, it will be for the start-up and completion of the Mesabi Nugget project, at least 50% of that.

I know many of you are interested in capital expenditures for 2010 or actually still in the preliminary planning stages for that.

I would just encourage you all to remember that we're going to continue to be incredibly disciplined with our capital investments.

We would have some carryover from the Mesabi Nugget project.

Somewhere between $10 million to $20 million.

Additionally, mining could be as much as $30 million.

But we're not anticipating that much.

And there could be some carryover from the second caster project at the structural mill and the magnitude of maybe $10 million.

The effective interest rate for the quarter was 40.7%.

We're currently estimating the fourth quarter rate to be 41.5% but I caution you that could change as pretax earnings have a significant impact on that rate during an environment like we're currently in.

We have an income tax receivable of $93 million.

We expect to receive $18 million of that in cash refunds during the fourth quarter of 2009.

However, the remaining $45 million, we wouldn't expect to receive in cash refunds until sometime in 2010 after we file our 2009 tax returns.

Gross interest expense for the quarter was $40.5 million with an effective rate of just over 7%.

And capitalized interest was $6 million.

We're currently anticipating fourth quarter interest expense net of cap I to be around $35 million.

And depreciation and amortization to be somewhere between $50 million and $55 million.

We currently have 215 million outstanding common shares.

And our underlying converts are 16.4 million shares.

And finally, I know many of you are interested in our flat roll division shipments as they're broken down by products.

For the third quarter, our hot rolled shipments were 307,000 tons.

Our pickled and oiled shipments were 46,000 tons.

Our cold roll shipments were 40,000 tons.

Hot roll galvanized, 100,000 tons.

Coal drill galvanized, 58,000 tons.

Painted steel, 81,000 tons.

And [gavla new], 25,000 tons.

Keith?

Theresa, are those numbers inclusive the text?

That's just the flat roll division.

Thank you.

I want to note, too, that the receivables could likely rise as price activity gains momentum into the fourth quarter but they won't rise due to volume.

They will not go up significantly.

The inventories are at a level that we're comfortable with now and shouldn't be increasing volumetrically but could go up slightly in the early part of the quarter and go down by the end of the quarter reflecting the atmosphere and the recycling arena to a large degree.

So, really don't see our working capital needs incur in assets changing all that significantly even as volume returns.

So, with those formal remarks, Sara, we'll turn it back over to you for the Q&A piece of the conference call.

(Operator Instructions).

First, we'll go to Timna Tanners of UBS.

Yes, hi, good morning.

Good morning, Timna.

Wanted to know if you could give us a little more insight into how your November, December order books look, specifically for hot rolls and I guess across product lines.

November hasn't been open all that long.

It is building good momentum.

I think the major component of strength in November remains value added where we have the best margins, hot rolled tends to be lagging as it has been, Timna, throughout the entire previous quarter.

But it is still steady activity in hot roll.

Right now, we would believe that we can get through October certainly at capacity, 100% run rate.

Something very near that November.

Although impacted by a day or two off at Thanksgiving and some project work perhaps here and there.

Especially down at steel of West Virginia and as Dick mentioned earlier, putting the bag house in at Roanoke.

So, the backlog right now is off slightly.

But not materially.

And we think we'll get through November just fine.

We really don't have an outlook, definitively going into December but believe we'll March through that month at a fairly high level of operating activity.

We have our Christmas party during that period of time.

And we have the Christmas season outages, et cetera, et cetera.

So, production and shipments could be off slightly in December, impacted by seasonality and other factors.

Too soon to tell whether or not we'll have the ability to run at full capacity.

We think it is probably fairly near full capacity.

And in the month of December.

And the merchant arena, I think as steady as you go in Roanoke as Dick said, I think clearly from our discussions with our general managers the other day, the lights getting brighter in the tunnel as regard to SPQ bars.

We probably won't see the activity until late in the quarter, early fourth quarter but activity in that arena, at least for steel dynamics is picking up at this point in time.

As Dick said, steel West Virginia is increasing its product portfolio and doing much better than it had been in the past.

And as I said earlier, structural remains a pretty lousy market place but we're still making -- we're still keeping our head above quarter and generating a pretax income on a fully allocated basis.

That's a pretty amazing feature.

It is at about 30% of what we're capable of.

As I said earlier, the health for structural probably isn't until next year.

We're not forecasting a real strong next year but enough to keep our head above water next year as well.

Okay.

So, just to follow up on the flat roll side, we're starting to hear some reports of real weakness in December on the pricing side.

Maybe, your volumes -- you haven't seen December order book open yet.

But I mean, are you -- does your forecast include any degradation on the pricing side or maybe are you just looking at seasonal weakness and volumes?

