Steel Dynamics Inc (STLD) 2014 Q4 法說會逐字稿

Welcome to the Steel Dynamics' fourth-quarter and full-year 2014 earnings conference call.

(Operator Instructions)

Please be advised this call is being recorded today, January 29, 2015, and your participation implies consent to our recording this call.

If you do not agree with these terms, please disconnect.

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

Please go ahead.

Thank you, Kevin.

Good morning, everyone.

Happy New Year.

Welcome to Steel Dynamics' fourth-quarter and full-year 2014 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 our leaders for the Company's operating platforms including Russ Rinn, President and Chief Operating Officer for our Metals Recycling Operations; and Chris Graham, President of our Fabrications Operations; and Dick Teets is on vacation.

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 29, 2015, 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, if 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.

Super.

Thank you, Marlene.

Good morning, everybody.

Thank you for joining us today.

I hope and trust 2015 will be bringing you all health, happiness, and prosperity.

2014 was transformational for Steel Dynamics.

Due to the implementation put in during the several years, both operationally and financially, we are able to execute on organic growth initiatives while also taking advantage of acquisition opportunities.

We strengthened our Company and provided more opportunity for our employees, our customers, and our communities.

Our positioning was rewarded throughout 2014 as we introduced new value-added product capabilities, further diversified our product portfolio and geographic presence, and successfully executed our largest acquisition with the addition of the Columbus Flat Roll mill, which adds approximately 3.4 million tons of hot-roll capacity, bringing our total annual capability to some 11 million tons.

The dedication and hard work across the Steel Dynamics team, and that's all platforms, has certainly been the cornerstone, making 2014 a memorable year.

Despite 2015 beginning with some market instability, we believe our earnings catalysts and underlying market fundamentals support the opportunity for a strong 2015.

Now I'll turn the call over to Theresa for a few comments on our financial results.

And after that, I'll share my thoughts on where I see both the near- and longer-term opportunities for SDI.

Theresa?

Good morning.

Despite the challenges related to excessive steel imports in 2014, we achieved significant growth and solid financial results for the year, remaining the lowest cost, highly efficient steel company and delivering quality products and services to our customers.

We achieved another year of best-in-class performance compared to our peers.

The year was full of record.

We achieve record consolidated revenues of $8.8 billion, 19% higher than prior year; record steel shipments of 7.4 million tons, 20% higher than 2013; record steel fabrication shipments of 481,000 tons; and fabrication operating income of $52 million.

That's almost 7.5 times last year's results.

We also achieved record liquidity levels of $1.6 billion, along with a very strong credit profile.

For the year 2014, excluding the non-cash asset impairment charges recorded in the fourth quarter and the purchase accounting and acquisition costs related to Columbus during the year, adjusted net income was $323 million, or $1.35 per share.

This compares to net income of $189 million, or $0.83 per diluted share in 2013, a 71% improvement over prior year's net income on an adjusted basis.

On the same adjusted basis, 2014 operating income was $612 million, representing a 58% improvement over last year's result.

Including the mentioned charges for an unadjusted basis, 2014 GAAP reported net income was $157 million, or $0.67 per diluted share, and operating income was $320 million.

For the fourth quarter of 2014, and excluding the same items, our adjusted net income was $97 million, or $0.40 per diluted share, within the range of our adjusted guidance of between $0.38 and $0.42.

Our adjusted operating income for the fourth quarter was $195 million.

Describing the adjustments, during the fourth quarter we recorded lower cost or market material -- excuse me.

We recorded lower cost of market raw material inventory adjustments from Minnesota and additional purchase accounting adjustments related to Columbus.

This reduced our gross margin by approximately $18 million, or $0.04 per diluted share.

We don't estimate additional future purchase accounting adjustments.

Based on our purchase price allocation, the price is very close to book value.

And we recorded only $20 million of goodwill related to the Columbus acquisition.

Regarding the fixed asset impairment charge related to our Minnesota operations, their operating performance reached a steady pace in the fourth quarter 2014, indicating a consistency in production, capability, process, and cost structure.

As we indicated in our December 17 guidance release, we intended to perform an assessment of the recoverability of the carrying value of their fixed asset.

We concluded that the carrying value of fixed asset was not fully recoverable when compared to their estimated remaining future and discounted cash flows.

Accordingly we recorded a pretax non-cash fixed asset impairment charge of $260 million in the fourth quarter.

After giving effect to our joint venture ownership percentage, the impact of consolidated results was $213 million pretax or $0.55 per diluted share.

Mark will share further comments regarding the operations in his commentary in a moment.

Fourth quarter 2014 revenues were $2.5 billion, 8% higher than the sequential third quarter.

Our gross margin as a percentage of sales was comparable to the third quarter when taking into consideration purchase accounting and lower cost of market adjustments.

You may also have noted that our interest expense increased $13 million in the quarter.

This related to the September combined [valuation] of $1.2 billion used to fund the Columbus acquisition.

Pertaining to our Steel Operations annual 2014 volumes and metal spread both expanded, annual operating income improved 38% to $706 million excluding purchase accounting.

For the fourth quarter we also achieved record shipments of 2.3 million tons, a 23% improvement over the third quarter when our metal spike contracted.

Scrap raw material prices declined 3% while overall steel prices fell an average of 4%.

Excluding the Columbus purchase accounting charges, fourth quarter operating income for our Steel Operations increased to $224 million in the quarter based on volume improvement.

For Metals Recycling business the environment is still very challenging.

Year-over-year 2014 ferrous and non-ferrous shipments increased but metal spread contracted based on solid commodity prices during the year full year operating income declined 31% to $44 million.

For the fourth quarter both ferrous and non-ferrous shipments decreased and demand and steel demand declined.

Ferrous metal spread contracted due to the over supply of market environment and fourth quarter operating income decreased to $3 million.

On a much different note, our Fabrication Operations excelled in 2014 recording record shipments and record operating income of $52 million or $108 per ton shipped compared to $19 in 2013.

The momentum continued into the fourth quarter, despite seasonality of construction, make it another quarterly record in operating income of $22 million based on record quarterly sales and expanding margins.

Operating income per ton shipped improved from $135 in the third quarter of this year to $159 in the fourth quarter, an 18% improvement.

We continue to see improvements in the underlying non-residential construction demand.

This is good news for everyone.

During the fourth quarter, we had strong cash flow generation of $320 million and for the full year, we reached our second highest annual level of cash flow from operations of $618 million, almost double 2013 annual results.

Annual working capital provided $36 million of funding and $117 million in the fourth quarter based on decreased customer accounts and inventory levels.

2014 capital investments totaled $112 million.

Lower than our typical level of spending as we completed construction of our two larger organic growth projects related to SBQ and premium rail and we focused on the integration of Columbus.

We currently estimate 2015 capital expenditures to be between $150 million and $175 million but this number could increase as we proceed through the year and evaluate new projects.

We also allocated $105 million in cash dividends to our shareholders during 2014.

Our Board of Directors increased our annual cash dividend by 10% in the first quarter of 2013 and another 5% in the first quarter of 2004 evidencing their continued confidence in the strength of our cash generation capability, financial position, and optimism concerning our future.

Throughout market cycles, our operating performance generates strong cash flow from operations based on the low, highly variable cost structure of our operations.

In late November we increased the amount of our senior secured credit facility and extended its maturity to 2019.

We expanded our revolver from $1.1 billion to $1.2 billion and entered a new $250 million term loan.

