Steel Dynamics Inc (STLD) 2009 Q4 法說會逐字稿

Good morning, everyone, and welcome to today's Steel Dynamics fourth quarter 2009 earnings conference.

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

Joining us today are Keith Busse, Chairman and Executive Officer, Richard Teets, President and Chief Operating Officer of Steel Operations, Mark Millett, President and Chief Operating Officer OmniSource Corporation, Gary Heasley, Executive Vice President of Business Development and President and Chief Operating Officer of Fabrications, Theresa Wagler, Executive Vice President and Chief Financial Officer, and Fred Warner Investor Relations Manager.

And now for opening remarks, I would like to turn the call over to Mr Fred Warner.

Please go ahead sir.

Good morning and welcome to the Steel Dynamics fourth quarter 2009 conference call.

The call is being broadcast live February 4, 2010 from Fort Wayne, Indiana.

Later today, you will be able to replay the call from our website, or download the podcast.

During today's call, our management will make some 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 are 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 caution 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 and 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 scraps and other raw materials, equipment performance or failures or litigation outcomes.

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 and Exchange Commission.

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

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

We'll begin the call with comments from our Chairman and Chief Executive Officer, Keith Busse.

Thank you Fred.

Good morning, ladies and gentlemen and welcome to our fourth quarter conference call.

As you can see in our report, Steel Dynamics reported about $27 million in net income for the fourth quarter of 2009, or about $0.12 per diluted share.

That was within the range that we prognosticated hire a month or so again, yet it was on the low side of it and I'll do my best for those of you who were thinking it might be a little higher than that, something over $0.15, to tell you where the fallout occurred, if you will.

I did want to point out that as noted in the paragraph, Steel Dynamics lost nearly $83 million in the fourth quarter of 2008, one of the worst quarters in our history, and reported a $27 million profit in this quarter, which is a delta of $110 million.

So things have changed dramatically from year to year, and I certainly believe we are on the right course.

I do believe that the fourth quarter results were impacted by a number of factors, most of which were in the recycling segment of our business plan.

We had expected better operating results from to the Omni organization.

Our volume was down at Omni both in fair shipments and nonfair shipments from what we contemplated, but not as significantly as the margin.

We are impacted more on the margin, our guess in that arena, we just didn't hit the numbers.

But we reported fairly early in October of 2009, the third quarter results, and obviously we had the benefit of some knowledge about pricing in the scrap world dropping significantly in October, yet we were furnishing scrap to the market at prices that it was procured at in September, much higher.

So we had margin compression that occurred in October, and more margin compression that occurred in November, which was not contemplated.

Shipments were weaker in December and the collection or the combination of lower volumes in rising scrap costs took it toll on Omni's earnings in the fourth quarter.

So if there was a miss in your head or our head, it was probably in that area.

I think our Steel divisions did fairly well.

Did want to note that our net sales for the year were $4 billion, which is down 51% from the $8 billion of the previous year, and we had a net loss this year of $8 million.

We came fairly close to break even, but didn't achieve it.

We were hoping we could have achieved a break even, if not a small profit, had we had better margin results in the recycling segment of our business.

But nonetheless, the revenue for the year being down 51% was very similar to that of other competitors in the industry.

The steel group did fairly well, and achieved an operating profit, as noted, of $108 million, or $93 a ton.

Certainly best in class, or best in the field, from operating profit per ton perspective.

OmniSource did generate an operating profit in the quarter as noted with weaker results due to lower margins and reduced comes.

We have continued losses in steel fabrication segment and certain costs related to the start up of Mesabi Nugget also detracted from fourth quarter results.

I won't get very deeply into Mesabi Nugget, Mark will report on that, but our start up is going fairly well form the does the process work perspective.

We are having some glitches, some mechanical glitches with some equipment, mostly conveying equipment which he will probably talk about.

The actual operation of the furnace is on the money, very excellent results.

So we think we've achieved everything we set out to achieve and probably going do do a little bitter than we thought we could as we get by some of these mechanical glitches in the process.

Some of you may note that in the third paragraph selling values actually increased $48 a ton while scrap costs increased 29, so you would think that you would have better operating income or more margin to report on, but it's not this kind of mechanical works.

There are certainly other factors at work there, and I think a number of analysts wrote about it this morning and said the administrative costs were a lot higher in Steel Dynamics and we contemplated.

They're really not administrative in costs.

Most of the damage, as you might expect, came in the structural arena.

The structural division achieved a nice profit in the third quarter on significantly reduced volumes.

Obviously their volume was down in the fourth quarter another 20,000 tons, so they had even less volume and got -- were hovering around a break even, but still carrying many of the operating expenses that that division has.

We have not laid off anyone in the Steel group.

We have done some right sizing as we talked about earlier on the call in OmniSource and done some right sizing in fabrication.

We have not laid anyone off in the steel making end of our business, nor do we plan to.

And we think business is improving and getting better, and we're very pleased and we'll talk about that later on, but we are still carrying much of that overhead, some fixed, some of it related to the employee population.

At Columbia City we probably had the equivalent of six operating lines, or staffed.

We had only put two operating lines on the small mill.

Today, we're operating with about five lines with people being farmed out to our braces operation and Ty-making operations, and elsewhere if the Company, and they are recallable.

But it's really dividing the same amount of operating over head by fewer tons, especially in the case of the structural segment of our business, that produced the numbers, although the numbers we achieved were fairly close to the ones we expected.

So we really weren't, in spite of the fact that shipments were down 78,000 tons quarter over quarter, we still achieved fairly good operating results in steel as noted by many of you this morning.

In the fourth paragraph, we talk about SDI average ferrous scrap price per ton charge was $2.32 in 2009, compared to $4.21.

I think that's the first time we probably ever reported this number, and it allows many of you to sort of clean up your models, if you will, gives you benchmarks you haven't had before, if you will.

In the fifth paragraph, we talk about the fact that OmniSource provided 49% of the ferrous scrap purchase by SDIs mills, maybe not consumed, but purchased, and that would be expected when you're in a rising scrap market and you have a lull in the fighting, if you will.

I think there was -- from a steel-making perspective, I can tell you that our backlogs dried up a good bit in late October and early November.

So we didn't produce as many tons as we that we were going to produce, even though we had very good operating results for the quarter in the Steel segment, but when you have backlogs falling off, production falling off, scrap costs going up, you're probably going to shop closer to home.

So it would be expected that normally we consume 45% to 47% of the material we consume in our steel-making operations come from Omni, either Omni north or Omni south, but it was 49% in this quarter.

Other than that, the last paragraph, we talk about looking back at 2009, and a lot of the extraordinary steel-making market and economic conditions the country faced throughout the year, the Company's performance was reasonably good.

Mark is trying to get me to change that word to just good, and I kept saying highly reasonably good probably works for me, and we don't often talk about some of the excellent competition we have out there, and clearly many of these entities that have reported have reported some good numbers and are turning their ships around at this point in time.

But ours was -- as you look at all of the metrics for all of the companies that have certainly reported to date, it was clearly the best performance by anyone in steel sector.

We had a slight loss which was the lowest reported loss of anyone in the steel community.

We have the highest operating prof it and the highest operating profit per ton.

