美國鋼鐵 (X) 2004 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the United States Steel Corporation fourth quarter 2004 earnings call and webcast.

At this time, all lines are in a listen-only mode.

Later there will be a question-and-answer session. (Operator Instructions).

As a reminder, today's call is being recorded.

At this time I'd like to turn the conference over to Nick Harper.

Please go ahead, sir.

Thank you, Kent.

Good afternoon, and thank you for participating in United States Steel Corporation's 2004 fourth quarter earnings conference call and webcast.

We'll start the call with some brief introductory remarks from U.S.

Steel President and CEO, John Surma, then Gretchen Haggerty, U.S.

Steel Executive Vice President and CFO, will review results for the quarter and comment on the outlook for the first quarter of 2005.

Following our prepared remarks, the team will be happy to take any questions.

Before we begin, however, I must caution you that today's conference call contains forward-looking statements and that actual results may differ materially from statements or projections made on today's call.

For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release and are included in our most recent annual report on 10-K in accordance with the Safe Harbor provision.

Now to begin the call, I'd like to turn it over to U.S.

Steel President and CEO, John Surma.

Thanks, Nick, and good afternoon, everyone.

Appreciate you taking the time to join us for the call today.

A bit on the numbers for the quarter.

We reported record earnings of $3.55 per diluted share.

These results include some odds and ends, tax benefits totaling about $30 million related to prior year's R&D tax credits and some USSK debt repayment tax adjustments.

You may recall that we mentioned those potential effects benefits in our last 10-Q.

These 2 tax benefit items and 2 other small items unallocated at the segments of about $16 million net of tax increased net income by 14 million or about $0.11 per diluted share in the fourth quarter.

Our results, therefore, well exceeded the average of analysts' expectations which we understood was $2.71 per share and represents our third consecutive quarterly EPS record.

For the year, we generated operating income of 1.584 billion, or about $73 per ton, and earnings per share of $8.44.

Now, as is evident from these terrific results, our 3 main operating segments continued their run of exceptionally strong performance in terms of operations, quality, and cost control.

Now I'd like to publicly acknowledge all of our employees for their contribution to these outstanding results.

Let me make a few observations about the year just ended.

We began 2004 with very high hopes.

We had prepared to recognize a full year's results of the National Steel and Serbian acquisitions and the benefit of our improved domestic cost structure associated with a 30 percent productivity improved.

We had dramatically improved the position of the Company with the goal of generating positive results throughout the entire business cycle.

Beginning early in 2004, we saw signs that the steel market was going to experience a significant recovery and U.S.

Steel was in a position to deliver very, very strong results, results that were much stronger because of our newly expanded asset base and our improved cost structure.

The global economic recovery and resulting strong steel demand from all major steel consuming regions combined with the tight supply of steelmaking raw materials were the major catalysts for higher steel prices, with hot-rolled spot prices more than doubling from $350 a ton early in the year to well in excess of $700 a ton at times during the year according to most public sources.

We remain optimistic about the outlook for steel demand and for our Company.

Our financial performance and cash generation have provided us with the flexibility to take major steps to improve our capital structure.

During 2004 we retired over $560 million of debt or about 30 percent of our year-end 2003 balance.

We made voluntary contributions totaling 295 million to our main pension plan and 30 million to our VEBA trust for retiree steelworker healthcare obligations.

And we improved our overall credit profile.

In that regard, as you may have noted recently, both Moody's and S&P increased our credit rating in part due to our improving financial condition.

Now efforts to improve the Company's financial situation should not be viewed as mutually exclusive with returning capital to our shareholders.

And as you may have read in our release we put out earlier today, we announced a 60 percent increase in our quarterly common stock dividend to $0.08 per share.

This substantial increase in our quarterly dividend rate reflects our confidence in our financial outlook and our commitment to enhancing shareholder value.

In taking this dividend action, along with our actions to further improve our capital structure in the fourth quarter, we also balanced other important considerations including, higher capital spending requirements for our expanded asset base, maintaining financial flexibility to pursue strategic growth opportunities, and strengthening our financial position.

Now I'll turn the call over to Gretchen for a review of the quarter's results.

Gretchen?

Thank you, John.

Fourth quarter 2004 consolidated revenues and other income totaled $3.9 billion, which was an increase of over 200 million from the third quarter, as our average realized prices increased $18 per ton to $646 per ton on 5.4 million tons.

That was 111,000 tons above the third quarter.

For the quarter, we reported net income of $462 million, or $3.55 per share compared with net income of 354 million, or $2.72 per share in the third quarter, and a loss of 22 million or 26 cents per share in the fourth quarter of 2003.

Total segment income from operations before retiree benefit expenses and other items, which are not allocated to segments, was $652 -- $652 million, or $121 per ton, an improvement of $82 million from the third quarter.

Generally Accepted Accounting Principles require us to remeasure the non-U.S. dollar-denominated assets and liabilities at our European operations into U.S. dollars, which is our functional currency at both European operations.

The dollar weakened approximately 10 percent compared to the euro and related local currencies during the fourth quarter, and accordingly, we recognized a non-cash foreign exchange gain of $30 million in net interest and other financial costs at the end of the fourth quarter.

In periods when the U.S. dollar has strengthened, we have recorded a remeasurement loss.

Net interest income also included a $16 million non-cash gain due to a refinement of inventory accounting policies for our European operations, which was offset by an unfavorable effect in cost of revenues.

These 2 favorable items more than offset ongoing interest expense resulting in net interest income of 23 million in the fourth quarter.

Interest expense for the year was $119 million, which reflects approximately $32 million of net foreign currency remeasurement gains.

In the Flat-rolled segment, profits of $376 million exceeded third quarter results by 14 million or $4 per ton.

Flat-rolled prices declined $4 per ton from the third quarter to an average of $623 per ton, primarily due to product mix changes.

Flat-rolled segment results benefited from lower coke consumption costs, which were partially offset by increased costs for coal, scrap, and natural gas.