I think any -- as it relates to flat roll --

Yes, sorry, flat rolled.

Pricing activity and our momentum, let's say has lost its zest at this point in time.

I think we're going to be reflecting shipments -- our shipments in October and November.

Be reflective of what was a few weeks ago, as opposed to what is.

There are some quotes out on the street today.

$0.26 plus extras.

$0.26 plus full extras kind of activity which is not an all end type 575, 580, 590 type number much of the industry was focused on.

We never quite got to those levels or won't quite get to those levels on a shift basis.

Because we had searched for backlog that would not permit us to get there.

Even though we marketed tons in that arena.

And at those dollars.

On an average, it is just not going to get there.

And could be impacted as you suggest in December.

But likewise, the margin should change a lot because scrap costs -- scrap being marshalled into the furnace during that period of time ought to be down $30, $40 as well.

I think there is very little margin impact there as well.

There may be a volume impact as we were suggesting due to seasonality.

Okay.

That's really helpful.

Thank you.

Next from Michelle Applebaum Research, we'll go to Michelle Applebaum.

Good morning, Michelle.

Good morning.

Nice to see optimistic or good news as you have.

It has been awhile.

And I think we all deserve it.

I wanted to ask you if you could talk about a little bit more strategic kind of stuff.

I went to world field association last week in Beijing and the one thing I would notice compared -- this year compared to last year was there were so many more meetings between companies or there seemed to be people like going off together and I'm just wondering M&A was kind of frozen for awhile and do you get a sense that there is a thaw in that and if so, can you tell me what your thoughts are on where you guys might be on strategic kind of stuff?

Michelle, I don't know that that isn't wishful thinking on the banker's part.

There haven't been a lot of opportunities out there and I don't know that they're going to be a number of opportunities in the future at this point in time either.

A lot of speculation about what Severstaal might be doing with some of their assets.

None of us have really, other than chatter, have termed any of that.

I don't want to speak for them.

We have no major M&A activity on our horizon at this point in time.

As we've said, in recycling, we're going to principally grow on a Greenfield basis, we'll have a tuck in here and there.

We're heavily focused on results and performance at Mesabi Nugget.

Obviously, we've increased our capabilities at Pittsboro and Butler internally.

And, at this time in time we're not looking at any M&A activity in that arena of any significance.

Do you think there's any chance that anything that's going on with any of your competitors, I don't want to single out Severstaal, could result in facility closure kind of things in North America?

You've talked about that before.

Well, I think the real issue is more about how fast supplies return to the market and will supply overpower gradually increasing demand needs.

That's probably the more red hot issue.

I don't know that from an M&A perspective, I would think that there have been some announcements in our peer group.

People are shuttering capacity.

A lot of chatter about are they going to open it up or leave it shuttered.

Flat rolled and then shaped.

So, I imagine there is some capacity that will be permanently idled in that regard.

But I can't speculate about what the other guy is going to do.

Okay.

You have one of my favorite phrases.

That I hadn't heard for awhile.

Desperate acts of dying men.

Remember that?

I remember that well.

Are you -- I mean, the cycle, have you seen that?

And do you anticipate seeing that?

I don't think -- I don't think I anticipate seeing that.

I don't think we will see that.

But producers to protect and enjoy the cost compression that we and others are enjoying, will attempt to protect volume and at the expensive price.

Historically, that's been the way of the world.

We'll continue to be and I think sometimes people believe that they're out in front leading and with price reductions and might garner some market activity in the long run, at least in the short run.

We know that's short-lived but I don't see anybody panicking out there.

I think prices have softened a little bit.

Demand is probably slightly softer than it had been.

I think most people's outlook for GDP growth is for peaking in Q3.

With GDP growth in Q4 being down 33%.

If you look at statistically, perhaps something north of 3 and something around 2 or north of 2 in Q4.

And a lot of people think we're not going to have anything -- much over 1% to 2% next year.

So, if GDP growth is indeed slowing, then I think demand activity has the potential to slow as well.

But this has been one of those recessionary environments where, as whether we're in a W or an L, it has been ever so slow to recover.

But I think it will continue to recover ever so slightly.

There will be positive momentum.

I think the destocking activities were severe.

I think just about everybody overshot the runway and needed to rebuild those inventories and right at a critical time when that pipe was filling, along came cash for clunkers and probably emptied the pipe and so the pipe is still filling.

I can't tell you whether or not we're at the bottom of destocking and construction products (inaudible) specifically.

We may not have reached the bottom yet but I think certainly, if we haven't, we will.

As I said earlier between reaching the bottom and some stimulus activity on the drawing boards throughout the winter, maybe becoming a reality in spring, you could see some increased momentum there.