Subject to certain conditions, we also have the ability to further increase the combined facility size by a minimum of an additional $750 million.

Combined with our strong cash flow performance, the resulting record liquidity at December 31, 2014 was $1.6 billion comprised of our undrawn revolver and $361 million of available cash.

At the end of the year, our net debt was $2.7 billion with trailing 12 month adjusted EBITDA of $1.1 billion including a full year of Columbus.

This results in net leverage of 2.5 times.

A profile already aligned with our preferred through cycle net leverage of less than 3 times.

This is a testament to our disciplined approach to growth creating shareholder value through sound capital allocation and an efficient balance sheet.

Additionally our debt maturity outlook is incredibly flexible.

We don't have any near term meaningful maturities and those in the longer term are well laddered.

We believe that our capital structure and our credit profile has the flexibility to not only sustain current operations but to support additional growth.

Thank you.

Mark?

Super.

Well thank you, Theresa.

I think as I listened to that, we tell our teams that if we execute on our strategy and remain committed, the financial results fall out.

I think it's an incredible testament to our employees as we have 7,700 people now and as a whole -- do we have some challenges in small pockets of our business?

For sure but what an absolutely incredible performance by our guys and girls so thank you to that team.

And again, thanks, Theresa.

The constant [goal] in our Company is safety.

It's an integral part of our culture.

Nothing is more important than creating and maintaining a safe working environment for each and every employee.

Our safety performance continues to be better than industry averages and our overall incident rate continues to decrease, but our goal remains zero safety-incident work environment.

About half of our locations went the entire year without an incident so we know that this high standard is possible, and we're going to be implementing new initiatives this year to continue our drive toward our goal.

Our total steel shipments for the quarter were a record 2.3 million tons.

We achieved annual record shipments from each of our three midwest mills.

Columbus also achieve their highest shipping rate this past year and again, congratulations to all those teams.

It's worth noting despite high imports and if you exclude Columbus shipments, our pre-existing steel mills achieved a record shipment level this year.

Imports as a percentage of domestic consumption increased from 23% in 2013 to 28% in 2014.

Despite this wave of additional material, domestic steel production utilization remained generally unchanged between 77 and 78%.

This depicts the increasing demand for steel and the growing domestic economy.

As US steel companies produce roughly the same amount of steel while domestic consumers are also buying large quantities of foreign products.

While these challenges created a highly competitive market conditions, our employees performed exceptionally well, driving financial metrics that again were at the top of our peer group.

The addition of premium rail to our product portfolio positions us to become the preeminent rail supplier in North America and nearly all the Class I railroads have qualified our premium rail and we are receiving great quality reviews.

And the capability to weld 320-foot length rail versus the conventional 80-foot rail gives us a strong competitive advantage.

It provides our customers with a high quality product that is 75% fewer welds.

This improves their safety by significantly reducing the number of potential failure points.

The longer rails also save our customers money by reducing maintenance costs and installation time.

We continue to believe domestic rail consumption will increase during the next three to five years as both replacement and new rail are required.

Based on railroad investment forecasts, which we believe are still substantially intact despite the recent energy declines.

In addition to what is still needed for the shale industry, the growth in the US economy related to other sectors will still demand new rail investment as well as the continued need for replacement maintenance rail.

We plan to increase our rail shipments alongside this growth and I've told our rail customers that we are committed to this market and are targeting at least 300,000 tons annually.

This enhances our profitability through both product margin expansion as rail elicits a better profit margin than structural steels and also cost compression through increased volume.

Our capital investment was $26 million and continued to expect the project payback will occur within two years.

Rail shipments increased 8% over 2013 as we shipped 220,000 tons of rail.

We expect to see further improvements in both volume and higher proportion of premium rail in 2015.

Commissioning of our Engineered Bar capacity addition is also complete.

The new rolling mill is performing well and producing high-quality product.

We continue to receive positive customer feedback and appreciate our customers continued loyalty and support during our expansion.

We're confident that our trusted customer relationships built on quality and on time delivery will allow us to increase our market share to fully utilize the added 325,000 tons of capacity in the coming years.

The annual domestic SBQ market is generally 8 million to 10 million tons and of that smaller diameter bars represent about 55% so we don't believe our market share expectations are unreasonable.

Our capital investment was $95 million and based on current results, we believe the project payback will occur within two years as we expected.

We shipped 647,000 tons from our Engineered Bar division last year, an increase of over 30% from 2013 levels.

We expect to increase that amount again in 2015 with further improvements in both volume and product mix, based on our increased capacity, anticipated demand and market share growth.

It is also becoming more obvious that acquiring the Columbus Mill was an incredible opportunity for Steel Dynamics Inc.

Creating a single Flat Roll group provides us a platform to fully utilize our core competencies.

Allowing us to develop strong relationships with our existing and new customers, maximizing the logistical benefits, broadening our steel sheet product capabilities through width, gauge and strength diversity but complementing our current product portfolio with further exposure to high growth markets and we also diversify geographically into the southeastern US and Mexican regions.

Leveraging synergies across two highly efficient flat roll steel mills and eight coating lines provides us a unique opportunity to significantly increase value for all our stakeholders.

The fourth quarter is particularly challenging though for Metals Recycling business.

Our overall shipments of both ferrous and non-ferrous materials decreased as did our operating income.

Nonetheless the symbiotic relationship between our recycling operations and steel mills allows us to have lower average input costs as compared to our peers.

Through November, 2014 ferrous scrap exports were about 16% lower than the prior year.

Export scrap levels have actually fallen in the past two consecutive years to volumes significantly lower than recent historical norms.

The continued significant over capacity of shredders particularly in the Southeast and the US compares volatility and continues to constrain margin as processes are all competing for the same material.

Although the ferrous market has remained essentially flat the last few months, the reduced export pressure, additional imports, ample scrap flow and recent softening in mill utilization is causing a substantial supply overhang, with the likely result that the scrap market and [accordingly -- in place] will hit a reset button in February and March and will bring scrap closer to its historical relationship to iron ore.

Regarding Minnesota, Theresa discussed the fourth quarter impairment charge and I'll now update you on the operations.

The team actually has truly made great progress.

During the fourth quarter, their operating performance reached a steady state indicating consistency of production capability.

We still believe the cost structure will automatically be in the $340 to $350 maybe $360 per metric ton range.

In order to do this volumes must reach 32,000 metric tons per month or 360,000 metric tons annually.

During the fourth quarter our average monthly production was just under 28,000 metric tons which is a solid footing I think to further ramp up the volume to that 32,000 metric tons a month.

We also need to install equipment for the iron ore retrieval process.

In the third quarter we described a need to install scavenger equipment to improve yield and that it would be installed in November.

However the equipment was delayed at the ports and we are only now just receiving it.

The plan is to install and commission it before the end of March.

This should bring our cost of line concentrate back to the level established in 2013 which is under $50 per metric ton.

The cost was higher in the second half of 2014 due to the lower recovery rate resulting from finer sized tailings in the current basin, but had we been at the $50 cost level during the fourth quarter and excluding the impairment charge, we would have actually been cash positive.

The good news, we are producing nuggets at a steady pace.

Unfortunately, as a result of steady production, lower steel mill utilization in December and January and transportation issues relative to bringing the nuggets down from Minnesota in the October to November-December period, we've had a overhang of iron nuggets.