The best EBITDA and the best EBITDA margin, and even though I we did have a return on assets, it was the slightest loss relative to a return on assets of anybody out there.

So a pretty impressive year for performance of our personnel perspective.

As I've said many times, they did a [yule] man's job of focusing on cost reduction and cost control, and did a very good job of it throughout the entire year, and we have very efficient operations that are very well maintained, and we paid a lot of attention to product quality this year, customer service, safety, and other very important key issues throughout the year.

So we came through this period much better prepared to enter 2010 than we did entering 2009.

As we enter the new year, we have certainly seen a slight improvement in business conditions, and I want to note, and Dick will probably still a little bit of his thunder, but in January, Butler ran 267,500 tons of production.

If you annualize that, and be careful doing that, it's not the right calculation, there's 31 days in the month of October, but that annualizes to -- or January, month of January, excuse me.

Thank you, Dick.

If you analyze that that's over 3 million tons, like 3.2 million tons and we're not going to certainly achieve that even in normal environments because of outages and some months being shorter than others et cetera, and glitches you hit along the way.

The mill ran very well, and achieved record-setting production in the month of January.

I would expect that we're not going to be at that level in February.

It's not backlog related, just going 28 days there.

We have a full days worth of down time that we need to take, but we should have reasonably good production in February, and significant production, I think, in March.

Our backlog certainly good enough to get us through February, and we're starting to get into the month of March, at this point in time, from a how long is your backlog perspective.

But with inventories being as low as they are, and the economy being still as weak as it is, I really don't expect people to engage in a lot of restocking.

So I think what they're ordering is probably a pretty good bird's eye view of where the economy is really at, and I think we've been favored with good order entry, perhaps better than many of our peers, for whatever reason, I like to think because we're competitive and have great quality and great service, but we have been favored with fairly positive order entry flows in all segments of the business.

We -- so the backlog is okay.

It's -- at Butler.

It remains at that level, has been at that level for a couple of months, and we just continue to plod along, if you will.

Our structural backlogs, Dick will talk about that, and we took it upon ourselves to tweak the pricing environment that is out in the market place and bring reality closer to -- or the list price closer to real transaction values, but we've been blessed with some order of entry activity there that we haven't seen in a while in the structural end of our business.

We have a pretty good engineered bar backlogs, SBQ backlog, if you will, back logs remain fairly steady in the merchants arena.

Business is pretty good at Omni.

They continue to operate at about 75% of capacity, and certainly the outlook for Omni is for a lot stronger profitability.

Well, they had an operating profit, but a lot better profitability in Q1.

Obviously with the month to to month lag, and with prices going up in December and going up significantly in December and January, and that material being delivered the following month, their margins are improving, and this month, basically prime goods went up $10 or $15, and cut grades were about flat.

So maybe a little bit of margin help there as well, but not a lot.

But, anyway, Omni should report a better quarter.

And as I said earlier, I think we're just in excellent position to move forward as the economy continues to improve, and I think it will continue to take small positive steps in the right direction through the year.

I know that the GDP reported was 5.7%, but when you factor out the destocking and import activity, the economy still only moved in real number of 2%.

So things are still fairly weak out there, but business is picking up.

We're doing well.

[Flat roll in beans] about the same in merchants, and certainly better in recycling, and a lot better in SBQ.

So I really don't have anything other to report at this point in time and I would like to turn it over to my colleagues to tell you about their specific areas of responsibility, and I'll start with Dick Teets in the steel segment.

Thank you Keith.

Good morning.

I would first like to acknowledge the safety efforts of some of our steel facilities.

Although all have worked hard in improving, I would like to acknowledge Pittsboro's operation because they had their best year with zero lost time injuries.

Additionally, both steel in West Virginia and Roanoke had their best performances ever for lost time injuries with three and four respectively.

So, thank you very much everybody for your diligence on safety.

A couple brief comments about each of our major facilities.

At Butler I would like to acknowledge some recent performance records.

In December, we established a new record for monthly shipments by besting old by almost 10%.

In December the team shipped 290,000 tons.

That's a tremendous job, and needless to say, starting with sales and all the way through the facility, all of that support goes into that record, but the shipping team really did a great job.

As Keith mentioned, in January, the melt cast and hot mill teams set a new monthly record of 267,000 tons, and also the pickle line established a new monthly record of 102,000 tons.

Congratulations to everyone at Butler.

As Keith mentioned, the news from Columbia City is not as exciting from a production perspective, but it's not due to lack of employee efforts.

The good news is, as Keith implied, the backlog for beam products today is almost double the recent history, but it is unclear how long the nonresidential construction market will remain in a depressed state.

Some exciting news this week is that we received word from a third party testing firm for a class 1 railroad that our samples of rail products have successfully passed all their testing requirements.

That opens the door to pursue prime standard strength rail orders with that railroad, and I believe we will be submitting additional rail samples to a second class railroad yet this month.

Great job with everybody associated with the rail product.

Also as Columbia city.

Yesterday I toured the construction site of the number to caster and I was excited to see the progress.

Our team has safely installed all of the equipment downstream from the straighteners.

They were also assisting contractors with piping and wiring assignments.

Completion of this project is expected around June, with commissioning on real looms to follow.

We are working that project on a very strict 40-hour work week for our employees and contractors.

So they are paying attention to details, and just punching it out on a steady basis.

Pittsboro ended the year with improving conditions, and that has continued into the new year.

Including in their shipments in 2009 were some new sizes and products, including the first production of angles.

SBQ shipments hit a low in the second quarter of 2009 and have steadily improved.

We continue to operate our melting and casting facilities at Pittsboro during off peak hours to realize better electrical costs.

To improve mill efficiency and achieve better product quality and through put, we have reinitiated the project of installing the two additional rolling stands.

One week outage will be required, and scheduled either in the second or third quarter, based on production requirements, and that will be required for the swapping out of a gear box between an existing stand and a new one.

Also during that outage, additional bundling and banding equipment will be installed through removing existing bottlenecks in the finishing areas.

At Roanoke, the shipping department in the fourth quarter also set a monthly shipping record for total finished steel and billets shipped.

This was done while working around construction activities associated with the tie in of the melt shop baghouse.

The melt shop was down for approximately three weeks for that tie in, but the rolling mill did not miss a ton of production due to the appropriate billet inventory control.

Congratulations to everyone at the Roanoke team.

At steel in West Virginia during 2009, they reinvented themselves by offering new merchant products and specialty sections and they right-sized the business to match demands and requirements.

As Keith said earlier, we have not laid anybody off in the Steel sector, but that is with the exception of steel West Virginia where contractually we have the right and responsibility to manage that work force as needed based on order input, and we have done that.

The neat thing about some of the new sections that were created at steel West Virginia that they were components of alternative energy products, which has a very positive future.

Also at steel West Virginia we commissioned two new rolling mill strainers, one in each of the mills.

These upgrades will improve product quality and increased yield.

We also expect an improvement to the safety performance because of the addition of automated material handling equipment.

These are exciting improvements in Huntington.

Congratulations to everyone involved.

And finally at the tex, they too finished the year with an improving backlog, and we see the strength in that backlog in the first quarter.

Thank you to everyone in the team in Pittsburgh for their continued fine performance.