But I don't think there is any panic out there.

I think there are no imports are not a threat at this point in time.

And flat roll, I think a realistic threat it means.

I think there had been some activity.

The market place responded to that activity.

I don't think it is out there right now.

That's terrific.

Thank you.

Compliments on the new conservativism, you know.

It has been a couple of quarters now and I love it.

So, thanks.

You're welcome.

From KeyBanc Capital Markets, we'll move next to Mark Parr.

Hey, Keith, good morning.

Good morning, Mark.

I had a couple of questions and thanks for all of the color, by the way.

We really appreciate it.

Could you talk a little bit, Omni's terrific recovery in the third quarter, compares to a period of time where you were doing a lot on the cost side and kind of refocusing the culture.

More in line with Steel Dynamics and how do you feel about the profitability in OmniSource in the third quarter.

Is that normalized or do you feel like there's more upside opportunity heading into next year.

What can you give us as far as how you feel the profitability of Omni should unfold over the next say year or so?

I think it was a good glimpse of the future.

You must remember that Omni's operating rates were probably as good as anyone's in the industry.

It is 75 or thereabouts, 80% flow.

At a time when prices are rising.

And that does have a very positive impact.

And yet they were being -- they were being possibly impacted by all of the cost cutting that they had done throughout the year.

So, it is a mixture of volume and terrific cost cutting efforts.

I think Mark has a terrific team in place.

I'll let him talk about that.

But I think you should go forward if we can reach 90% flow activity in a "healthy market".

I think there's -- earnings beyond the operating level of $50 million are certainly achievable on a quarterly basis.

But in periods where momentum is slowing, like it is now and prices are declining and you're delivering last month's goods which were purchased at a higher price to your clients, this month, I mean, there is a compression until you've reached that bottom and stay there and if you stayed there forever, the margins would return very healthfully, especially with volume.

So, is there more juice in there?

In a healthy market?

And 100% type volume?

Absolutely.

There's -- I think you can deliver better earnings than $50 million in operating but Mark, why don't you attempt to answer that question as well.

Well, I think you have done a pretty good job.

Obviously, Mark, we've had -- I think it was an incredible performance given the market that we've seen in the last three months.

Obviously when transaction values are appreciating, you get expansion of margin as chief of inventory flows through and we liquidated some of that.

In August and September.

But given -- if you compare that with the increase in transaction values compared to the markets over the last two, three, four years.

It is pretty minimal.

So, I think it is phenomenal performance.

I think Omni, with the teams reposition themselves.

Streamlined obviously that the organization, we took a lot of cost out of the operating, the cost structure.

And both the nonferrous and ferrous teams are poised to exploit great market conditions going forward.

The other issue I would highlight is the one for the obsolete flows when you have scrap pricing in the $200, $250 range, the margin is somewhat slow.

But as transaction values pick up to $300 and $400 possibly in the future, the gains are quite substantial.

Quite significant.

Particularly on the Omni southeast tons or flow which tends to be predominantly obsolete, shredded type grades.

Mark, do you think that given the seasonal situation that we're heading into here, you think that the scrap yards will have a tendency to hold back some tons in November and maybe even December in anticipation to higher prices in the first quarter next year?

For sure.

As the price falls, people are going to -- as they've done historically, they're going to accumulate.

Their bank accounts, they've had a reasonable good year.

They had a great year in 2008.

This year has been -- it has been a reasonably profitable year for some of the smaller yards.

It is the bank account.

You're seeing a normal kind of activity then by the scrap yards at the present time.

Yes.

Mark, this is Keith.

I would think there would be a tendency as well for them to lay material down if they don't like the price.

Although, last month, a couple dealers that actually did like the price said we're just not going to settle at these levels.

As they started to wind down and the buying activity started to wind down.

They realized that November could be even weaker.

Guess what.

Came back to the table and sold.

So, it is their perception of the future.

Right.

And if they perceive December's going to be weaker, they may sell tons in November.

If they perceived December and January are stronger, they may hold some tons in November.

Okay.

All right.

Either way, we're in good shape.

All right.

Just one last question if I could.

The start-up cost at Mesabi, could you give us some color around how much that might be as far as impact for the quarter?

Yes, certainly, Mark.

We expect it to be somewhere around $6 million during the fourth quarter.

Okay.

And is that -- would that be a peak level of start-up cost activity or in the first half of 2010, would you look for that number to pick up some before it starts rolling over?

I think you'll see an increase in the first quarter of 2010 somewhat.

Okay.

Thanks, Theresa.

Thanks, guys.

We'll go next to Jeff Cramer of UBS.

Hey, good morning, everyone.

