Steel Dynamics Inc (STLD) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Steel Dynamics first quarter 2011 earnings conference call.

Today's call is being recorded.

Joining us today are Keith Busse, Chairman and Chief Executive Officer, Mark Millett, President, Chief Operating Officer of Steel Dynamics, Inc., Richard Teets, Executive Vice President of Steel Dynamics, Inc.

and President and Chief Operating Officer of Steel Operations, Gary Heasley, Executive Vice President of Steel Dynamics, Inc.

and President of New Millennium Building Systems, Theresa Wagler, Executive Vice President and Chief Financial Officer of Steel Dynamics, Inc., and Fred Warner, Investor Relations Manager.

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

Fred Warner.

Please go ahead, sir.

Thank you.

Welcome to the Steel Dynamics first quarter 2011 conference call.

The call is being webcast live April 19, 2011 from Fort Wayne, Indiana.

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

During today's call, our management will be making 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, condition in the credit markets, the price and availability of scrap 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 all publicly available on the SEC website, www.sec.gov, and on our website, www.steeldynamics.com.

Before we begin today's discussion, I would like to mention that our annual meeting is coming up in Fort Wayne a month from today at 9.00 AM on May 19.

We do plan a live webcast of the meeting and more details are available on our website.

Now let's start today's discussion with introductory comments from our Chairman and Chief Executive Officer, Keith Busse.

Thank you, Fred.

Thank you, Carla.

Good morning, ladies and gentlemen.

One of the first things I'd like to do is have you join me in congratulating Mark Millett on his new responsibilities as the President and Chief Operating Officer of Steel Dynamics.

Congratulations, Mark.

Thank you.

We obviously had a good quarter.

At least, I think you will conclude that we did.

A little bit better than the estimate that was out there from the analysts by a few cents a share.

A good solid quarter.

You can look at it through many different portals, but it's certainly a new benchmark on the long road back that the economy faces.

But as you benchmark it against the fourth quarter, it was -- our earnings increased by better than ten fold, which I think is significant in and of itself.

That first quarter net income of $106 million on net sales of $2 billion.

And I might point out that as you analyze -- if you annualize $2 billion, you are getting back to the -- somewhere in the vicinity of the 2008 revenue highs that we achieved in that year before the economy tanked.

But as you compare it to the first quarter of 2010, it's $41 million better than the $61million -- $65 million we reported in the first quarter of the previous year.

And, of course, our net income in the fourth quarter of 2010 was only $8 million, or $0.04.

As reported, very positive trend in pricing.

Pricing was up about $154, and scrap in the quarter increased by $86.

Thus, the difference represents the increase in the operating margin quarter-over-quarter, or very nearly accounts for it all.

OmniSource.

It is significant to note when you analyze ferrous shipments of 1.5 million tons, it's not quite at capacity.

I think the Company's capacity is well over 7 million tons now.

But getting back into an area of normality, if you will, at an annual shipping rate of 6 million tons, which I think really confirms, to a large extent, what we have been saying about the impact of volume on the bottom line.

This was certainly, as we pointed out in the next paragraph, one of Omni's strongest quarters since we acquired Omni in late 2007.

So congratulations to the entire Omni team.

You all did a terrific job in the first quarter of 2011.

And keep up the good work.

On a whole, our Steel Operations also achieved very high operating income.

$196 million during the quarter, or $138 per ton shipped, which was 114% increase in operating income over the fourth quarter results.

And you can obviously get at that by dividing $196 million by $91 million.

That's how you calculate 114%.

And as we noted earlier, Omni was a significant contributor to earnings in this quarter.

We also note, in the press release, that Engineered Bar Products -- well, I should mention the Flat Roll Division and Engineered Bar Products continue to operate essentially at full capacity and were significant bread winners inside the gates of the steel family, if you will.

We are, though, planning to have a 10-day outage at Bar Products in April.

And although we make the statement that we do not believe this will meaningly impact second quarter volumes, it will have some impact on their earnings in the second quarter, because in the month they take that outage, they will not spin off against standard as positive a variance as they had been averaging the past three months.

So it will have some impact on the month of April, but after that everything should be working very smoothly again, if not even better.

So we are very pleased there.

As we noted, there are strength in many of the sectors that we serve.

Strength in automotive, transportation, energy, industrial, agricultural, construction equipment.

But there is not, unfortunately, all that great of momentum as it would regard non-residential construction products and the non-residential construction market, as they remain fairly weak.

Although I would call to your attention, on one of the pages where we report volume, that the Structural and Rail Division's volume year-over-year increased by 23%, and quarter-over-quarter increased by 22%.

So we are making some progress, and right now the Structural Division has one of the largest backlogs it's had in some time.

Nowhere near approaching the backlogs we had in 2008, but certainly marching in the right direction.