Keith?

Thank you, Dick.

We'll now turn it over to Mr Millett for a report on the recycling business and I'm sure everybody wants to hear that to start up in Minnesota, Mesabi Nugget, which is going, other than a few mechanical glitches, quite well.

Thank you Keith.

Good morning everybody.

Starting with Mesabi Nugget, we celebrated our initial nugget run on January 12th, that's about three weeks ago now and we ran for about 2.5 hours without a single problem, and then we retired, or the guys up there retired to the bar and celebrated for a few hours, but nonetheless, it was quite phenomenal that it went as expected.

Since then we've been making trial runs on daylight ships only, while we're continuing to fine tune the systems, finalize commissioning of ancillary equipment, and importantly, this schedule is allowing the team to have hands on training while gaining an intimate knowledge of the plant and the equipment.

They've done a phenomenal job for a -- in particular for a commissioning construction phase, that safety performance has been absolutely outstanding.

As Keith mentioned, unfortunately we are starting up with a few mechanical problems.

We have experienced mechanical issues associated with conveyance of a variety of different materials.

Coal and the concentrate between the core elements, but we have identified the root causes of that -- those flaws.

They are mechanical, manufacturing deficiencies, and a couple of design flaws.

We have solutions in hand, and we will be replacing a lot of that equipment within four to six weeks.

And we also are having some temporary fixes inclemented for the short term.

Also, it's Minnesota, it's winter, and with this incredibly difficult time of year to start up, and we're experiencing temperatures in the minus 10, minus 20 degrees, and anyone associated with clamp, with a lot of water systems, it's quite a complicated task, as is the reclaiming of raw materials from excise stockpiles.

The materials, the coal, the ORE is like concrete and it's difficult with a fully commissioned plant, let alone starting up from anew, but the guys are doing an absolute phenomenal job.

Core components of the system, the pelletizing, drying, half distribution of the pellets on the rotary half the rotary half performance itself, all have performed extremely well, and the product quality is actually better than the material that we produced at the pilot plant, and it's quite incredible.

When we have material in stock bins ahead of the rotary half furnace and the guys go ahead and plan a -- plan a run, it does run as expected, and so we're quite excited about that.

So the key takeaway I think is the technology appears to be functioning well, the design considerations adopted from the pilot plant have allowed a successful scale up of the process.

Commissioning, as we said with the exception of material transfer conveyors is proceeding well.

We have a great team in place and the expectation of 50% to 60% run rate by the summer is more than anticipated at the present time.

Iron Dynamics, the team continues to be very consist there.

Even with production curtailed somewhat during periods of reduced capacity at the steel mill earlier in the year, 2009 was another year of record of production.

They produced 165,000 metric tons of liquid iron and 38,000 metric tons of HBI, compared to 148,000 tons in 2008.

The team remains on a path that continues improvement.

Operating cost was reduced by 10% year-over-year, and they've transitioned the fee stock totally to recycled mill scale.

We no longer use iron concentrate from Canada.

They believe that with continued focus on raw material consistency, stability of operation, we should still be able to achieve a target of 20,000 metric tons a month as we continue to fine tune over the next couple of years.

Metal recycling, ferrous shipments for the fourth quarter was 1.2 million tons, down approximately 7% from the 1.3 million tons shipped in Q3.

Year over year, 2009 shipments were 4.1 million tons down almost 30% from the 5.6 million tons shipped in 2008.

Margins were compressed in October and November, as high-priced inventory flowed through a depreciating market.

As you may be aware, in September, prime Bushland market pricing was about $340 a ton, so obviously inventory purchased in September had to flow through the system, and we saw in October and November a strongly descending market.

September to October, the market dropped about $30, and then another $45 to $50 from October to November.

And that had a -- obviously an appreciable compression effect on margin.

Additionally, prime grades tend to be purchased on a prior month base.

So a lot of the material delivered in October was still being purchased at the higher September 340 number, so that obviously compresses it, also.

And then two other factors.

Firstly, if you look at the shipments, the volume was down, but the shipping volume tended to be front-loaded.

We shipped at a peak, actually, in October, 460,000 tons.

So obviously we're shipping a large volume of the fourth quarter at the lowest margin, unfortunately.

Finally, in November, when the market did drop to roughly $265 prime, shredded dropped to $220, $230, the dealers providing feed stock, the automotive body guys and others providing fee stock to the shredding community were very resistant to let go of their material.

They recognized the market was probably going to be up further in January and February, and held on to that material.

So as the product pricing, shred price came down in November, we didn't see an equal or greater decrease in our feed to stock, so that further compressed the margin.

So that ended up, I think, with about a $35 million and compression in gross margin quarter over quarter.

This year, the ferrous markets have remained strong, particularly in the sheet arena, that requires the higher quality prime grades, bundling and bushing.

Supply is now tight as inventory accumulated in November and December by mostly scrapper organizations were sold off in the up market in January.

Bad weather also obviously reduced scrap throw flow to the yards.

Non-ferrous shipments east through the fourth quarter coming in about 7% lower than the third, at about 200 million pounds.

Year-over-year 2009 shipments were 780 million pounds as compared to a little over 900 million pounds in 2008.

Exports to Canada, approximately 125 million pounds of the annual total.

Non-ferrous pricing generally strengthened through the quarter as most of you recognize.

Aluminum margins depreciated as markets remain strong.

Copper actually seemingly defied any underlying weak market fundamentals, and continued to appreciate through hedge fund activity and a jump from the dollar to commodities as the dollar wavered and weakened.

The aluminum market depreciating, along with expanded product line of deops cones and a strong focus on cost compression allowed our superior sector aluminum business to be profitable for the second successive, in what is typically a very difficult business.

I think going into this year, we are well-positioned, our cost structure is excellent, and we have good inventory level, and should have a good first quarter, Keith.

Thanks, Mark.

Good report.

We're looking forward to certainly a better first quarter, and I know we'll get it.

Gary, fabrication?

Want to talk about that?

Sure, thanks, Keith.

To put things in context with regards to fabrication.

Joint shipments industry wide in US fell to 47,000 tons in 2009, off about 63% from the high of 1.3 million tons, which is what was shipped in 2006 and 2007, and off 57% from the 1.1 million tons shipped in 2008.

New Millennium shipments were down 53% from Q4 2008, and down 49% for the year, so they are in line with what has happened in the industry as a hole.

For our results for 2009.

If you recall, we Idled two facilities in New Millennium.

Those two facilities represented about $4.5 million of the operating loss of 6.3 that that segment reported for the year.

As we look forward, we see that industry analysts continue to project nonresidential construction will be even softer in 2010.

Our take on that is that joist and deck demand has fallen so far and the segments we serve have been hit harder than the overall industry of nonres construction.

We don't think it's going to a lot further south from where industry demand is today, and in fact we think we may have hit the bottom and will be looking at a long slow recovery from here.

When you look at the market in that context, we have to take a look at our business and the sizing of our team and the way we're organized, and we've made a few changes.

In January, we reduced our staff at all three of our operating plants, and these reductions coupled with the plant closures we did late in 2008 and earlier in 2009 and attrition that's occurred through the year, bring our total staff production down to 50% of what it was a couple of years ago.