Hi, Jeff.

Just wanted to touch on kind of where you see the stimulus right now and also vis-a-vis rail demand.

Is that -- is rail really waiting on stimulus as well?

And I guess it is a fun time, tons you expect to ramp up to?

I don't think rail is waiting on stimulus in terms of replacement rail.

At all.

I think in terms of high-speed networks that are planned for the future, that have to do with head heart projects or mostly head heart projects, I think that activity may be yet to unfold.

Yes, I would tell you that the rail market is probably off 10% to 15% due to maintenance pullbacks and so forth.

But nothing more than that.

Actually, the United States is off a higher percentage than most of the other countries.

Europe is seeing a pretty steady rail market.

But as Keith said, the high-speed rails will be down the road.

It is about a -- I saw a recent study that said if you're really going to put in high-speed rail applications, it is about a $1 billion a mile.

So, when you look at how many billions of dollars.

It was $900 and some million when you're doing all of the grades.

Not improvements of existing tracks but if you were doing Greenfield, rail, traffic, that takes, you can imagine how many months and years of studies and environmentals, land procurement and so forth.

That rail is in the pipeline.

Jeff, I think the other part of your question had to do with cash for clunkers.

I think that's been an over baked activity.

Did it have have some impact?

It did but much too much is being written about it.

I think what it did as I said earlier, we're in the process of refilling a pipeline that was empty, you can't shut automotive assembly plants down for ten weeks as many as we did with GM and Chrysler.

And with that shuttering, believe there's still steel in the system ready and waiting on a new dawn or a new day.

I think when they hit the go button and ask for X number of vendors, the suppliers just didn't have the metal.

So, a lot of the activity was refilling the pipe.

What clunkers did is the pipe was starting to fill.

It started to drain it more rapidly.

But that's gone by the wayside.

I think clunkers was probably only about 20%.

Gary researched it, of automotive activity during that two-month period of time.

So, I think it had an effect on drawing back down stocks which are still in the process of rebuilding.

But I think much too much has been written about that.

Expect on the auto front to remain pretty strong going into the first quarter of next year.

Well, this is generally the weaker quarter.

But the pipe isn't full.

I think there's going to be better than normal seasonal activity in the fourth quarter.

Hopefully there will be more momentum in 2010 but no one's writing about it.

Everybody is talking about 10, 10.5, 11 million units of build next year.

Even though we may not have an opportunity because of the size and weight of cars to get back to 15 million units, we may not have an opportunity to get back there because units are lasting longer.

We're doing a better job of building better cars.

It is -- 11 units is still 11 million units is still a long way from 14 or 15 million units.

So, we're gaining on it.

I hope conservatism, I think it is conservative forecast, I think we are conservative and hopefully will enjoy 12 or 13 next year before the dust settles but none of us know that.

Do you think you've gained share here?

Just given where operating rates are and this whole going forward and within the auto space or generally?

Clearly, we gained some share.

Question is can we hold the share?

Will customers return to other -- to other supply-based activity?

You can't be sure about those things.

I wouldn't trade our position for anyone.

Our inventories are low.

They're inexpensive by comparison to a year ago.

And we're probably from a cost compression, cost control perspective as combat ready as we've ever been.

And so I think we can play well in this environment.

And I don't think the ups and downs of scraps going up 20 or down 20, really, it cycles through.

There may be timing differences but the margins probably aren't going to change a lot.

Okay.

Thank you.

We'll go next to Oppenheimer and Company's Chris Doherty.

Good morning.

I just wanted to open up on a couple of things in more detail.

Theresa, can you give us the -- the DNA breakdown by segment?

Did it seem like the DNA came down this quarter?

The G&A came down this quarter.

By segment, I don't have that by segment.

If you look at our quarterly filings with our 10-Qs, you'll see it by segment.

I just don't have that with me.

Can you just talk about where we stand in terms of the profit sharing?

I think it was about $400,000 in this quarter.

Is that where it is going to stay for the year?

Does that assume Q4 results or could that go up given that you know expect a full year to be positive?

It is going to go up.

There will be more profit sharing booked in the fourth quarter.

We don't book the profit sharing in anticipation.

It is actually as we have results, we book those results.

So, to Keith's point, you will see an increase in the fourth quarter.

And then, Theresa, one last thing in terms of the timing of the registration for the seven and three quarters.

I know you have filed a registration.

When do you expect that to go effective?

We expect that to happen within the next couple of weeks.

That's it.

Thank you.

Sal Tharani of Goldman Sachs has our next question.

Hi, Keith, how are you?

Hi, Sal.

Want to ask you about the scrap inventories at the mill divisions and the scrap yard.

