Steel Dynamics Inc (STLD) 2013 Q4 法說會逐字稿

Good day, and welcome to the Steel Dynamics' Fourth Quarter and FY13 Financial Results Review Conference Call.

(Operator Instructions)

Please be advised that this call is being recorded today, January 28, 2014, and your participation implies consent to our recording this call.

If you do not agree to these terms, simply disconnect.

At this time, I would like to turn the conference over to Marlene Owen, Director, Investor Relations.

Please go ahead.

Thank you, Rob.

Good morning, everyone, and welcome to Steel Dynamics' fourth quarter and FY13 financial results conference call.

As a reminder, today's call is being recorded, and will be available on the Company's website for replay later today.

Leading today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer.

We also have the Company's operating platforms leaders, including Dick Teets, President and Chief Operating Officer for our Steel Operations; Russ Rinn, President and Chief Operating Officer for our Metals Recycling Operations; and Chris Graham, Vice President, Steel Dynamics, and President for our Fabrication Operations.

Please be advised that certain comments made today may involve forward-looking statements that, by their nature, are predictive.

These are intended to be covered by the Safe Harbor Protections of the Private Securities Litigation Reform Act of 1995.

Such statements, however, speak only as of this date, today, January 28, 2014, and involve risks and uncertainties related to our metals business or to general business and economic conditions, which may cause actual results to turn out differently.

More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics website, and our Form 10-K annual report under the captions Forward-Looking Statements and Risk Factors, or as applicable in subsequently filed Forms 10-Q filed with the Securities and Exchange Commission.

For opening remarks, I'm pleased to turn the call over to Mark.

Super, thanks, Marlene.

Good morning, everyone, and Happy New Year.

Hopefully everyone is a little warmer than we are.

We're suffering a little arctic freeze today, but thanks for joining us on today's call.

We value your time, and look forward to sharing our view of the steel industry and at some of the opportunities that lay ahead for SDI.

But to begin, I will turn the call over to Teresa for brief comments regarding our recent financial results.

Thank you, Mark.

Good morning, everyone, and Happy New Year.

For the full year of 2013, we reported net income of $189 million or $0.83 per diluted share.

This compares to net income of $164 million or $0.73 per diluted share for the full year of 2012.

Last year benefited from our 2012 and early 2013 refinancing activities and debt reductions.

This resulted in decreased annual interest expense of $31 million.

As a result, our pretax earnings improved 29% for 2013.

However, metal margins remained a challenge in the year, as average product pricing decreased to a greater extent than raw material prices.

So despite record steel volumes, 2013 consolidated net sales of $7.4 billion and operating income of $387 million were very similar to full-year results for 2012.

For 2013 operating income from our steel operations, they improved slightly on record volumes.

Excluding the impact of non-cash unrealized hedging activity, our metals recycling operations also had very similar operating results.

They recorded $68 million on an adjusted basis for 2013, compared to adjusted 2012 results of $69 million, only $1 million difference.

Our fabrication operations continue to provide positive signs of continued growth in the non-res construction market.

2013 shipments of 360,000 tons represent a 24% improvement over 2012.

Operating income for 2013 was $7 million, this is more than 3 times the results for 2012.

Pretax income of $827,000 for 2013 represents the first full year of profitability since the 2008 economic downturn.

Changing to fourth-quarter results, for 2013, we had net income of $55 million or $0.24 per diluted share.

This was at the upper range of our earnings guidance of between $0.21 and $0.25.

For comparison purposes, 2012 results did include certain items.

They related to refinancing efforts, non-cash impairment charges, and beneficial tax adjustments.

Without these items, fourth-quarter 2012 earnings per diluted share would have been $0.20.

For the fourth quarter of 2013, net sales of $1.9 billion were down slightly from third-quarter results, and comparative consolidated operating income decreased by $5 million.

This decline was a result of an increase in our non-cash equity-based compensation expense of $4.5 million or $0.01 per diluted share.

The additional costs were primarily related to our company wide restricted stock unit benefit plan.

For steel operations, lower shipments in the fourth quarter were expected, due to typical seasonal declines and scheduled maintenance.

The lower volume was offset by improved sheet steel metal margins, resulting in increased operating income from our steel operations of $6 million.

Overall, steel metal margins increased in the fourth quarter, as our average quarterly steel price per ton shipped increased $11, which was more than the $7 increase in our scrap cost.

Overall operating per ton shipped for steel operations increased from $96 in the third quarter this year to $103 in the fourth quarter, a 7% increase.

For our metals recycling operations, operating income remained relatively flat when compared to the third quarter at $12 million.

A 15% increase in ferrous metal margins was more than offset by decreased ferrous and non-ferrous volumes and lower non-ferrous metal margins.

Our fourth quarter and annual effective tax rate was 37.8%.

Comparatively, our effective tax rate in 2012 was 30.3%.

2012's lower rate was a result of certain favorable adjustments in our reserves for unrecognized tax benefits.

For those of you looking for estimates for 2014, our current expectations would be that the effective rate is very similar to that for 2013, so I would suggest around 38%.

Our average diluted shares increased almost 1.5 million shares for the fourth quarter.

This was the result of increased levels of incentive stock option exercises that remained available from our old ISO benefit plan.

We currently still have 3.3 million shares outstanding in those plans.

At December 31, there were 222.9 million shares of common stock outstanding, and 16.8 million shares underlying our convertible notes.

Switching to cash flow, cash flow generation during the year remained very strong.

Cash flows from operations provided $312 million of funding during 2013.

For the year, working capital changes required about $116 million, and a lot of that was required in the fourth quarter and it was related to inventory.

Specifically scrap inventory at both our steel mills and at our metals recycling locations, as scrap increase in value and volume to take a positive position for price increases in January.

Our annual 2013 capital investments totaled $187 million.

This is somewhat less than originally estimated, so there will be approximately $30 million of carryover from the fourth quarter into the first quarter of 2014 for spending, and that's related specifically to our expansion projects at both the structural and rail divisions, and the SBQ division.

Over 40% of our 2013 investments were for the construction of those two projects.

We currently estimate 2014 capital investments to be in the range of $125 million to $150 million.

In spite of 2013 capital allocations for investments, for debt reduction of $94 million and for dividend payments to shareholders of $95 million, our total cash increased $19 million during the year and we ended the year with $395 million of cash.

We also have the full benefit of our $1.1 billion revolving credit facility.

Combined, this provides $1.5 billion of available funds.

Strong cash flow generation is consistent testament to our low-cost highly variable cost structure, and diverse value added product portfolio.

We're pleased with the execution of our refinancing initiatives.

They've positioned us very well.

During the past 18 months, we've created greater long-term strength and sustainability in our capital structure through debt reduction of approximately $275 million.

The extension of our debt maturity profile and the meaningful reduction in interest burden.

Our credit metrics remain strong and well within any covenant requirements.

The total of that is $2.1 billion with minimal secured borrowings.

Our net debt was $1.7 billion, and our net debt to trailing adjusted EBITDA was 2.6 times at the end of the year, which is below our preferred through cycle maximum of 3.

