Steel Dynamics Inc (STLD) 2014 Q1 法說會逐字稿

Good day, and welcome to the Steel Dynamics first quarter 2014 earnings conference call.

(Operator Instructions)

Please be advised that this call is being recorded today, April 17, 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, Melissa.

Good morning everyone, and welcome to Steel Dynamics first quarter 2014 financial results conference call.

As 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 platform 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, President of 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, April 17, 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, in 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.

And now I'm pleased to turn the call over to Mark.

Thanks, Marlene.

Good morning, everyone.

Hopefully, you are all preparing for an enjoyable and safe holiday weekend.

Thank you for joining us today, because we truly value your time.

Nature certainly showed its fury this quarter, and I believe we weathered the storm better than most, and we are moving forward.

And we have made great progress, I do believe, on several fronts.

And I will expand on that a little later.

But before we begin, I ask Teresa for brief comments concerning first-quarter financial results.

Thanks, Mark.

Good morning, everyone.

Our first quarter 2014 net income was $39 million, or $0.17 per diluted share.

It was in the upper range of our guidance of between $0.13 and $0.17.

This compares to net income of $55 million, or $0.24 per diluted share, in the fourth quarter of 2013.

Even though our net sales of $1.8 billion only decreased minimally compared to the fourth quarter, operating income declined $27 million, or 25%.

This is largely due to weather.

The severe winter conditions that existed throughout much of the first quarter significantly reduced earnings.

Conversion cost at our Midwest steel mills increased due to higher electricity and natural gas costs.

Production was reduced due to power company curtailments, and shipments were reduced due to lack of available rail cars and trucks for delivery.

All of our businesses were negatively impacted in some way, and our steel operations were impacted the most.

Operating income from our steel operations decreased $47 million, just over 30% compared to the fourth quarter.

Total shipments decreased 6%, but the severe weather impacted our sheet and structural steel operations the most.

At these locations, shipments decreased, and we recorded significantly higher electricity and natural gas costs.

However, stronger order activity toward the end of the quarter, and the resulting growing backlog, suggest that our customers and market demand is steadily improving, and that reduced first-quarter volumes were related to the winter weather.

Operating income from our metals recycling operations decreased by $2 million compared to the fourth quarter.

The decrease was directly related to costs associated with building damages from excessive snow accumulation, again weather-related.

Operationally, ferrous shipments and metal spread were generally flat, while non-ferrous shipments increased and metal spread improved.

Fabrication is the bright spot.

Demand continues to strengthen.

From a seasonal perspective, shipments were reduced slightly, but operating income actually improved to $3.1 million in the quarter, a notable improvement over previous quarters.

From an income tax perspective, more an administrative item, I just wanted to point out that the first quarter effective tax rate included a benefit of approximately $0.01 per diluted share.

Toward the end of March, Indiana decreased its corporate income tax rate, which resulted in us reducing our deferred income tax liability.

Regarding first quarter 2014 capital allocation, we utilized $27 million of cash and operations, compared to generating $66 million in the fourth quarter of 2013.

Working capital required an additional $120 million this quarter.

An increase of $89 million in accounts receivable with the primary use of funds.

The quality of our customer accounts remain high.

The increase is a function of sales timing during the quarter and increased product pricing.

It is not from aging accounts.

We also distributed the Company's annual profit-sharing allocation to employees in March.

This totaled $23 million.

Going forward, we would expect working capital to be a source of funding for the second quarter of 2014.

Liquidity remains strong.

At March 31, our liquidity totaled $1.4 billion.

This includes available cash of $343 million, and a benefit of our unused revolving credit facility of $1.1 billion.

Our credit metrics are also very good, and well within any covenant requirements.

At the end of the quarter, total debt was $2.1 billion, with minimal secured borrowings of just over 15% of our outstanding.

Our net debt was $1.8 billion, with trailing 12 month adjusted EBITDA of $643 million, resulting in net debt leverage of 2.8 times, which is below our preference of 3 times through the cycle.

Current maturities of long-term debt were $344 million at March 31.

Included in this amount are the convertible senior notes of $288 million that matured June 15.

16.8 million shares underlie the notes, with an expected conversion price of $17.10.

Our stock price has been trading well above this amount.

Our balance sheet continues to be very strong, based on our low-cost, highly variable operating platforms, which provide robust through-cycle cash flow.

Our capital structure has both the flexibility to sustain current operations and support future growth.

To conclude, I will provide the sub-categories for those tracking our sheet shipments for the first quarter of 2014.

[Powell] coiled shipments were 263,000 tons.

P&O, 87,000 tons.

Cold-rolled coil, 32,000 tons.

Hot-rolled/galvanized, 106,000 tons.

Cold-rolled/galvanized, 41,000 tons.

Painted products, 101,000 tons.

And finally, Galvalume, with 10,000 tons, for a total of 642,000 tons of shipments in the first quarter.

Mark, I would like to turn it back to you now.

Thank you, Teresa.

We will begin with safety, which is the absolute highest priority for me, for each employee, and for our families.

And simply said, our goal for all our employees is to work each day incident-free.

Even though our results are better than industry averages, there's more to be done, and we are making progress.

Our continued focus on safety is affecting positive change.

Many of the teams achieved zero recordable incidents in the first quarter.

My personal congratulations and thanks to those teams.

A zero-incident environment is definitely achievable, and so to our team, I challenge you to that goal, and keep up the great work.

And I look forward to more improvement throughout the year.

I also want to take a second to recognize and thank a vast majority of our employees throughout the different business segments to work effectively, and most importantly, safely, through the extreme cold temperatures and inclement weather conditions that occurred this quarter.

And especially the men and women in Minnesota.

They truly lived through a brutal winter, and I thank you.

So it's not news that the winter was tough.

Not just for the metals industry, but for the broader economy as well.

Extreme temperatures and record snowfall hindered movement and consumer activities.

Delays and cancellations for both rail and truck transportation were prevalent.

[Signaling], equipment froze, major highway, secondary roads experienced closures.

Basically, transportation was a mess, and led to the interruption of delivering of supplies and raw materials and shipment of product.

Furthermore, energy costs went through the roof, with both gas and power curtailments.

Consumers stayed at home; building sites were shut down.

So I think it is no surprise, in all honesty, that numerous key economic indicators were negatively impacted, and consumer sentiment declined.

As I look out the window, the sun is shining, and I believe spring has finally sprung.

Our earlier belief that the market softness was related to severe weather, and to a temporary spike in imports, and not through an underlying structural change in growth or demand, seems to be confirmed as market indicators have improved, consumer sentiment is rising, and most importantly, our order book has strengthened on all fronts.

We are confident that the broader US economy will continue to improve.