So in order to correct the inventory situation and to allow the iron recovery equipment to be installed and commissioned to generate lower cost concentrate, we intend to warm idle the nugget production facility for some six to eight weeks starting at some point during the first quarter.

This will allow us to bring inventory production and costs into better alignment.

After several years of challenge, the Fabrication platform had an absolute blowout year.

Chris and the team did a phenomenal job both financially and operationally.

Our Fabrication Operations hit the trifecta achieve record annual shipments, record operating income of $52 million and the highest ever market share.

Industry utilization continues to improve and it is certainly true for us.

Based on sustainable increased demand and market share improvement we've added production shifts at several of our plants, employing additional people in our communities.

According to the steel joist institute, year-over-year domestic joist shipments increased 21%.

Our annual joist shipments increased over 38%.

The team continues to perform exceedingly well both in market share advancement and leveraging our national footprint.

It is a credit to the foresight and positioning work of the team over the past several years.

Regarding the macroeconomic environment, consumer confidence recently surged to its highest level since 2007 as labor statistics improved and people saw significantly lower prices at the gas pump.

Durable goods and non-residential investment each grew in 2014.

Both key measures concerning continued strength in US steel consumption.

Consumer spending also improved in the quarter.

Forecasts for the two key steel consuming end markets, automotive and construction, remain intact.

Automotive could grow to almost 18 million units over the next couple of years.

Overall construction spending continues to trend favorably.

Despite fourth quarter seasonality, construction spending actually only edged down about 0.3%.

Manufacturing remains solid and our customers are reporting that they remain busy and are forecasting growth through 2015, affirming positive market fundamentals.

That being said we have two current headwinds.

One the deteriorating energy market but more importantly, imports.

Firstly, energy with a growth of shale now comprising, the growth of shale actually makes the OCT Goods consumption around about 10% of our domestic demand.

The sharp drop in oil price, OCTG consumption has fallen in rig count.

Inventory is being reduced throughout the supply chain and imports of both [scalp] and pipe are still in the system.

The associated reduced demand had a marginal effect on the [shipments] of sheet mill is only a small percentage of shipments are energy related.

At Columbus however, approximately 20% of the shipments were related to energy products such as OCTG and line pipe and they are seeing a greater impact.

If you look at us Company-wide, exposure to energy markets approximates 8% in our steel business.

We will further diversify the product mix of Columbus through 2015 and into 2016 so that we can move from market to market to optimize return.

There are many reviews concerning the timeline for recovery and oil prices but the constant is that oil pricing cycles up and down and is inevitable that stronger pricing will return.

It's just a question of when.

Past cycles have demonstrated a return to about 70% of the prior peak after approximately 12 months from that peak, thereby suggesting a recovery beginning in Q2 of this year.

Imports are the second wind, I would suggest are the most important headwind.

While domestic demand remains robust, global economies are battling slow and inconsistent growth resulting in weak global steel consumption.

Global over capacity, strong dollar and low raw material costs have been driving a historically wide price disparity between US and foreign mills and unfair training practice only continued to compound the problem.

Along our receiving with the recent erosion in domestic pricing the large spread drove imports to a peak of 11.4 million tons in Q4 and were a near record 43.1 million tons for the year.

A historical high of 28% of total demand.

The combination seasonally lower demand and elevated imports resulted in increased customer inventories, particularly for our distributors and consequently, decreased selling prices.

We believe this overhang can be resolved during the first quarter 2015 with customers reportedly coming back to the market in strength in March; however this has had a dramatic effect on our order entry, late in the quarter with mills throttling back production to match the respective order books and this has continued into January.

The associated low mill utilization, ample scrap flow, and subdued export market will likely result in a drop in scrap pricing in the coming months.

The anticipation of lower scrap pricing has already helped erode hot band price reduce the spread to levels that will begin to dissipate the attraction of imports; however as the inventory overhang subsides, the underlying market demand will give support to product pricing while scrap trends lower toward historical relationship with iron ore.

As raw material prices decline, the price support will provide opportunity for improved margin.

In short the first quarter may be challenging as the markets find themselves but we believe the fundamentals are supportive of strong economic growth in 2015.

We believe the current global growth expectations combined with global production over capacity will be a headwind to steel pricing for the foreseeable future but as raw material prices reset sharply, there's a margin expansion opportunity.

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

We believe our superior operating and financial performance clearly demonstrates the sustainability of our business model, throughout the market cycle.

We're focused on providing exceptional value to our customers, committing to the highest levels of quality and timeliness, partnering them to create value and deliver what they needed today and anticipating what they are going to be needing tomorrow.

As we look ahead we continue to be optimistic regarding our future.

Columbus is one aspect of our story and our organic growth projects that are beginning to benefit our operations [now] another.

We are being believed we are fully equipped to take advantage of new opportunities that lay ahead.

I resolve to maintain a differentiated growth Company that effectively and efficiently performed through all market environments is unwavering.

We believe our superior operating culture, best-in-class performance throughout the market cycle, and the strength of our financial performance provides clear evidence of the successful business model and our differentiation to our peers.

Our strong character and fortitude of our employees I believe are matched.

The dedication to our customers and passion for excellence compel us to achieve higher standards of performance.

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

So again, thank you, everyone for your time today and Kevin, we would like to open the call up for questions.

Thank you.

(Operator Instructions)

Our first question today is coming from Brett Levy from Jefferies.

Hey, guys.

It sounds like things are kind of slow in January, and maybe slow in February.

Can you give a little detail around that, and just sort of give a sense order book by product, and that sort of thing?

Okay.

Well again, if you look at demand, I think that just as an overview, the strong import level and the fact that mill utilization hasn't really ticked down, I think that it just emphasizes that the underlying market fundamentals, underlying demand is absolutely there.

And as I spend time with our customers, I've been doing a lot of that in the last three weeks, they certainly are busy.

They are confident and they express growth through 2015.

And depending on who you ask, they are looking at a 5% to 10% growth.

Again as we've said before, not a hockey stick but slow incremental growth in demand.

And I think things support that.

And that's supported by growing factory activity.

If you look at the truck-in tonnage volumes, they tend to be -- continue to grow, and almost at record levels.

Manufacturing is solid, automotive is incredibly strong.

And I think importantly non-residential construction, which I again emphasize it's probably 40% of the steel market, continues to show growth.

Fabricators are busy, particularly on the commercial side.

And I think the -- I've said it before, but the visibility of our joist business into that market is a clear signal.

And Chris continues to sort of outperform them.

Chris, do you want to give some color to that?

Yes.

I think that some of the things that we should take note of, our backlog as of December 31, Mark, was the highest year-end backlog in both size and value in our Company's history.

Our customers continue to be bullish regarding demand in 2015.

And in 2015, and as usual I think our team is well positioned to successfully compete for that business.

We see a lot of variety in the type of work we do, which is always good, from small things to big box to institutional.

And indications are that, that will continue.

And I think if you look at the softness into the last quarter going into January and it probably flow into February.

Again I think that it was a combination of strong import level, and that arrived at the distributors and saw it coming through the supply chain in strength at the end of the quarter, just as the little bit of seasonality, the typical winter seasonality, hit.

And so service center inventories have certainly grown.

And that the people took their foot off the order accelerator.

I think people have also been anticipating this drop in scrap.

And so people are -- they're kind of trying to readjust, tighten their inventories.

They are buying currently on an as-needed basis just to fill holes.