You will probably also note, as you look at that page, that the volumes were down at our Flat Roll Division, somewhat, quarter-over-quarter.

They were up quarter-over-quarter, I guess, but down as you compare it to the 3 months ended in 2010.

We were impacted slightly in this quarter by the weather.

And in early February of this year, a very bad wind and ice storm came through the upper Midwest and caused some significant damage to our static bar systems, which are under repair as we speak today.

Yet, we are not impacted any longer with volume issues.

Initially, when that occurred, certainly it turned out the lights at Butler and it took us a few days, you might say, to get the lights back on and the facility up and running.

We did lose some production in February, which probably impacted the quarter slightly.

But wanted to note that there will be an outage at Engineered Bar Products in April.

As it will regard Mesabi Nugget, we talk quite a bit about that in our opening comments on the first page.

And I think one of the things that's significant to know is that the Nugget has been running better, and in April, keep our fingers crossed, it's -- so far it's running at about a 20,000 ton production and shipping rate which, for most of you that follow it statistically, would represent 50% of its capacity or capability.

So certainly nice progress, I think, is being made at Nugget today.

Iron Dynamics, by the way, continues to perform very well, and provides anywhere from 17,000 to 20,000 tons of liquid iron to our steel-making operations in Butler each and every month.

It's a very smooth running operation that has been in the black for some time and making a very positive contribution to the bottom line.

As we regard Fabrication, might say a few words about that.

The operating loss was $3 million, but there were a lot of renovation work was going on at the acquired facilities.

The facilities that we acquired from Commercial Metals, that might have moved that needle more towards a break even had we not been involved in renovating those facilities.

There was an impact there.

But it certainly, as we look ahead, we still see some strength out there.

We think the economy is still going to move forward throughout the year 2011, 2012 and beyond, and I think that the utilization rates for the industry will continue to surge forward.

They are not going to get back to 100% tomorrow morning, but they are going to continue to improve.

And the drivers there, as I said earlier, are really automotive, transportation, energy, industrial, agriculture and construction equipment.

I would note that pricing in the Flat Roll sector has moved off of the $900 level and is in the mid-eights.

And I think there has been a lot written about that.

That's been talked about.

But we should also realize that the margins that we achieved were just being achieved, and we had not yet really achieved margins that would be reflective of a $900 selling value.

But we hadn't really seen that yet.

So I don't think it's any big surprise that the market has tempered itself a little bit, if they have more future movement in it.

But right now, it's paused in the mid-eights.

And there's good likelihood, as the economy continues to grow, that that could move forward somewhat.

As it regards scrap, I don't know that anybody has a crystal ball.

There's been a lot written about that.

Mark will have a few comments, because Mark's going to not only continue to -- well, he will continue to report on the Ferrous Resources segment of our business, but we certainly welcome him to make a few comments as the new COO of the Company.

But as it regards scrap, again, there is a variety of opinions out there, anywhere from zero to down 40.

I suspect the market's going to be off somewhat, and it may well be off in the cut grades a little more than it is in the prime grades.

I think it's -- for May delivery, that is, it's probably too early to make that call.

So that really concludes my comments.

The Company had a -- I think, a terrific quarter, is going to have another solid quarter.

And we will define that for you in June, as we have been in the habit of doing.

At this point in time, I would like to turn it over to Mark for his comments and have him report on the resource segment of our Company.

Super.

Thanks, Keith.

I appreciate that.

Relative to OmniSource, despite difficult weather conditions, which tended to pressure scrap flow in the quarter, I think our strategies implemented by the OmniSource recycling teams, to increase both the retail and industrial scrap flow, have shown a lot of success.

These initiatives, coupled with continued recovery in the metal sector, resulted in a near record shipment level for ferrous scrap, and a record level for non-ferrous scrap.

I think, when you consider -- I think it's an excellent volume performance, when you consider an economy that is far from recovery.

And it's a reflection, I do believe, of the advantages of a steel company and a recycling company combined together.

The quarter.

First, shipments increased 23% over Q4 to about 0.5 million metric tons.

Further enhancements have been made to several of our shredder operations, along with feeder yard additions, to further increase volume capability to ensure a secure, consistent scrap supply, not only to our own mills but also to our other customers.

As stated, non-ferrous shipments were very, very strong.

Volume gains being seen in all metals.

For aluminum, they remain strong in both volume and pricing, a result of strength in all areas of aluminum consumption.

Secondary mills saw positive pressure with auto build pick up.

Extrusion billet mills are running very, very strong and with strong buyers, as extrusion scrap remain in short supply.

And aluminum sheet mills were recently very busy also.

Stainless had a great month.

Mill demand was pretty strong, although the bull market seems to have lost steam a little bit.

Demand for copper was also good, as consumers took advantage of a market, dip particularly in mid-month, and bought a considerable amount of metal.

So volumes flowed extremely well.