Non-service sector growth should grow at a higher rate than overall GDP, especially over the next three to five years, based on strength and asset values, domestic energy investment, and the need for increased infrastructure spending.

As you look around, for example, as things thawed, March automotive sales were at their highest level since May 2007.

Expected build rate for the year is 16.5 million units, continuing to grow to 17.5 million units by 2016.

Energy remains a bright spot for the US in general, and for the steel industry, as it is a major consumer pipe and [sheet] products.

Energy growth would also require major infrastructure investment for natural gas and liquids transportation.

Construction spending helped steady a gain for the third consecutive month, with February 2014 results exceeding 2013 by 8%.

2014's February year to date residential spending is up 6% from 2013, which is especially strong when you know the weather challenges.

In addition, the architectural billings index also improved in February, and picked up.

We will benefit from this growth, especially as construction improves, which also benefits all our businesses.

With the inclusion of the full capacity for our recent SBQ expansion, we have annual steel shipping capability of 7.8 million tons today.

Our record shipments of 6.1 million tons was achieved last year, so we still have 1.7 million tons of steel to ship, the majority of which is tied to construction markets, giving Steel Dynamics meaningful leverage to the residential and nonresidential construction recovery.

As steel demand increases this year, demand for ferrous scrap will also improve, benefiting our metals recycling operations.

And finally, our fabrication operations also have a significant amount of production capability that has remained unused due to demand.

As a reflection of our confidence in SDI's current and future strength of cash flow generation, and our financial position, our Board of Directors increased our quarterly cash dividend by 5% for the first quarter.

As Teresa mentioned, our steel operations experienced some significant challenges during the first quarter.

Production utilization decreased slightly to 86%, compared to 88% in the fourth quarter.

But we feel this reduction was not demand-related, but was caused by power company curtailments.

Without these, utilization would've been comparable quarter over quarter.

As a function of the extreme winter environment, spot electricity and natural gas cost skyrocketed.

Most energy suppliers utilized their interruptible hours, causing increased costs, and in certain circumstances, lost production.

We used the unplanned downtime for maintenance where we could, and the Flat Roll and Structural and Rail divisions were the most significantly impacted.

First-quarter Flat Roll Division shipments were down 13% sequentially, and this is not surprising.

The end markets predominantly consuming these products also experienced weather-related issues, both in consumption and logistics.

The good news, we saw steady improvement in our order books in March, even before the recent tightness in domestic supply.

Shipments were only slightly lower for the Structural and Rail division, but higher energy costs significantly reduced earnings.

Otherwise, we are seeing improved stable demand for wide-flange beams, and ended the quarter with a good order backlog.

We are very excited to announce the completion of our expansion into premium rail.

We are the only producer now of 320-foot standard in [headhon] rail in North America.

We are currently in the qualification process for our premium rail with North American Class One railroads.

Further limited production runs are scheduled for the second quarter of 2014.

Full production ramp-up will continue through 2014 and into 2015.

We're aligned to be the preeminent supplier, based both on quality and value.

Our capability to produce longer length rail that can be further welded into 1,600-foot lengths significantly reduces both installation and maintenance cost for our rail consumers.

Our Engineered Bar Products division performed well in the quarter.

Shipments increased 17%.

The SBQ market continued to strengthen.

Our customers are gaining confidence in growth, and we are seeing increased stable demand.

The introduction of increased automotive and truck customers, combined with strong forger demand, has improved our order activity.

At the end of March, our order backlog was stronger than it's been in almost two years, and timing couldn't be better.

Because again, great news, the team shipped prime product from the new SBQ rolling mill expansion.

Further commission of this will be completed through the end of the second quarter.

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

Moving to metals recycling, the quarter continued to be a challenge for the industry.

Compared to the fourth quarter, the slight decrease in profitability was related to building damage caused by excessive snow accumulation.

External ferrous shipments and metal spread decreased in the first quarter, as transportation hindered volume, and pricing declined in February and March.

[Tread] over-capacity and weakened demand for exports continues to cause domestic scrap market volatility.

Nonferrous volumes and metal spreads were somewhat improved, although the markets were quite frosty in the quarter.

As mentioned in the press release, our Minnesota operations certainly didn't escape the impact of the cold.

I believe they had 70 consecutive days of sub-zero temperatures, not a conducive environment for trials.

We took a two-week hedge to escape extraordinarily high natural gas prices.

And we also didn't receive raw material that was necessary for testing until mid-April, because of the transportation delays on the Great Lakes.

All that said, the learning curve was steep, and we were able to make meaningful progress during the quarter.

Production rates and plant availability results confirmed the Nugget's plant ability to produce in excess of 30,000 metric tons per month.

Our primary focus has been, and continues to be, on product yield improvement and production cost.

And on both these fronts, we have made progress.

We plan to complete the remaining tests, and our assessment of the process, in the second quarter.

Positive momentum continues for our fabrication business.

First-quarter orders were of the magnitude typically seen in the construction-intense summer months, rather than in the slow winter timeframe.

Our March backlog is meaningfully higher than March of last year.

Steel Joist Institute is forecasting 8% to 10% growth in 2014, and we are very optimistic that that will be accomplished.

Both as a function of demand improvement and the benefit of our broadened geographic footprint, we should benefit quite well.

The steady increase in fabrication and wide-flange beam orders gives us confidence that the nonresidential construction is definitely in recovery.

Driven to maintain a sustainable differentiated business, we are focusing 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 in challenging market environments.

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

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

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

I thank each of them for their hard work and dedication, and to remind them, safety is the first priority, always.

Again, thank you for your time.

And Melissa, I would like to open the call for questions.

Thank you.

(Operator Instructions)

Sal Tharani with Goldman Sachs.

Good morning, Mark, Theresa and Dick, and everybody.

(multiple speakers) Thanks for being on the line first.

Thank you.

A couple of questions on Mesabi.

You mentioned the weather, and obviously, the project is in northern Minnesota, which obviously gets colder.

Of course, there is no question that it was worse winter than we have seen in many years.

Is this -- did this stop you from doing your changes that you wanted to do, or the trials you wanted to run, to make sure that process improves?

Or is it impacting your -- if this process was running regularly, fine, would that be an issue going forward, also, if weather gets worse?

Or was it just because you weren't able to run those special trials because of the weather?

I think, from a standpoint of availability of the plant to produce, I think the team did a marvelous job.

It did drop off a little bit compared to summer months.

But each winter, I think the team learns, and slowly improves, and closes certain things, and that will just continue to improve.

I can't say, though, that weather didn't impact the availability of the plant, but that will improve, and can be eliminated, I think, going forward.

I think the weather did delay the trials.

Again, we shut down for a couple of weeks.

Natural gas cost, which is prohibitive.

It would have been nonsensical for us to continue to run at that moment in time.