In Europe, fourth quarter income from operations was $136 million, a decrease of $10 million, or $15 per ton from the third quarter, as the average realized price increase of $46 per ton and higher shipments were offset by the unfavorable effects resulting from the refinement of inventory accounting policies, including the $16 million reclassification that I mentioned earlier.

Now turning to the Tubular segment, our fourth quarter results improved as the average realized price increased $176 per ton to $1,083 per ton.

The segment posted income from operations of $113 million, more than double third quarter's results.

This segment benefited from annual rounds transfer pricing that was established at the beginning of the year.

Now Nick Harper will provide some additional details on the quarter's results and help you with your modeling.

Thanks, Gretchen.

Capital spending, which is detailed by segment in the earnings release, totaled $214 million in the fourth quarter, resulting in full-year capital spending of $581 million.

Our current plan for 2005 has capital spending at approximately $755 million, including 475 million for domestic operations and 280 million for European operations.

Domestic capital projects for 2005 include a total of 195 million for the Gary Works Number 13 blast furnace reline, of which 125 million will be classified as capital and 70 million will be classified as costs.

Additional domestic projects include acquisition of mobile and mining equipment and coke oven through-all repairs at our Clairton and Gary Coke operations.

In Europe, 2005 capital spending will include completion of the rehabilitation of the second blast furnace, plus steel producing improvements in Serbia and initial spending for the galvanizing line plus environmental and industrial gas projects in Slovakia.

Our approach for equipment replacement has been for us to acquire equipment in the most cost effective method possible.

For a number of years we were able to arrange operating lease financing at a lower all-in cost than we can purchase the equipment for.

Given current economics, in most cases we are finding it more cost effective to purchase equipment outright rather than leasing it from the a third party.

This change will result in higher capital spending than in prior periods.

Depreciation, which totaled $382 million in 2004 is expected to be $400 million in 2005.

Defined benefit and multi-employer pension and OPEB costs for the quarter totaled $102 million.

And in addition to the voluntary contribution, we made cash payments of $95 million primarily for retiree healthcare costs and multi-employer pension plans during the fourth quarter.

As Gretchen mentioned, fourth quarter interest income totaled $23 million.

And including both the $31 million benefit for tax settlements recorded in the third quarter and the $33 million charge related to early debt retirement from the second quarter, interest expense for the year was $119 million.

We expect our 2005 interest expense to be approximately $128 million, excluding any foreign currency remeasurement gains or losses.

Currently our estimated annual effective tax rate for the year is 24 percent, with our domestic earnings to be taxed at the statutory rate and our Slovakian earnings through 2009 are projected to receive a 50 percent tax holiday and will be taxed at a flat 9.5 percent.

Lastly, the fully diluted share count is expected to be approximately 130 million shares.

Now I'd like to turn it back to Gretchen for additional comments on our results and outlook for the first quarter.

Thanks, Nick.

We anticipate continued strong operating results in the first quarter, as prices and margins are expected to remain at historically high levels across our 3 main operating segments.

We continue to see good demand across virtually all end markets as inventory levels are being worked down.

First quarter results will continue to be affected by higher raw material costs and continued fluctuating prices per scrap and natural gas, as well as the normal seasonal effects at our Minnesota iron/ore operations.

Cash flow was very strong in 2004, with cash flow provided by operating activities of nearly $1.5 billion, even after the 295 million of pension fund and 30 million of VEBA contributions.

We had free cash flow after capital spending and dividends before external financing of about $950 million, and we ended the year with over $1 billion of cash and about $2 billion of total liquidity.

With our strong cash position we've taken significant steps to further improve our capital structure, as John mentioned, we voluntarily contributed 175 million in the fourth quarter, bringing our year-to-date contributions to the 295 I mentioned earlier and the 30 million for our VEBA, which stands for Voluntary Employee Benefit Association, it's really just a tax effective means to fund our union retiree healthcare costs.

And in addition by virtue of our agreement with the steel workers, any voluntary contribution we make to the VEBA by our agreement, we're allowed to -- we imburse ourselves later for the healthcare costs covering steelworker retirees from that trust.

We currently have board authority to contribute up to $260 million to either our pension plan or our VEBA through the end of 2006.

In the Flat-rolled segment, first quarter shipments should be 3.6 million tons.

First quarter average flat-rolled prices should be in line with the prior quarter, but we expect profit margins to decline slightly as we anticipate higher costs for coking coal, purchase scrap and energy.

We expect full year flat-rolled shipments of 15.4 million tons, a slight decline from 2004 levels due to the reduced operating levels that we expect during the Number 13 blast furnace reline.

The Flat-rolled segment enjoyed the benefit of lower coke costs in the fourth quarter, as most of the higher priced outside purchase coke was consumed earlier in the year.

However, for full-year 2005, we anticipate the negative impact of higher coking coal costs to mostly offset the benefit of our reduced merchant coke position and we expect 2005 domestic net carbon cost to be roughly similar to 2004.

For U.S.

Steel Europe, we expect higher prices as we implement the previously announced spot price increases of 30 euros per metric ton, and significantly higher prices are expected for our contract business which represents approximately 30 percent of USSE's shipments.

The higher prices will be partially offset by higher costs for raw materials and scrap.

First quarter shipments are expected to be in line with fourth quarter levels.

Shipments for full-year 2005 are now estimated at 5.8 million tons, which is approximately 15 percent higher than 2004, mainly as a result of the expected start-up of the second blast furnace in Serbia this summer.

In the Tubular segment, first quarter results will reflect the implementation of the January 1st, 2005, price increase for certain products ranging from between $50 a ton to $200 a ton.

Plus additional price increases announced in mid-January.

But we do expect margins to decline slightly due to the revaluation of the cost of rounds provided by the Flat-rolled segment which is reset annually based on expected costs.

In addition, we are expecting higher costs for outside purchased rounds.

Full-year tubular shipments are expected to be 1.2 million tons.

Now that concludes our prepared remarks.

And at this time I'd like to open the call for your questions.

Thank you.

And our first question comes from line of Wayne Atwell with Morgan Stanley.

Please go ahead.

Thank you.