At our current staffing levels, we have the capacity to handle any of our customers needs.

We can support all of their demand.

Quick turn projects we can process, and we're actually staffed to begin to grow market share and pursuing opportunities.

We have begun to devote resources to market segments the New Millenium in the past has not served, has not focused on, and in an effort to get better leverage out of our plants, which we believe to be among the most efficient in the country, we are going to begin targeting markets that we just have not focused on in the past.

So that in the short, Keith, is where we are.

It's been a tough year for the employees in New Millennium.

They've taken a lot of sacrifices.

They've done a great job of cutting costs and maintaining costs, maintaining their position in the market, and I want to thank them for that.

For their hard work.

2010 is not going to be an easy year, bit they're up for the job and are ready to go.

Thanks Gary, Theresa, before we get to you, I had someone ask me at a conference why we were reporting so late, is there something wrong?

I said no, the fact I'm here at this conference, Dick is at another conference, we just had a lot of or management team out of pocket, if you will, or we would have been reporting a week or two earlier.

So we just weren't there to be part of this gathering, if you will, had nothing to do with tardiness in reporting numbers.

I think the team was ready to go a week or so again.

Having said that, I want to again note, that our first quarter outlook is for stronger profitability, in both our steel operations and in metal recycling, and we expect to provide quantitative guidance later in the quarter.

Theresa, we'll turn it over to you and afterwards we'll get right to the Q&A.

Thank you, Keith, and thanks for recap on the timing.

During 2009, our focus really remained towards strengthening our capital structure and enhancing the long term liquidity position.

In June we executed a joint common stock and convertible note issue with great success, raising net proceeds of over $675 million, and prepaying all of our term debt of $552 million.

We concurrently amended the covenant within our senior credit agreement to gain greater flexibility from 2009 through the remainder of this year, 2010.

Not insignificant, during a very challenging year, we were able to decrease overall debt by $428 million, improve our liquidity by $194 million, all while investing over $374 million in growth projects, distributing $60 million in 2008 profit sharing contributions, and paying our shareholders $69 million in cash dividends.

Not insignificant.

Additionally, our capital ratio decreased from 62% to 53%, and our first lien leverage ended the year at 0.5 times, again, just a very strong year for us in that regard.

Cash flows from operations were $446 million, reflecting effective management of our trade receivables and inventory levels during the year.

However, other working capital changes reduced cash flow by $115 million.

This reduction was due primarily to 2008's employee profit sharing contribution payment and growth in our expected income tax refund due to weaker 2009 earnings.

During the year, we'll expect to receive probably around $100 million, maybe more, in the middle of the year, as a tax refund.

We're moving as quick through as we can to file those appropriate tax returns.

So that will add to the liquidity again in the middle of the year.

Additionally, our 2009 effective tax rate, before minority interests, was 39.6%.

We currently expect the 2010 tax rate to be approximately 37%.

During the year our capital expenditures totaled $330 million, of which over 65% was related to Mesabi Nugget, iron facility and potential future mining operations.

Depreciation during the year was $159 million, and capitalized interest related to these projects was $21 million.

Our current 2010 planned capital investment totaled less than $150 million.

This is extremely low, if you compare our historical levels to this amount.

Our approach this year is to remain very disciplined.

These plans only include those items compelling and fairly quick returns inclusive of appropriate and necessary environmental and safety projects.

As we proceed through 2010, if market demand levels warrant and liquidity remains strong, we would increase the number of authorized projects.

Currently over half of the planned projects reside within CO operations.

The outlook related to 2010 depreciation and amortization is for quarterly amounts to be between $55 million and $60 million per quarter.

Increases directly related to our anticipated increase in production levels.

And finally, I'll end with our share data.

We currently have outstanding shares of 216 million.

We have converts still outstanding of 16.4.

If I were estimating shares to utilize on a [EBIT] basis for the first quarter, I would utilize 235 million shares.

And I would like to just thank -- I never do, and I would like to thank the finance tax accounting teams.

They go through a Herculean effort during this time of year to be able to put this information together, so I would like to thank them, as well.

Keith?

Theresa, thank you.

It's nice to have an equity posture that equals your long-term debt.

I suspect if you look at the converts differently, we have more equity than we have debt, so I think we're in pretty good shape.

Thank you for that excellent report.

Sarah, we're now ready for the Q&A.

Thank you.

(Operator Instructions) We'll go first to Kuni Chen, Banc of America Merrill Lynch.

Hi, good day everybody.

Theresa, just want to make sure I heard you right, you said $150 million CapEx?

Yes.

Okay.

All right.

Great.

So, I guess the first question I have here is, certainly if you look out in the industry, a lot of blast furnaces are starting to ramp back up here.

Keith, can you just comment on how you feel about your market share as you look out over the next one to two quarters?

Have you gotten any indications from customers that they may look to shift some of their purchasing activity around?

Just want to get a sense as to how you see some of the competitive dynamics developing over the near term.

We have no indication that there's going to be any shift, and I think even though everyone's operating rates are up, you would be hard-pressed to find anybody who is going to operate at 100% when you when you mention blast furnace, those metallics go into flat rolled steel making.

So I think for whatever reason, as I said earlier, whether it's because we pay more attention, we have better product quality, or more competitively priced, and that doesn't obviously reflect itself in any lower operating profitability per ton, in fact, this is best in the industry.

I think we'll maintain our position.

So we're not going to give any ground there, and I think as long as the market doesn't fall apart, I think it will run at a fairly healthy pace.

I know there's been talk of one or two furnaces coming back, but hopefully that will made up reasonably well to improving market conditions, and there are improving market conditions.

So hopefully there will be a good match there.

I think a lot of conversation in the industry about certain competitors being behind the delivery, so maybe some additional pass-through will help them bring their deliveries pack to on target and on schedule.

But, no I don't think we're going to lose any share.

And then just a quick follow up on Mesabi.

Can you quantify the start up in the fourth quarter, I think in the past, you've said you expected about a $6 million impact for the quarter.

Is that still a good number, and what should we be thinking about for the first quarter?

Well, the -- for the first quarter, assuming that -- I think we projected about 30,000 tons, or 34,000 tons.

If we hit that, I think we're in the $6 million, $6 million to $7 million range.

The mechanical problems of the conveyors may slow that down, so perhaps $8 million that we will -- we should be in that range.

I think it's important to note, too, if you didn't catch it when Mark was talking, that there's nothing in the process that isn't -- that isn't working extraordinarily well.

We've got some mechanical conveying issues, and they're important, you have to get material to the batteries, but, nonetheless, the product coming out the other end is a very high quality.

In fact, I saw Larry Linton at the American Metal Market Conference last week.

He was part of that original thinking of -- in the Mesabi Nugget was part of the team originally, and offered his congratulations.

He said if you get any better at the start-up, you're going to make it steel and not iron.

I guess we had some pretty decent results from carbon content.

Yes.

So I think the process is working well, we just have to get through some bugs.

So -- you might say the losses are going to parallel what they were in the fourth quarter.

Great.

Thank you.

Up next, from Jefferies & Company, we'll go to Brett Levy.

Hi, can you talk about by major product areas where the backlogs are?

And I know Keith you sort of gave a rough sense, good, decent, et cetera.