So that obviously delayed things a little.

And certain raw materials that we want to trial, we just couldn't get them to the plant.

Obviously, the lake conditions remain pretty severe.

Lake Superior is -- I think has still got 90% ice coverage up there.

And so that is going to continue to give some protracted problems, I think, to a variety of different companies.

But it's just a matter of getting the raw materials up there.

The mills turn to rail to get pellets to their plants, and they wield a bigger stick than we do.

And so certain raw materials just didn't get there until mid-April.

They are arriving.

And the trials -- the definitive trials that we outlined in the past will be completed, we think, in the next two to three weeks.

When you mention raw material, isn't iron ore coming from the Magnetation joint venture, which is very close by?

Is there some other raw materials we shouldn't get on the -- from -- through the Great Lakes?

Yes, the iron concentrate for mining resources is -- hasn't been a problem.

There are other raw materials that were fluxes, different fluxes, and binders that we have been trialing, or want to trial, to reduce the operating cost.

Got it.

That is very hopeful.

But I think the learning curve has, as I said, been very, very steep.

I am more than confident that plant availability can be in excess of 85%.

They have proven it time and time again.

We are confident that we can get to 30,000 tons, or slightly more, per month.

We don't feel that is a problem.

The recent trials have certainly reduced the [fines] generation, which has been a focus.

And I think we see an opportunity for the cash cost structure to be in the range of other projects being constructed in the country today.

Again, we need to verify that, and be sure that, with the trials we have planned in the next two, three, four weeks.

And the (multiple speakers) -- the other thing I have is that your operating income in the omni-source was $9.5 million, which was mostly offset by Mesabi Nugget's $8.9 million.

I am just wondering, do you still have a loss of $11 million in the metals recycling?

Or was it strictly IDI, which was a big component of that $11 million loss?

No, Sal, actually, you are mixing apples and oranges a bit.

The $8 million that you are referring to for Minnesota that we have in the press release, that is a net of tax number.

And the other numbers you are talking about are operating numbers.

So you can't combine the two.

Because if you are looking at it from the operating level, you have to also include the portion of losses that are not ours, because it is a joint venture.

Okay.

And was IDI profitable?

Yes, it was.

Right.

Thank you very much.

I will get back in the queue.

You are welcome.

Dave Katz with JPMorgan.

Good morning.

Hope you are doing well.

Looking at the order backlog, you made several repeated mentions of it being strong, stronger than it has been in nearly two years.

So can one look at that and then conclude the absence, the expansions that you guys have completed, that volume will be reasonably up, compared to the past two years' second quarters?

Don't forget the -- and I think I tried to articulate this.

The SBQ expansion did ship some prime material just before the end of the quarter, as advertised.

They are going to continue to commission and fine-tune the process there.

So I wouldn't anticipate meaningful volume, right, Dick?

In the second quarter.

But then in the third and fourth quarter, that will start ramping up.

Similarly for rail, they did ship some material.

Prime head‐hardened rail that has gone on to the Class 1 railroads for their final approval.

And so that is going to be a commissioning trial for the next few months, I would think.

Right?

That is correct.

When you were talking backlogs, we talk about backlog strength.

It's a -- the -- how far it gets pushed out, not necessarily the volume increase, because when you are sold out, you are sold out.

And so when we talk about the commissioning of the number Two Mill, or what we are calling it, the 14 inch mill down in Pittsboro, and we are only rolling, let's say, 2,000 tons a month on it right now, and commissioning different products on it.

And when you have a mill that is shipping 55,000 to 60,000 tons a month, adding 2,000 tons to it doesn't add a tremendous amount of volume.

And I think we get to, by the end of the year, if we get up to 16,000 tons a month, that is not a tremendous amount of volume being added to it, but it is extra volume.

Again, with rail, we are adding the premium rail to it, but it is displacing standard rail.

So it's, again, the strengthening of the margin, but it's not necessarily strengthening the order book.

Our shipments, there, though, have been improving.

We definitely are improving over the first quarter, because of the weather and so forth.

We had, I think, our second-heaviest shipping month in the month of March at Columbia City versus the history, going all the way back to 2007.

So the market in whole, from those beams as well, now they have the additional product of rail to ship versus then, but these are improving there, too.

But we still have a ways to go to fill out Roanoke, because of the commercial products that we make there.

It is still a bit weak.

But Steel West Virginia is full.

Again, backlog is strengthening there, but that is extending, not necessarily more volume coming out of the mill.

Okay.

And then, with regard to capital expenditures, on the previous conference call, you guided to expenditures in all of 2014 of $125 million to $150 million, and about $30 million of that was CapEx that was going to be carried over into first quarter.

It did not look like that occurred, so I was hoping for a little more clarity there?

Certainly.

I still expect CapEx to be in that same range for the year.

Some of the CapEx related to the carryover, it will just be set in the second quarter rather than the first quarter, and that just has to do with how far along we make the payments when we are completing projects.

Sometimes -- even if the project is completed, we expend the payments beyond that.

Okay.

And at that time, you had also said that you though it could be more, because that was a historically relatively low number, reflecting a lack of specifically identified growth projects.

By saying that, you still expect it to be $125 million to $150 million.

Is that an indication that you haven't identified any additional growth projects that you are definitively going forward with at this point?

I would say that we have certainly identified potential growth opportunities.

We haven't pressed the trigger on any one of them, at this moment in time.

And when would you anticipate having some additional clarity into those?

In the future.

(laughter) I don't mean to be coy, but we have never had a habit to preempt our potential growth opportunities until we actually want to go forward, and they are approved.

Okay, I will wait until the future then.

Thank you.

Evan Kurtz with Morgan Stanley.

Hey good morning Mark, Dick and Theresa.

Hope you're doing well.

I just wanted to try to get a sense of how well-positioned you are going into the second quarter.

We all see that a lot of your flat roll competitors in the Midwest are dealing with lack of iron ore, and a couple specific mill issues.

And is Butler going to run full through the second quarter?

Do have any maintenance you need to take there?

How have you been able to capture some of that share that is hanging out there?

I think the -- let me take a crack at -- just go through our platforms, and then have Dick correct me or fill in the color.

But at Butler, we have a very, very strong order book.

As we have always said, we tend to maintain lead times to a four-week cycle.

For Hot Band, it is probably six weeks to -- for value add.

And we are there today.

As we typically do, [maybe] next week, we are likely to open the order book back up for June.

So hopefully, the -- we can leverage the uptick in the market to a small degree.

There certainly is tightness, and there is a lot of press regarding shortages of iron ore and constraints on the integrated side.

But I think beyond that, as I said earlier, we still see growth in demand.

And I don't think people necessarily anticipate -- recognize how bad the weather has impacted the economy in the country.