I was a little surprised to hear you talk about flat-rolled pricing being flat in the first quarter versus the fourth.

I would have thought it would have been up with a fairly significant contract price increase.

This is John.

I guess it just depends on your view of where the spot prices will play out for the rest of the quarter.

We tend to be a little bit cautious.

We do have improved contract pricing coming through, certainly in the first quarter, but the beginning of the fourth quarter last year was still enjoying very, very high spot prices at that time so it's just a question of balance, and then there's always a little bit of mix here and there, but I think in general it's just a question of where the spot structure is going to go for the rest of the quarter.

Are you fully funded in your pension fund now?

No, I think with respect to the main plan that we'll disclose, we haven't finished all the valuation work yet, but I think we'll be slightly under funded, I want to say $300 to $400 million something in that range, once we finish totaling everything up.

But we've made substantial funding and that's a fairly small percentage, of course, on an obligation of something on the order of $7.5 to $8 billion.

Can you give us a number on the impact of your outside coke purchases?

I estimated it at about 20 million in the fourth quarter.

Is that about right?

I'm not sure what impact -- how to measure it, Wayne.

Maybe you can just help me with your question.

Well, my understanding is you had committed to deliver coke to third parties at a fixed price, and then you had problems getting enough coal, so you had to go out and purchase some coke outside and deliver it.

Right.

So I guess the difference between what you purchased it for and what you sold it for would be the hit you would have taken in your outside purchase -- or outside coke transactions.

So I had estimated that you spent about 20 million more for what you purchased than what you got in revenues.

Is that a reasonable estimate?

I can't answer that because we don't really measure it that way.

The only thing I'd say is the majority of the higher priced coke that we purchased during the year to cover that position was largely dealt with in the second and third quarters, the fourth quarter had more normal, to the extent there's any normal these days, and coke more normal coke costs in it and we'll see, again, more normal coke costs into the first quarter from the fourth quarter.

The other thing is, we did improve the pricing on some of our coke sales in the second half which tended to narrow that gap in and of its own, which some people are aware of and some are not, but I think in general, the effect of that in the fourth quarter was fairly modest.

Okay.

Thank you.

And congratulations for a great quarter.

Thank you, Wayne.

We appreciate it.

Thank you.

We are showing a question from the line of Michelle Applebaum with Applebaum Research.

Please go ahead.

Hi.

Great quarter and I'm very pleased to see the dividend increase.

Thank you.

I know how conservative you are with your cash flow, so I'll draw a lot of optimism from that.

My question is -- my question is, I just want to go over Gretchen's guidance.

She went fast.

You said in Europe that you have significant cost increases, but the -- did you say that the cost increases would partially offset the price or the price would partially offset the cost increases?

The prices will be partially offset by the higher costs.

So our margins should improve.

I was hoping you would say it that way.

Okay, margins will improve.

And then in Flat-rolled you said the opposite, right?

Yes.

Prices -- are expected to be about the same, but we do have some higher raw material costs in the first quarter.

Okay.

Then Tubular, you expect margins to decline slightly because of rewriting the round contract.

Right.

The costs on the Tubular side should be higher offsetting the price increases.

So the margins will be down somewhat.

Let me ask this specific question about that.

If your -- I understand you calculate the inter-company transfer -- by the way, do you disclose how many tons that is, between Flat-rolled and Tubular?

Well, it's -- no, I don't know that we say -- we still -- we do purchase some rounds on the outside from our friends at RTI.

I don't know, I would say maybe --.

Our Fairfield plant, is 500,000 or 600,000 ton a year plant and that's all fed with internal rounds.

Okay.

So it's half your shipment.

Yes.

More or less.

Okay, so if I look at Flat-rolled, it looks like Flat-rolled costs rose 20 percent during the year, so would it be, if I'm guessing how much -- I know it washes out, but if you're sitting there trying to allocate -- see what that business is worth, which I think is one of our agendas here, if I'm reallocating should I jump at the 20 percent on the half that's supplied out of Flat-rolled?

Would that be a good approximation what the cost increase would be in that business?

I guess that's probably not a bad approach, Michelle.

I mean, you understand the concept that we try to do our transfers between our segments roughly on a cost basis.

Yes.

We said it once a year and cost increased significantly throughout the year.

I think that's probably a fair approach.

Okay.

I'm wondering, I guess you've got all these different constituencies.

I know the equity investors want constituency and one of the reasons you went to your reporting the segments that you have today was so that the equity investors could realize the value of this incredible business without having to actually sell it or IPO it.

And I'm just wondering, with that in mind, why you transfer -- why you kind of transferred in this cost, because it's not exactly a stand-alone kind of --.

Michelle, this is John.

It is, I think, just a historical practice.

It's how you get it, okay.

Is the way we've done it and to the extent that anyone wanted to do, in effect, a pro forma commercial transfer price, you could certainly do that on your own as you are trying to do now it would seem, rather than try to impose an arm's length transfer price for by definition there couldn't be one, we just [inaudible] cost and it was -- if you were to track the transfer costs they would pretty well carefully track semi-finished rounds prices, those kinds of things.

Just in the same regard, the numbers come out to $400 a ton.

Doesn't that make it -- and it's somewhat overstated.

Doesn't that make it harder to get price increases pushed through, or is the market that type that what you are making in that business is irrelevant or do your salesmen communicate that well that people understand there's some accounting?

Well, I don't -- I don't really think that that comes into play from a market standpoint at all.

Okay.

We just discuss -- we sell what we think the market price is.

Okay.

Sometimes when you're making a lot of money, there's and impression some companies don't like to -- it makes it harder, I guess, to raise prices.

One more question on that, then I have another quick question.

Do you still view this kind of as a non-core business?

Well, Michelle, what we've said is, first of all, it's a terrific business, and it's doing really well and you can see the kind of results we've had, so it's a terrific business and the people that operate it are terrific people and they are an important part of the Company, and it fits nicely inside of our business right now, but it's not a strategic imperative for us to be in the tubular business.