The current maturities of long-term debt were $342 million at December 31, primarily comprised of our convertible notes which mature in June of 2014.

The current conversion price is $17.14.

We're very comfortable with the timing of the maturity, and we believe we have many options available to us, including partial or full repayment with available cash if the notes remain unconverted, along with various refinancing alternatives.

The strength of our balance sheet is derived from our low-cost highly variable operating platforms, which provide robust through cycle cash flow generation.

To conclude, I know there's many of you that track our flat roll shipments by product type.

So I'll now provide the fourth-quarter shipment volume.

For hot roll coil, we shipped 304,000 tons.

For our pickled and oiled, we shipped 114,000 tons.

Cold rolled, 27,000 tons.

Hot roll galvanized, 102,000 tons.

Cold roll galvanized, 49,000 tons.

Painted, 112,000 tons.

Galvalume, 18,000 tons.

And then we did process over 13,000 tons in our new straightening line as well.

With that, I'll turn the call back over to Mark

Super, thanks, Theresa.

Well, I will begin with safety.

That's the highest priority for me, the management team, and hopefully each of our employees.

Simply stated, you're not so easily achieved ramps is our goal is for all SDI employees to work each day incident free, and we continue to make progress toward that goal.

Roughly 91 of our 126 locations were accident free during the fourth quarter.

My personal thank you to each of our employees for their efforts to work safely each day.

Our performance continues to be better than industry averages, and our performance continues to improve.

But we can certainly do better.

As I said, our goal is simple, zero incidents.

With continued focus, I look forward to more improvement in 2014.

Directing our focus to the broader economy, things in the US are continuing to improve, albeit not as quickly as we would like and not without caution.

As recent concerns about China's economy and global central bank stimulus has certainly led to considerable volatility in the financial markets of late.

And it's interesting, that the recent market correction seemingly is totally independent of what we see on our SDI radar screen.

That being said, consumer confidence in the US economy and labor market did show signs of improvement, after news of the passage of the US budget bill was released.

Third quarter real GDP increased at a rate of 4.1%, meaningfully higher than the original estimate of 2.8%.

Growth was about 3% as projected for the US in 2014, with more strength in the second half of the year.

However, the rate of growth needs to be stronger to support sustainable economic momentum.

Positively, I believe there is more optimism regarding the non-service sector portion of GDP.

It has the potential to grow at a higher rate, especially over the next five years, driven by strength in asset values, domestic energy investment, and the need for increased infrastructure spending.

Among these, or among others, these sectors include heavy steel consuming industries.

Such as automotive, which is currently forecast to produce 16.5 million units in North America this year, and perhaps reaching over 17.5 million units by 2016.

It's anticipated to remain strong.

Energy, perhaps the brightest spot overall, impacts the steel industry as a buyer of pipe and tube and other related steel products.

It will also require major infrastructure investment for collection and distribution of natural gas.

Construction continues to lag the recovery.

However, we believe residential construction will continue its gradual recovery based on pent up demand for new home construction.

We also believe non-residential construction demand is gaining momentum.

It is forecast to grow over 7% this year, albeit from a lower base, but we are encouraged by our fabrication customers.

They are placing orders, and are also seeing growth this year.

We will be the beneficiaries of these economic growth opportunities.

As non-residential construction improves, all our operating platforms will benefit.

Based on actual production during 2013, we at SDI had over 1.1 million tons of steel capacity that was not utilized due to market conditions.

A significant portion of this is impacted by the construction markets.

Also as domestic steel mill utilization improves, demand for ferrous scrap will follow, bringing benefit to our metals recycling operations.

And similarly, we had over 150,000 tons of excess fabrication capacity tied directly to construction.

So overall, I believe we have significant leverage to a recovering construction sector.

In steel, we achieved several operation records in our steel operations during 2013, including record overall shipments of 6.1 million tons.

Easily surpassing 2011's 5.8 million tons.

The flat roll division reached record production in shipping levels, producing a phenomenal 3 million tons, and shipping 2.9 million tons.

We believe this level of annual production sets a record for all North American [electric art] finished sheet mills.

I commend the team for their passion for continual improvement.

The structure and rail division also had record annual shipments of 1.2 million tons, just slightly higher than the previous record in 2007, which was established in the top of the construction markets.

While we did see a 12% increase in annual beam shipments, rail was the differentiator, contributing 206,000 tons for over 17% of 2013 volumes.

We are already seeing a meaningful benefit from our strategy to diversify the product offerings of the steel mill, away from just construction related steel toward products that are less cyclical, such as rail.

As expected, overall fourth-quarter steel shipments declined from third-quarter levels due to seasonality and scheduled maintenance.

However based on improved steel metal margins from our sheet operations, we still had modest improvement in operating income for the quarter.

Based on improved end markets, long product steel shipments were higher than a year ago, although they declined sequentially due to seasonal impact on demand.

Collectively, sequential earnings also decreased, as structural steel product pricing, although it appreciated a little, didn't keep pace with the raw material price increases.

However, despite slightly lower shipments from our engineered bar divisions in the fourth quarter, profitability modestly increased.

Our engineered bar customers report that they are gaining confidence in growth, and we are seeing increased stable demand.

Our ability to reliably produce a high-quality product with consistent on-time delivery, is translated into real customer confidence in our performance, and it allows them to place order with relatively short lead times.

The addition of new automotive and over the road truck customers has aided the order book, along with typical [forture] demand.

The strengthening in the SBQ market is good news, as we approach the full start up of our 325,000 ton production expansion.

We have commenced commissioning of the new rolling mill addition, which will produce smaller diameter round engineered bars, and we expect shipments before the end of the first quarter.

This project will make us the largest single site supplier of engineered and SBQ bars in North America, with an annual production capacity of 950,000 tons.

We are well-positioned to take advantage of our unparalleled customer service and quality reputation there.

The team was voted the top overall SBQ supplier in 2013, as determined by Jacobson and Associates Steel Satisfaction Survey.

Our order book is strong, and we are fully prepared for this increased market opportunity.

Additionally, the premium rail expansion is also proceeding incredibly well.

We successfully produced our first head-hardened rail for testing at the end of November, well ahead of our earlier expectations.

During December, and to date in January, we have been refining our operating practices and plan to begin shipping quality premium rail before the end of the first quarter 2014.

We expect that gradual growth in sales throughout 2014 and into 2015, as we introduce the product into the market.

We believe we are aligned to be the supplier of choice, based on the exceptional quality of our rail, and the customer value we offer.

By having the capability to produce 320 foot rolled lengths that can be further welded into 1,600 foot lengths.

This greatly reduces the installation time and track maintenance costs for our rail customers, bringing them great value.

Moving onto our metals recycling business, the quarter continue to be a challenge for the overall industry.

Although pricing improved in November and December, the decrease in volume more than offset the increase in ferrous metal spread, resulting in relatively flat profitability.