The flat rolled, I think it is seeing, obviously, strength.

Automotive is still very strong.

People were a little concerned with the inventory build in January and February.

But when a car is buried in three feet of snow, not many consumers are going to buy a car.

But auto sales, I think, rebounded in March to one of the highest sales since 2007 or thereabouts.

And the predictions are of continued strength in that arena.

Manufacturing is -- seems to be reversed, at least from our viewpoint.

And although the residential indicators for March were a little mixed, we still are confident that, that is rebounding.

And again, I am not so sure why people were somewhat disappointed when the numbers came out yesterday.

There is snow here in -- Monday night?

So we have only seen the sun for about a week or so.

So it's going to take a little bit more time for people to get into the field and starting bringing up homes.

But we see good order profile coming into Butler, HVAC [studs], raised garage door panel business.

In structural, the market, I think, is very stable.

There's been some price appreciation over recent weeks, andI think that is certainly going to be sustained.

And again, when you link our visibility from the incremental increase in beam demand, and I will let Chris fill you in on the joist demand.

But we see nonresidential construction certainly continuing to turn up.

And then with rail, obviously the railroads, major railroads, have large expansion plans, large capital expenditures outlined for the next few years.

And we see that to be a growing and good market for us, particularly with the rail -- premium rail coming up.

Engineered bar, they were the beneficiary, I think, the end of last year.

That we have picked up market share is -- perhaps there are some other supply delivery issues within the industry.

But come January, February, and March, we are certainly seeing real demand growth there.

And we are very, very confident that, that mill is going to be running quite well in the months and quarters ahead.

Dick mentioned Steel West Virginia.

They obviously are quite dependent on the truck and tractor trailer business.

And that business is anticipated to grow.

And as Tim, who runs that place, told me yesterday, normally, the year starts slow for him and ends with a roar.

And he said it has already started with a roar.

So I think there is a lot of freight moving.

And again, that is a good signal for an improving economy.

Thanks for all that color on demand.

And just on plant availability.

Is Butler caught up for now, or do you have any big outages planned there?

I will throw the color in on that, because only market everything correctly, that from an availability standpoint, we did have maintenance outages scheduled there, but we decided to push those off, because we can.

We had a four-day outage planned here, our spring outage.

That was going to occur here in the second quarter.

We have decided to push that into the third quarter, because we can.

We had an upgrade outage planned for June in Jeffersonville that -- for a speed increase and so forth for our Galvalume coating line.

We're going to push that into July, so that we have the opportunity to be a bigger player in the marketplace, because of some of the curtailments that are going on in the flat rolled arena.

So we figured we could make our products available.

And some of it is because of issues going on.

We have to -- we are going to step up and help our sister division in Pittsburgh, The Techs, where as they reach out and gain much of their supply -- most of their supply, normally, from the marketplace.

And with the tightening going on, this way, we will now supply a bigger portion that we normally would.

We will do it ourself from the Butler plant.

And by taking the outages into the next quarter, give the marketplace a chance to recover from some of these issues that it is currently seeing itself.

And we have already -- from the other plants, we went through our maintenance outage at Columbia City, and everything is running well their.

And so that is up to snuff.

We have a small furnace outage going to occur in May in Pittsboro, but the customers won't see that, because we have a good billet supply.

And we're currently going through a maintenance outage in Roanoke.

But when Nick comes back, again, we're -- we ship mostly out of inventory there.

So customers won't have any issues.

And again, West Virginia had theirs in the fall.

So there are no issues at Steel Dynamics.

Very strong and healthy.

As I mentioned earlier, we get a -- I think a good visibility into where the construction arena or market sell through on [New Millennium].

So Russ, would you just fill in?

Sure, Mark.

As you and Theresa have already noted, the joist market has continued its steady pattern of growth recently.

I think some historical perspective on recent industry trends is important.

To give some color, between 2009 and 2013, typical fourth-quarter sales increased, in total, by about approximately 50%.

Typical bookings, 2013, 50% higher than 2009.

The rate of change increased in 2014.

Fourth-quarter 2014 bookings were 25% higher than fourth quarter 2013.

To the least, that has been a very impactful change for the industry.

The trend has continued the first quarter of 2014.

Industry bookings were up over 7% year-over-year.

As far as short-term indicators going forward, our current quote activity remains at or above the levels that have supported that recent increase in demand, and our longer-term indicators like the ABI and the like, are still positive.

That is about as good as our crystal ball gets, as far as the industry goes.

I would say as far as New Millennium goes, the crystal ball is clear.

We are very excited with the direction the industry is heading.

Given the retooling we have undergone over the last five years, and the expansion in the capacity in new markets, we have opportunities to do exciting things this year and beyond.

Thanks Russ.

And just to clarify, did you say that the first quarter 2014 was 25% higher than your backlogs in first quarter of 2013?

Is that right?

I was speaking to industry bookings just in general.

I apologize if I wasn't clear.

Fourth quarter 2013 -- or fourth quarter 2013 was 25 -- I am sorry.

The fourth quarter 2013 was 50% higher than fourth quarter 2009.

Got you.

Okay.

Great.

Thanks for all the color, guys.

Thank you.

Nathan Littlewood with Credit Suisse Group.

Good morning, guys, and thanks for the opportunity.

I just had a couple more questions on this whole market share opportunity.

We noticed that your days in inventory has increased from a two-year average of about 65 up to 73.

So clearly, you were producing a little bit more during the quarter than what you were able to push into the end markets.

And it sounds like that is largely transport-related.

I was just wondering if you could talk a little bit about the composition of that inventory, in terms of where it is, what type of product it is.

Is there anything unusual about the split of that material?

I will take that, Nathan.

This is Theresa.

The inventory finish goods and [whip] were increased was specifically at the Flat Roll Division and at the Structural and Rail Division.

And it was specifically related to not being able to get transport out from the mills to the customer.

So it is already basically sold; it just needed to be transported.

So I can't -- I won't break down the specifics about the individual products, but it really was really the flat roll and structural.

Got it, okay.

And with the Butler operation specifically, just to confirm your earlier comments, that thing is basically running flat out at the moment?

Is that correct?

There's no opportunity to increase utilization?

That is correct.

Okay.

And when you look at the sales for Butler, can you tell us what the split is there, in terms of contract versus spot tonnage?

None of our business is contract from the standpoint of any fixed price.

We have some arrangements where it's a -- on a cost plus basis.

But I would say it is not a whole bunch.

(multiple speakers) the definition.

It's probably 15% or thereabouts.

Okay.

So I am just wondering, will we see a pretty direct transfer of the recent increases in spot prices created by CRU or Platts or whoever?

Are we going to see that pretty much fully reflected in June quarter average selling prices, do you think?

I would suggest you will.

Yes, okay.