How is that right now?

The inventories are generally three weeks to a month just on an average scrap.

At all of the steel divisions.

I think.

We'll let Mark speak to it.

I think his inventories are probably down a little bit.

Go ahead, Mark.

Ours are by two weeks.

Two and a half weeks of shipments currently, sal.

As I said earlier, we liquidated inventory in August and September, recognizing that the market wanted to take some building value off the table.

Okay.

On downside, you mentioned competition where some people are pricing it below costs.

Is this something new or it has happened prior to that.

Something you have been seeing in the past also?

No, that's new in the last few months.

We've seen a much more aggressive pricing stance by a lot of -- by a couple of competitors.

Sal, the statement that we believe competition is pricing below costs, should not be relied on.

We don't know what our competitor's costs are.

We can only suspect.

We think we're low cost producer.

In fabrication and that arena.

We certainly know some of the quotes we saw out there.

We couldn't, from a cost perspective, make any money on.

We couldn't get to those kind of numbers and make money.

So, therefore, believing we are the most efficient, I guess we have to believe that our competitors are selling below cost, but for us to make a statement like that, it is sort of -- we need to clarify that.

I understand.

But you are the lowest -- you are very low cost producer so you have a better idea of what the costs are out there.

Let me put it to you this way.

We're seeing joist priced at the market price for the raw material inputs for joist.

Okay.

So, that's how we concluded that they may be pricing without regard to the conversion cost of producing joist but Keith is right.

There may be other factors at play, sourcing supply of materials or other things that affect their cost that we don't see.

Got you.

Keith, do you think that you might see something like that on the flat roll side.

We have a lot of capacity coming in over the next -- as integrated are ramping up.

You may see there may be some play in doing so in the flat roll particularly.

I think there is some legitimate worry out there that we may have cranked up too much capacity too soon.

There is a big difference between what the steady state level of demand in our society realistically is and what your operating rate is at any moment in time as you're trying to refill the pipe.

I think all of that euphoria in Q3, a lot of that was pipe filling.

I think we're now at a more steady state run rate.

We still are seeing some excellent input activity or order entry activity.

I think maybe we've just all become a little skittish and worry a little more these days.

We wonder whether or not that's sustainable given the capacity that's come online.

I hope that it is.

And lastly, on the structural business, wanted to get your feel on structural prices came down $30 following the scrap price decline.

But for you, scrap price may go up.

Do you think you might be hardly breaking even in the fourth quarter this time?

Repeat the last part of the question.

Do you think you will be hardly making or slightly negative earnings in just for the quarter in the structural division because it is going against you, at least the P&L.

I think we commented, I'll get to structural.

We commented that recycling earnings will be down in the quarter.

I think scrap will, on a delivery basis, will be cheaper than it was on a delivered basis in October.

We don't know the extent of that.

Clearly, there has been some impact from pricing activity in the structural arena that has been related to the import issue but I think those activities are -- everyone has unwound them at this point in time.

I don't see any import pressure there and I don't know that the prices are going to go down a lot.

They'll probably go down somewhat in Q4.

But so will scrap.

So, the question of can you maintain a pretax income is a good question and it is a close call.

It is hovering around zero.

Okay.

Last thing, on Mesabi Nugget, by you opening it up, are you holding off on your purchases of pig iron or buying in case there is a delay in the Mesabi Nugget commissioning?

Repeat that?

On the Mesabi Nugget, your Mesabi Nugget project is coming along early next year.

You generally buy pig irons a few months ahead of the time.

I was wondering if you're holding off on purchases or are you being careful in buying it so you don't have too much pig iron and Mesabi Nuggets at the same time.

We're not buying any.

Currently we have adequate stocks of pig iron and are very hopeful that they ramp up although you're not going to get to 100% of capacity overnight.

There will be a decent amount of volume come out of Mesabi early on that will put us in good shape.

If the run rate continues, at a good pace of ramp up, and the product we're confident is going to be of high quality, there is no reason to go searching for pig iron.

We need quite a small amount of imported pig iron to add to that mix currently.

So, the inventory we do have will last quite some time.

Thank you very much.

From Longbow Research, we'll go to Luke Folta.

Hi, guys.

Couple of questions quickly on recycling.

Just firstly, to the extent that there was any inventory gains or gains relating to hedging in the quarter, can you quantify that for us?

Certainly from a net hedging perspective, we actually lost just about $500,000 during the quarter.

And there really were no means for lower cost or market adjustments if that was the second part of your question.

Okay.

And then secondly, just regarding your -- can you break out for us what the percentage of your scrap shipments for prime versus obsolete and how that changed versus last quarter.

I don't think we have that data with us.