And I think as the overhang, that supply overhang, subsides with the good demand, we're starting to see the order rate pick up in the latter part of first quarter into second half.

If you look at our backlogs, and again I don't want to paint an absolutely bleak picture, but Butler, hot band backlogs are around I think three weeks or so.

And finished is around about four.

So we're not in bad shape.

It's just volumes will be off quarter over quarter.

I think Columbus is hit a little bit harder.

They are closer to the import scenario, given their southern proximity.

And they have got a slightly higher energy exposure than Butler.

In total, Columbus' exposure is around about 20%.

And so they're seeing a little greater impact, I think, than the Butler sheet mill.

Mark, again in fabrication, as we discussed on previous calls, it would stand to reason that as we continue to approach more historical norms, we would see the effect of seasonality become more visible again.

We've seen a little bit of seasonality in Indiana and Virginia, yet their backlogs remain at all-times high -- at all-time highs for this time of year.

More positive news would be that while the northern plants have seen a bit of seasonal slowing in order entry, our plants serving the Southeast and Southwest continue to book new work at a pace that bucked any seasonal effect.

And again, our expanded geographic footprint continues to pay dividends, as you mentioned.

Okay, and just a couple other markets.

I guess the truck trailer, material handling markets are strong.

And I think that's a reflection of the large amount of freight being shipped around the country.

In fact the FTR, which puts out estimates for the trailer manufacturer, actually swung.

They revised their negative 6% for 2015 and actually now are at a positive 6%.

So again, I think that, that tends to be positive for our industry, but it's also a signal that the economy really has got good demand out there.

A couple of areas that we do see softness.

Off-road equipment, the -- and mining, the Caterpillars, the John Deeres are a little light.

That's impacted Engineered Bar to a small degree.

And then obviously as I mentioned earlier, energy is affecting us all.

But I think the -- our optimism is that American pricing has eroded.

And its eroded, in all honesty, a little more than you would see from perhaps [plants] and CRU data.

And so whereas in November, December the price disparity between Indiana, or Midwest, delivered pricing and China port pricing was a couple hundred dollars, that is eroding dramatically.

One has to also remember, though, you have freight expense to get it from China to here.

You've got insurance and other things, probably there's a $40 or $50 additional cost to get it to our ports.

And to get it to the Midwest, there's another $40 or $45.

And as I've said before, our Butler mill has a little insulation, more so than perhaps some of our peers that are close to the ports.

So that erosion, or that spread, I think is going to dissipate the attraction of import orders.

And with demand where it is today, I think there's going to be lesser of the change in pricing relative to scrap move.

And then the follow-up is in the context of the weak environment, you guys have a strong balance sheet.

Can you guys talk a little bit about sort of trade cases?

And then also about perhaps what geographies and product areas might be interesting from the standpoint of acquisition?

Well, as far as trade I don't think there's been any dramatic change.

Obviously, there are continued unfair trading practices out there and currency manipulation that is compounding the import pressure.

But the termination of the prior suspension of duties on Russian imports should be a positive for the industry selling for Columbus.

As you know, the Korean OCTG work was successful, and the line pipe filing against Korea and Turkey, they comprise, I think, about 60%, 70% of the imported line pipe, had a sort of positive commentary back in Thanksgiving, around Thanksgiving time.

And we hope that will be successful.

That will be a big case.

That not only impacts the import line pipe, but obviously scalp suppliers such as ourself to that industry.

Work has been done on the corrosion-resistant products, but it remains to be seen, the timing of any action there.

So again, no massive change in the trade picture, at least from my perspective.

Obviously, companies don't always work through the SMA.

They are also do their own things.

So I can't speak for them.

Relative to acquisition, as you can see of late, folks are throttling back some of their facilities, which is helping the industry in general.

The elimination of, or the reduction by [Bilaspur] up in Chicago in the bar front is going to help, I think, our Pittsboro SBQ order book.

And US is rationalizing their facilities.

And I think that's just a sign that everyone is looking inwardly at their portfolios, their asset base and seeing what is core and what is not.

And that will provide opportunity in the months and the year ahead for potential acquisition activity.

Thanks Mark, thanks Theresa.

Thanks, Brett.

Thank you.

Our next question today is coming from Luke Folta from Jefferies.

Hi.

Good morning, everyone.

Hi, Luke.

Just as a follow-up to that, I guess two questions on line pipe.

I think you're selling to some line pipe producers out of Columbus.

Just curious to know if that market is seeing the same sort of weaknesses as we're seeing in OCTG.

And also I recall speaking with you not too long ago about the potential to -- that there could be interesting opportunities maybe in the line pipe business for Steel Dynamics at some point in the future, at least something that had been thought about.

So just any update in terms of your thinking around that would be interesting.

Well, I think the larger line pipe consumers that we supply are -- recognize there's a softness, but they clearly recognize that energy and oil goes down and it comes back up.

And they don't believe there's any paradigm shift that's going to hold oil down for a prolonged period of time.

So longer term, I think they're optimistic.

Obviously, they are drawing back their consumption in the near future.

Recognize that Columbus, as I said, we've got about a 20% exposure there.

In the past that was higher, but we're about 30% into pipe and tube, but some of that, or a good portion of that, is actually sort of water transmission, other types of line pipe not necessarily -- structural, mechanical tubing, those sorts of things.

It's not all energy.

Only 20% of the mill is exposed there.

Relative to, and I'm not clear as to what you were getting at, to be honest, in your second part of the question.

But we have tended to stay away from competing from our customers.

So we're not actively pursuing getting into the ERW line pipe business.

Okay.

Yes, that answers my question.

And secondly, on SBQ, just some energy leverage there as well.

And then you mentioned some weakness on the ag side.

I think that the expectation was that it's throughout the course of this year that you could potentially ramp that mill, the expansion to roughly full.

Is that something that you still think is possible for this year?

I think it's -- I'm not sure I ever said that we would be totally full in 2015.

Perhaps I did, but I think I'm reasonably confident that we can get up to about 75% utilization, which will be meaningful growth year-over-year.

Okay, thank you.

Thank you.

Our next question today is coming from Brian Yu from Citi.

Great, thanks.

Mark, on Columbus, you guys have gotten the energy exposure down [plant].

I think it was actually closer to 40% in the acquisition slide.

Is that 20% level where you guys are comfortable with in terms of over the cycle with the diversification?

That's where you want it, or do you plan to take that lower as you break into new markets?

Okay.

Well, just for clarity, on the acquisition side that referred to 2013 volumes, and that 40% was not just energy.

As I said, it was also water transmission line pipe, structured tubing, that sort of thing.

With the growth in shipments at Columbus over 2014, the total pipe and tube exposure [stopped at] 30%.

And that -- actual total shipments of pipe went up, but because we had much greater volume, the actual percentage, [each] stand at 30%.

And as I said, pure energy, OCTG, energy line pipe remains about 20% today.

And I would suggest that it's probably a good level for us.

But I think they are fully intent on diversifying the product portfolio at Columbus.

And that will allow us to shift from market to market to optimize return, depending on the profitability of the different sectors.

That being said we have no intent of deserting the energy markets.

I wouldn't want anyone to take that away, because that's going to be robust market for us going forward.

The energy downtick, I do believe, is temporary.

It's just a matter of when it returns.

And then second question on the fabrication business, that does seem to be doing well.

Can you give us a sense of how much of that, the business there has in -- locked in pricing?

And the reason why I ask is you -- we are seeing prices coming down on the steel side.