Finally, there is obviously a lot of weather disruption right across the entire business during the March quarter.

I'm just wondering, are any of those events and impacts that you felt, is any of it insurable?

Or could we potentially see a recovery, at some point, of some of these disruptions?

The only part of it that is insurable was a very, very small part.

And that is related to the damage to the buildings because of snow accumulation, and it is a de minimis amount.

Got it.

Okay.

And as you translate the winter impact, as Theresa outlined, we had some inventory build, and so the structural mill and sheet mill will make up some of those shipments, or get some of that inventory out.

So that is recoverable, but much of the impact, to us, anyway, was on the cost side.

Natural gas and power.

And obviously, that is not recoverable.

So as you look forward, if you are looking first quarter, second quarter, is two plus two equals four?

And you think that now, first quarter is one and you are going to get three in Q2, that is not going to be the case.

I think, for the record, both natural gas and electrical power, either by contract or by hedging, we have positions taken.

But no one expected the duration of these experiences to last.

And at every mill, we had the power company step in and exercise interruptions that were part of the agreements we have had.

Where we had no ability to, even buy-through, where we were offered buy-through opportunities, the price was so expensive, it would have been even worse than the losses incurred by not producing on those days.

And so decisions had to be made.

And I can remember one day, when there was a natural gas pipeline explosion in Manitoba, the following day, there was a natural gas curtailment here in Indiana at some of our -- where only the amount of natural gas that we had pre-elected we were allowed to use.

And that curtailed our production in any of the facilities where we have not pre-elected sufficient.

And again, you -- what, under no other circumstances in the history of the Company, had we had to pre-elect sufficient, because we didn't know what you ever were going to be producing.

So these were -- it's like the100 year flood.

We had not anticipated a natural event like this.

Understood.

Now, some of your competitors have been willing to discuss in some detail the actual prices they have been paying for electricity and gas.

Is that something you would be willing to talk about?

So we can maybe have a go at reversing it out, as we look forward into the rest of the year?

Market prices are, I think, pretty publicly available.

Natural gas went $40 per dekatherm at one point in places.

For you to back-calculate or try and guess, it is incredibly difficult, because on the power side, we've got many different contracts.

Columbia City tends to be a market price.

Butler is pretty well on a fixed price.

You've got interruptibility hours, which is difficult to quantify.

Same thing on the natural gas side.

Yes?

Okay, thank you very much.

I appreciate your time.

Nick Jarmoszuk with RBC Capital Markets.

Thanks for taking the question.

First one is on the statement of cash flows.

Could you give us a little detail as to the sources of cash coming from other investing activities?

Certainly.

We had a sale lease-back arrangement with another company, and they elected to buy back that property.

And so that basically was about $27 million, and that is what is running through the cash flow.

And then in 1Q of 2013?

In 1Q of 2013, the amount was $34 million.

And that was simply associated with, we had some investments that were not -- they were not categorized as cash, even though they were short term.

And so that was just bringing those investments back into the cash profile.

So they had to run through the cash flow statement.

Okay.

And then just a follow-up on the energy and natural gas question.

Would you be able to give us a sense as to what the year-over-year increase in energy and natural gas costs were in 1Q 2014 versus 1Q 2013?

I don't have them at my fingertips, here.

I can't answer the question.

I don't have it in front of me.

It was meaningful.

We tended to look at it as first quarter cost, how much higher they were than fourth quarter cost, since you look more on a sequential basis than quarters.

And it was definitely in the tens of millions of dollars impact.

Okay.

That is all I had.

Thank you.

Mark, could I make a clarification before the next question?

Yes, go ahead.

I was talking 2013 and 2014.

I apologize if I confused everyone.

The one caller about joist bookings.

I would just like to restate, between 2009 and 2013, typical fourth-quarter sales increased by approximately 50%.

After that increase came between fourth quarter 2012 and fourth quarter 2013 alone.

The first quarter of 2014, 7% over first quarter of 2013.

Thanks for letting me clarify that.

Brett Levy with Jefferies.

Two questions.

First of all, Pittsboro, as you ramp up here, do you think -- what's the portion of the ramp-up that is market share gain?

And what is the portion of it that was actually just growth in the market?

And -- versus your original expectations.

Do think the ramp-up time will be as quick as you hoped?

Are you talking rail?

Pittsboro.

Pittsboro.

It's Pittsboro, SBQ.

I guess we have based our thoughts and investment premise in that much of that 325,000 tons is going to come from market share.

And I think, if you look at that market, and it is the expansion is focused on 3 5/8 of [Daimler endowed].

That's about 50% of the SBQ engineered market, which is typically 8 million to 10 million tons.

So we're looking to get 325,000 tons of a -- essentially a 4.5 million ton market, which we don't believe is too big a bite of the apple.

Particularly when we have the following that we -- the team in Pittsboro has been able to get.

They have got a very, very high quality product.

They're focused on the high end of the market, the engineered bar as opposed to SBQ, where delivery quality is absolutely imperative.

A lot of that work is -- the material, as it goes through an approval certification process for two and three years.

And so I think with that following, the -- to get 325,000 tons of the market is not too over [bearing].

Yes, I think what, Brett, what you have to think about is, when we start considering the project, it was actually back prior to the drop-off in the marketplace, okay?

And so even when Mark talks about the size of the market, it is not -- in a recession, it is prior to recession.

And therefore it is part of the growth.

But as Mark is pointing out right now, we have had products that have been PPAP-ed, again, through the automotive process and other customers.

We engineered this whole design of the mill to allow us to continue to make those products in smaller sizes for our PPAP-ed customers, the delivery of those.

While we are commissioning the mill, our non-PPAP, non-critical products, we are commissioning the mill on those products now.

And then, we are also now making -- going to begin making those products that will be submitted to the same customers for their qualification process to become PPAP-ed.

And then, when they go through that process and get qualified, then we will begin the transition to allow us to have a choice and the flexibility of being run on either the 16 inch mill or the 14 inch mill, whichever we desire.

So is it part of the rebound into the full-sized market that we originally contemplated when we talked about the market?

Is it -- or are we taking some of the original?

It is really, what you are considering it?

It's the full-sized market, and we are trying to get a small piece of it, the 8% of the small bar market.

But the market was smaller than that in the depths of the recession.

And so yes, it is part of the recovery, but we are taking market of the recovery, but it is also from somebody else.

Right.

Got it.

Okay.

And thank you for a very specific and detailed answer.

I have one more general question.

As you guys look at some of these growth opportunities, are you looking more towards building or buying?

I think as we look at growth, and obviously, I think we are well-positioned to do so.

If you look at our balance sheet and our liquidity, our cash flow, we are in great shape.

And we are committed to growth.