If it turns out there was some approach where we could improve the performance and improve the value, which I think is what I've said consistently, we would certainly consider that, but we haven't found our way to anything right now that meets those 2 criteria.

If we do, fine, if we don't we like it as a very, very good business.

Thank you.

We're going to move on to another question from Mark Parr with Keybanc.

Please go ahead.

Thank you very much.

Good afternoon.

Hi, Mark.

First I just want to say congratulations, really, really good results.

I did have a question related to your automotive business on the flat-rolled side for '05.

Are there any market share initiatives that you have that would allow you to increase your mix of automotive business for this year?

We've been pretty successful in that already.

You get into some facility limitations there where there's only so much you can do and we're getting near where there's only so much we can do.

We've been very successful with all of our customers in increasing volume by fighting hard for new parts on new vehicles which is the way you get that share, and we do that through our automotive center where we've got 100-some people whose job it is to do that all the time, so we've been very successful for the last 5 years in that line of work and we've had strong share increases every year and this year was no exception.

We also had some capacity that we were able to use very effectively in this last round of negotiations to increase our volume, so we've done a lot of that, but I wouldn't look for a step-wise increase at this point given our facility limitations.

Okay.

All right.

Just another question again related to the flat-rolled business.

If you talk a little bit about some of the unscheduled outages that you've -- that you've experienced, I believe at Gary Works in January and to what extent that may be impacting your ability to serve the spot market toward the end of the first quarter?

We've had a couple of blips at Gary largely centered around our largest blast furnace out there, which as you know is heading towards a major rebuild, really a new furnace effective in July and August time frame, so that's limited some iron production and naturally that takes a few tons out of the market and what effect that has in the spot market we'll let the market decide, but we have had some tons come out of the market because of that.

But I would classify those all as minor problems in the scheme of things, we're still running fine and making plenty of iron and making plenty of steel.

We've also had some interruptions on coal supply because of river flooding problems, but that's -- every winter it gets cold and we don't use that as an excuse.

We have to manage through it and operate through it and we will at Gary as well.

But 13 is a special case really because it's nearing the end of the campaign and we try to make sure we operate it very carefully.

The follow-up I had was on the coal deliveries issue on the Ohio River.

There's been some trade press, I think just today, about how some coke batteries were having to scale back production.

Do you have any sense -- what's your latest intelligence on when the Ohio River may be back to the full capacity?

My latest intelligence is fairly recent, but it's not all that intelligent, unfortunately.

The latest intelligence would be that they're still trying to do work around the lock where the damage occurred and trying to extract the barges.

And it just -- the whole system is, to say it technically, is very fouled up because you've got a lot of barges in different pools and you've got empties where you want full barges and full barges where you want empties.

So it's going to take some time, I mean, it's going to be certainly days, weeks before you get the system back to equilibrium.

Remember that everybody in this system was still running hard to try to get back to where we wanted to be from really problems that occurred last year.

So this came at a very, very difficult time.

We're using every means available.

You've read about all this I'm sure.

We're off-loading into railcars and transloading barges and doing some truck work, although you can't make a lot of coke with trucks and we're trying to make sure we keep our coke rates up.

But we're losing production.

We're on the way back up now, but the absolute question when the river system gets back to normal, we have no real new intelligence that tells us anything good.

One last question, John, and I appreciate all your time.

Just if you could address the strategic growth initiatives that are highest on your priority list for '05, your free cash flow is looking outstanding this year despite a lot of internal capital programs, is it -- would you look for U.S.

Steel to perhaps take another step along the growth track in '05 via acquisition?

It's very possible, Mark, very possible, and I think our priorities are really the same as they were the last time we chatted about this would be European raw materials would be -- in position 1 A that you can see just based on our comments and others that the cost of steelmaking materials, both carbon and iron units, are very expensive, and even though we're sourcing ours in different parts of the world and some of the seaborne trade, we're subject eventually to the same kinds of supply/demand pressures that yield costs going up as they are.

So opportunities in the eastern part of Europe for coal and iron ore and equity participation and new developments or something like that, that would provide some stability to our iron and carbon cost position in Europe are very high on our list.

And then others if they're operating steel locations in the east of Europe or in North America because there are some that are being discussed, we're attendant to all those opportunities and we are ready, willing, and able to participate, it's just got to be on the right terms where we think we can add value.

Great.

Thank you.

We're going to take a question now from Bruce Klein with CSFB.

Please go ahead.

Good afternoon.

Hi, Bruce.

On the contract side, what -- I guess how did it all work out for you guys in terms of the '05 contracts, in terms of how much is your contract business and were there any one of your competitors talked about a raw material surcharge mechanism and maybe half of their contract business, then maybe the duration of those contracts which one of your competitors also has shortened them up in order to, I assume get a better price.

We probably like to say less about specific contracts just out of fairness to our customers.

But I would say that we're satisfied with the results of the negotiations which covered a large part of our contract business which is a little less than half, but not all of it by any means.

A large part, but not all.

We're satisfied with the results and I think our customers are, too, quite frankly, even though we did achieve price increases that provide a little more return on our side of the table.

We also, I think, improved in many cases the overall amount of commitment, the amount of supply, capabilities, stability on a supply standpoint, so I think both sides were satisfied there.

On those contracts that were specifically up, we have very nice price increases that we think are fair and deserving in the marketplace.

And then on others that weren't up we also did some renegotiation again to expand capability and expand commitment on supply, but in exchange for that we developed some new pricing structures as well.

We did get into some more alternative kinds of pricing structures with some indexation on different things.

We don't want to say too much about it.

Again, I think it's more customer to customer, supplier to customer relationship stuff, but I think those relationships are being developed and I think they're fine, I think they're fine when they meet both parties' interests.

In some cases for us this year they did, in others they didn't, we went with the traditional stuff.

But in general, contract business wise, we're very satisfied with what we did.

And duration, did it change much versus, I think -- ?

No, I wouldn't think so.

There didn't seem to be a great interest on -- well, there didn't seem to be necessarily a meeting of the minds on that.