And I'm wondering if you might see some margin expansion there.

And then maybe Part B of that is, how much of that is supplied internally by you guys, so essentially a wash, versus what you purchase externally?

Chris, do you want to hit that?

We would tell you that it's a fairly small portion of our business that's locked in for any length of time.

That approach seems to work best for our customers and for ourselves.

So really negligible, Mark.

If there's opportunity one way or the other, we'll tend to have to work through that quarter-by-quarter basis.

We have work that's kind of locked in for a typical lifecycle, maybe a 12- or 13-week, and we would expect that pricing to remain strong there and not degrade.

We have taken the approach of buying the steel in normalized -- in normal times from the source that best serves that plant's needs as opposed to any subsidies or anything having to talk about buying all internally.

We tend to ask the mill to fill up at what's best for the mill and their customers.

And New Millennium goes out and finds what's best for New Millennium.

Ultimately then what's best for the corporation is the result.

But we do buy a large amount of steel from our sister mills.

Theresa is asking me what percentage.

I'd say 65% is probably inside.

Okay, great.

Thank you.

That fluctuates.

It's been higher and it's been lower.

Thank you.

Our next question today is coming from Jorge Beristain from Deutsche Bank.

Good morning, everybody.

Good morning.

My question, I guess two of them.

Could you just talk a little bit about scrap prices, which appear to be a little bit higher versus published prices?

And if you could just talk about the discrepancy, and again where you see scrap prices going, and by what timing?

Russ?

Jorge, this is Russ.

Scrap prices I think again are impacted by global issues, exchange rates and all those things.

And as we see our customer base in the marketplace, they are all faced with the same issues that our own mills are faced with.

That's a threat of imports that has grown exponentially, and therefore effecting their order book.

At the same time, we don't have the ability -- or the scrap industry has lost the ability, to competitively export because of the strong dollar and [difficult] pricing levels.

So I think as I see the reset button, it's going to have to get to a point where some of those exports come back.

And where it gives our mills, or all the mills, the US mill industry, an opportunity to compete with foreign competition to some degree.

And that's not dollar for dollar, it's not ounce for ounce, but it is just a global market situation.

And again economics, are going to drive it.

And would it be correct, Russ, to think that at the last year or so, iron ore -- iron concentrate has come down very, very dramatically and scrap, because of the export pressure, or not pressure but the export level, has remained a little sticky.

That's correct.

And this is the -- a point of reset where perhaps that ratio gets -- (multiple speakers)

Goes back to normal ratios, that's correct.

Okay, got it.

And just maybe a question for Theresa.

What is the remaining carrying value of the nugget facility at this time?

We actually prefer not to talk about that.

We would tell you that what's left in Minnesota from a carrying value perspective is what we believe is the fair value of the asset, and that includes all three of the facilities.

So can I ask if your write-down equated to 50% of the value?

(Laughter) If I did that, you're smart enough to back into some sort of number, aren't you?

Okay.

All right.

I'll pass, thank you.

Thank you.

Our next question today is coming from Matt Murphy from UBS.

Hi.

Another question just on the internal sales.

On the scrap side, OmniSource provides the scrap to Columbus, right?

Some amount of it, but as we do with all of the mills we supply some amount internally and a significant portion externally.

Okay.

Yes, because I was just looking at intra-company sales, thought they might pick up relative -- at maybe external shipments of scrap going down, but maybe that's just an accounting thing as opposed to an actual cost savings for you guys.

Well just as Chris talked about, it's a market-driven situation.

And again, you're looking -- scrap in large part will flow to its logical freight haul.

Freight is such a big issue of all scrap that again, the distance will make a difference to some degree.

Got it.

Okay, and then just on the effort over time to diversify the product mix at Columbus.

Just wondering if you can give some color on how long that takes, how nimble you can be in the short-term if we see energy destocking continuing to weigh heavily there?

Just my estimate, is Columbus around like 82% capacity utilization right now?

And is there a possibility to improve that, notwithstanding weak energy?

Thanks.

I think, as we stated, that we're confident of diversifying the mix there based on our existing customer relationships.

It's certainly a great deal of room to it to improve on the value-add downstream.

Because I think we also said in the past, that it's not a near term, next week type of deal.

It's going to work through 2015 and into 2016.

Thank you.

Our next question today is coming from Evan Kurtz from Morgan Stanley.

Hi.

Good morning, guys.

Good morning.

My first question is on Mesabi.

It's kind of $340 to $360 on cost per metric ton.

Right now you can eke out a little bit of profits, but certainly if pig iron falls anymore, I assume you price off of pig iron, it might be a cash neutral, maybe even a cash loss type of an operation.

Would you ever consider shutting down the nugget plant?

I know that [Magnetation] palletizing facility's online so there's probably a market out there right now for concentrate, and turning that into a cash positive operation, if that were the scenario were to unfold?

Well I think our position is, or the reality based on Q4, as we suggested with concentrate at a $50 number, we would have been cash breakeven even at the 28,000 tons or 27,000 ton a month rate.

That being based on the pig iron market over the last two or three months.

As we edge up and ramp up the production level, again we feel reasonably confident, or pretty confident, that we can get to that $350-ish cost basis.

So the future then lies on, as one views the market.

To your point, pig iron has remained somewhat sticky for the last year, even -- well, the last couple of years.

Even when scrap has gone down dramatically, it seems to have stayed at that kind of $380-ish number, $390.

And I think time will see over the next couple months where the market plays out then.

Okay.

I had maybe just one more follow-up on scrap.

You talk a little bit about the historical relationship between iron ore and scrap.

Would you maybe clue us in on what you think that relationship would yield as far as if you took a low $60s iron ore price, what does that actually mean for the US price for scrap?

And then just maybe a second part of that, we are all hearing about this big leg down in scrap that we could get here in February.

How long does that take to actually flow through your numbers on FIFO?

How much inventory do you have on the ground, and would that help the first quarter?

As far as what we have on the ground from a scrap perspective, we tend to always, Evan, keep about three to four weeks on the steel side.

So that tends to be the way we factor it and the way you should model it, is a one-month lag.

So what you buy in one month, you kind of get the benefit in, in the following month.

And regarding the relationship between iron ore and scrap, I'll let either Mark or Russ talk to that one.

Again, historically it's just on a simple ratio.

It was in the three to four times ore.

So if you take -- I know it's $65, but let's just take $70.

$70 times four, you're at a $280, $300 number.

And there were periods last year it was more in the five to even six times ranges.

So I think getting back to that three to four range is a realistic expectation.

I've always been a great believer, the markets, they're uncanny.

They just have an efficiency to balance themselves over time.

And I don't think there's been a paradigm shift that -- on a sustained basis, that we can't get back to that ratio.

I think that the support, or the stickiness, was that export level.

And for whatever it was, Russ, three or four years, we're at 22 million tons, 24 million tons.

That's 25% of the metallic's market, roughly.

That's dissipated dramatically, and I think things will return back to normal.

Thanks so much, guys.

Thank you.

Our next question today is coming from Timna Tanners from Bank of America.

Yes.

Hey, good morning, everyone.

Good morning, Timna.

I don't want to mess up this philosophical discussion of scrap, so I have one question on that and I'll move on to something else.

On the scrap side, you made a comment that with scrap falling you could see margins expand.

I don't know that that's happened historically.