Yes, we did increase our dividend in the first quarter, but I wouldn't want anyone to think that we are changing the philosophy of the Company as a whole.

We are being very specific, and very intentional as to where we grow.

We certainly want to -- not just grow for size, but we want to improve the quality of our margin.

And also perhaps mitigate, or soften a little bit, the cyclicality of our business.

So we are going to -- and are evaluating organic growth opportunities within the Company.

We see some there.

I think we are focused on downstream opportunities.

Our teams are very, very confident at -- in the coating and painting arena.

We feel there is opportunity in rail.

There is considerable expansion in that arena.

If you look at the CapEx spending of the major railroads, the anticipation is, that market is going to grow to about 1.5 million, maybe 1.6 million tons of rail per year.

The market has typically been in the 800,000 to 1.2 million tons per year.

So we're looking at possibilities there.

I think our preference would be not to add capacity to the marketplace.

I do believe that there will be opportunities over the next 12 to 18 months, where companies are reevaluating their portfolios and seeing what -- which businesses accord to their particular -- their vision.

And those opportunities, I think, will come to market.

And we are in a great position to assess them as they do.

Thanks very much.

Brian Yu with Citi.

Great, thanks, and good morning.

I think Dick, you mentioned earlier, with Techs, that you were going to ship some material substrate from Butler over there to displace, I believe, Mon Valley has been the more or less exclusive supplier?

Can you elaborate on why the supply there is coming down?

Because I didn't think Mon Valley was part of some of the disruptions we have heard.

And how many tons are you going to ship from Butler?

Is there a meaningful margin impact?

No, I didn't mean to imply that they are having any problems at Mon Valley.

Mon Valley supplies about half of the tons that we consume at The Techs, and the rest of it is out in the open market.

And needless to say, Sparrows Point was the major -- the second major supplier to The Techs, when Sparrows Point was around.

And ever since the demise of Sparrows Point, The Techs have had to go shopping further away.

And it's only because of that, then, the shipping costs have become more of an acceptable condition with Butler.

And we have other good suppliers; I'm not saying we don't.

But with the impact of the general flat roll market, everyone is reconsidering.

And when there is a tightness in the flat roll market, all customers, of whoever is having difficulties, go shopping to their other suppliers asking for more tons.

And therefore, then there is more pricing pressure on all the suppliers, and The Techs have a harder time, price-wise, with all those other suppliers.

And therefore, that makes our shipping rate even less of an issue.

So that's what I was trying to imply.

It had nothing to do with the Mon Valley capability.

They are standup guys, and they have always -- we have been a great partner with them there.

So I did not mean to imply anything whatsoever with US Steel Mon Valley.

I'm sorry.

Okay.

(multiple speakers)

But I think the other issue, or consideration, is that the -- Dick and his team in Butler has done an absolute phenomenal job over the last two or three years, and the capacity of that mill is grown from 2.4 million tons up to in excess of 3 million tons.

A lot of that was -- that expansion was going to be sold as Hot Band, because of the limitation on the coal reversing mill, to convert it to cold roll and downstream.

(multiple speakers)

Consistent with the innovative spirit, the guys have just recently -- two or three months ago, Dick?

Came up with a way of dramatically increasing the throughput for the coal reversing mill.

So that allows us to convert some of that Hot Band to cold rolled substrate that can be shipped to The Techs.

So it has given Butler greater flexibility, because they ship material to The Techs, or they ship it into the open market.

It is an opportunity, in all honesty, for margin expansion, not margin contraction.

Okay.

Second question, scrap markets, you mentioned earlier, in Q1, export scrap demand was weak.

We saw some supply disruptions.

Can you talk about what is happening now, in terms of, if both those elements, export, demand scrap supply, shredder capacity.

Is it getting better, as we look out into the second quarter?

Brian, this is Russ.

I think on the export side, we have not seen a market difference in where we were at in the first quarter.

It is still somewhat muted.

There have been some additional cargoes off the coast, but it is not near the levels it has been in past years, at least at this point in time.

Who is to say what will happen with the disruptions in the Russian market, if that has any impact on availability of either billets or scrap.

But I think the export market is still lagging where it has been in years past.

So I think from that standpoint, I don't see that having a dramatic impact in the short-term.

(multiple speakers) And then the supply?

Overall supply side?

There is plenty of scrap available.

And unfortunately, a lot of it has been buried in the snow up in this part of the world for the last three months.

But as the weather warms up, and -- the scrap is out there.

It is available, particularly in the prime side, where you see the automotives really growing, or continue to be robust.

So that prime scrap has continued to flow.

The obsoletes, the stuff that has to go be collected in the fields, has been a little bit of a slower grade, but I think that will come back as it weather arrives, again.

There is plenty of obsolete -- plenty of scrap in the US; it is just a matter of -- a function of whether it is available, or what its availability is via the weather, or what it is -- what the prices that will attract it to the marketplace.

Okay, thank you.

Matt Murphy with UBS.

Morning.

I saw the number of steel-makers had been down in Washington.

I think Dick went for you guys.

And I'm just wondering if you can provide any color on the reception you got there?

And what your next concern is?

Is it infrastructure funding?

Or how concerned are you about the potential for imports, given we've got prices rallying here in the US?

I would just say that I think, from the Steel Caucus, from the House, was a very warm reception.

But you would expect that from the Steel Caucus group.

Because they are at least tuned in to our plight.

It's a matter of expanding that warm reception to those who don't necessarily have steel producers in their home districts.

But in talking to others, as our congressmen took me around and gave me some introductions, I think it was at least a pleasant visit that I had the opportunity to participate in.

Again, I think the best word that we got from trade groups and so forth -- yes.

My secretary was at -- it was preliminary rulings that they were still gathering information.

We didn't really understand why the rulings were what they were, when they were -- they seem to be an unfavorable ruling, and yet they justify it with the fact that they had not had enough information.

They said that, then you could have ruled the other direction, giving a more favorable preliminary ruling, and still gathered information and sent other signals, but it is what it is.

So everyone is still anticipating the final decrees that come out.

And so I think there are still opportunities and reasons to be optimistic about both the oil country tubular goods, as well as rebar.

So -- and then there are other products out there that we have to be vigilant about.

Colored galvanize products, painted products, like gauge particular.

And so there is an interesting times that we still need to be participating with -- products.

So --

Our general take is that imports will continue to be a bit of a headwind.

And once the domestic global spread gets up to that $125, $150 a ton, they start getting attractive -- or some interest.

But I think the first couple months of the year indicative of the level that is going to be sustained the whole year?

Or is it going to be a similar year to 2012 and 2013, where we seemed to get a couple spikes each year.

And it just so happens that the first spike was at the very beginning.

And I guess I would suggest, at least historically, obviously, there has been global over-capacity for a long time, and threat of imports of unfairly traded imports has been there for years.