Naturally, when things are stronger on our side we might have a view that a somewhat longer duration would be better, but I don't know that sort of contract by contract we made any significant change in the overall duration of our supply.

Then just on the -- I think you mentioned the pension, what you thought might be the underfund at year end but did the OPEB -- because I wasn't clear on your financial statements.

I think you have a employee liability -- employee benefit line item at year end of 2 billion 1.

How much is -- I guess is the variance between that number and the pension the OPEB?

That's about right, yes.

It's -- the OPEB will be --.

That employee benefit liability line is almost all OPEB, there would be workers' comp and other odds and ends, but that would be almost all OPEB.

And then lastly just on, you mentioned your priorities are European raw materials, as one.

Could you maybe help finish the list in terms of priority order in terms of application of free cash flow?

Well, I think the comments I made earlier in the -- and then the release we put out, we do have significantly higher capital that we think is still within -- well within the competitive bound of how much per ton we spend.

I think we just have a much larger business to support from a capital standpoint and so we do see higher capital, and as we mentioned, the large blast furnace in North America and the auto galvanizing line in Europe which is an important initiative for us.

We still will do some work on our balance sheet and that might be focused at least to some degree on funding these plans to make sure they remain well funded, and then I think the other big initiative would be something strategic.

We want to make sure we have plenty of financial capability when and if we get there.

So those would be our major priorities, the ones that were listed in our release and what I said earlier.

Was Slovakia debt paid down?

I wasn't clear on that.

Yes, that was.

We repaid that 8.5 percent debt in the fourth quarter.

All of it, right?

Yes, all of it, yes.

Okay.

Thank you.

Thanks Bruce.

We have a question from the line of Michael Lucas with Appaloosa Management.

Please go ahead.

Hey, guys, I just want to say first of all, great quarter.

Thanks, Mike.

I want to touch -- I know everybody keeps focusing on it, but I want to be a little more clear.

I'm just struggling to see how flat-rolled prices in the first quarter can go down.

Just listen to my math and tell me if I'm way out there.

If 50 percent of your businesses is contract business and something like two-thirds of that business is repriced and if you look where competitors are saying they're getting it done at $120, 125 a ton, in that range, or maybe even better, aren't we looking at just on that portion of the business a $50 par price increase for all the flat-rolled business just from that math?

Is any of that math wrong that I just said to you?

Well, I'm not sure.

I don't think I said that we repriced two-thirds of our contract.

It would be less than that.

It would be less than that?

Yes.

Even if you use the 50 percent number now and not the par says, we're still in like -- since you said a large part I would assume it's 50 percent -- we're still like a $40 increase on spot price, I mean, on the flat-rolled price, and if you look quarter over quarter, the spot has not come down that much at least I'm seeing prices from China, 685, and the U.S. market at 650.

And I'm just trying to understand how the margin comes down because the only thing, A.K.

Steel had come out today and said they're going to have margin increases in their business in the first quarter, and they have meth coal prices going up and iron/ore, you guys have captive ore and meth coal two-thirds is the only part you spot on, because the other third is the pinnacle contracts.

So why is your margin going down in terms of flat business?

First of all I can't really respond to what someone else said, and if something's going up I guess that's compared to something before that and I think ours before that was -- our margin is already quite substantial and higher than the one I think you're referring to.

So I think from a time series standpoint, I'm not sure comparison wise that that's a good line to draw and then apply it to us, but that's just an analytical question.

We do see improved contract pricing, no doubt about that, it's less than 50 percent of the total, but substantial -- I still think is less than that, but substantial improvement in our contract pricing.

But what actually is going on in the spot market those numbers you mentioned are pretty healthy numbers that you may be reading about.

I'm not sure that's exactly what's going on in the spot market right now.

Maybe a little bit healthier than we would see.

I hope those are right, and if they are then I think your premise would hold a lot more sustainability.

I guess we'll have to wait and see how the quarter plays out.

And also, Mike, we've been working on our contract renegotiation throughout the third and fourth quarter, so the good pricing that you're seeing in the third and fourth quarter also reflects that, which is part of the reason for it continuing into the first quarter.

So you're going to tell me that a portion of the realizations in fourth quarter is actual price increase on contracts?

We've been working on contracts all the way throughout the year we've done some -- again, with increased volume we've moved prices up so we've been pretty active on that front all the way through the year, all the way through last year, more in the third and fourth quarter.

Right.

To clarify what everybody is going through here on the underfunded pension, I want to clarify this statement that the pension benefit underfunded status at the end of 12/31/03 was 522, is that amount gone, for my own clarification?

I'm sorry, say that again, Mike.

The funded status of the pension benefits on your balance sheet it notes 22 pensions and other benefits was 522 million underfunded pension.

For my own benefit that's what I'm focusing on, is that number down to 0 yet?

That's the amount John was saying is going to be about 300 to 400 million.

How is that possible?

Didn't you put over 300 million into that fund already this year?

No.

It is a -- it's not that simple of a calculation, Mike, and you do have to remeasure your liabilities at the end of every year and we have, as I think you'll see from most other major companies, we are remeasuring at a somewhat lower discount rate than last year.

We're looking at a discount rate of 575.

We were at 6 percent, that will have an effect on it.

I think you'll find most companies are probably reducing their discount rate by about 25 basis points or so.

That quarter basis point change in our discount rate is hundreds of millions of dollars when you apply it to an $8 billion obligation.

So that goes wrong way, the asset performance and the funding supports it, reduces it, but those 2 tend to cancel out.

Okay.

So you're still statutorily obligated to fund more?

And actually, Mike, that measurement at the end of -- we do not have a mandatory funding -- a mandatory contribution under the ERISA rules right now, but you, of course, are -- anyone with a defined benefit plan is required under ERISA to fund it in accordance with the ERISA rules, but that measurement at the end of the year is a point in time accounting measurement which doesn't necessarily dictate the funding but it does give you a relative indication of the funded status of your plan.

So we're about 300 to 400 million underfunded our assets relative to our projected benefit obligation at 12/31/04.

That's really what that tells you.