Although earnings from our Midwest locations improved slightly in the quarter, the continued over-capacity of shredding operations in the Southeast resulted in earnings deterioration for those locations.

In December, we right sized our workforce there, and idled one of Southeast shredding locations in an effort to more effectively utilize our assets in that region, and improve future financial performance.

We will continue assessing the effectiveness of our asset out utilization to further improve results there.

In Minnesota, our pioneering efforts continued to make some progress in the fourth quarter.

Production rates and plant availability achieved in the third quarter of this year, confirm the nugget plant's ability to produce in excess of 30,000 metric tons per month.

And substantiated volume expectations, our primary focus is turning to improving product yield and decreasing the overall cost of production.

Significant opportunities in these areas were identified, and preliminary progress was made during the fourth quarter.

However, the severe arctic weather conditions did impact the extent of our advancements there.

The possible solutions are not capital intensive, but do require time for further testing and development.

We plan to complete these adjunct projects no later than the end of the first quarter of this year, at which point, we will assess the progress achieved and determine next steps.

Relative to our other iron operation, Iron Dynamics, achieved record annual production of 239,000 metric tons of liquid pig iron.

Again, my congratulations to the team for their outstanding performance.

Their contribution to the flat roll division's productivity cannot be overlooked, and likewise, the contribution to our sustainability efforts is also important as they obtain 100% of their iron needs through recycling steel mill waste oxide.

2013 was a great turnaround year for our fabrication team.

The industry improved joist shipments by 14%, while we gained market share and increased overall volume by 24%.

We also achieved significant growth in profitability.

We're optimistic moving into 2014, both as a function of demand improvement, and the benefit of our broadened geographic footprint.

We do expect to see the continued impact of seasonality on the first quarter results, especially given the frigid weather conditions we have been experiencing so far in January.

Driven to maintain a sustainable differentiated business, we continue to focus on opportunities to maximize our financial performance.

We believe our superior operating and financial performance clearly demonstrate the sustainability of our business model, both in good and challenging market environments.

We are focused on providing exceptional value to our customers, committing to the highest levels of quality and timeliness, and as importantly, partnering with them to deliver what they need today, as well as anticipate what they will need for tomorrow.

As we look toward 2014, we're optimistic concerning the industry, and even more so for Steel Dynamics.

The passion and spirit of our employers compel us to a standard of excellence to perform at the highest level.

I thank each one of them for their hard work and dedication.

And to remind them, safety is our priority, always.

Thank you for your time, folks, and I open the call up for questions.

Rob?

(Operator Instructions)

Dave Katz, JPMorgan.

Hello.

I heard you say that CapEx for the year was going to be $125 million to $150 million with $30 million of that representing CapEx carryover, which it puts you at about -- if you exclude the carryover at about $110 million for the year, which I think would be your lowest level since 2005.

I know historically, you guys have favored growth, and I was curious if you think that there's a chance that that number would creep up during the year?

If so, what's some of the possible growth opportunities you see out there are?

And then if not, how that ties back to your longer-term net leverage target of three turns, because it would which you I believe the substantially beneath that at the end of the year.

Well, I think, to your point, we are committed to growth and we continue to evaluate organic opportunities, as well as growth opportunities that will leverage our core strengths.

And our focus certainly is on bringing in all of the quality margin quality returns.

As we assess those opportunities and if they are concluded to move forward, then yes, there's a possibility that the CapEx will creep up.

Dave, that number just includes items that are approved to date.

And so as we go through the year, Mark and Dick and the team never are without project ideas.

So, we'll update that number as we can.

Okay.

And then, just for clarification, given that it's where you are today historically, when you look back on a rough basis, how does where you enter the year compared to where you exit?

Typically, you would see that we spent more than what we project at the beginning of the year.

But it's because of individual projects, that, as I mentioned earlier, are approved as we proceed the year.

Okay.

Thank you very much.

Sal Tharani, Goldman Sachs.

Thank you.

Good morning.

Good morning, Sal.

I wanted to ask you two questions.

First on the non-res side, you had commented that joist was up 14%.

Is that your sales, or is it just the industry sales?

For the year, the domestic joist industry was up shipments-wise 14%, and bookings-wise around 17%.

Okay.

So what area of non-res does the joist end up in?

What area does joist end up in for non-residential construction?

Well, in the first half of 2013, there was a lot of big-box.

We're seeing the Amazon distributions, the Family Dollars, the big distribution centers.

We've not seen as many of those in the second half of 2013.

The good news is that activity was sustained at levels that were mirrored the first half of the year with the big-boxes in it.

So there's been the regular-type work filling the void left by the big boxes, which we see as a sign of an improving -- a truly improving landscape.

I think Chris and the team are doing a phenomenal job.

During the year, they have increased market share.

Obviously, we restarted, over the last 18 months or so, the three CMC facilities in Hope, Fallon, and Juarez, and those folks are kicking in and fired up and passionate.

But that give us a geographic footprint to certainly garner some of those big-box accounts.

Also Walmart, I think, is warming up to us quite nicely.

Okay.

Mark, I want to ask you about Mesabi Nugget also.

It has been the last two years we've been talking about the last year, we said, that it will be the last year of losses.

We said the same thing in 2012.

I was just wondering, what is your commitment to this project if it continues to be that way?

And is there any light at the end of the tunnel, or anything else you can do surgically for this project?

Maybe it is not worthwhile pursuing.

Have you ever thought about that?

Well, Sal, we look at all our operations as to whether or not or whether the financial viability is -- not just Mesabi Nugget.

But I think, as we communicated previously, over a year or so, a year and a half ago, we put a plan in place, and the intent was to bring that facility to a break even point anyway at the end of last year.

We did not achieve that.

We did achieve the plan to get the 30,000 -- or confirm its ability to get to a 30,000 ton per month production rate, and to get plan of availability up over the required 85%, 87%.

So that was achieved.

And the iron concentrate recovery and mining resources has certainly been achieved, and they've achieved production costs under $50 a ton as planned.

As we also said, the issue has been once we got to the higher operating rates, we have a high fines generation, and that is offset by the reduced yield, and that has offset that attractive iron concentrate cost considerably.

And we've been focused on two main issues.

And that was hampered a little bit in November, December.

The weather up then there has been absolutely brutal.

It has been in the minus double digits for, I don't know, the longest time.

So it slowed our activities down by a month or so.

But the focus is on the fines reduction, and also the replacement of our reductant coal by lower cost carbon sources, such as chalk.

There's been an immense learning curve over the last three months.

We've identified several advancements that could have a material impact.

And as I said earlier, once complete, we should be, by the end of the quarter, and no later than that, we will assess the commercial viability of the project against future projections of raw material markets and assess our next steps.

Great, thank you very much.

The intent, Sal, as I said in the past, for Mesabi Nugget not to be a prolonged anchor or a source of losses.

Great.

Thanks.

Michelle Applebaum, Michelle Applebaum Research.

Hello.

Hello, Michelle.

I wanted to look out at the competitive terrain.

Pricing has been doing much better the last six months.