Could you talk in more specific weeks and months, sheet, bar, et cetera, where the back logs are, and talk about what price increases have been announced.

I got most of them, but if you can say from the beginning of the year how much of a price increase has been announced for the major products as well.

Well, we don't announce price increases.

We kind of go out and do our thing in in the market.

I think it's fair to say today that the hot roll market is probably a little north of $600, which is a pretty substantial improvement from a couple of months ago when it was back under $500.

So -- but scrap costs, in our case, certainly are up about as much.

They don't -- we don't use 100% bundles and busheling and we have stock on hand and liquid iron we introduced, and pig iron we have on hand.

So it doesn't fall down to the bottom line as $100.

So I think we're going to be able to maintain if not improve margins.

As to the size of the backlog.

It's just really very steady in flat roll, 50,000, 60,000 tons a week coming in 50,000,60,000 tons going out.

The backlog hasn't gotten a lot longer.

I don't think they're going to, in our case, as a spot guy, probably lengthen.

They're not going to go out for three months.

If you were an integrated shop and dealing with longer lead times for the automobile community, and appliance community and others, you might see backlogs be out a little further, but yet operating rates certainly aren't at 100% in those areas, competitive areas either.

But we're only out a month, as I said in flat roll, and that's fine, by us.

We operate fairly well with that kind of a lead time, and I think our customers understand that, and they understand our ability to -- to turn on a dime, if you will, or ramp up results, or ramp down as needed.

I don't think there's any concern about the size of the backlog.

Dick mentioned that the backlog in structural had doubled, but doubled from nothing is still nothing.

Actually, it's -- we've had very good order recently, all kidding aside, I think people are now sensing that this is probably the bottom of that market, and if your stocking has reached the bottom, there are opportunities for a number of people to replenish inventories, those that have inventories that are too low relative to even market conditions.

We've had a number of small fabricators who felt priced out of the market, if you will, with the spread between list price and transaction values, and really come back and given us kudos and said thank you, I was thinking about shutting my business down.

I think I'm going to keep it open now I can be competitive again.

So I think it's going to be slow going there.

As you know, throughout 2010, I think I've said openly, we don't expect to run anything north of 40%.

If we are lucky enough to operate at 50% or 60%, it will make a meaningful difference in terms of the bottom line for us.

Backlogs in the merchant arena are just steady.

Not much change.

They don't change a lot.

Generally speaking, a month, month and a half production is sitting in backlog, and it hasn't changed a whole heck of a lot.

So that SBQ bars, backlogs are up generously there, and order entry is very steady in that arena as well.

Go ahead.

Keith, you do plan on the outlook for scrap.

At this point do you see it up, down, or sideways for the balance of 2010?

Well, a week or two ago, we looked at it as sideways.

So that's pretty much what happened for February delivery.

I would think as flows pick up without any significant increase in demand because of the economic conditions, you probably could see scrap take a step are two backwards.

A couple people at the conference I was at said where the the world are you going to find a commodity in four or five months at some 50%?

Certainly not in steel pricing.

But he thought scrap was dramatically overpriced.

I wouldn't tell you that it was dramatically over priced.

It probably got ahead of itself a little bit, but I don't know, there's a chance it could -- could go backwards a little bit in the spring.

it may not happen.

There's a chance surely in the summer, as always happens, might go up as you approach vacation time in the manufacturing world.

But we've basically said we don't seen it changing.

If you look at January's numbers compared to December's numbers, we don't see a lot of change.

I don't think you're going to see a runaway freight train where this thing goes from a $400 market to an $800 market.

Mark you might want to add some color.

We are seeing a slight disconnect in the markets in February, where by prime scrap is a little tighter, obviously domestic manufacturing hasn't picked up at all.

And the sheet metal utilization is up, so I think there's going to be a little pressure on the prime side, and an uptick in pricing in February.

On the obsolete trip side of the coin, obviously a lot of the structural mills are still kind of soft, and thereby demand for that product is not there, and I think that product in February and probably March is going to be sideways to down a little, but averaging out, it will be kind of sideways.

Going forward, I think the foreign influence will have an impact one way or the other.

As shred backs off a little bit, the Turkish, and I other people will come into the market.

Currently their pricing is around about 300, 310 at the port, which is not attractive to any domestic suppliers of any note, but they may jump back into the market.

Ocean freights are going down, and that may give some stability to the obsolete grades.

But any further out than about three days, our crystal ball gets a little cloudy.

Thank you.

We'll hear next from [David Cass] of JPMorgan.

I just have a follow up question on the capital expenditures.

Obviously it's coming down quite a lot to be 150.

What portion of that now is maintenance CapEx, and an ongoing better market, what do you think maintenance CapEx would rise to be?

The way I think about our maintenance CapEx is a little bit different than what you are used to talking about, in fact, our maintenance CapEx on these projects that improve efficiency or do necessary things, that's not just maintenance in nature, but I tend to say that that amount is typically $50 million to $60 million, as you include all of the operations.

Of that amount, I would probably say it's less than that for next years expectations.

We've got most of it in steel operations, and it was in the steel operations and most of the capital expenditures are at structural now, and it will probably fit evenly between the structural mill, the flat roll division, and engineer of our products through some of the changes that Dick talked about earlier on the call.

Some carry over from Nugget.

There is little carry over from Nugget, not very much.

We have, needless to say, maintenance tightened environmental CapEx at Huntington.

We are in the process of spending about $5 million in total for future fumutive exhaust control from an environmental perspective and we are also going to be putting in a new scrap charging crane down there and that is about a $2.5 million to $3 million expenditure.

So that is a maintenance type issue.

Okay.

And then I believe in the past that you had talked about at some point the possibility of maybe doing something on the west coast.

Obviously in this market environment, that type of expansion might not be what is foremost on the plate, but do you think longer term that may still be something that you would consider?

Probably not.

And why has that changed?

Well, it's a small market, and I think there may be better opportunities for the Company in the next couple of years.

You never want to say never.

It's becoming more difficult to cite steel making activities on the west coast.

It's impossible in California, and becoming more difficult in Oregon and Washington.

So it -- given the size of the market, we've kind of backed away from that project.

Okay.

Thank you.

Timna Tanners of UBS has our next question.

Your line is open.

Hi.

Wanted to see if we can get as much as possible here on terms of understanding the recycling business.

I think we're all learning that this new element of your Company is going to be perhaps more volatile that the steel making that we've gotten used to, but trying to understand in terms of from the third quarter to the fourth quarter, how would you think about a more run rate number, or what you -- I know you have talked about this a little in the past, could you give us more an idea of what you expect the profitability or performance to be like in the near future?

I'm going to let Mark answer that question.

Before we get there, though, recall that we had nearly a $50 million quarter in the third quarter.

Right.

And the margin shifts, because of rising pricing environment for scrap, changed that by, $35 million.

I think he had other sundry nonrecurring charges of $7 million or something like that.

So you're right, it is going to be -- it's a little tougher to learn it and get your arms around it, and we'll get better at forecasting than we are today, but -- go ahead, Mark.

Well, I guess we could forecast it really well if we knew where the pricing was going to go.