Collectively, non-ferrous shipments increased from 230 million pounds to 287 million pounds, a 20% gain quarter-over-quarter.

Great job by the non-ferrous teams.

The increased volumes and associated with improved margins, particularly in non-ferrous, drove an operating profit of $49 million.

This was our best quarter since the fall of 2008, and well above the $9 million operating profit we experienced last quarter.

In the non-ferrous arena, we did recently announce a partnership with LaFarga Group.

It's a copper metals company located near Barcelona, Spain.

We will hold 55% ownership and they, 45%.

And our intent is to construction a semi-finished copper rod mill having an annualized capacity of about 189 million pounds of copper rod, for sale into the electrical cable industry.

Subject to environmental permitting, construction of the $40 million facility should commence by the summer.

The technology developed by LaFarga, and also Italian equipment supplier Continuus-Properzi, allows the refinement of number two copper scrap into a lesser grade metal, which is subsequently continually cast and rolled into high quality rod suitable for drawing down to very, very fine electrical wire.

Some 20-plus plants are operating worldwide utilizing this equipment and their refinement process.

But currently none operate in the US, based on scrap.

I think the partnership essentially leverages OmniSources' broad supply base for number two copper scrap, providing a downstream of value-added opportunity, while reducing our dependence on foreign markets, particularly China.

Today, there are very, very few outlets for number two scrap, domestically.

Most of it gets exported.

As Keith suggested, Iron Dynamics continues to operate quite smoothly.

It shipped a record 55,000 metric tons of liquid pig iron, in addition to 6,000 metric tons of HBI to the Butler sheet mill.

The combination of improved -- improving cost structure and a rise in pig iron market allowed them to make an operating profit of $11.4 million for the quarter.

The strong production level at IDI, combined with Nugget's coming down from Minnesota, is the latest to be self-sufficient in our iron needs today.

At Mesabi Nugget, we resumed continuous operations in January, and has showed considerable improvement since, shipping 36,000 metric tons for the quarter as compared to 18,000 tons in Q4 of last year.

Each successive month through the quarter showed improvement, 17,600 metric tons being shipped in March.

The recent installation of redundant conveying systems has provided much greater reliability.

90% feed-on time to the rotary half furnace was achieved during the first 10 days of April, with uninterrupted feed occurring for 6 of those days.

So up-time of the equipment is dramatically improved.

Further equipment improvements are planned to be installed in July.

In the meantime, the team has focused on process improvements to bring the feed rate up to capacity.

For the quarter, start-up losses negatively impacted our pre-tax earnings by $11 million.

I think the second quarter should show improvement, given improved volumes.

Somewhat offset a little, with our higher concentrate cost, but perhaps a $9 million loss for the quarter.

And from an operational perspective, we would hope to break even on a monthly basis second half this year.

Regarding the (inaudible) Mine, we are continuing the permitting process.

It is slow but ongoing, and we are having constructive conversation with the agencies and also the tribal organizations up there.

Thank you.

Dick?

Thank you, Mark, and good morning, everyone.

I'd like to add a few additional brief comments to what's been expressed by Keith and in the press release about each of the steel operations.

The Flat Roll Division in Butler and Jeffersonville has earned their best ranking ever for quality, service and on-time delivery from an independent industry survey.

Congratulations to the entire Flat Roll team for the focus applied to these metrics.

In the first quarter of the year, the Butler plant operated at basically full capacity, achieving their third highest production quarter in history, in spite of the fact that, as Keith stated, they had to curtail not only production at the beginning of February, and on a limited basis throughout the balance of the quarter.

Also, the quarter was our second best shipping quarter ever.

Again, congratulations for a fabulous job done by all in the division.

While talking about flat products, let me add that The Techs operated during the quarter at 85% to 90% of capacity,.

This slightly lower operating rate is due to the historical concentration in the construction industry by those lines.

Our shipments were negatively impacted slightly at the end of the quarter by truck availability, and this has been noticed at other divisions also.

At the Structural Rail Division, the focus on rail production, welding and shipments has continued to be their priority.

They achieved over30,000 tons of rail shipments in the quarter, and continued to expand their list of satisfied customers.

Also in March, they had the best wide plans production and shipping month since December of 2008.

This is still far below historical numbers, but continuing to focus on product availability and service has been their mission and appears to be paying dividends.

At Pittsboro, the sales order rate continues to be, basically, incredible.

The current lead time for most as-rolled bars is December, and the 2012 order book has been opened.

The strength of the backlog has allowed for improved scheduling, and as a result, was the best first quarter production and the second best shipping quarter ever.

We are currently in our annual maintenance outage in Pittsboro, and will aim to minimize the impact on our production and shipments.

Some of the projects included a major reheat furnace rebuild, a roughing mill gearbox replacement and de-bottlenecking of the bundling area.