And the Wall Street Journal carried a fairly strongly opinionated article about a surge of imports coming in the early part of the year.

And I was just curious to know your view on A, whether that's true?

And B, are there fundamental changes now in the US market with the closure of RG Steel that was getting a lot of headlines, and the Thyssen sale, and all of that stuff?

Can you comment on that?

I will, Michelle.

But I think the second half of 2013 sheet pricing certainly appreciated, and there were some supply disruptions.

And there certainly was raw material pricing support as scrap moved up in the last couple of months of the year, but I think the underlying appreciation was driven by demand.

It's a little difficult to determine current market direction.

I would suggest some would say that it's turned slightly.

But given the way the holidays fell, given the incredible bad weather, I think the markets are only just getting back to work really.

And it's hard to say whether or not there is a material change in direction.

As I said earlier though, the overall sentiment certainly -- the market sentiment -- certainly doesn't correlate with what we have on our radar screen.

What does that mean?

Well, I think if --

You mean the negativity, right?

Yes.

If you look at the negativity and the volatility of Wall Street here in the last week or two, we certainly don't see it in our business and in our order book.

And moving forward, we are and remain very, very, very optimistic.

We had a solid fourth quarter, and we have a positive view going into 2014 and 2015.

Just generally, and I'll let Dick and Russ comment on detail on their areas, but just generally, steel consuming non-service center portion of the GDP should exceed that projected 3%.

So there's going to be I think growth.

And you've got companies with strong cash positions, and that with a low interest environment should promote fixed asset investment.

Shale gas expansion, that should fuel widespread economic growth, I think, over the long haul.

We have in this country a need for infrastructure replacement and build, and you have a little bit of re-shoring and manufacturing coming on.

Unfortunately, that's overshadowed right now by uncertainty in the strengthening of -- or the potential strength or growth of the global economies, and we're certainly being hampered by the global supply demand balance.

Supply obviously outstrips current demand.

But again, looking at the markets in general, auto, we believe, we'll, as others do, that we'll remain strong.

And our manufacturing is robust, seemingly growing.

We feel that hot rolled coil demand should strengthen with the energy market pipe and tube demand.

It's contingent, probably, on a reasonable level of imports, but it's quite likely that hot rolled coil will become tight in perhaps 2015.

That allowed the supply and demand to come back -- at least come in domestically North America, get back into balance with an associated potential for margin expansion.

Residential construction should continue to grow this year.

With all the pent up demand for houses and reduction in inventory, and we certainly see that in our order book, and raised garage door panels, HVAC, studs.

It's materializing in our backlog.

In non-res, ABI did dip in under 50 in November, December.

But again, in our business we see continued steady growth in our beam backlog.

And as Chris alluded earlier, in our joist business.

It's interesting, our volume in the fourth quarter in joist, I do believe Chris, tell me if I'm wrong, but our volume would typically go down just with the weather seasonally, but our volume quarter-over-quarter I think was pretty stable.

So we're quite optimistic by both the residential and non-residential recovery, and as I said earlier, we've got a lot of leverage there.

We've got 1 million tons or so that we can exploit.

When you look at rail, CapEx spending there predicted by the big railroads is extremely strong, as they build out their shale gas infrastructure and increase and replace their rolling stock.

And I think this growing rail market provides us a great opportunity as we ramp up our new head-hardening capability.

As mentioned, shipments of standard rail reached 2,000 to 6,000 tons in 2013, which is well above our prior expectations.

And our head-hardening capability is only going to add to that capability.

So we're very, very bullish there.

And a bright spot, a very bright spot, I think, is engineered bar.

That business has come back quite well, quite strongly, and I think that the backlog is probably the best we've seen in probably 18 months or so.

We're seeing renewed strength in seamless markets, Class 8 Trucks, and I think that's affirms some of the commentary from Cummings and Caterpillar yesterday as to what they see in the market.

So we're very bullish in engineered bar products.

So, a long answer, Michelle, but I think generally we are quite optimistic.

And again, it doesn't connect necessarily to the overshadowing sort of sentiment of the market.

Dick, any other thoughts mate?

Well, I think the only thing I can add to all that was the fact that Pittsboro is actually going back to full production.

We've been on a reduced melding rate for quite a few months, but February will be our first month back to a full 24/7 melt.

We've been mostly on reduced melt, Monday through Friday during the peak hours, because of the order book didn't support it.

But we're expecting to continue then.

February and March is filling up, as you've said, our backlog is our strongest it's been in over two years.

And then the other thing that you didn't touch on is Steel of West Virginia, has a very steady and full book.

And as much as Roanoke isn't seeing a great margin, they've been -- they had record shipments.

And so their book remains full.

The merchant bars and rebar is not as strong as the sales pricing perspective, but it's a good volume.

So we're thinking things have returned, and they continue to.

So I support everything you've been saying.

That sounds great.

Always good to hear a very candid views from you guys.

Well, that's all you get from us, Michelle.

And you also mentioned RG.

I do believe that the domestic market has improved from a capacity standpoint.

RG, depending on how you calculated the number of tons, you could say 8 million tons came out of the market.

But most of that hasn't been really in the market for the last couple of years, three years, but there's a good 3 million to 4 million tons, or there abouts.

And I'll throw one more item in that again I'm very proud of the fact that just about every one of our divisions has brought new products online.

I could go down through and list them.

But the one I'm very proud of is The Techs that we've developed the Galfan product.

And already year-to-date, we haven't run 5,000 tons in January, but just about.

And last year we ran just less than 6,000 tons of Galfan, and that was an expansion of over 2,000 tons a year before.

And so our sales efforts have been multiplying, and so we're very excited about the efforts at the Texas and the flat rolled team have been putting into marketing that product and where we think that can take us.

So there's things that are real good at all of our divisions.

That sounds great.

Thank you so much.

Curt Woodworth, Nomura.

Hello.

Good morning, Mark, Theresa.

Morning, Curt.

Despite some of the positive growth you're seeing demand and the growth in the backlogs, you also commented that you saw deterioration in metal spreads in the long product market.

It seemed like beam pricing especially was difficult to get traction with last quarter.

The question is, what is preventing the pricing from following the scrap move up on the long product side, and do you guys see spreads improving into the first quarter?

Well, I think the opportunity for scrap move, and Russ can jump in, but the scrap market is likely to be sideways to down, more likely down.

Even though we've got some frigid weather that is probably hampering the flow of scrap, if you look at the export market, the Turkish currency valuation weakening, there's very, very little export interest right now, and that has seemingly pushed pricing up or down over the last year or two.

So, with a decreasing scrap environment, we would anticipate the potential for a margin expansion, yes.

But, Russ?

Well I think certainly the pressure is downward on the scrap market here in the first quarter.

Having to take the Turks probably in the first quarter or so to get there balance figured out as what they're going to do, and that book certainly has a big impact.

But I think you said it well, Mark, I think the obvious pressure downward may be mitigated somewhat by the weather conditions.

They are in beating flow, but I think again once the weather warms up there's ample supply of scrap.