So I just wondered if you were talking about some sort of outsized scrap move relative to steel, or if you were talking about how you've improved your underlying margins, and that's where the expansion comes from, or a little bit of both?

Well I guess it's just looking at the general market pricing.

The spread, yes.

Our headwind is still only imports going forward.

The import pressure is going to remain.

Global over-capacity is going to be there for some time.

The strength of the dollar, in our mind, is going to be there for some time.

So the driver of the level of imports will purely be the price differential between domestic pricing and global pricing.

As I said earlier, November/December, the spread, and people keep talking about a $200 spread, it's a little [disingenuous which is speaker].

That's the spread between Midwest delivered versus China port.

And you've got to get it here, you've got to insure the cargo.

And not only do you have to get it to the US port, you have to get it to the Midwest.

So the $200 spread, so to speak, is -- kind of amplifies the motion a lot.

But nonetheless, the increased inventory level, the import level, the lower mill utilization, that has eroded -- and the anticipation of a lower scrap price has eroded domestic pricing a little more than what you might think from [plants] and CRU.

And that spread now between domestic pricing and Asian or European imports has dissipated dramatically.

And the attraction, or the discount there, is going to dissipate, in my belief, that our customers' appetite to bring foreign steel in.

So you've got that -- you're going to have a little bit of a price support there.

Secondly, inventories are pretty strong right now.

People don't have the capacity to bring a great deal of more import in.

And you've got underlying stronger demand.

So pricing, in our belief, is -- will it drift down a little bit?

Perhaps it does.

But there's some support there.

On the other hand, scrap is, as Russ coined the phrase, we think it's at a reset point.

And so for the next couple of months could see an adjustment there, more so than product pricing.

And that's where we sort of imply or infer that there's the opportunity of margin expansion, even in kind of a strange market dynamic that we see ourselves today.

Okay.

So steel is [zero] for shot and scrap has yet to adjust, and that can be the margin expansion?

That could be, yes.

Okay.

And then you guys have actually been importing scrap, from what I understand, into Columbus.

How much of that can you capitalize on with a strong dollar environment?

Is that just a marginal strategy, or is that a real opportunity going forward?

Russ, you may know better than I, but actual scrap import I think is minimal.

Very minimal.

Obviously, we're bringing in pig iron.

Pig iron, correct.

And that's a larger percentage.

Got you, okay.

Last question, and I just thought it was interesting that you were pretty decisive about the weakness in the near term being finalized in Q1.

I was just wondering if there was something specific that was giving you that impression, or is it just your timing of imports, or the inventory draw-down, or just if you could give color on why Q1 will be -- will contain all this weakness and then Q2 can rebound?

I guess it's just color more from our customers than anything else, Timna.

It obviously will depend on the level of imports in January, February, and March.

If they maintain their November/December levels, maybe it gets pushed into the second quarter.

But the anticipation, again because of the price differential erosion, I think some folks' expectation is the import level will start to edge down, and underlying demand will pick up the slack.

Okay.

Thank you, makes sense.

Thank you.

Our next question today is coming from Michael Gambardella from JPMorgan.

Yes.

Good morning Mark, how are you?

I'm doing very well, thank you.

Even though I'm in the steel business, I'm doing pretty well.

I get excited in the morning.

(Laughter)

I just want to ask you a question on when scrap hits this so-called reset button and drops down maybe $40, $45, $55 or something like that to get it back in the relationship with iron ore, how do you at Steel Dynamics balanced that situation in terms of price versus market share grab?

When you say market share grab, you're talking about our market share of the scrap, metallic -- (multiple speakers)?

Well, specifically in sheet market, not in the bar market.

In long products everyone has the same scrap advantage, disadvantage, whatever because everything is bought -- produced using scrap.

But in the sheet business, it's basically you and Nucor and a few other smaller players account for about one-third of the supplies of domestic sheet are made from scrap.

And if you get a reset down in your scrap costs for one-third of market supply, there is an opportunity for you and the other scrap-based sheet guys to take some market share in that environment, especially down at Mississippi where you've got 20%, 30% is -- of your demand is being impacted by the drop in oil.

So my question is, how do you balance that situation or opportunity between taking more share from your iron ore based competitors who are not going to see a reduction in cost when this scrap reset happens, and your ability to capture that scrap cost drop and take some share, and maybe take a little price as well?

I guess I think that it will happen naturally as opposed to us getting around a table and deliberating and saying, we're going to get 2% or 3%, or 5% or whatever.

I think naturally we are going to be in a better position.

The last few months, the integrated brethren certainly have had -- at least on the hot metal side, a huge advantage.

Nonetheless, even with that advantage, our efficiencies downstream are incredible.

And we still make up for that deficit, so to speak.

If there is this reset, obviously we will be in a better competitive position.

And I think you'll see that our utilization rates, as been demonstrated in the past, will be higher than industry peers.

Well in the past, years ago, many mills in the sheet business would basically run at capacity to capture whatever volume they could.

Do you anticipate running near capacity when you get this scrap reset on the sheet side?

I would suggest that we will, as we do every day and every month, attempt to do so.

I think the market dynamics are a little more complicated than that.

And we will be in a more competitive position to get our mills up to full rate, yes.

Okay.

Thanks a lot, Mark.

Good luck.

Thank you.

Our next question today is coming from Tony Rizzuto from Cowen & Company.

Very much.

Good morning, folks.

Good morning, Tony.

Got a couple questions here.

My first question, just to drill down a little bit further on Columbus, no pun intended there, but we're hearing of some very aggressive behavior by another mill in the area.

You've obviously -- the oil comments and what's going on in that market.

I'm wondering about the import congestion.

Has that eased to the extent you're seeing import flows more easily into the Southeast and the Mexican market?

And how is this making your job to reposition that mix?

How is that affecting that process?

Russ, you want to take that?

Yes, Just for everyone's information, Chris Graham here was given the task of integrating Columbus and has done a phenomenal job, along with the team down there.

Do you want to give some color there?

Yes.

I think, as Mark started out, we think the impact of the price of oil is going to be lesser than people may have thought, because of the lowering exposure.

Someone mentioned earlier that the mill was at 80% capacity.

The folks at Columbus might say that they believe they've taken it to a higher percentage than that, since they achieved over 3 million tons last year.

But they recognize, as we do, with the extra width and the opportunities of that -- or the capabilities of that metal that there is some room there.

So irrespective of some of these headwinds, there are opportunities in certain construction products.

We've not capitalized on certain value-added mix down there.

To Mark's point, we have no plans to desert anyone.

We will add customers by pushing the envelope, and even in the last three months we've already expanded daily capacity through bringing some of our best practices to bear there.

We don't do a lot in the coated products.

We don't do a lot of pickled and oil.

Those opportunities are out there.

And that's going to allow us to affect order rates as well as diversity, almost irrespective of whatever noise is going on outside of those markets.

I want to be clear, though.

Columbus right this second, in the month of January isn't running at 80%, 85%.

If February and March return, then perhaps for the quarter we could get there.

But it is being impacted by both the energy and by imports.

Okay.

And just to -- and then follow-up on scrap.

What do you guys think will happen to scrap flows when the reset occurs?

Tony, I think that certainly there will be some impact to it.

Again, it will slow to some degree.

But again, until the export market starts coming back up and being a meaningful part of it, there's plenty of scrap all around in the system.

So yes, there will be some slowing down.

Again a different price level brings out different levels of scrap.