The Roanoke Bar Division, like the Structural and Rail Division, continues to be hampered by the lack of construction activities.

They operated at a capacity utilization rate of approximately 90% in both the melting and rolling departments.

They took their annual maintenance shut down at end of March and through the beginning of April, and had no injuries.

To the SDI employees and contractors, congratulations to the Roanoke team for these efforts and the resulting performance.

In Huntington, Steel West Virginia's core transportation markets, including truck, trailer and fork truck industries, continue to improve.

Total tons shipped increased quarter-over -quarter by 16.7%.

This was made possible by the team's efforts and capital improvements.

Smelt shop production in the quarter increased by 6% over the 2010 annual tons per hour rate, as did production in both roaming mills by at least that amount.

A great job by all.

And lastly, I'd like to point out that on April 11, we recognized the fifth anniversary of the addition of Roanoke and Steel West Virginia to the SDI family.

I continue to be excited about their accomplishments and the possibilities at those divisions.

Gary?

Before we get to Gary, Dick, I might note that Steel West Virginia's operating rate is dramatically increased.

It was up 30%-some, operating very well at full capacity.

And as you commented on Pittsboro, under the guidance of early on, Glenn Pushis and certainly the management team under Barry Schneider, you all might remember that in the early days of [Polytec] that mill struggled to achieve 20% of its capacity and has now achieved 125% of its capacity.

An extraordinary achievement by that team.

Pretty much so.

Great job.

Gary?

Thanks, Keith.

For the first quarter of production of joist was up 58% over the first quarter of 2010.

Deck was up 68% from the first quarter of 2010, reflecting a slight improvement in demand and New Millennium's increased market share.

Dollar values also improved dealing better spreads over first quarter if 2010.

Spreads tightened a bit in from Q4 2010, and steel cost increases outpaced price increases during the first quarter.

Our joist backlog was up 24%, and our deck backlog was up 12% from the end of 2010, and March was our best month for order entry since 2008.

Given the scope of the reconstruction we have been doing and the sort of reconfiguration of the Company and the industry, we continue to look at operating results for the 3 operating units separate from some of the construction costs.

In the fourth quarter, the 3 operating units generated a positive operating income.

Given the tightened spreads in the first quarter and 3 operating units generated a $23,000 operating loss.

Not a significant loss, but nonetheless we want to turn those numbers back to black.

Through the quarter, we completed dismantling 4 former CMC joist facilities and 2 New Millennium facilities.

That was done in March.

Those costs are now behind us and should help us with earnings going forward.

We continue to ramp up the joist plant in Juarez, taking advantage of its aggressive cost structure and its good location in terms of servicing the west and southwest markets.

We have small crews in place in the plants we acquired in Arkansas and Nevada, and those plants are being reconfigured with equipment that we relocated from the 6 plants we dismantled in the first quarter.

And in Arkansas and Nevada, we'll then restart as demand grows and we further penetrate the western and southwestern markets we could not previously serve.

As of March 31, we have eliminated about 230,000 tons of joist capacity.

We have about 95,000 tons of capacity off-line which, as I said, we will restart as demand grows and as we further penetrate those new markets.

As a result of the elimination of this capacity and the slight improvement in demand, industry capacity is now more aligned with demand and we think we were positioned very well to increase that capacity as demand grows, and the whole group is now much better positioned than it was prior to the economic crisis.

So things are looking much better, Keith, and we will continue to move forward.

Thank you.

Theresa?

Thank you.

Good morning, everyone.

During the first quarter, both our gross margin percentage and our operating income margin increased 6% in comparison to the sequential quarter ,and also improved off the very strong quarter of -- first quarter of 2010 as well.

The overall increase primarily resulted from both increased volumes and metal spreads for our steel operations and our metal recycling operations.

The financial performance of our non-ferrous operations were impacted by a change in our non-cash unrealized mark-to-market adjustment.

In the first quarter, we recognized an unrealized gain of $9.5 million, or about $0.03 per share, as compared to the fourth quarter of last year, which we had a $6.9 million loss.

Cash flows from operations were substantially used for working capital purposes during both the fourth quarter of 2010 and the first quarter of 2011, as our operating activity increased with better demand.

We believe our working capital position is currently sufficient and don't expect a meaningful use of funds in the near term.

During the first quarter, our cash reserves decreased $26 million, as working capital increased $240 million, most significantly in accounts receivable, as both volumes and product pricing rose during the quarter.

Most notably, these increases were at the Flat Roll divisions because of their increased operational activity and at OmniSource.

The quality of our receivables remains very strong, in terms of days outstanding and in terms of our accounts aging.

All accounts are actually under 60 days, which I am not sure that we have been at that point before.

Inventory increases of $72 million were primarily related to increased costs at our ferrous materials, versus meaningful volume increases.

And that was in our steel operations, as well.

Availability on our revolver was $908 million at the end of March, and our liquidity remained very strong at $1.1 billion.