It's not a new phenomenon.

And if you look typically, 2013, 2012, imports are around about 29 million, 30 million tons, which seems to be a normalized level.

They tend, as a percentage of apparent consumption -- it's in the 20 -- year in, year out, it is around about 21%, 22%, maybe 23%.

And I don't see why there is anything to drive a major dislocation in 2014.

That is helpful, thanks.

Phil Gibbs with KeyBanc Capital Markets.

Good morning, thanks for taking my call.

Good morning, Phil.

Had a question on just the SBQ volume ramp for Dick.

Any way we should be thinking about that, as we move through this year, as to what your expectations are on the new rolling mill?

I actually would tell you no, that this year, that's -- again, this is going to be small tons.

Because we are really working on a high-quality -- as I said, it starts with 2,000 tons, and by the end of the year, I really honestly believe it gets up to about 16,000 tons at the end of the year, per month.

And that is not too big of a number of tons.

And most of it is going to be on the lower end of the quality spectrum, because it is still going to be trials.

But the sizing mill is not going to be coming into play here until the end of this month, the end of June.

And again, we are going to be experimenting with that.

We are going to be going through the PPAP process of sending those products to the customers.

We won't get approval on that, probably, even -- in the gist of this year.

And so -- because that is a very demanding process.

And so I wouldn't be thinking about major margins on those products.

But I think, for us, it is really a 2015 excitement, and a big investment for us.

(multiple speakers) I think that the margin change is not going to be there.

On a volume basis, if you look at the mill, A, you're going to have growth in the market, because last year was a tough time for SBQ and engineered bar.

Plus, you've got the additional smaller diameter.

So overall volumes, I think, quite likely, could be up dramatically.

Okay, and if I could just squeeze another one here for Theresa.

The corporate eliminations, they were high in the fourth quarter.

I think we talked about that on the last call.

This quarter, they were low.

Some of that probably due to the sequential change in the profitability.

But just wondering, how we should be thinking about that?

Because it has moved around aggressively the last two quarters.

Thanks.

Certainly.

Yes, so the fourth quarter, Phil, had some additional costs associated with year-end adjustments related to bonuses, et cetera.

And so -- and there was also additional expenses related to an RSU program.

And so going forward, you are probably going to see it more in line with what you have seen in the first quarter.

And I would not expect dramatic changes from that.

Thank you.

Andrew Lange with Morningstar.

Hi, good morning.

Just one quick one for me.

With regard to nonferrous metal recycling, it looks like nonferrous shipments, as a percentage of total scrap shipments, was higher in the first quarter, than it has ever been before, at a little over 16%.

And also, you shipped more nonferrous volume internally in the first quarter than in any full year previously.

Could you provide some color as to what drove these results?

And are these elevated nonferrous shipment volume levels sustainable going forward?

Andrew, this is Russ.

The big impact on the nonferrous shipment level is the ramp-up, and the ramp-up of our joint venture SDI La Farga copper mill.

The bulk of that increase is coming from those shipments as we have finally begun to ramp up and produce on a more elevated basis with that joint venture.

So I think yes, the answer is that on the nonferrous side, those numbers will be sustainable going forward.

Again, part of the percentage difference, also, I would say, on the versus the ferrous, is also due to the fact that the ferrous shipment holdups and the transportation issues slow down some of what we like we could have gotten up on the ferrous site.

Not a huge impact, but it did have some impact on the ferrous shipments.

Okay, and as that JV ramps up, do you expect those figures to even to increase from here?

For internal shipments?

We are planning on it, yes.

Okay, thanks a lot.

David Lipschitz, with CLSA.

Good morning.

Morning.

Two quickies.

First one, and you haven't answered the whole energy question.

Can you tell us in an earnings perspective, what do you think, just in general, all the weather cost you?

Would it have been $0.05, $0.10, $0.15?

What, if you felt like your normal -- where prices were and all that type of stuff, what you think the EPS impact would have been?

David, this is Theresa.

Just from the perspective of the fact that they are definitely estimates, we made the decision that we don't want to disclose that information.

It is a majority of the drivers.

So if you look at our consolidated operating income, and it decreased by, I believe, $25 million or $27 million.

It was a major, major part of that.

And I think steel operations, specifically, decreased $47 million, and it was well more than half of that number.

Okay.

And then my second one is back on the imports.

You talked about the percentage historically.

But if you look at the numbers already, through the licenses, and you look at what it is through the first part of April.

You are running at an import level that is pretty much -- or close to what you saw in 2006, which was the highest level ever of imports.

How do you feel when everything starts to get back online?

The spread has continued to widen, the US versus the world price?

How do you, when US Steel and AK and all them come back online -- or how does that impact the market, with all the imports coming?

Again, it's -- I think it is a question of spread between domestic and foreign pricing.

And markets -- commodity markets have a wonderful way of balancing themselves out.

The domestic price goes up, because of either demand or supply side pressure, makes the importer attractive.

They come in, and as we saw in February of this year, the domestic market turns over a little but.

As I said, if you look at 2012 and you look at 2013, we had two very, very similar spikes.

And they lasted a couple of months.

So the question is, is the February/March, is that a similar trend?

And so we are going to get a spike, things turn over little bit, and they go away, and we will get another one later in the year?

Or is it a prolonged, protracted issue?

I don't know who has got the clear crystal ball.

But I would suggest that we are comfortable that it is not a 2006 crisis.

It is just an ongoing 2012, 2013-type trend.

Okay, thanks.

And again, I think, and perhaps we are more optimistic than most, but we see demand growth.

From our aspect -- or from our viewpoint, we truly see construction is coming back, both on the non-res and the residential side of things, and that is going to continue to drive our market.

Okay, thanks.

Luke McFarlane with Macquarie.

Hello, guys.

I am not sure you mentioned it.

But I was just wondering if the railcar issue that you have been talking about for your shipment delivery has actually resolved itself?

Sorry, what?

Has the railcar issue resolved itself?

It is beginning to.

Again, there are still some backup in some areas.

But I think by and large, I would characterize that it has started to alleviate itself, and we are starting to see those backed-up cars moving and delivered.

And much less interruptions or unavailability of cars for either shipment or from the mills or from the scrap yards.

Okay, cool, and whereabouts are the areas that are still backed up?

Again, don't have visibility across the whole nation, but I know Dave up in Minnesota is still struggling with cars going back and forth through the range.

I had a meeting out in Colorado with just about all the major railroads at a different railroad function, and they said they were, in general, about 85% caught up with their own -- within their own systems.

And they thought it would still take a few months to clean their system out.

And that they actually had resorted, in some cases, to moving things by truck to help their own systems.

I said, so you are the cause of my truck shortages.

So had a chuckle with that.