Okay.

And this second question on working capital, you said was pretty big this year, and part of it was trying to get ahead of the scrap price increase this quarter.

Do you guys feel like you can reverse part of that usage this year, and how much potentially do you think you could get out of the working Cap?

Yes.

The movement in the fourth quarter was fairly dramatic in inventory, and that was really specific to us trying to position ourselves for the first quarter.

So that, given the fact that scrap pricing will be coming down, that's going to reverse itself pretty quickly in the first half of the year.

So there is potential for working capital to bring back quite a bit of funding during the year, maybe in the tune of somewhere between $50 million and $75 million.

But that all depends again on what the second half of the year looks like, as well.

Great.

Thanks very much.

Brett Levy, Jefferies.

Hello, guys.

Can you talk about your order book in terms of being in the rail business, all the different parts of the sheet business, The Techs?

Just talk about the order book.

Is it getting stronger or weaker?

A little bit of color just by product area.

Well, I don't know what kind of color you want.

We have our strongest -- I'll talk in strength or weeks.

Butler has our flat rolled bookings out into -- the hot band is February.

Of course, cold rolled and galvanized and painted is March, is that we would expect.

And there's a few holes that are being filled, but we're not crashing and burning by any strength because where we see it improving.

We see the strengthening, as Mark was referring to, occurring, a little bit of pricing pressure, because of imports, as was referred to by Mark earlier, but it's stable.

Beams, we have our biggest backlog in beams that we've had since 2007 or so.

Rail, again, it's a developing market by us.

So, you can see it's a continuation of our record shipments.

It's, without saying a number, it continues.

And it's being influenced by our desire to start anxiously making shipments of the head-hardened product.

But we haven't made any firm commitment We've been getting orders that have open-ended opportunities to ship either the head-hardened or standard rail whichever is available.

We appreciate that flexibility that some of our customers have given us, but they are supporting us in our development attempts.

I already referred to, as Mark did, Barry's backlog down in Pittsboro of being the best it's been in 22, 24 months, and developing our opportunity to run full.

And again, the toughest one is Roanoke, again, record shipments.

That's toughest only because of margin, and a lot of it's because of unfairly traded rebar products that are being challenged in the trade cases and so forth, and hopefully will have a positive resolution there by the industry.

But I don't know how you want it referred to, but it's strengthening all the way around.

Very positive, and The Techs have been challenged because of all the galvanized products on the East Coast, and so forth.

But we're not standing still, and they're pursuing other markets.

And I think everything's fine from that perspective.

All right.

And then in terms of how that translates into pricing power or just generally, does it feel like all the gains that you've picked up since June could hang on?

Well, I think the unknown is obviously the import.

If you just forgot about the imports scenario, again, on our radar screen, we're strong right across our universe.

The one headwind for our industry, for us and our industry, is the import specter, so to speak.

The global pricing on bands today exceeds the $150 that I've talked in the past about being kind of a hurdle that starts to attract import interest by our customers.

And hence, we're probably going to see a little bit of a spike in imports coming up.

I don't necessarily think it's going to be a wave or a deluge that's going to dramatically impact our market.

It's just creating a headwind for us.

And so the question really is, is it going to create a pricing route or a pricing adjustment or stability?

I think generally, it is just going to set a ceiling, or just compress our ability to increase and expand margins dramatically.

All right.

Thanks very much, guys.

Brian Yu, Citigroup.

Great.

Thanks, and good morning everybody.

Morning.

Hello.

My first question is at Mesabi Nugget, you guys have that magnetation product that you're producing.

If I recall correctly, there's about a million tons of capacity.

Can you give us some insight into where that's running at and if it's producing extra product?

Is it being sold to third parties?

And say you do, and I'm not saying you will, but just a scenario, do you shut down Mesabi, is there -- would you become a merchant supplier of iron ore concentrates?

The plant -- you asked where it is it running right now?

I would tell you the -45 degrees, or whatever they're seeing, is slowing down just a heartbeat.

So I can't generally say they're producing at a million tons right this second, but they have that ability without any doubt.

And the cost structure is as we've represented.

There, obviously, is an opportunity to sell that concentrate elsewhere.

In fact, as you probably know, that asset is a joint venture with Larry Linton's magnetation.

So, they're taking about 20% of its volume and disposing it into third parties already.

And given economics, you've got to consider where the world market of concentrate is.

You've got to consider freight.

Obviously, there is ability, if it makes financial sense to sell that to third parties.

But we currently aren't doing that.

Yes.

But we're consuming our own currently.

Okay.

All right.

And then the second one, there is some scrap -- you've been anecdotally hearing about movements of scrap from the East Coast to Midwest, given differentials of say $80 to $90.

Are you guys seeing that in your business?

Is that something that you're doing?

No.

I think certainly we are seeing that.

Again, as the scrap piles up on the coast that is not being exported, it's going to find a home, and so we are seeing that move from the coast inland.

Some of it has come all the way into the Midwest.

And in some cases, we have purchased some of that for our steel mills.

Okay.

Thank you.

Luke Folta, Jefferies.

Morning, guys.

Luke.

First question, Dick, did I hear you say that structural beam backlogs are as high as they've been since 2007?

And just to clarify, are you talking Columbia City as a whole, including rail or just the beams?

Well, the backlog I was referring to is a combination of both.

If I separated them out, I'd still tell you that -- well, that's a close one.

Since I've been gone from the beam business over there, primarily since 2006, it probably is the same as about then, when we were running so well.

But when you add the rail to it, and they have a little bit of an advantage; they have a second beam mill over there that we're adding products to and so forth.

But it's similar.

So I'd tell you that the beam business is the same.

So it's coming back substantially, because they have a wider product range.

I'm not telling you that the construction world is the same as it was in 2006 and 2007, don't take that because we're doing more OEM business and attacking other product opportunities.

But the volume coming out of that mill, they beat the total volume that we shipped over the year by a couple thousand tons.

That included some rail of 200,000 tons, granted.

And their challenge for this year is to, without the rail, beat the tons of beams and then add rail to it.

So that's exciting from a Columbia City perspective.

So I don't know if I answered your question, but the backlog is in total tone is higher than it's been in years.

Yes.

That helps.

Thanks.

And then just secondly, with the reduced CapEx guidance and the potential for working capital to be a course of source of cash this year, it looks like you're setting up to have a pretty decent free cash flow year for 2014.

And I just wanted to dig in more on your opportunities for growth.

Can you first talk about growth, the trade-off between growth and share buybacks?

Is that something you even consider at this point?

And also, can you give us some sense of what the major areas of growth that you're looking into?

Is it mostly on the steel side, upstream, anything you could say that would be helpful?

Well, I'd agree that we continue to sustain a very robust strong cash flow, even in these tough times.

I think, from the standpoint of where do we deploy that cash, stock repurchase is not -- it's something that we frequently assess, as we do all of the different avenues of disposal of the cash.

But it's not preferential for us.

We feel we can deliver much greater value by deployments of that cash elsewhere today.