So the number that will come onto the balance -- in this note at the end of the year will be $300 million, in that range?

Between 300 to 400.

We're not settled with all the calculations yet.

Okay, I'm just understanding [inaudible].

You're right, the 522 will become 300 to 400.

That difference represents the asset growth, the benefit payments, the funding, and then the discount rate remeasurement would be the major components.

Yes.

Excellent.

And the Tubular business, I just want to make sure I understand whatever they're talking about also.

We're talking about prices of 1,083 and yet 50 to 250, so are we talking that the cash costs there up $125 to $150 a ton from the fourth quarter looking at 686 cash cost?

Yes, that's right, on the round side, yes.

Yes.

Thank you.

We're going to go on to a question from John Hill with Smith Barney.

Please go ahead.

Very good.

Thank you.

Congratulations again on a great quarter.

I was just curious in light of natural gas prices running in the $6.40 range and what's going in scrap if you change your approach towards gas hedging or your patterns of scrap buying or the mix of grades that you're purchasing?

Let me take those in reverse order.

We have worked very studiously and I would say scientifically with the help of some consultants on scrap blend optimization to try to get the most cost effective blends that get the metallurgy, but don't get more than we need so that's a scientific metallurgical matter that we spent a lot of time and money on, and I think that's been a big, big improvement in our cost position and we track it very carefully and we've had excellent results on that.

And it pays.

When you're paying the kind of prices we are for scrap, we're all paying for scrap it pays off pretty quickly.

On scrap buying, there's no real better way to do that that we know of and we observe what others do that buy a lot more than we do and it's typically a one-month spot market and you can manage your position, I guess, a little bit in the physical market and we do some of that but even that is of limited success, so I think in scrap we're sort of doing it the same way.

And if we have a view on where the market may go we may go a little bit shorter or longer in the physical market in our yards but not a whole lot of that.

On gas, we have had some recent activity where we've gone a little bit longer and purchased out a little bit further and done some things in the paper market to put a little less risk into the system because we do use an awful lot of gas, but it's fairly modest and measured and we'll continue to do it at about that level.

Switching gears to Europe real briefly, could you give us a quick update where you are with regard to the second blast furnace at Serbia and the galvanizing line just in terms of what activities are ongoing and various milestones we should look for in coming months?

Sure.

Going south to north in Serbia, we're on a buying spree right now trying to get the materials and refractories and a lot of control system issues are really what's probably the longest lead time there.

Work is underway, procurement's underway, engineering's underway, not just on blast furnace, but also on the steel shop to be able to handle the increased volume and also on inbound and outbound logistics to be able to handle the greater volumes of metallics and scrap and coke and then the greater volume of steel product out, so those are all a series of related projects which are well underway and we're pointing towards mid-year.

I keep hoping some day someone's going to tell me it's going to be earlier than that, but no one has done it so far even though they may be shooting for that.

So I'd say we're looking somewhere around mid-year to have that second furnace up and operating, and as far as I know everything is under control and on schedule.

And then the galvanizing line would be more in the conceptual phase at this point.

We've got a pretty good idea where we want to go with it and what we want to do with it.

Not in the position to order anything yet, we just had our normal review of our capital plan this morning with our Director so that was a necessary first step.

Then we've got a lot more work to do on that, so that one is I think further out in the horizon.

We'll move through the normal engineering and procurement process before we actually get around to putting a shovel in ground.

But the blast furnace project in Serbia is going very well.

There's been some commentary about the EU CO2 emissions, the allocation of those across the various member states and some recent shifts in the allocations which were quite unexpected.

Are there any other major issues there which affect you?

They could.

I would say that those shifts were unexpected and entirely inappropriate, if I classify them that way.

And we are not at all happy about it and have taken a number of actions including, which has been reported, filing a lawsuit that's designed to annul that allocation process.

And we think that the late entry of the 10 was I'm afraid not handled nearly as well as it was the 15.

So we're not at all happy with the allocation process and we together with a number of the other major industrial organizations in Slovakia are having extensive frank discussions with the government in Slovakia, and also proceeding on legal grounds which we will pursue to the extent necessary to get what we think is a more balanced and appropriate position more like the 15 got, not like the 10 got.

Very good.

Thank you for your forthright and detailed answers.

Thank you.

And our next question comes from the line of Aldo Mazzaferro with Goldman Sachs.

Please go ahead.

I want to stay on Europe for a second.

I know your plans are to try to invest in the Turkish mill and I'm sure you saw over last couple days there's been some comments out of Ukraine that sales may be back on the market or something changing there.

I'm wondering if these would be in your mind, assuming the Ukraine mill came back on, would that be something that would be exclusive either Ukraine or Turkey or is it something you might be interested in trying to do both?

I think we would be interested in pursuing both and I guess I probably omitted the Erdamir [ph] opportunity from my earlier commentary, which I apologize to the earlier questioner.

We've acknowledged publicly we have interest in Erdamir, it's a terrific company, we've known it for a long time.

We've had consultants involved there over the years in a big market, growing market, big steel consuming market.

We sell to -- by the way from both Slovakia and Serbia with opportunity to improve product mix, all the stuff that we like and all the kind of things we've done in Slovakia and Serbia would be appropriate there as well, plus it's a very well managed company.

So we would like that opportunity, not really sure yet how that's going to go or what our involvement might be.

We would not see that as exclusive or excluding pursuit of the opportunity in Ukraine.

All we know about that, Aldo, is what -- probably the same news reports you've read.

We don't really know anything official and haven't been informed as to whether there's an opportunity or not, but we were interested in it before and if it was available we'd be interested again.

And it wouldn't rule out one or the other.

And the Ukraine mill has raw materials associated with it where the Turkey doesn't, right?

Correct.

In fact, that was, as we acknowledged before, one of the major reasons we were interested in the opportunity in the Ukraine.

John, just a quick question on the dividend.

Is U.S.

Steel the kind of company that might raise the dividend a number of times during the year or do you think they're a kind of once per year company?

I don't know, Aldo.