I don't know that we accumulate it that way.

Okay.

I guess I was just trying to understand there's been a lot of integrated facilities that have restarted recently and I'm just trying to get a feel for what the impact, the positive impact for you might be either in Q3 or even further in Q4.

You must remember the integrated buyers don't just buy bundles anymore.

They buy some Busheling product.

They buy bundles.

They buy shredded and some of them even throw heavy meld in there.

So, the practices of two decades ago are gone.

It is more of a mix for them.

Which probably better aligns with the flow mix that all of us experience.

I don't know that you're going to see these big up and down monstrous pressures on bundles because the mills were out of bundles and need bundles.

I think that there's more of a balanced inventory of products going into today than there has ever been historically.

Just finally, regarding the export market, have you been able to take advantage of some of the strength there over the summer and what is your outlook there going forward?

We're not exporters.

We're landlocked generally speaking.

Mark exports some nonferrous material to China.

We don't export any ferrous material on the steel side.

We're not exporting any material with the exception of product coming out of Pittsboro.

We have some steady state business overseas there.

That's about the limit on our exports.

It is too expensive in terms of flat rolls to get the product to the coast.

I guess I was more talking scrap out of your facilities in the southeast.

That's mostly nonferrous and Zorba.

Yes, they have exported some cargoes of shredded but it is not --

It has been very incremental.

From the ferrous side.

Thanks a lot.

We'll hear from Tony Rizzuto.

Hi, folks.

Got a couple of questions.

My first question, Keith, is you've talked quite a bit about the prospects for construction and automotive and rail.

I was wondering if you could talk a little bit about some of the other end markets you serve like the mining industry, energy and AG and what you see there.

And then I've got a follow-up question, too.

I think you talk about heavy equipment manufacturers.

That activity is -- that's just a little bit brighter picture, flat to a little bit brighter for some yellow iron.

I think AG products, kind of steady as you go in most of our markets.

We have done a better job of penetrating appliance.

And have a little bit of wind in our sail, momentum there than we have historically.

But as we've said earlier, a lot of our products go to service centers and then we don't know where they go after that.

In all cases.

So, it is kind of a difficult read for us.

Clearly, activity in flat rolled through our partner into the automotive arena has picked up nicely.

And we're enjoying some brisk business on certain platforms with Chrysler and Ford there.

And we're grateful for it.

And are well positioned in that arena.

You guys are breaking up a little bit.

I don't know if anyone else was affected by that.

But I think I heard you say a lot of the product, it is hard to tell where the end markets ultimately goes but a lot of it does go through service centers.

But those other markets tend to sound a little more healthy, a little more stable.

I would say that's a fair statement.

All right.

And the follow-up question I have is if the economic conditions should falter, Keith, do you think that the industry in general will continue to have the resolve to flex production or were there lessons learned here that might cause some players maybe to not be as flexible the way they come to market.

I can't speak for everybody else.

We generally attempt to run our facilities to -- as close to capacity as we can.

And push very hard to do that.

Sometimes it is just not activity out there and you can't have resilient order entry every week.

I refrain from commenting on what people are going to do with capacity in the future other than to tell you we will make every effort to try to get as many tons through our shops as we possibly can.

But it seems like --

Everybody has to look at it from -- is it cost-effective to the bottom line?

At some point in time, when it gets to be well below your cost structure, people quit selling into it.

Down to that point, where you're above water, people tend to attempt to keep volume in the shop.

It has been an historical practice.

I know there were cycles where there was better discipline.

I think there probably was.

Were there lessons learned?

I think there probably are.

Everybody has to speak for themselves.

But it seems in some of the programs that you've been trying to implement, I think I heard Dick earlier mention that you've rounded out various product categories to the extent you can continue to do this, with a more flexible cost structure and the composition of your facilities, you should be able to, I think, as a questioner, kind of alluded to earlier, that you should be able to more or less pick up some increased market share in an environment like this, don't you think?

I think that's true.

Clearly, true in West Virginia.

Clearly true down in Pittsboro.

As they bring angles into their portfolio of products.

As we get better, better at rail and we're getting better and better at rail.

We no longer make ten heats and eight of them don't meet spec.

Have to sell it as off-colored product or chop it up.

We now make ten heats and eight or nine are good.

We're getting better and better as we have more practice.

So, there are new markets available to the company but as I said earlier, I wouldn't trade our position for anybody's in terms of how well we're positioned to take advantage of market opportunities.

Well, congratulations on a very respectable performance and a very challenging environment.

Thank you.

We'll move next to John Tumazos of John Tumazos Very Independent Research.

Congratulations on the profits.