We remain well within compliance of our financial covenants.

Our ratio of total debt to trailing EBITDA improved during the quarter, to a current level of 3.4 times.

Our first lien leverage improved to 0.02 times, and our interest coverage is at 4.1 times.

During the first quarter, our capital expenditures totaled $19 million, and depreciation was $44 million.

Our current outlook regarding capital expenditures for the remainder of the year is in the range of $155 million to $180 million.

These investments are currently expected to be made fairly evenly throughout the year, and depreciation for 2011 is expected to be in the range of $200 million.

Gross interest expense with $43.7 million in the quarter, with an effective interest rate of 7.3%.

This is a slight decrease over gross interest in the fourth quarter of 2010.

It was related to a prepayment of just over $7 million of a municipal bond, and also due to conversion of a portion of Mesabi Nugget's debt from debt to equity by the partners.

At March 31, we had 218.3 million shares of common stock outstanding.

Additionally, the converged remain outstanding at 16.4 million shares and we had 6.7 million shares of outstanding stock options.

Our current estimates for the second quarter dilutive share count would be between 236.5 million and 237 million shares.

Finally, I know there are several of you that like to track the detail of our Flat Roll shipments.

So for the first quarter, the Flat Roll Division shipped 314,000 tons of hot rolled coils, 85,000 tons of P&O, 48,000 tons of cold rolled, 95,000 tons of hot roll galvanized, 52,000 tons of cold roll galvanized, 88,000 tons of painted product, and finally, 28,000 tons of galvalume.

Keith?

Thank you, Theresa.

Carla, I think it's time to open up the airwaves to the Q&A piece of the presentation.

Most definitely.

(Operator Instructions)

Michelle Applebaum, Steel Market Intelligence.

It's wonderful to see, on your birthday of all times, such a great earnings report and such wonderful news on your outlook and your succession plan.

And I'm very excited to see that you stuck with a founder of the Company.

You had a few excellent choices.

You have a fabulous team and a deep bench.

And so, I'm so pleased to see Mark promoted.

And I think it means incredible things for the future of the Company.

I think your team already has heard from me about how excited I am about this.

I'm glad that you extended the nut on the process and I think that's appropriate to do.

But you had a deep bench and it's great to see that you stuck with one of your own.

Congrats on that, for all of you guys.

Second thing I wanted to ask about, the flat rolled mill.

And you might say, what flat rolled mill?

But the flat rolled mill you were going to talk about at your Board meeting in February, and I want to see where that stands.

Anything to say on that?

Well, I think the engineering phase is -- we have pretty much worked our way through it.

I think the team has done a very good job of analyzing market opportunities and reporting on any potential impact on current businesses that we operate, of which I think we've concluded the impact would be deminimus.

I think the larger question probably revolves around a healing economy and timing.

I think certainly there is a good opportunity, and we will be discussing it at the next Board meeting.

I can't guarantee anybody that we will have anything more to report.

But then again, we might.

I think the team is very positively predisposed about moving forward with growth plans at Steel Dynamics.

And I think one of the things that I read about a lot recently, over the year, was the steel sector was being beat up a little bit because it wasn't perceived that it could or would grow.

Certainly, that is not the case at Steel Dynamics.

And our plans -- we are a growth company.

Our plans are to grow.

We think there is a good opportunity there.

Certainly in an economy that gains a head of steam.

There may be more to report on it later, Michelle, but nothing new right now.

Would you contemplate doing this on a joint venture basis, for obvious risk sharing purposes?

Is that something you are looking at actively?

It's not something we are looking at actively.

I would never say that, that would be out of the question in consideration, but it is not something we are currently pursuing.

And remind me again what you were saying, in terms of tonnage.

The mill would probably have a capability of about 1.7 million.

It would certainly have a broader array -- broader product portfolio than Butler.

We would not focus as much on ultra-light gauge material, and would have more of a focus on heavy wall thickness material, that might be of great value to the pipe and tube-making community, would be one of the target markets.

But with the application of active de-gassing and introduction of more iron and a tandem mill, certainly it opens up a whole broad array of market opportunities to the Company that we currently don't have an opportunity to look at or quote today.

I think in terms of the value-added chain, it gives the Company a very broad opportunity to quote markets today and value added, again, that we can't quote.

A lot of positives about this mill.

It would certainly have the potential putting us in the light plate business, but not the heavy plate business.

But again, our focus would been on downstream and our focus would be on grades likeX60 and X70.

And I think Dick and his team are even looking at perhaps X80.

We would have pretty broad array of product capability.

I have about 3 more, but I will go back into the queue.

Thanks.

Michael Gambardella, JPMorgan.

Good morning, Keith, and congratulations to you and your team.

Just have a question on your comments on non-res construction, and also your comment on the rising backlog on the structural beam business.