As you saw last year, we raised our dividend 10%.

We don't intend to be a dividend stock necessarily.

We're still a growth Company, so we would like to see positive profile of our dividend going forward.

You have also seen, as Teresa mentioned earlier, we refinanced here over the last 18 months.

And if you look at our balance sheet, all the changes thereto since 2011, we've had a positive impact of about $45 million of interest, and stretched out on maturities.

So were looking very, very good there.

We have brought our net debt down to under our target, under 3, I think we ended up the year at 2.6.

So we're following our advertisement there.

We continue to look at organic opportunities, and we've identified a few.

But are not in a position, or nor do we want to discuss them.

We tend not to want to speculate, Luke.

You're going to know -- when we decide to do something, then you'll know.

But there are some smaller incremental organic opportunities for us, certainly on the steel side.

We're looking for growth opportunities outside of that as we have always done in the past with a focus on leveraging our core strengths.

If you look at our different platforms, scrap obviously recycling is a challenging environment today.

We'll have possibly some very minor expenditures, and when I say minor, $1 million here, $1 million there, or $3 million for another ASR opportunity.

But that's not what I would consider a growth opportunity for us right now.

We are well-balanced strategically.

We've got 7 million tons or so of steel making capacity, and our recycling divisions probably have the capability anyway of 6 million to 7 million tons of collection, distribution, and processing.

So strategically, we're well matched.

People in that space are still living in the past from a valuation standpoint, and so valuations are incredibly high.

Margins are incredibly thin, and that would not be an arena that we're actively searching to spend our cash.

Fabrication, I think Chris and the team have done a phenomenal job of positioning themselves.

Again, with the three new joist assets, and additional deckline, they're well positioned to serve the market.

We've got 150,000 tons of excess capacity there, and the challenge to the team is execute, and I think they're doing just that.

The greater focus, I would suggest, is on steel, because that's where the margin is today.

And as I said earlier, I think we've identified a few opportunities that we're assessing, and we'll leave it at that.

Okay.

Thanks.

And if I could ask just one more quick one on SBQ, can you give us some sense of just the timeline and how you expect that new capacity to ramp up, and give us some sense of where you are in terms of customer qualifications, and things like that?

At the SBQ facility, perhaps as we've been going along we've been identifying the customers that will be taking us along with them.

We've been cultivating that business, and so we're very comfortable with the expansion into the smaller bar arena with our existing customers, with new customers, and the products that will be required to start filling that out.

So we're prepared.

We're comfortable with the expansion, even in light of other expansions going on in the marketplace.

So we're excited.

Yes.

And I'd just add, Dick and his -- Barry and team the there have done a phenomenal job I do believe over the last three to four years building customer confidence.

The focus is toward the higher end quality range of SBQ, and not just typical one-inch 1018 bar but in the highly alloyed, highly customized grades.

And given the quality that they've achieved and given as importantly I think just the timeliness of on-time delivery, I think we are getting sort of a preferential market exposure there.

And I think though -- it has to be -- remain on the radar screen, is that we're not new to the small bar business.

We've always had the capability of making small bars.

We just elected not to.

We have a small bar mill there, but it wasn't real desirable because of the amount of reduction we had to take, and the amount of effort that slowed us down.

And it was a better economic decision from a bottom-line perspective to pursue larger bars, so it's not like we're entering into an arena that we haven't gone to or danced in the dance.

So we have been there to the tune of over 125,000 tons a year.

And so when we're talking of going to 325,000 it's an expansion, not a new one for us.

Okay.

Thanks a lot.

Timna Tanners, Bank of America Corp.

Can you hear me?

We can now, Timna.

Okay.

Sorry about that, good morning.

I just wanted to -- a lot of questions have been answered, and appreciate all the detail.

I just wanted to ask you if you can help us understand how you may have changed the discussions or characterized the discussions you had with flat rolled buyers starting this year relative to how you've done it in the past?

If you made any changes, or how those dialogues have changed?

Thanks.

I don't know where you're leading us, Timna, but I don't believe there's been any material change.

We never -- part of our industry ventured into CRU minus-type contract arrangements.

That's something that we never did.

We based some of our contracts on CRU as an indication of where the market is, but not on a discount basis of any great nature.

But I think we're business as usual.

Do you want to amplify your question a little, Timna?

Yes.

Of course.

Sorry.

I was just asking because so many buyers have told us that the mills changed their attitude at the start of the year, and I didn't know if you were in the same category with the CRU discounts changes, to rebates, to being a little bit more stringent about how you price your contacts, or how you price steel in general.

So I was just wondering how you might have changed into the new year.

Again, we're not monstrously big on contracts, and so forth.

It's an evolving business, and we have to react as our competitors do.

But we're not -- we haven't changed our philosophy, and we haven't changed the way we take our product to market.

And so, we might the one of the ones who have changed the least, is I guess the way I'd analyze our changes, if there were really anything of significance.

Okay.

Super.

And the only other question I had was, we're getting a lot of investor starting to question this non-res recovery, and it seems like it should still be there, and we have faith.

But it seems like quarter after quarter, we say it's coming, and quarter after quarter there hasn't been that much evidence.

So can you characterize, without repeating a lot of what you said, can you characterize any reason why it's different and why you really have more conviction and it's happening now versus over the last several quarters?

Well, I think that despite our -- I can't talk for our competitors, but we, albeit off a low base and albeit gradual, we've continuously increased the beam orders and we're continuing to see greater market share and greater volumes in joist.

So, Timna, I don't see there being any hockey stick here where it's just going to take off, but we're just committed sustain our view that we're making, at least SDI, incremental progress in that arena.

And I guess one, I guess it's not very scientific, but as I travel around the country, I really do see more cranes in the air.

There are more buildings going up, which correlates to what we see in our order book.

Okay.

Cool.

Thanks very much.

Mark, I would add that the fact remains that from a low of 400,000 tons of joist sold in the country just three or four years ago, 2014 looks like it's going to be over 800,000 tons.

So, I think one can argue about the hockey stick shape, but so far, we continue to see that type of slow steady improvement.

All right.

Thanks.

Michael Gambardella, JPMorgan.

Yes.

Good morning, Mark.

Good morning.

Got a question on the sheet market.

I think you guys and the mini mills account for about a third of the supply sheet and import around 15% or so.

You and imports are about half of the supply of the sheet market in the US.

And just mentioning what you mentioned earlier that you expect scrap prices to fall going into the earlier part of the year now that means your costs are coming down.

And you also mentioned that imports, to keep them at bay would be about $150 premium over US prices, and now there a little over $200 over US prices, at least in China anyway.

I would think you have the ability to take some share on the sheet side, particularly the hot rolled side, given you have some capabilities that are left out there unused.

I'm surprised that your order book is only going out of weeks.

You said February.

Were almost in the February.

Isn't this a great opportunity, given your variable cost structure, to take some share right now?

Well, I think, Mike, the team up there has done a remarkable job in this challenging environment pretty well keeping the mill full.