What is your opinion in terms of the sustainability of the scrap steel reservoir with electric furnace operating rates holding in the 60s throughout the course of this year and exports running about two million tons a month.

Do you think the strong continued export demand for scrap weighs against construction of more electric furnaces?

Of course, steel volumes are very depressed right now.

But the electric furnace demand, the small amount of scrap used in integrated and the export demand is almost 100% of steel shipments but of course, the scrap is falling from the shipments five, ten or 15 years ago.

Well, right now, I think the flows are equal to or better than the domestic demand and the export -- export demand recently hasn't been all that robust but, as you look out into the future, clearly, at some point in time, especially with the dollar, continuing its weakness for being a weak dollar, if the markets came back and merchant mills and or electric furnace community got back to 80% or 90%, operating rate the and there was strong export activity, scrap would certainly come under some pressure which really underscores the importance of iron dynamics and Mesabi Nugget and the reason why we have continued that brisk March to the sea in that arena.

We believe we again can probably produce high quality iron with great yield by comparison to purchase yields of pig iron in the $300 arena.

We think if commodities started to soar again, that would put us in very good set relative to our competition.

Do you think discretionary capital is more likely to go into your iron making as opposed to building new length trick art furnaces down the road?

We would like to think, John, we're not done growing in steel.

Any growth we do will probably likely be Greenfield and could involve, as we've said, another flat roll project some day.

That some day is a ways away yet.

We're starting to think about and conceptualize what it might look like et cetera.

But clearly if Mesabi Nugget is successful from a volume and a cost of production perspective, I think our board is prepared to accelerate at the rate of which we build these units relative to their importance to the company.

Thank you.

We'll move next to Jefferies & Co.'s Brett Levy.

Hi, guys, most of the questions have been answered.

I think you provided some update on kind of what the break even point was for each of your divisions in terms of capital capacity utilization.

It seems like you've adjusted a little bit since then.

If you can provide an update, go by division and kind of where break even would be for each of those divisions.

I don't think we've ever really defined that but it is -- they're probably all sub 50%.

And obviously a good test for that is now in the structural arena.

But again, it is a good test and it is not a good test because you have a second coming onstream in a bad market.

If it is not being fully utilized.

With that asset sitting there and with that capacity at 1.8, it is a remarkable achievement to break even at 30%.

I would guess we can -- we can break even below 50% with most of our steel segment assets at this point in time.

But I don't know exactly where that pinch point is.

Okay.

And then you guys talked about 2010 being a period you hope to keep your head above water.

I guess sort of relative to the third quarter, it looks like your head is well above water here.

Are you looking for any significant improvement from third quarter 2009 to 2010 or sort of more of the same or maybe even a little less?

I think we'll keep our head above water clearly in the third quarter.

And you would have to do better than $35 million to deliver a small profit.

So, we said we would provide quantitative more specific guidance later.

But don't take the term -- keep our head above water for 2010 as gee, earnings are going to be abysmal.

I think we can have some good earnings next year and we'll give you more color on that later as people finish their budgeting activities for the year and you do some back of the envelope prognosticating about 2010.

I think the company is going to remain nicely profitable going into 2010.

All right.

Thanks a ton, guys.

Kuni Chen of Merrill Lynch has our next question.

Just a quick clarification on scrap.

Apologies if you already commented on this.

But as far as the prime scrap market goes, are you seeing any signs that the integrated mills are changing their charge mix, there has been some change there recently and perhaps trying to utilize more prime scrap in their mix going forward?

Actually, it is quite the reverse.

They're attempting to put lesser grades into the mix.

They're a broader mixture of different types of scrap today than they've ever been.

More shredded.

They still use bundles.

Still use Busheling but more shredded.

Some number one heavy meld.

So, there is a broad array of portfolio products going into the mix than there probably ever has been which helps their cost structure.

Right.

Okay.

That's all I had.

Thanks.

From Affiliated Research Group, we'll move next to Chuck Bradford.

Good morning.

Could you talk a bit about the situation in Minnesota in regard to the mining permits and the availability of iron ore concentrates prior to your being able to mine your own?

Good morning, Chuck.

Yes, the permitting process is on-going.

A few glitches there.

Probably now anticipating the permit to be about a 12 months out hopefully by the end of 2010.

Relative to concentrate supply, we feel we have several different sources that will satisfy our desire or our needs.

Faith in those sources and the agreements to extend into 2011?

We've got -- we're secure through 2010 and negotiating supplies for 2011.

How does the price for those supplies compare with what your cost would be?

I assume your cost would be a lot better .

The supply going forward will be obviously indexed against Canadian concentrate pricing.

Okay.

Thank you very much.

Let's -- Chuck, the answer to your question is yes, we think we can make it cheaper than we can buy it.