But in the end, until we get to a point where exports are a viable alternative, or a more viable alternative, the flows or the availability of scrap is still over-supplied in the United States.

And Russ, I have heard that one of your competitors is maybe sourcing some scrap from Canada and Europe.

Are you guys also?

Well, we look at everything, Tony, as it applies to how we support our customers and our mills.

And so we do have on occasion, I think we talked about this a little bit earlier.

We have had opportunistically made some of those -- taken advantage of some of those opportunities.

So we look at everything.

Again, that's part of our business, is to deliver the best low cost scrap to our customers.

All right.

And I just wanted to ask this question, if I may.

I heard, obviously, you talking about different factors affecting the market.

And I think Mark, you brought up about the OCTG case with South Korea.

And interestingly, at least what we're seeing so far, maybe we're not looking at the data correctly, but it doesn't really look as if the South Koreans have really turned down or taken their foot off the gas pedal.

And I'm wondering, has the devaluation of that South Korean won offset the relatively modest tariffs that were set against OCTG from that country?

Again Tony, I haven't looked it at that level of detail either, to be honest.

Okay.

Thanks, guys.

Thank you.

Our next question today is coming from Nathan Littlewood from Credit Suisse.

Yes.

Good morning, guys.

Thanks for the opportunity.

Just had a question on your fabrication business.

Obviously a fantastic result there.

You did mention in your commentary that you'd added a couple of more shifts.

But I was wondering if there was anything incremental you might be able to tell us about the capacity of that business?

How much scope is there to sort of scale things up further, and how much further could you take the tonnage of that business, in the assumption that the demand for it exists, which certainly seems to be the case?

We are, from a infrastructure standpoint, positioned to probably build every joist necessary in the United States, as are other joist suppliers.

The regional, and the effect of freight, tends to limit how many shifts one can run in that particular region and not be in a cycle of up and down with employee headcount, and then doing things that we'd like not to do.

So we're running on one shift, basically.

Our market share has continued to grow five consecutive years now.

I think that we're not the only one with latent capacity, but I think we're as positioned as well, if not better, than most to continue to take -- to be looked upon to service large parts of increase in market, and in demand.

So I guess you could say we could double or triple the number of production crews, but that's not -- we aren't a steel mill running 24/7.

But we have a lot of surge capacity, and I think that the suppliers in our industry in general are ready for a lot of growth.

And maybe we more so than most.

I think our market share has grown to 38%, or thereabouts, in the market, right Chris?

Yes.

And again, there's kind of a natural freight-regulated sort of volume for the players in that business.

I don't necessarily see that we will have any great change in market share going forward.

But obviously that industry continues to grow on a volume basis and also on a margin basis.

And the thing I would add is that there is additional margin expansion capability, both through lower raw material costs with the support of higher pricing given the high demand, but also incremental volume going through the New Millennium facility is exponential to the margin because of the cost compression, it's just pretty astounding how volume impacts their margins.

There's margins -- I wouldn't put words in your mouth, but margins can expand from where they are today.

Absolutely.

Okay.

And I guess on that same theme, Theresa, if we do get this sort of scrap price collapse that everyone is talking about here, and we've already seen the weakness in steel prices, could you talk a little bit about how pricing works for that steel fabrication business?

Are customers immediately going to turn around and require you to pass those raw material cost reductions onto them?

Or is there some sort of delay with respect to the way contracts work there?

Well, I think that the good thing for our customer base is that they are able to price things in such a way as to reflect current situations.

We're able to procure materials as necessary without much speculation.

And so everybody understands the rules of engagement.

Day-to-day, that can change.

The one thing that might provide some price support is that the market and the capacity of the providers, we're running at a very high utilization rate as a joist industry now, maybe as high as anybody can remember ever, because of some of the changes in companies entering and leaving the industry.

So as construction deadlines loom, lead times will stretch a bit.

We have that capacity previously mentioned, so we can still take the work.

But lead times tend to offer good support when they get extended.

The ways you expedited is to do it for a price, provide a service for a price.

But it does tend to buoy the pricing, even if other drivers would tell you it would go the other way.

Demand is going to be a big lever for one side or the other in our industry.

Okay, most helpful.

Thank you very much.

I just had one final one on Columbus.

At the time of acquisition you'd talked about some interesting opportunities there with respect to changing product mix and also scrap procurement.

Obviously there's been some new-term headwinds that you've already spoken about with respect to the oil price.

So maybe the product mixing things is not quite there, but how are you going with the opportunities that you'd spoken about earlier with respect to scrap procurement?

Let me just speak a little broader, perhaps for the Columbus integration as a whole.

The team down there demonstrated a record level of production.

[In fact] total shipments were close to 3.2 million tons, of which about 138,000 tons were imported Russian band.

The good news there is that mill is never going to import Russian band again in the future, I guess.

So total shipments from the actual mill itself were around about 3 million tons.

And I think very, very gratifying is that if you exclude, without purchase accounting, the LTM cash was about $306 million, which clearly demonstrates its earnings power.

That was EBITDA.

EBITDA, yes.

Without the synergies, and I think you speak of the synergies of, we suggested some $30 million.

And from everything we see, that those are going to be achievable over the next 18 months.

Not just in diversifying the product mix.

We spoke to that earlier.

That's not going to happen overnight, but it will certainly occur over the next -- well, 2015 going into 2016.

I think the teams have done an incredible job in working together and sort of -- we have a plane that goes down and takes a group of our folks down from Butler and takes a group of the Columbus folks back up to Butler.

So there's a very, very rapid sharing of best practices.

And I would tell you both sides, it's not just from Butler to Columbus.

I think it's occurring with strong benefits to both mills, And it's not just on production or sort of technical issues.

It's across the sphere of finance, and just everything we do in business.

The mill is being challenged.

They are challenging themselves, now that we see what the Butler mill can do relative to the gauge and width and high-strength, which is going to allow us to broaden the product portfolio near term into high strength, low alloy, light gauge materials that has been a benefit to Butler over the years.

And the learning curve on the coating and the pickling side at Columbus, I think, is rapid and will continue to be rapid.

And those -- its been interesting once you get at the numbers and we talk together.

They had quite a -- they had a much higher exposure to coated and to pickled products in the past, and unfortunately there's been -- the past teams had some quality issues and we lost a little bit of credibility there.

I think that can -- working together, they are solving these problems, those issues.

And we've gained that market share back, I think.

But so it's very, very positive down there.

Sounds good.

Thanks very much, Mark.

Thank you.

Our next question today is coming from Phil Gibbs from KeyBanc.

Good morning.

Good morning.

Mark, can you balance your SBQ growth comments that you made earlier with the slowing in mining and energy?

Just because I know a lot of those markets are served by the SBQ piece.

The off-road CAT business, again that's not just a slowing over the last 4 weeks or 1.5 months.

That was in place through the fourth quarter -- or third quarter of last year.

So there's not a meaningful downtick to the order book sort of from segment last year to this year.

Energy is being impacted, but -- and I think it's around about 15%, 20%.

No.

No?

What is it?

No, it's well less than 10%.

Less than 10%, okay.

But we've got one customer in particular there, that their business, for whatever reason, is remaining a little sticky.

So I would say the Engineered Bar in general, their order input rate is a little light.

Again, people are picking holes in their inventory.

It's just sort of a readjustment, I think, by everyone there.

But we don't have any -- and I'm not losing any sleep over an implosion in their utilization.

The utilization and backlog is reasonable right now.