The lead times or whatever typically there was not much more than four weeks anyway, but typically in hotbed, obviously, finished products through painted to stretch out maybe six weeks or so.

But we intentionally keep a short order book to capitalize on any market inflection.

So I don't believe -- Dick, jump in.

I don't believe we are concerned about hotbed being two or three, weeks out, right?

A perfect -- I apologize by saying February, recognizing that it's the 28th of the month or so, I wasn't thinking of it in that manner.

I was thinking at the end -- basically through the end of February -- I wasn't trying to imply the first or second week.

We are solid.

We are very comfortable where we are believing that we've sold at good prices.

We're okay.

We'll run full, and that's where we like to be.

So you have no capability to pick up share on the sheet side in the marketplace at this point?

Well, we're booked.

We run full.

Last year we had very few days where we ran just a single caster.

That's our indication that we had capacity left on the table.

If we had 10 days in a year, and we look at how we can minimize those days.

We talk internally.

Did we sell enough in the new millennium?

Did we sell enough to The Techs?

And the answer should be probably no in both those cases.

Now that we have the leveling line that's why actually justified our leveling line, because we felt we could make a higher quality product and take it to the market where we have customers who buy other products from of.

But we're not buying as much light gauge from us, because we are not delivering what they perceive as high enough quality on the first hundred feet of our very light gauge products, and now we're leveling to the tune of 15,000 tons, 30,000 tons a month type of thing.

So we're excited about that, hopefully filling up those few days of a single caster operation.

So SDI Butler, as a hot mill, is full.

Now it's a matter of maximizing, as we always try to do, the value added is to benefit the bottom line.

And how can we always move product through there on a monthly basis to figure out can we get any more revenues from painted, Galvalume painted, cold rolled painted, just pure cold rolled galv, whatever the mix can be based on gauge and ultimately resulting tonnage.

Anything else -- obviously, if you look over a little bit of time, Butler has picked up quite reasonably.

Because that mill, not so long ago, was only 2.4 million tons.

And the team out there has gone from 2.4 million tons to actually physically shipping over 2.9 million tons last year in what is still a challenging market.

So, we have been getting a little bit more of the pie, I think.

And to Dick's point, our focus is margin.

What's your expectation for the fall in scrap through the quarter?

Given the pressures, he said about the export market shrinking up, especially with Turkey.

We're smiling at each other, Mike.

He won't tell me.

Again, I think I've said it in the past and Russ has said it in the past, the crystal ball on the dimensional move is -- or the extent of the move is incredibly clearly up till January 31st.

The end of the month.

I think again, we feel that it's down.

Given the drift down in iron ore, if you look at that, it could come off a reasonable amount.

Do you think scrap will come off more than the price of hot rolled?

I think it has that ability.

Again, as we said earlier, we feel that domestic demand in our sheet business remains strong.

The headwind is import and how that will effect us, and I don't think anyone at this table is smart enough to figure out what the eventual outcome will be there.

And whether it falls -- the pricing falls more than the scrap or not.

I don't think so, personally.

I think demand there, at least -- again, I go back to our radar screen is pretty positive right now.

So there should be some support.

Last question on the non-res side, on the infrastructure part of the demand, can you talk about anything you're seeing on the permanent side in terms of spending on infrastructure?

I can't say that I have personally.

Chris?

No.

We don't seem to hear anything from any real states.

We looked out as far as in the pecking orders like guardrails and so forth, and there's really no strength in markets that respond to that.

So it's business as usual, but nothing -- there's no big builds or anything that shows support there yet.

One of these days our legislators will understand that the place is falling apart.

But --

We just need a big bridge to fall I guess.

Well, let's hope not.

Let's hope not is right.

All right.

Thanks a lot, guys.

Cheers, Mike.

Nick [Jarmosa], Royal Bank of Canada.

Hello.

I had a question for you on Roanoke bar.

I was hoping you could talk about the price announcements earlier in January on the 14th, 17th.

What did you see that instigated a price increase, and then what brought on the announcement on the 17th?

Thanks.

Well, needless to say, that is a market that is very transparent, and everyone is doing their best at trying to garner the maximum amount of revenue that they can.

And so, sometimes prices get announced, and if there's not 100% agreement as to where the market will move to or the timing of when that market move works, there sometimes has to be a realignment and an adjustment.

And so therefore, we went out with a price increase of $30 and on a date, and then ultimately we didn't believe that that price would be sustained or supported universally.

And then lowered our price by $10 to a price of $20 net -- ultimately a $20 increase from where it had been by reducing it by $10, and felt that that's where the market is, and that's where we're selling at.

And that's where I think the rest of the market also moved to.

So, it's really a transparency in the market, and not much more can be said about it.

Did you see customer -- immediate customer feedback?

Or what were the tea leaves that you guys were looking at?

Well, there's always -- when I say transparency, there's customer reaction.

There's order intake.

There's feedback.

There's, in many cases, in that kind of business, you carry inventory in those markets and whether your inventory is being depleted at a rate that is expected or shipments slow or speed up is an indication of acceptance or anticipation of moves.

And so there's a whole lot of different tea leaves that the sales team and the management team have to be a parent taking advice from.

And they did, and they determined that the adjustment was warranted and we're satisfied with it today.

Okay.

Thanks.

Andrew Lane, Morningstar.

Hello there.

Good morning.

Morning.

Just one quick one from me here.

Do you believe that order flow for ferrous scrap has already been impacted by increased domestic DRI production, and do you anticipate a meaningful impact on scrap flows from DRI producing in the United States going forward?

I think there's been some speculation on the impact of DRI.

I think it will come and we'll see some of that, and it'll ramp up as production comes up.

I think the primary impact is likely to be on the pig iron, and some of the other high-valued substitutes, much more than the obsolete scrap.

Primes will certainly have some impact with it, but again I think there's still a significant number of imported iron units.

Whether that's imported iron ore converted, or whether that's pig iron, or whether that's just regular scrap that's imported that's also going to be impacted.

While there's going to be an impact and likely some downward pressure, particularly on primes, again markets are what they're going to be.

And from a scrap perspective, from our perspective, we're going to buy and we're going to sell, and whatever the market is, and do what we need to do to expand our margins, as well.

Great.

Thanks for the color.

John Tumazos, John Tumazos Very Independent Research.

Thank you very much.

In calculating or maintaining your goodwill intangibles and fixed asset caring values for scrap recycling and virgin iron, do you include, as part of the return, lower-cost and more stable raw steel operations with ready ingredient availabilities?

And what specific level of profitability do you make long term estimates of for scrap in the virgin iron and maintaining your carrying values?

John, as you probably are aware, that's a very complex series of calculations that take place to be able to support both our goodwill and our intangible asset values.

And our measurement dates for all of our operations are October 1st.

So we went through that process, and at the end of the year we supported and we believed that our asset values are appropriately stated as represented on the balance sheet.

And there are a lot of different assumptions that take place in those modelings, and we used future discounted cash flows to do that.