If you think about the non-res part of your business, how much is it off say today, versus 2005 to 2007 period?

Would you say it's down more than 50%?

I would say it is, Michael, down more than 50%.

Some of that backlog we have, that is certainly a brighter position to be in than where we were, is related to our successes in rail and welded rail.

Probably 40% of our backlog today, somewhere in that neighborhood, 35% to 40%, is dedicated to rail.

And certainly we are introducing other products, such as large channels and things like that.

But white flange is still off markedly, although improving.

And when your backlog is that low, to be up 20% is not a great feat.

If you have a 40,000 ton backlog, 20% is 8,000 tons or 48,000 by example.

So therefore, the backlogs are up.

The good news is they are up.

Momentum is okay.

But I think from everything we see here, read, it would still suggest that 2011 is going to be a tough year.

And non-res may be improving into 2012, and certainly a lot better future forecasting, however solid that forecasting may be, remains a question mark.

But by the time you get to the years 2013 and 2014, a lot better picture emerges for a wide variety of reasons.

But right now, the non-res market is still fairly week.

But I am pleased to report that Columbia City is making money at these ultra-low operating rates, and that is with a full allocation of costs, such as interest load and depreciation and things like that.

It is a fully loaded cost structure, if you will.

And they are in the black.

And that's a very positive thing.

But would you say your non-res related business is down more than 50% from that 2005 to 2007 period?

I would say it is.

I mean, I was talking to a big distributor of non-res steels recently, was saying that they were looking at it down 70% to 75% actually from that 2005 to 2007.

Like you are saying, as long as things aren't getting worse, actually improving a little bit off of the base, it's pretty positive.

One last question.

Can you give us kind of a --

I would tell you that Dick Teets shook his head, as I looked at him.

He believes it's down more than -- whether it's 70% or not, that may be starting to stretch it at 75%.

Certainly down 60%, 65%.

Down two-thirds.

Just one last question, can you just give us kind of your feelings on imported material and what you are looking at for imports direct, going forward?

Well, as it relates in construction products, specifically beams, it's not been a major factor, in a rather depressed market.

I don't know the global opportunities are much better, so everybody is probably in the same boat, if you will.

And most of the white flange beams around the world are made electrically, and given the cost of raw materials here and abroad and the conversion costs, it's certainly not in other producers' best interest, or the best interest of their bottom line, to bring those goods here.

I think clearly, Steel Dynamics and Nucor are the low-cost global producers of wide flange planes.

I believe they are.

It would be very tough.

So, we are not seeing a lot of activity from a broad -- in wide flange product, at this point in time.

Obviously, imports have been up a little bit recently in Flat Roll and other arenas, probably due to the weakness of the dollar and better economic opportunities that may be here as opposed to any given point in time elsewhere in the global universe.

But they are not up that dramatically.

We're not -- I wouldn't tell you today we are being radically threatened by imports, but all of us keep a very diligent eye on those initiatives every day of the week.

(Operator Instructions)

Sal Tharani, Goldman Sachs.

I have a question on the copper rod mill market.

The 180 million pounds, would you be a buyer of scrap for that or do you collect that much copper scrap that you can source it internally?

We have the ability to provide that through our own flow, currently.

We would anticipate making moves and expanding our volumes there.

You do collect more than -- around that kind of copper scrap at moment?

Yes.

Keith, have you seen any impact or any initial impact from a customers about the Sparrows Point opening, any -- the market selling it or offering -- are they cutting any prices?

Well, I've heard that they are looking at mid-June delivery, out of Sparrows, potentially, is what I hear.

I think it's going to have relatively little impact directly on the second quarter.

But if that reality is reached in that time frame, it may be of more significant note in the second quarter, whatever that might be.

But if the economy continues to move forward, I don't want to say it's going to go unnoticed, but it may not be as much of a factor in a ramp-up as some people are anticipating.

Last question.

How has your order flow been, if you go month-over-month?

Some industry shipment shows that January was extremely good, February, a little down, and then March data came out today, again up.

Have you been following the same pattern, and how does April shaping up so far?

Well, the -- historically, usually the third month of the quarter is always seemingly our strongest shipping month.

So we would have followed that pattern.

But order entry has not been as frenzied as it was.

Backlogs have remained about the same, out 4 or 5 weeks.

We don't generally let them -- we either attempt to control it, or the market flow rate slows and it control itself.

The order entry rate has not been bad.

We aren't at all worried that we aren't going to -- I think we will be able to operate, from a fly roll perspective, at capacity through the quarter.

We aren't into June yet.

Having said that, I guess the world can change.

But I don't see, especially if we can put some of the interruptions of flow materials from Japan behind us and continue to help our economy surge forward, we may not see a very big impact in the second quarter.

Right now we are anticipating we will get through, based on the rate of order entry we see, we will get through the second quarter without any hiccups on Flat Roll.