There you go.

And then just lastly, with the natural gas exposure you've got, have you ever thought about hedging any of that?

Or is that something you might consider in the future?

We actually do hedge a portion of that at each of our steel divisions.

And most of the divisions were hedged to a certain point.

Some of them were exposed, and that is where the additional cost came to bear.

Got it.

All right.

Thanks.

Sal Tharani with Goldman Sachs.

Thank you.

Couple of things.

You mentioned that, if I'm not mistaken, that you're opening the June book next week.

Was it thereabouts?

(multiple speakers)

Yes.

Is that yes?

Yes.

Okay.

How does it look in terms of seeing some tightness?

You think it is going to be filled up very quickly?

Is that your expectations?

Certainly.

We won't know until we open it up.

But when we close the book, they were flooding in at a phenomenal rate.

And I guess, as we see -- or as our sales folks and commercial folks talk to people out there, they're wanting us to open the orders up.

A couple of people may have even suggested that we were delaying, to try and take advantage of the market.

But it actually -- that is not the case.

It is just typical.

Fourth week of the month, we open up the book for the following month.

It's something we have always done.

When will (multiple speakers) --

There seems to be a strong appetite.

When was May filled out, by the way?

(multiple speakers) When was May filled?

When did you close May?

When did we close May?

It depends on what product you are talking about.

Because we still have a little bit of opening in our light gauge galvanized and so forth.

But from a Hot Band and so forth, it's -- we are full.

Okay.

The other thing on rail, Dick, congratulations that you pre-shipped your first premium grade.

Been waiting for it for a long time.

I was just wondering, like in SBQ, there are many grades and shades.

Is there -- are there many grades and shades of the premium rail also?

Or is this a -- are you at the top of the line, where you want to be?

And also, what are your expectations in terms of qualification?

How long does it take, generally, to have the qualification done on premium grades?

Each major railroad has either their own, or they defer to the AREMA specification for premium rail.

And we have made product repeatedly that meets the AREMA specification.

And then, when the railroads have qualifications that are above it, we shoot for the highest one.

The ones that have chemistries that are modifications from the AREMA, not just physical, meaning hardness ones that are different.

Those are ones that we have not been pursuing, because then if you miss it, you have a chemist -- a grade that is a unique.

And then it is hard to downgrade it, and so we have not pursued those.

But the ones that are basically a heat treatment modification, those are ones that we are after.

And we will be sending samples to them for their analysis.

But we are very confident that those will be falling in line.

So we have already, like you said, made a shipment to our -- to the first Class 1 railroad, and expecting feedback from them.

They have had their samples, and they have been satisfied with the samples, and that's why they agreed to take a shipment of welded rail head-hardened product.

And you have given us, in the past, that the size of this market -- rail market, is generally between 900,000 tons to 1.1 million tons, but it's [steady] market.

I was wondering, how much is the hardened rail in there?

It has grown, and continues to grow.

And so I would tell you right now, it is probably 60% of the market.

It used to be the other way around.

It used to be the -- between 25% and 40% of the market, and now it is basically flip-flopped because of the economics of it.

The price of it has come down relative to the standard rail products.

And therefore, people are taking advantage of the lower differential in pricing and then putting it into the -- into applications where before, they found standard rail acceptable.

So they are using it for reducing the maintenance costs in those arenas.

And my assumption is that you can also sell the longer length rails in hardened.

Your equipment is able to do that?

Yes, and that is what we have shipped.

It was a shipment of long rail product.

Okay, great, thank you very much.

Thank you, you are welcome.

Evan Kurtz with Morgan Stanley.

Hello, guys, thanks for the follow-up.

I will keep it brief.

I know you probably have other things to do today.

But just quickly, Theresa, what should we be using for a tax rate, with the new tax rule change in Indiana?

I think, absent the adjustment that we saw in the first quarter, you should probably looking forward at around a 38%.

38%.

Okay, great, thanks guys.

Phil Gibbs with KeyBanc Capital Markets.

Just a last one here for me.

Any view on scrap into May?

Any early read that you could provide there, as to what you see?

Thanks.

Phil, I think the trend is, I think our folks look at it and see it is on the upswing, at least in the short run.

Again, whether that is a prolonged long up direction, it's way too early to tell.

But I think, at least as we look into May, we think the trend is going to be upwards.

Thank you.

That concludes our question-and-answer session.

I would like to turn the call back over to Mr. Millet for any final and closing remarks.

Before I do that, Dick had just one follow-up comment.

Yes, I guess I just wanted to make a clarification.

Earlier, when I was talking about a question -- answering a question on the number Two Mill, the 14 inch mill at Pittsboro, and I was talking about the tonnages.

It was specifically directed towards the tonnages coming from the number Two Mill.

And I said about ramping from 2,000 tons up to about 16,000 tons.

But when you consider this is still April, when you look at the tons in aggregate, that becomes about 70,000 tons, 75,000 tons, plus or minus in the year.

So there are still some significant tons.

I am still trying to downplay the expected margin impact on it.

But Pittsboro as a whole, as we have to remember when we think about year-over-year, last year, we were not running the melt shop, because of softness in the market, during the daylight hours.

Because we didn't have the order book, the backlog wasn't there.

We are running flat out now.

So from the whole plant perspective, we are doing -- we are going to have a couple hundred thousand tons of greater production and shipment.

So I wasn't -- I wanted to make sure everyone understood how excited the whole steel platform is about the improvement in the market, the production, and everything.

I was specifically addressing, I thought, the question.

After I ended the answer, it almost sounded like a downer about Pittsboro.

(laughter)

No, I was only being very specific about the number Two Mill, and I didn't want to raise the expectations of a major participation of that mill on the impact of that financial performance.

So that was my clarification.

Super, thanks, Dick.

I guess just in closing, with the polar vortex behind us, we continue to maintain a positive view moving through 2014 into 2015.

As I said earlier, the residential and nonresidential markets, from our perspective, are recovering, and will allow us to start fully leveraging the 1.7 million tons of latent capacity that we have been unable to use in the past.

As that additional demand does return, obviously, utilization rates will increase across the nation, which should allow margin expansion to occur also.

We mentioned the premium rail and the SBQ expansions.

We are incredibly excited about that, and look forward to them contributing.

We are in great financial shape.

We do have the ability to drill.

We've got great customers.

And most importantly, we have a phenomenal team with a passion to deliver.

So on behalf of that whole team, all 6,000 -- almost 6,800 of us now, I would like to thank you for your time this morning, and your support of our Company.

A special thanks to our loyal customers.

Our team will continue to strive to create value for you.

And as I said, most importantly, to each employee, thank you for your commitment, your passion, and remember to be always safe.

Always.

Thank you.

Thank you.

That concludes our call today.

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