Literally, mid-month, if you go back the last 24 or 36 months, and you just go mid-month prior to the negotiations or the first week of the following month, it's anyone's guess, honestly, what the price is going to be.

Obviously we have market intelligence, we have a feel for, yes, things are going to get tight and the market is going to move up, but I don't think anyone would have guessed two months ago that the market is going to -- in the last three months or the last nine days be up $140, of whatever it's been.

So it's the volatility of the market that makes it complicated.

With hindsight, we can quite easily go back and reconcile the difference between the third quarter and the fourth quarter, and when you have September pricing at 340, you have our -- I can't remember our exact inventory, but we had 270,000 tons, or 300,000 tons, or thereabouts of inventory in September, for delivery in a down market in October and November.

So it's not a mystery when you know where the pricing is.

And that that alone could be a $15 million reversal of fortune, if you will.

We shipped real broad numbers.

We shipped -- October and November, 780,000 tons, or thereabouts.

Take 780,000 tons times, you put the number to it, down 30, down 40, September to October I think was down $30, October to November down another $35.

You take 780,000 tons times $30, $35, you've got a huge swing there.

Right.

It wasn't that we didn't think the market wasn't going down, we did, just not down as much, and, therefore, thinking we were going to suffer a margin loss of maybe $20 million turned tout be a lot more than that, especially combined with some one-time adjustments we had to make.

That makes sense.

I guess what I'm trying to understand, maybe ask differently, the margin on the normal basis, with understanding there will abnormal situations, has been more like 6% to 8%, maybe 5% to 8% historically, is there a margin that -- is there anything structurally that's changed as you think there is a margin that on a normal basis you would expect to achieve in this segment?

Operating income margin.

He's thinking.

Well, I'm thinking it, not saying it, because if I say a number, then it's going to be used going forward.

It's not quite as simple as the steel.

You have a variety of different flows, and you have brokerage tons flowing through, and margins in that business maybe $2, $3, $4.

You have industrial throw, scrap management business, where margins may be $10 to $20.

And then you have the very volatile flow of the obsolete world that can, in the retail world, that can be anywhere from very little to a lot.

But is there anything structurally changed?

Structurally changed?

I would say not.

Okay.

In the shredded world, things have got a little more competitive, but I think structurally, I don't believe so.

Okay.

And if I could, one more question.

I'm trying to just get a sense of your impression of the new capacity that's coming on in sheet, both in the short term with restarts, and the the longer term with some new capacity.

If you could comment on that, and also your anticipated plans with regard to any new capacity as well.

Thank you.

Before I do that.

I usually am a little bolder than Mark, and I've said it before, that I think this business can earn, in normal times, at normal capacity, without huge volatility, I think you could at least look at a $30 type margin times, you know, 6 million tons.

It's not unreasonable to think about $180 million.

I've said that before, Mark is shaking his head that's reasonable.

So I think in normal times, that's something you can circle a pen around probably, but with volatility, it does change it up or down.

Back to your other question about new capacity, I think order books are improving, and some key capacity was offline.

I think as -- and we'll be coming back -- I don't know that these capacity additions are all that outrageous.

I think, as I understand, the project that Warren, they're thinking about lots of different things.

Anywhere from making pig iron to producing slabs because they have a need for them at other locations potentially.

I haven't heard anything about a rolling mill restarting, but I think metal was going to bring ferrous back and one of the Gary furnaces are coming back.

But as I said earlier, I should hope that improving demand, that that will just keep up with improving demand, and we won't suffer a step backwards at this point in time.

Okay.

Thanks.

I think, Timna, not to cross party lines here, but the one thing that we found in the past, is that the flexibility and short lead time of our mills is, the folks do a phenomenal job reacting, and the service center distributor arena today cannot necessarily finance a huge amount of inventory, and given the flexibility of our mills, we will continue to be the preferred supplier.

Timna we didn't talk about [piston crop], but I think that start up to lay off that impact is a way off.

Anything further caller?

I could go on.

I don't want to hog the call, but I know there's also the severe stall additional capacity, and there was some comments you said publicly about new capacity, so just wondering if you were going to be able to comment on that as well.

I have no comment.

Okay.

Thank you.

Michael Gambardella of JPMorgan has our next question.

Yes, good morning.

Where are you operating right now company wide on the sheet business in terms of capacity utilization?

Probably less than 100% at the text, but at Butler at 100%.

And on Mesabi Nugget, do you get all of the INR feed stock from Cliffs?

No for the next -- we've got about -- if we run 600,000 tons this year.

We may not have quite three years worth of commitment, but we have three years of commitment, give or take a little bit on concentrate, and that's a combination of material from old material from QCM that we redirected from iron dynamics.

We have a substantial amount coming from Cliffs, and we have a supply coming from Magnatation, which is principally owned by Larry Linton, who is recycling iron concentrate from the [tatings] deposits from old mines up on the range.

And could you talk about the pricing of that material?

It's a variety.

The QCM is old material and off the top of my head, I don't know what the price is.

Is the QCM, because they are on the eastern side, are they tied to the seaborne price of iron ore?

Yes.

Is Cliffs --

Canadian, yes.

That's the seaborne price as well?

(Inaudible)

Where do you get the coal?

Well, we have a couple of different sources, principally from West Virginia, currently.

Can you give us an idea of what you estimate the cost of Mesabi Nugget finished product to be once it's up and running at say current level of input cost?

Currently we would product about 340.

Somewhere between 330 and 340 with market price material.

With the Mesabi Nugget material you are in the 300 to 320 range.

And then I guess we could estimate depending upon what iron ore and net coal prices do for the contract year in terms of increases off of that?

Yes.

All right.

(Inaudible)

Thanks a lot.

Bradford Researches, we'll go to Charles Bradford.

Good morning.

Could you talk a bit about product mix change?

Because you commented about a $48 a ton increase in average selling price, in a $29 increase in scrap, which would imply an improved spread.

I was sort of guess that maybe there's a lot of coated product in here, and maybe the --

Well, Chuck, it is impacted somewhat by the fact that the text by material, and in the third quarter we're working off of more old stock, in the fourth, more new to stock, that was priced differently, but that's not -- that's not the real color.

The real color is the structural division, and it's really not administrative in nature it's just -- structural made decent money in the third quarter and basically broke even in the fourth.

You're still carrying the same amount of overhead.

So it's the operating cost.

It's not administrative, that impact that number.

That's why you didn't see margins improve.

Understood.

In looking ahead, in just basically the quoted market prices look like something like a $50 a ton increase in price in the first quarter compared to the fourth, at least on the flat roll side, does that make any sense for you as well?

Yes.

Okay.

Then you have some catch up on scrap, so scrap might be significantly lesser increase, especially with the flat in February, and possibly weaker in March, would that be fair?

Yes, I think that scrap costs will probably peak for us in the February time frame in terms of the price of the unit put in the furnace, and then flatten out and go down a little bit from there.

But obviously increase substantially with the price increases of December and January being significant.

Although as I said earlier, we have the same ore pile on hand, iron ore, and that didn't change, and a lot of things we consumed didn't change or went up very little, or not as much as premium grade.

So it's a mixed bag.

You are not going to see all $100 get passed through, it might turn out to be $60 or $70, I haven't studied it, but it's not 100% of that gets drilled through.