I didn't hear that.

Thanks.

Absolutely.

Up next from -- we'll go back to Michelle Applebaum with a follow-up question.

Hello.

Hello?

Hello.

Hi.

Sorry.

I just wanted to ask a quick question on your thoughts on imports.

You had said that there had been some activity on the beam side.

But that it had evaded.

Did I hear that but then you weren't seeing much competition coming in other products.

I think that's exactly right.

I don't think -- I think you said it exactly as we see it.

Okay.

There had been some activity in (inaudible) I think that dissipated.

In our view, it is abated.

And there's just been very little flat rolled activity out there to speak of.

The second mill of Columbia city, is it running or isn't it running?

It runs from time to time.

As we aggregate orders for that mill, we run the mill.

So, it is hard to say, the big mill runs every week.

And but not every day.

And the little mill will wait until we aggregate enough product and then it will run for a week or so.

Two weeks or whatever.

Right now, specifically it is not running.

The people involved with the medium section mill are principally the guys putting the number two castor together.

When they're not running the mill, they're over working on the number two castor.

Okay.

And the backing off on imports, that was because of foreign fighters, wasn't it?

I would say.

Okay.

But at these price levels, we're cool because looking, relative to China, we're kind of at a -- not so nice place.

That's all true.

Okay.

All right.

Thanks.

Thank you.

From Casimir Capital, we'll move to Wayne Atwell.

Good morning.

Good morning, Wayne.

Most of my questions have been answered but could you give us a thought on how long the start-up might be at Mesabi Nugget?

Everybody has an opinion.

I would like for it to be three months.

Mark will tell you it will be a year at least.

We would anticipate a swift start-up, Wayne.

Swift is three months?

No.

I would suggest that any start-up of this type, if you're running at 60% to 70% of your output within 12 months, I would see that to be relatively successful.

I would say that would be a great performance.

Okay.

And then when do you think it might actually be generating a profit and what's your best thought at this point of your cost?

I realize there is some --

If you could tell us where prices are and we can tell you whether or not it is going to be profitable.

I would -- I just don't have a crystal ball that big.

Before any significant volume rolls off the facility, it will be middle to next year kind of thing.

And therefore, where is the market going to be for pig iron then, I don't know.

If the market for pig iron is 350, it will be a skinny profit.

If it is 300, it will be no profit.

If it is 400, it will be a profit.

For us, it is tied to pig activity as it is delivered.

Based on obviously, two main drivers, Wayne.

One is volume.

If the volume is there.

Then obviously it helps.

Price at a reasonable volume will be in the 320, 325 -- I mean the cost, in the 320, 330 range.

Okay.

Good.

Thank you.

Our final question today from Iron Edge Research, we'll go to Bob Richards.

Thanks.

Most of my questions have been answered.

A quick question on I guess it depends on the blast furnace but Midwestern, let's say blast furnace beach iron, on a delivered basis to Butler, would you say it could be cost competitive for your product when you're at 70% capacity like you said you're going to be in six months or so?

Beach iron, Bob, is one of those gee, I didn't want it and I got it and I need to get rid of it.

It is not really the kind of iron you're going to -- we buy it and it is usually always cheaper than pig iron.

In the spot market.

In the history of the product.

But our selling values to our units will be largely dependent on what the spot price of pig is plus the freight to get it from, for example to New Orleans to Bunker, kind of thing.

That's the kind of market activity that we would expect.

That's the kind of price to pay for the products.

I said earlier, tell me where it is going to be.

We don't really know where our cost structure in the end is going to be.

I'm very hopeful that it is sub 300.

Mark is saying it could be north of 300.

But it is in that range.

I appreciate that.

I don't think beach iron is a comparable product, to be honest there.

Is not secure, consistent volume of supply of beach iron number one.

When it is there, it is dumped for a reason.

It tends to be impregnated with slag and typically, it is high sulfur.

So, it is not necessarily the best product to put into an electric outpost anyway.

Hence, the evaluation is a lot lower than imported pig iron.

It was a leading question to ask would you be interested in a Midwestern blast furnace that might come up for offer here perhaps in the next six months or so.

Oh, probably not.

Because it would probably be -- it would probably come with the steel workers and we would be reluctant to look at it.

Okay, thanks for your time.

Thank you.

We have no further questions.

I would like to turn the conference back over to our speakers for closing remarks.

Thank you, Sara.

It has been a good conference.

Thank you, ladies and gentlemen for your continued interest in the Company.

And thank you to all of the wonderful men and women that work for Steel Dynamics.

Who have done an absolutely terrific job of controlling our cost structure.

I look forward to talking with you all next time.

Good-bye.