We do expect and we model in to have improvement in the metals recycling area for those projections, and we believe that those are sustainable based on some cost initiatives that are taking place in metals recycling.

I think you would have seen that some of that took place in December.

We did shutter one Cheyenne location, and that's just an example (inaudible -- background noise) mission of the ASR plans or other examples that increase profitability for the metals recycling arena.

We also expect to see -- these are long-term projections, and so if you'd look at the next 3 to 5 years we're expecting a considerable increase in steel consumption, both domestically and globally.

And that's based on a lot of things that Mark has already spoken about.

It's with that increased steel consumption, you're going to have increased consumption on the metals recycling side, as well.

And we're uniquely positioned with metals recycling, because we utilize anywhere between 40% and 45% of what our metals recycling operations produce in our own steel operations.

So as our steel operations grow, we're also consuming more there.

And that solid base load has a considerable impact on the profitability of our operations and the predictability versus some of our competitors.

So, we're very comfortable, and I know I haven't gone into specifics, but we wouldn't want to go into specifics related to that.

Hopefully I've answered your question.

Do you exclusively look at the returns from the recycling and the iron making, or do you include the smoother and more consistent operations of your steel making as part of the cash flow benefit of having the raw materials integration?

No.

When it you look at goodwill intangibles, you're required to look at the cash flow generation platform that it's assigned to.

So when we look at metals recycling and the goodwill and the intangible assets that are associated with that, we look only at the cash flow related to metals recycling.

There is a component of the metals recycling that benefits the steel, and we do include that benefit, but it's incremental to the analysis itself.

Thank you.

Phil Gibbs, KeyBanc Capital Markets.

Good morning.

Morning.

Theresa, I had a quick question on this pick up in non-cash equity compensation.

Is that going to be a sustainable pick up in SG&A going forward, or is that more of a one-time accrual in the fourth quarter?

Great question, Phil.

That's going to be ongoing.

So two years ago, we switched from our ISO plan to restricted stock.

And the restricted stock has a two-year vesting period.

This is the first year where we've had two grants outstanding at the same time, so now we'll be at the sustainable level of about $5 million per quarter.

That's very similar to what it used to be with the ISO plan, as well.

We just had a hiatus for about a year where we didn't have two levels of plan updating at the same time.

Okay.

And then another -- my follow-up is related to Mesabi.

Mark, I know you talked briefly about this earlier on the call, but what do you actually need to see here to give you confidence on the viability?

And then also, can you remind us just how much you've invested in Mesabi year-to-date over the last few years?

Thanks a lot.

Again, our focus and the need is to get that yield improvement at the higher production rates.

And to replace the principal reductant, the coal reductant, that we utilize today with a lower priced carbon source.

And as I mentioned, from what we learned in November, December, we have determined that -- a couple things that it's very prudent to test and trial right now.

And the learning curve of the team up there has been immense.

I still have faith in them.

But it's all predicated on being successful achieving those two things.

Thank you.

Aldo Mazzaferro, Macquarie Group.

Yes.

Hello.

I just had a couple of quick follow-ups if possible.

On the Mesabi, we were just discussing the two things that you wanted to see.

Can you tell us what type of yield problem you're having?

Is it moisture?

Is it low metallization?

Or some other thing?

What is it about the yield that goes away when the production rate picks up?

We generate excess fines in the process.

I see.

So the actual quality solid big nuggets, you might say, coming out of the process relative to the raw materials going in, is just not yielding with where we were at the lower rates.

Right.

So do you think that's a mechanical issue or a chemical issue?

If you've got three days, I'd be more than willing to get into the detail.

But it's a process issue.

All right.

I'll meet you up there for the Super Bowl then.

So one other follow-up on the scrap business, Russ, can you say of the scrap that's migrating from the East Coast or West Coast into the Midwest, probably mostly East Coast, is that stuff already shredded, or is that pre-shred?

Also, I think it's a combination of both.

But what gets bought on the coast normally is shredded, because that's a primarily predominate export.

So there's -- the vast majority of it is going to be shredded material.

Right.

So that won't really help the imbalance then I guess if -- I was thinking if you got more unshredded material heading into the Midwest it might take some of the buying pressure off that material in the pre-shred and help you more.

This isn't probably going to help your margins at all.

It's going to have an impact on the negative side more than the upside.

All right.

Thanks.

Thanks very much.

Dave Gagliano, Barclays.

Great.

Thanks.

I just have a very, very basic question tied to the broader demand topic.

Given the positive views on demand, what do you expect the year-over-year growth rates will be in your total volumes in 2014 versus 2013?

Off the top of my head, I'm not sure I've got --

Well we tend not to project out per year.

But it's not -- yes, we'd prefer not to give a number out.

How about a comfortable level and a range?

Should we be thinking about a 5% to 10% year-over-year growth rate, or a 10% to 15% year-over-year growth rate?

Which one of those would you be more comfortable with?

I don't even know that we could answer, because let's sat at Butler, if you're talking about growth rate of a shipment, --

We can't get any bigger.

It can't get bigger.

Roanoke -- if you're somehow figuring out how to break another record, we're always striving for that.

Pittsboro did not ship at -- Pittsboro had production opportunities, and therefore, of course shipment opportunities, but not going back towards what we used to do.

Columbia City shipped at a record, and therefore, things are always in a growth mode there.

We had some capacity capabilities, and as we've talked about, we have excess steel capacity within the Company, and that's always on our radar screen in which to maximize.

But it's really dependent upon a whole lot of things at each different product level and plant perspective.

Right.

But just assuming things stay the same, given the expansion in our product capabilities and diversifications, one would expect that if things stayed the same that our shipments would improve from 2013 to 2014 setting new records.

As a platform.

As a platform.

Correct.

Right.

Okay.

Maybe I can just follow up on that last point that you made.

Can you -- is it possible to frame sort of the max capacity that you could get to in 2014 versus 2013 on a year-over-year increase basis?

Well, our capacity has grown.

We had -- ending 2013 we had a capacity of 6.4 million tons.

And that includes a million tons of processing capacity at The Techs.

And so as you then add to that 325,000 tons of capability at our engineered special bar quality, now you're looking at closer to a 7.7 million-ton capacity.

So there's still a lot of room to grow from the steel perspective, as long as markets are supportive of that.

And the growth -- the biggest growth would come through SBQ, and through structural.

Okay.

And 7.7 million of which 1 million is at The Techs.

Is that what you just said?

Correct.

Okay.

All right.

Perfect.

Thank you.

Thank you.

That concludes our question-and-answer session.

I'd like to turn the call back over to Mr. Millett for any final and closing remarks.

Well, thanks Rob.

And just for those still on the call, I'd just like to thank you for your faith and support in us, and hopefully that will remain going forward.

I think we've got a great future ahead of us here at SDI.

And most importantly, thank you to our customers that might be listening.

Thank you for your support, and to our employees as well.

And as I said earlier, guys, be safe out there each and every day.

Thank you all.

Once again, ladies and gentlemen, that concludes today's call.

Thank you for your participation, and have a great day.