So in certain areas, it could leave room for margin increases and others, it could be margin compressions, but overall we should have a little better margins and hopefully better volume in the first quarter.

But probably not back or do you think it could get back to the third quarter level?

Obviously not the structural.

That's right.

But I think probably flat roll could, yes.

Thank you.

We'll move next to Goldman Sachs's, [Saf Aroni].

Thank you.

Theresa, quickly, on the amortization of intangibles, what should we consider going forward for the next year or so?

Around $12 million a quarter.

Okay.

Thanks.

Keith, wanted to ask you on your previous comments you made in the past about further expansion.

You have one of the best conversation costs with Mesabi Nugget, you are probably going to have a good raw materials feed price over the cycle.

Do you think that that plan still is in place and what would be the path and what would you need from the Mesabi Nugget side project to implement that plan?

Well, I think that feed stock would be important to increase capacity, and we've talked about looking at additional flat roll capacity down the road.

That's, as we said earlier, years away, not an immediate thing.

We continue to bottle it and look at it and price it, but feed stock is an important part of that equation.

We have a pretty steady basket of suppliers of ferrous goods, including our own resources which are growing and will continue to grow, but Mesabi Nugget would play a key role in that, and obviously we will probably know a lot about that process and it's capability by mid-year.

But clearly that would be an important element in the feed stock for Butler and any enterprises serving that market place in the future.

We would like to see that mix improve to where today it's 5% iron ore, and 10% iron dynamics kind of thing, and the rest is scrap, just kind of rough numbers, and to -- which puts you at 15%, and we would like to see material available at the 30% range for mill, or perhaps as high as 40% sometimes.

It would obviously help the residual problems we deal with from time to time, and they can be problems, so we would certainly welcome that material as far as the melt tex.

The path to the Mesabi, let's say if you go that way down the road and you depend on Mesabi, depending on its success, will that require -- obviously that would require expansion of Mesabi south, and you have room over there, but would that depend on your actually operating your own mines at that time, or mine at that time?

Yes, and Mark didn't really give a report on the mining activity.

He might do that.

As we said in the past, if the first battery works well, there's pretty broad commercial market for -- for product of this nature.

We think we could sell all we could make, and would hope to build several more batteries in time.

One after another, so to speak.

We have to certainly await the results of the first one, but it would require the mining effort at that point in time.

Mark, do you want to speak to that?

Nothing has really changed since the last conference call.

As I think I suggested then that the firming process had a couple issues, we addressed them and we anticipated getting firmer at the end of this year, and it's probably shifted about 10 to 12 months.

So would be hopefully November of next year.

Of next year being 2011?

Yes.

-- and the -- again, currently it's been -- we submitted the application, and it's in the state's hands.

Thanks.

Mark, another question on the scrap is, you alluded to a very good point that when the prices were going up in November and December, the -- obviously you got market squeeze -- the margins got squeezed, but then the prices when you ran into the flow problem where people started to hold back, expecting prices to go back up at some point.

Is there anyway to minimize this effect because this can happen again, where because scraps regards have done fairly well, and they don't need to sell right away, may continue to do this action?

Is there anything you think scrap industry can do or process to mitigate that issue?

I think as you've seen a couple of our competitors, they have got further back to integrate into the auto arena, pick apart types of organizations, trying to get into sort of the brass roots -- or grass roots, I should say, supply.

We are looking at a variety of different options there.

We've built our crushing crew to go out and help work in partnership with the auto crushers and wreckers.

So we are looking to try and stand that volatility.

Thank you very much.

Up next we'll move to Tony Rizzuto of Dahlman Rose.

I have a couple of questions.

First a follow-up on the Mesabi Nugget question about that cost of $300 to $320 per ton, what kind of assumptions are you making your base case for for met coal and seaborne iron ore this year, and what is maybe in those first figures you gave us?

I was contemplating about a $70 concentrate price and about a $160 coal price.

Great.

Also, just to follow up on -- I heard some comments about an income tax refund for this year around mid year.

I was wondering if you could talk more broadly about how you see the working capital requirements planning out in the first half of this year, as well.

And then I have one more question, too.

Regarding working capital in the first half of the year, you're going to see pretty significant draw, somewhere between $75 million and $100 million probably due to increasing receivables and inventories, both small amount due to Mesabi Nugget, but more aggressively due to what we expect to be a more positive first half.

But then a lot of that is minimized in the second half of the year.

I would expect maybe $100 million draw or something like that over the year.

Okay thanks Theresa.

And then a bigger picture question for you, Keith.

There are obviously a lot of interplays here with the dollar and this new admission, and the credit still seemingly tight on a lot of different levels, at least what we continue to hear out there, and I was wondering what your thoughts are on how this may be changing the competitiveness of the US industrial/manufacturing economy, and do you see a meaningful opportunity here that we could really see in key end markets, operating rates move meaningfully higher here in 2010?

I think there could be significant opportunities tied to the weaker dollar.

But we still have not addressed our comparative disadvantages relative to the renminbi and China fixing the RMB and pegging it to the dollar and it not being a strong enough currency yet.

It has its negative effects as well, although China has never, from a steel-making perspective been a major importer in the United States, there have been times when it got a little out of control, but nothing wild.

I don't expect with the dollar being weaker that you will see imports come into this country in a major way and those who are in a better position to ship material from coastal ports, I think there will be export opportunities, which could help overall demand.

I don't think we're going to see terrific pressure, given the malaise that still exists globally on the scrap market, from time to time, people will drift back in and out of that market, put some pressure on it, which is creating most of the volatility.

I think you talk to most people in the scrap business, they really would prefer stability, yet each one thinks somehow they can outsmart the other guy relative to taking long positions in the market, and for some it works out, is and for others, it doesn't.

Usually causes greater heart ache and pain than it does a better bottom line, because everybody thinks they're smarter than the next guy.

So we would all prefer less volatility, but any volatility there will probably be at the hands of foreign activity, and that will be China and Turkey related as it has been in the past.

You're not concerned, it sounds like, about this near-term reversal that we've seen in the dollar?

You don't expect that will continue?

Do you see that because of the structural issues we're dealing with as a country that the dollar will continue along a weak path, or maybe a little more stable?

I think you said it.

Can't say it any better than that.

All right Keith, I appreciate your thoughts on that.

One more, just a quick follow up.

You indicated that you're seeing somewhat better order patterns for the structurals, and I was wondering is there any other light at the end of the tunnel that you can't point to?

It seems like a lot of those projects were coming off, and we still had some he of that follow-through, but what else can you tell us maybe in more detail there?

Yes, I would hardly characterize the risk order entry we have had recently as an order entry pattern.

I hope it continues, and if it does, I've said earlier, I think it's probably largely tied to over destocking, more than stimulus-related activity.

This is Teets.

I think you will see in this time frame, both in structural as well as in merchant bar shapes that many times we see these spikes in order entry and they are very short term relationships to perceived pricing changes.

We had a run at the end of December for shipments out of the angles and small merchant shades, because there was a pending price increase versus January.

Scrap goes up and there was another price increase in rebar and so forth You tend to see people restocking for a short term position, but not necessarily a long-term improving economy.