I think volumes at our Structure Division continued to slightly improve, and therefore they shouldn't operate at any lesser of a rate than the second quarter.

Perhaps even stronger rate in the second quarter.

Engineered Bar, our SBQ Division, shipments will be off slightly and, like I said, their earnings might be off slightly due to the outage, but not significantly.

So there might be a small volume decline there related to their outage only.

As you heard Dick already testifying, we are clear out into December if you let everybody place those orders.

We tend to control that, too.

But we put them into queue, if you will, out that far, price yet to be determined, obviously.

Still, West Virginia's very strong backlogs had approved at Roanoke and continued to remain in about the same operating arena as they have been for many, many months.

Overall, probably not a lot of volume metric change in Q2 is anticipated.

Mark Parr, KeyBanc Capital Markets.

One thing, Keith, I had a question, or Mark, the outage you are taking at Pittsboro is -- could you give a little more color on that, and any -- given the really strong backlog momentum, I know even Timkin has recently announced a capacity upgrade to its steel operations.

Are you looking to add more capacity out of Pittsboro?

What are you trying to get with this outage?

The outage is driven by maintenance requirements.

It's our annual outage.

As I said, some of the things that were accomplished -- the smelt shop is already done, and it's started back up, and we are building inventory of [blooms], which is actually a little bit of an issue in the first quarter, because we were running tight, hand-to-mouth, and that doesn't give them as much flexibility in scheduling the mill as they would like.

From a rolling perspective, we had a cracked gear in the roughing mill.

Our expansion of the 2 extra stands that are going in, as we speak, 1 of the gear boxes was an identical gear set with the same ratios, and so it was an opportune time to make the switch out.

And that will delay slightly the opportunity to utilize the expanded rolling mill stands.

But it was a requirement for maintenance purposes.

And we also had some brickwork that was worse than we had expected, once we got in and the furnace cooled off.

So that's what we were currently finishing up.

I would tell you that, as I mentioned, we are, from a capital perspective, improving the throughput of the rolling mill, by de-bottlenecking in the bundling area, some improvements going on there.

And we continue to look at other capital projects, both during the outage and in the future, to increase throughput.

We are going to try to minimize and make some pick ups through the second quarter.

And along with, based on what we've accomplished in this maintenance outage.

Mark, various teams, as I noted earlier, are doing a very good job.

On an annualized basis, 600,000 tons to 625,000 tons of capability at that mill now.

And they should be running a little better, with these improvements.

I think their ultimate goal is to get up over 700,000 tons.

And how fast we get there is anybody's guess.

I had another question on the flat roll business.

Was looking at the MSCI data from March that came out today.

Looks like inventory levels, year-to-date, looking at January, February, March, there is very little change.

The industry, at least the service center industry, continues to do at least on the surface what looks like an excellent job of managing inventories relative to shipments.

And Keith, I was just curious and maybe Dick, you may have comments on this.

You think the flat roll market in the US right now is running pretty flat out?

I mean, are the service centers really doing that good of a job of controlling inventories, or is it just hard to find incremental tons to put on the shelf, given the current capacity constraints in the US market?

Well, Mark, there's some capacity still off-line that hasn't returned.

So flat out is kind of a tough thing to get your arms around.

For the capacity that's out there.

Can't speak for everyone, but we are certainly running at capacity there.

The news about the service center inventory is actually good news.

They're doing a good job of managing those inventories, which I think bodes well for a continuing positive rate of steady order entry.

The pauses we see sometimes are related to, oops, what's going to happen to scrap?

If it's going to back up at all.

You get into these wait and see things that tend not to last all too long, and then you are back with your pencil in hand, writing orders.

So we aren't at all alarmed about the rate of order entry and, as I said, expect to get through the second quarter at capacity.

Dave Katz, JPMorgan.

Congratulations on a good quarter.

Coming back to your comment on pricing and what you were just talking about with capacity.

With some capacity still off-line and with the expectation that you guys at least should be able to run them through the quarter at capacity, how do you balance that into why pricing has been moving down a little bit over the last couple of months, and in terms of what you see pricing perhaps doing over the next couple of months?

I think a lot of that was related to where are resource costs going, and sometimes people get a little bit ahead of themselves and there are these periods of pause.

But I think with scrap remaining in the same vicinity, whether it went up a little bit recently, and probably will go down a little bit recently, there could have been a little pause in buying.

I don't know that any of it is related to concerns about the economy regressing.

Maybe some concerns about the amount of supply needed relative to certain market sectors where there could be an interruption in supply from Japan in an electronic component.

If you are missing a gizmo or two for the dash, the dash doesn't get assembled, the car doesn't get assembled.

To what extent Japan has slowed economic activity temporarily, I don't know.

I think that will be short lived as well, if it's having any impact at all.

Brett Levy, Jeffries & Company.