And once we are now getting out of the holidays, we are getting back -- the industry's getting back to work.

Those orders and lead times will extend.

Mark, what's the longer-term potential within the Company for -- current and long-term potential to be a player in exposed auto?

Our focus currently is not necessarily exposed.

If you look at our Butler facility, about 32%, 30% of their output has gone into auto applications, non-exposed.

And the focus is not to grow their automotive share dramatically, but grow Columbus' share.

I think they were about 2% or 3% auto last year in 2014.

We are focused on emulating kind of the Butler's role model down there and pushing that auto percentage up to whatever, 10% or thereabouts, in the next year or so.

We've actually put on a team of, how many [luggers] do we have?

Six or seven?

I think -- folks that we brought on from Dearborn, quite capable people in the automotive world.

And they are making some progress with BMW and VW and the folks in the Southeast relative to qualifying products and getting some business.

Thanks, Mark.

And Theresa, can you just provide us the mix, as you typically do, for the sheet business?

Thanks.

Yes.

So I'm actually going to -- from a commercial perspective, I'm going to combine both Columbus and Flat Roll, and we're going to be a little more summary on the level.

For hot rolled and [P&L], in the fourth quarter we shipped 916,000 tons.

For cold rolled, we shipped 95,000 tons.

And then for all other coated products, which includes painted, gallium, and galvanized we shipped 447,000 tons, for a total of 1.5 million tons.

Thanks.

Thank you.

Our next question is coming from Andrew Lane from Morningstar.

Hi, all.

Good morning.

Good morning.

Regarding the effective imports, could you provide some color as to which product lines across your portfolio have been subject to more displacement than others as import volumes have risen?

Any specifics would be interesting to hear.

Thanks.

Well, I think hot band in general has been an issue.

And I think our most frustrating product is light gauge coat, which tends to be sort of a soft building material that, standard width, standard gauges, with [gallium].

So that has impacted our Jacksonville facility.

Okay.

And then with respect to the energy end market, could you provide just a rough estimate as to the sequential percentage decrease you expect in shipment volumes going into the first quarter?

Would it roughly track the decrease of a US rig count, or do you think your energy-related volumes would deviate from that baseline?

Given that we're only about three weeks into the quarter, I've not necessarily looked at that, to be honest.

And I would -- I guess I'd reiterate, as a Company from the Company's perspective, and if you look at our steel-making capability, we're only about 8% in total, specifically energy-related.

So it's not -- I think we need to keep that in mind.

No, I don't think you should look at rig counts and try to correlate that to our volume.

All right, thank you.

Thank you.

Our next question today is coming from Aldo Mazzaferro from Macquarie Securities.

Hi, Mark.

It's Aldo.

How are you?

I'm doing well, sir.

I have two questions.

One I think is pretty straightforward.

You mentioned right up front you had 7,700 workers at this point now.

Would you be able to break those into the three big buckets of mills, recycling, and fab?

Just so we have a little feeling for that?

Let Theresa take a look at that.

I've got numbers in my mind but I don't want to give you wrong numbers.

So let's go to the second and we'll get back to that.

All right.

You don't happen to remember how many people you added at Columbus, though, right?

Columbus was -- 600 people?

650.

650 people, Aldo was the addition.

Thanks.

And Aldo, for steel we have about 3,700 people.

In Metals Recycling, we have about 2,300 people.

And Fabrication, we have about 1,200 people.

And then the remainder, even though I wish they were corporate, they're not.

A few corporate, but they're mostly the JVs.

Right, okay.

Thanks very much, Theresa.

And my second question, Mark, is a little bit philosophical again.

Nucor came out and said they expect scrap to fall.

But I'm just wondering, have you heard any good reasons in the marketplace from a supply-and-demand perspective why that would happen?

Because I'm just thinking that the strength in the dollar, I think, was the major driver in what happened in steel and scrap, I think, since around the early part of December.

And I'm wondering if you see anything else that changed, that maybe drove -- kept scrap higher than it normally would be, or something that you see that might change that would drive scrap down all of a sudden?

Again, I think, Aldo, the price support for -- or why scrap remains sticky relative to ore coming back was principally the export market.

And if you consider that exports reached 22 million tons, 24 million tons against the general metallic's market of whatever, 85 million, there's a time when 25% or 30% of scrap was going offshore.

That had a major -- or was a major driver to keep pricing up, in my humble opinion.

That has dropped dramatically with the relative currency, Turkey and folks can buy cheaper in Europe and from Russia than they can from our shores.

So we would surmise that the export market is going to -- is coming down and will stay down.

You couple that with reasonable inventories going into the fourth quarter, quite a downtick in utilization at the end of the fourth quarter going into January, ample flow.

The weather has not been bad.

It's been a little gray around here.

But the scrap keeps flowing.

And you're actually getting scrap imported today at a much higher level than ever before.

And so I think you've got a perfect storm.

Demand has dropped off dramatically, and supply is strong.

And that in balance is, I think, going to reset that market.

That all makes a lot sense, except I wonder why it hasn't happened yet.

We thought the same.

Sometimes you've got to be patient, though.

Well, it seems like Nucor is just saying -- hey, you guys around these folks better cut the price to us and we're not going to cut steel prices, and everything [you've touched] say the margins get better, I don't know.

Sorry, Aldo.

We totally lost that last commentary.

I was saying it's funny how Nucor projects it's destined to fall when they're really saying that OmniSource is going to cut price to us and we're not going to give it back on steel price -- but anyway.

I'm not sure what they said.

Great.

Well, thanks very much, Mark.

It was great comment.

Thank you.

Thank you.

Our next question today is coming from Charles Bradford from Bradford Research.

Good morning.

Good morning, Chuck.

Hi.

Please don't take this as a forecast, but one of your competitors published some data showing that the relationship between shred and iron ore for the last 10 years been about [0.8].

And based on their analysis, or the data that's been presented, shred should be about $250.

However, if you do shred versus WIT oil, the correlation's [0.93], and that would drive the shred price to less than $200.

Now that has lots of ramifications, like maybe a $400 hot band.

But also shred relates a lot to what the shredders are willing to pay for the [bodies].

And if they drive down -- if shred were to go anywhere near these kind of prices, presumably the price the shredders will pay will drop dramatically and the bodies won't show up.

Is there an equilibrium in there someplace?

Well, I think -- and I'll let Russ wrestle this one after me, but I think you're right.

The floor of scrap will obviously be set by the flow of obsolete coming to the ops.

Scrap has been elastic, and I'm not so sure it's so elastic that you're going to get down to $200 a ton.

But I think there's substantial room to move from where it is today and where it has been in the fourth quarter.

So I would tell you that, again, I think there is a bit it does become a point where economics will come into place from the collection stack standpoint.

In other words, you get to a point where it is not economically viable for the dealers or the peddlers or those guys to collect the scrap because they can't make a return.

And so again, the economics will drive what that is.

So there again, mathematics could say it's going to get here or get there, but I think in the end it's going to be those market dynamics that are going to set that level.

Thank you.

Thank you.

That concludes our question-and-answer session.

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

I just would like to thank all those that stood on the line.

Thank you for your support and your interest in our Company.

To our customers, we will continue to commit to you that we will try and create greater value for all of us.

And to our employees, thanks, guys and girls for doing a phenomenal job.

We are the best in the industry.

You demonstrate it clearly, and just be safe out there.

Thank you all.

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

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