That's great color Dick, I appreciate that Keith and Dick, thanks so much.

From Southridge Investments, we'll move to Bob Richard.

Good morning.

Question regarding fabrication.

You mentioned last quarter that there could be some pent up demand that was awaiting financing, based on the intensity of some quote activity.

Are you still seeing that?

We're still seeing jobs quoted multiple times, and what we're seeing occasionally is when an antique freeze up on a job and gets approved on a job, the owner wants the project to move forward very quickly to take care of these depressed pricing levels in terms of production costs in today's market, so there is some of that.

That doesn't imply there's going to be a massive serge.

It just means that we think this market has hit bottom and has declined faster than the rest of the nonresidential construction market and statistically speaking of the overall dollars put in place statistics, and we think that some of that pent up demand could contribute to this year being just a little bit easier even than 2009.

That helps.

You mentioned joint pricing last quarter being ultra competitive.

Are you still seeing that out of whack from production costs with your competition?

It's different in different regions, but it remains extremely competitive.

Keith, just to beat Mesabi Nugget to death, at 500,000 tons per year, do you think that's enough to plant you prime scrap consumption in flat roll or is that not quite enough?

You wouldn't want us to plant the prime.

Right now we would probably melt something on the order of 65% in prime materials bundles and busheling and that's never going to totally go away.

That could go down to 45%, with an improvement in iron content, or 50%, but it's not going to go away.

With a commission electric furnace you are limited through carbon content of the pig iron to about 40% or so of the mix.

Okay.

That helps out quite a bit.

Thanks for taking my question, and best of luck.

But if I may, I spoke in error here earlier, I forgot we had moved into a a new year, when I talked about the furnace optimistically, it is the end of this year, and not end of 2011.

Yes, Mark saw me nearly fall off the table when he said that.

Glad he corrected it.

That's not to say that it might not get into the first quarter of 2011.

Thank you.

Hopefully it will be the end of this year.

From KeyBanc Capital markets, we'll go to Mark Parr.

Thanks a lot.

Good morning.

Keith, just to round out the scrap discussion, you had indicated that scrap costs at the melt shop, were going to peak in February.

Assuming that we --

We don't know that, because I don't know what material is going to deliver for in March.

I'm assuming it's probably sideways.

Okay.

To down a little, and if it is, then they would peak in sort of the February time frame.

Yes, that's kind of where I was going, but kind of assuming we don't get any major changes on the February buy relative to what's been indicated, do you have a sense of where scrap for the first quarter overall could be relative to the fourth quarter?

I thought I said earlier that I thought the melt costs we're looking at sort of in the first quarter would not look all together differently by the end of the year, be in the same arena.

It might go down in the spring and up in the summer and end up in the same place.

Okay.

Thanks for that.

Just one other thing on Mesabi, Mark, I was wondering, what's your update on the national gas assumption for the cost of Mesabi?

We, I think have been reasonably conservative and we've baked in to that earlier number --

By the way, I appreciate all of the color you're giving on Mesabi.

It's an amazing achievement you have done in the weather up there.

We've plugged in about 4 million BTUs or 4 dekatherms per ton.

Iron dynamics is running, it probably hit me, it's probably about three to 3.25, 3.5, so I think we are reasonably conservative for that 4 dekatherms per ton.

Okay, terrific.

Thanks for the color, and good luck rounding out the first quarter operations.

Thanks for your time.

Michael Gambardella of JPMorgan has a follow up question.

Please go ahead.

Keith, just to follow up on the Mesabi Nugget issue, and just scrap substitute need in general, first of all, did I hear someone say that an EAF has limitation of pig iron at 40% feed?

I said a conventional pig iron at a conventional electric arc furnace maxes out at that number, yes.

Okay.

Then a hypothetical question.

If you had greater need for scrap substitute product and say more capability on your balance sheet, would you go to a more conventional route, like a blast furnace?

The way this thing is looking right now, probably not.

Remember, with any new blast furnace operation, you have considerable depreciation that you're looking at, and depending on whether or not you finance it or not, we financed a good bit of Mesabi Nugget, and that's going to impact it until that debt is paid down.

Mesabi Nugget cost of production goes down significantly assuming the stability in the iron and coal market goes down remarkably without interest load on it and depreciation load.

It goes down significantly, it becomes a very competitive process as you would measure it against assets that are already depreciated and aren't carrying any debt load.

So I can't imagine giving the early results of this wanting to go another route.

And just refresh me again, what are the capital costs on Mesabi Nugget?

It's probably around about 290.

We said that about battery too because you have a certain amount of ancillary support would not cost that much.

We know better what we're doing and what we're buying, and we don't have to buy all of the tools.

I can't quote you a number, but it's not 290, and it's probably about 200.

That's about right.

Did you say $290 million, or $290 per ton?

$290 million, think is what Mark was saying and battery number two would probably be north of $200 million because there are certain sub costs that you have to --

What kind of capability would you give on one and two.?

500,000 is the anticipated volume per battery.

Per battery okay.

Okay, thanks a lot.

Charles Bradford of Bradford Research has another follow up question.

Please go ahead.

Hi, I don't want to beat the Mesabi Nugget to death, but I'm hearing that pig iron, out of Brazil, which is what you are substituting for, is running maybe 400, 410, maybe as much as 430.

New Orleans, What are you hearing and what would it take to get it up to Butler because that's really where the savings are going to be.

You hear all numbers about where it's at.

I've heard of cargos at $400, $410, we've also heard of cargoes at $370, $380, but call it $400 to put a frank number on it, it's about $40 to get it up here?

$47, Mark said.

It becomes pretty expensive material for us at $50 dollars, if you are $400 that's $450.

We wouldn't mind that kind of a number at Nugget, they probably ought to earn a reasonable amount of money with that kind of a spread.

Because if Nugget is even $340 plus freight, that would seem like a pretty good return.

Yes, it could a decent early return, which could only improve, Chuck, over time.

Yes, maybe a three-year payback on the 290?

I'll leave that up to you.

Okay.

Thank you very much.

You're welcome.

Saf Aroni of Goldman Sachs has a follow-up question.

Your line is open, please go ahead.

Thank you.

Two quick questions, all of the tons we are using in Mesabi Nugget in cost and volume is all metric ton?

Yes.

Thank you.

Theresa, you generally give us a break down on the flat roll side.

Would you be providing this time?

Absolutely.

For the fourth quarter, the breakout was hot rolled tons 263,000.

Pickled and oils, 72,000.

Cold rolled 61,000.

Hot rolled galvanized 91,000.

Cold rolled galvanized 72,000.

Painted products 68,000 and finally Galvalume was at 19,000.

Thank you very much.

You're welcome.

And it appears we have no further questions at this time.

I will turn the have conference back over to our speakers.

Thank you Sarah.

Thank you ladies and gentlemen.

I think we've provided some pretty good color today, and an improving environment, and we're all thank for that.

And one final time, thank you to all of our employees who have done just a marvelous job through troubled waters in the year 2009.

We're going to hopefully see improving results as we go along, and better paychecks for everyone that goes with it.

So thank you again, ladies and gentlemen, if you have any further questions, feel freely to give us a call.

Bye now.

And that concludes today's conference.

We thank you all for joining us.