It's actually David Olkavetsky for Brett.

Congratulations on a strong quarter.

You spoke about a 20,000 ton per month operating rate at the Mesabi Nugget, which is obviously substantially better than where it had been last year.

Can we extrapolate that into a 200 ton to 250 ton shipment rate this year?

And how soon do you think until you get to the 500,000 ton capacity?

I don't think you can extrapolate it.

It's one piece of good news.

It's a data point on the chart.

And when we report on the second quarter, I hope to be able to tell you that they operated at 20, 20 and 20, or 60, and then you could multiply that by four and have a little bit more comfort in 200,000 tons.

But right now, it's a little too early to say that.

I think you should just take it as a huge sort of confidence boost in the process, the technology, and also the team up there.

We do have an outage planned in July for some more equipment modifications, which will hopefully jump-start the product yet again, mid-summer.

I think we'd all feel pretty good if, by after the equipment modifications and by the fourth quarter, we are operating at three-quarters speed, I think that would be fairly good progress made within a 12-month period.

And then within the rail segment, you shipped 31,000 tons this quarter, which was the best you've ever done.

What are your goals for 2011 in terms of shipments, and can you also speak a little bit about the [head-hardened] technology and any progress that you are making there?

Again, if you multiply the 30,000 by 4, 120,000 would be an all-time high.

We had on our target between 150,000 and 180,000 at different times, that are models.

A lot of it has to do with the acceptance of our welded rail products.

We just added another crew to rail welding, because we have approved a $17 million expansion for de-bottlenecking the finishing area of the rail that occurs and comes into play when you are cutting shorts, 80 footers or 39, 40 footers.

And so the more welded rail that we are getting accepted, the better the throughput will be on the same number of hours of production that we have allotted.

As far as head hardening, that is one of the missions of the organization over there.

But I'd like to point out that our standard rail is being used in a high speed application.

That again depends on what the ultimate rail owner has in mind for the rail application, whether it be a coal line that's being on that grade or through a curved area that is also being used by a high-speed application.

Then you would have head hardened requirements.

But on minimal grade requirements and on straight line runs, a standard product is more than acceptable.

We are working on it.

We have technologies under review.

But we are not banking on the head hardened product to be a short term opportunity.

We are looking at that the from a long-term perspective.

Charles Bradford, Bradford Research.

I would like to talk a bit about the SBQ bar market.

My understanding is that that's mostly, at least industry-wide, an automotive market.

Yet your business is a lot stronger than even the improvement we are hearing about in automotive, and especially with the earthquake and all that.

Where are you selling most of yours?

Large bars go into transportation universe, as well.

Doesn't have to be an automobile.

Could be the Class A vehicle universe.

Large bars also go into yellow iron, into forgings.

We are pretty big, I think, in the forging market.

And Chuck, I would tell you that we had a great reception and expansion across the board.

I would say that automotive, off-road applications, energy sector.

We really have a very unique and balanced order backlog and we are capitalizing on that.

And can you talk a little bit about the automotive side?

I know it's not one of your key businesses, but we keep seeing day by day an announcement from one producer or another that they are going to slow down production, and that has to have some impacts rolling through the system.

Maybe somebody else who might have sold auto grade suddenly goes after the service centers, which is typically what's happened in the past.

Are you seeing any of that kind of activity yet?

We have not experienced any order cancellation or reduction in targets by our customers.

We are attentive to it.

But I can tell you that we have not seen that, as of yet.

I think GM and Ford and Chrysler are a little less impacted than some of the transplants, perhaps, are impacted by the Japanese crisis.

Mark Parr, KeyBanc Capital Markets.

One thing, just as a point of clarification, Keith, I wasn't sure when you were talking about the anticipated profit progression for Mesabi in 2011, did you say you thought you could reach a break-even level at some point during the second half?

Or were you thinking maybe break even was achievable for the entire second half?

Could you state again what you said, so I could get a clarification.

I don't think we said anything about, in this call, our break-even.

I think Mark has said he would be pleased if later in the year, definition of that likely being the fourth quarter, that we could get to a break-even.

It would be very disappointed if we didn't, Mark, to be honest.

On a monthly basis.

Mark, that would be progressive.

You are going to do better, hopefully each quarter, but it doesn't mean the fourth quarter necessarily would be a break-even.

You might achieve a month or so in there that is, which would be great news.

Maybe you have a break-even quarter.

It's really too far out to tell.

There are no further questions in the queue, however I would like to give another final opportunity.

(Operator Instructions)

Carla, we thank you.

And we thank everyone for your continued interest in the Company and its progress.

And it really does feel good to have a nice solid quarter under our belt.

Thank you for all your support.

Look forward to speaking with you in the June time frame, or July time frame.

Thanks again.

Ladies and gentlemen, that does conclude our conference call for today.

Thank you for your participation.