It's such a new experience for us that we really haven't fantasized much about that, but I think it's really a question of the stability that we see in our financial performance, which is going to be reflective of what's in the market.

I think as Gretchen mentioned and perhaps me in mine, we do have confidence that our business has been improved substantially and it will do better through the cycle than it did before.

Whether the opportunity to consider that would come more often than once a year or even once a year, we really haven't contemplated that yet.

I'd just say the rate of change in our business has been pretty rapid.

Not just for us but for everyone, so we've seen a lot of change in a hurry and we will consider those things -- well we consider them every quarter, but we would consider those kinds of issues appropriately every quarter and if action is called for more frequently, that would be perfectly fine with us.

We have really no doctrinaire approach to it.

Do you have a feeling if you were get to a normal year at some point in the future what your payout ratio might want to be?

What you might want to be at?

We looked at a lot of things -- I'll let Gretchen comment.

She knows this better than I do, of course, but I would say we looked at a lot of things in this discussion.

We looked at payout ratios and also at yields and yields for peak companies and metals companies and where we'd want to be on that continuum, and we thought analyzing this action moved us in the direction where the kind of yield that might be more customary would be appropriate, but nothing that was absolute or specific.

Gretchen, you may want to add to that.

I think that's fair, John.

We also try to look -- we've looked at a number of different type of peer groups, including just steel peers and I think we fit very comfortably where a group of steel peers would be.

Some of the S&P ratios tend to be a little bit higher, particularly on a pay-out side because as you know, there's a lot of REITs and other things in there that are tending more towards higher payouts, so we'd be on the lower end there, but we're trying to look at something that's competitive and something that we can maintain for the long term.

All right.

And do I have time for one more question, John, on the pricing?

Spot market pricing.

I know you've been one of the more aggressive in the market here in the first quarter and I know there hasn't been a lot of success on price, but I'm wondering now that imports are dropping, and I don't know if you saw the December number came down about 19 percent from November, I'm wondering if you're seeing any change in tone say in the last 3 weeks or 4 weeks compared to what you saw maybe a couple months ago in terms of the buyer's willingness to accept pricing.

It's all just anecdotal, Aldo.

The only thing I'd say is that when your selling inventory it is a tough sale.

That's I think the biggest matter we need to work through.

I think there's a good chunk of inventory in the system that we commented on before.

It's taken maybe a little longer to work out because a few more inventories might have landed.

We see the same trend on imports, I mean.

And by the way we see import offerings, again only anecdotal, fewer and relatively higher prices because of the dollar and everything else so I guess we expect to see that, Aldo, but I'm not prepared to say we're seeing it right now.

Thanks, John.

Thank you.

Thank you.

We have a question from the line of Robert Lagaipa, pardon me if I mispronounced that, Lagaipa with CIBC World Markets.

Please go ahead.

Sir, your line is open.

If you've got it muted on your end, we're unable to hear you.

Good afternoon.

Obviously a very good quarter.

John and Gretchen maybe you could comment on shipment levels, just a follow up on Aldo's comments.

Service center inventory levels, this is something you touched on, were out today for December, they're obviously the highest they've ever been on the flat-rolled side, highest month on hand since December '02, just curious in terms of the shipment outlook.

Shipment outlook you had mentioned at 3.6 million tons for the first quarter would indicate that they would be down about 13 percent off last year.

I recognize there's an outage at Gary the early part of this month.

Even if you exclude that you're looking at a roughly 12 percent decline and sequential decline as well which would imply that for the rest of the year you're anticipating much higher shipment levels.

Just wanted to get additional color there.

Is this just an effort to balance out the supply chain or what are you seeing in the marketplace there?

I think, Bob, our outlook, the 3.6 really reflects what we're seeing right now and how things are shipping right now, so I mean we think that's a reasonable view but we also do think that we're seeing strength really across a wide range of our customers and businesses and think that the inventory is going to clear out in the relative near term.

So we're comfortable with the 15.4 million tons on the flat-rolled side for a full year, but you're right, that's going to be pushed into the other quarters.

And, typically the second quarter is pretty good quarter for us.

Okay.

Terrific.

One other question.

One question on Europe.

Just in terms of raw materials there, the raw materials exposure, obviously you've heard, or a number of us have heard at least anecdotally in the press about these anticipated increases anywhere between 50 and 100 percent depending on the raw material.

When do those contracts and if you're on contract, when do those expire and when would we see the impact of those raw material price increases?

We're seeing it right now really.

In Europe, most of our -- we're not much into the seaborne trade.

We have some on occasion, but most of what we're into is from the north and east, largely the east, and there those contracts deal really annually with volume commitments largely so we each know what we need and what they can produce and what's going to come our way for transportation, et cetera, pricing negotiated in this kind of a market quarterly or periodically, I'd say, most likely quarterly, and those prices reflect eventually what we see settling in the seaborne trade.

So even though we may not be making a big announcement about what a settlement with one of the major iron ore producers has been, when those things begin to settle they filter their way back into the rest of the world market than we see it.

So we're seeing some price increases now, and if in fact those stories are right and we don't know whether they are or not because we're not really into much of that right now, but if they are we'll see that later in the year.

Okay.

Last question if I could, just sneak this one in.

Just in terms of the end market demand just to get back to that, both in Europe and also in North America where are are you seeing demand accelerate versus decelerate?

Any specific areas?

No, I think the inventory is mostly in the intermediate market, service centers and converters and tube converters, those kinds of things.

Most of the more OEM end-use markets for equipment and for autos and for tin, appliances, those runs have been really good from our standpoint, we've had excellent shipments and excellent order rates, and business, I think -- as they have been for last few years.

They've all been terrific customer groups for us, so we see the ebb and flow more -- there are seasonal things in those markets, but the ebb and flow that reflects market conditions would be more in the intermediate service center to converter distribution kind of markets.

Good quarter.

Thank you very much.

Thank you.

We have a question from the line of Michael Gambardella with J.P. Morgan.

Please go ahead.

Yes.

Good afternoon, John.

Hi.

I have a question in regards to imports.

Over the last 4 or 5 months now the Chinese domestic hot roll price is up about 25 percent and the European price continues to move up in dollar terms.

Used to be over the summer I think that the U.S. had record high premium price for hot rolled and spot market.

Based on your operations over in Europe and the U.S., in the spot market what do you think the premium is right now in the U.S. market?

For hot rolled sheet.

Premium U.S. market over northern Europe or --.

Right.

It's come in quite a bit.

It was very wide.

It was in the $200 a ton range probably back in --

Summer?

Back in the summer and I think it's come in quite a bit, a little bit because North American prices have moderated a bit, but more importantly because prices in Europe went up which we think is the right way to close that gap.

With the current positions, I would say there's some small premium, but it's not a lot and I think -- there's always been some justified based on shipping and particularly now with the currency so whether it's instead of being a normal premium of 20 to 30 maybe it's now 50 to 75.

I think that would be understandable.

I think the last calculations I've seen on that would have it somewhere in that range.

So what prices are you seeing coming in on import material for say hot rolled?

For current offerings, which would be for delivery a little bit later, prices would be pretty current. 650ish, I would guess, somewhere in that range.

A lot of people have made a lot about the Chinese becoming net exporters of steel overall, all steel products.

Have you seen the Chinese that aggressive on exporting sheet into your markets in the U.S.?

No, no, we haven't.

We wouldn't -- I wouldn't think that would be the case anyway.

It would reallocate things around the globe somehow and something else would get bumped out.

But specifically no we haven't and wouldn't expect to.

And I'm not sure that we know exactly what the numbers are in China.

I'm not sure anyone really does, but we might if there is exports they would be probably more towards long products and if it's flat-rolled it would be most likely in coal roll which is where they're heavy and I would guess that that probably wouldn't be something coming here.

Thanks a lot, John.

We have a question from the line of Charles Bradford with Bradford Research.

Please go ahead.

Good afternoon.

Hi, Chuck.

Could we talk a bit about swing in your iron ore business from the fourth quarter to the first?

Obviously, with the lakes closed, you usually run a first quarter loss on that business.

Right.

We'll continue to have that kind of a phenomenon as we've had over the last couple of years, although we're doing a little more rail through rail shipping into our Midwest and southern plants just to keep the system balanced a bit more so we might moderate that some.

I don't want to predict it's going to go away because it probably won't, but we might not have as extreme a swing between the fourth and first as we've had in the last several years.

Some depends on mother nature.

When things get really, really cold -- we're not surprised it gets cold in Minnesota, but when it gets cold where can't operate, which it does on occasion, that creates a little problem, but we haven't had that so far.

There's also been talk about railcar shortages.

Have you seen any?

Not so much shortages, but they're in the wrong place is what I'd observe.

We end up with cars in the wrong place and we end up with cars and barges at link somehow, and we've got the barges in the wrong place and not enough empties, too many full.

So there's still a bit of a snarl, I would say, in the supply chain for what we care about which is largely coal and iron ore pellets mostly, so that chain is still pretty snarled in shortage but also in the wrong place.

The price of molybdenum, I know you're not a big specialty [inaudible] but has obviously gone up pretty sharply.

Are you seeing any moderation of the price?

No, not really.

You're right, we don't use a lot of it, but what we use is very expensive.

That's been really the case, Chuck, for all the steelmaking additives.

That's been not something we've talked a lot about, but everything you put in the recipe, [inaudible] it's all become quite more expensive, and molybdenum would be the highest, but it's all more expensive.

We have a question from John Tumazos with Prudential.

Please go ahead.

Congratulations on the best quarter in the Company's history.

Thank you, John.

Could you just review the amount of iron ore and coal you buy in Europe, the amount of coal you buy in the U.S. and how much coke you sold in '03 and '04?

And then review the schedule of one-time items perspective for '05 and maybe the blast furnace outage or the weather impact on iron ore in the first quarter cost more than we think because you're so wonderfully profitable at current rates?

Okay.

I'll have to run through those little by little, but on the bigger ticket item I think you asked about how much coal we buy and I think we've acknowledged we buy in North America about 10 million tons of coal including injection coal would be about 11 or 12.

And then several more million tons on top of that in Europe, 2 or 3 on top of that 3.5, maybe something like that in Europe, so -- of course, we're buying steam coal in Europe as well, so all in all total coal might be something on the order of 15 million tons or a little bit less than that worldwide, majority of it North America, some in Europe.

Of course, not buying any metalics in North America to speak of but some, all of our metal supply in Europe and that's going to be, I don't know how many million tons, Nick, we're going to buy in between -- I'm thinking with the new blast furnace coming on, I'm not sure I have the exact number, but we'll calculate it for you.

Nick's going to turn to the right page in a second, but in terms of coke sales -- well, go ahead Nick.

The iron ore is about 4.2 million tons.

That was last year's rate?

That was -- well, for 2005.

It would be something similar in '04.

That assumes bringing up the second blast furnace somewhere during the year, which would add on another 100 million tons or something like that somewhere during the middle of the year.

On coke sales, I think as we ran through these numbers once before, we sold last year couple million tons of coke, I want to say 2.5, or somewhere in that range, 2.8 is the number we tended to quote, and that was in'04, and then in '05 we have only one contract that remains and it's 800,000 tons plus or minus, some number like that.

I think I picked off most of them, John.

Which ones did I miss?

The one-time items perspectively in '05, the impact of weather on iron ore in the first quarter, blast furnace in the third quarter, maybe the minor disruptions you've had already during January due to weather, the 13 furnace.

The minor disruptions we've had so far I wouldn't say we're going to say much about.

We've had minor disruptions all the time, they just didn't get as much publicity.

So when you're running the size operation we're run across the globe, those things happen.

We just take our licks and keep on going.

The quarter-to-quarter iron ore operations in Minnesota, sort of the cost penalty we incur by either not operating at prime levels or not shipping as much.

I don't recall exactly the number we talked about before in prior years.

We've said 30 million or some number like that, I think if I recall just looking at what the segment number was.

I think our expectation is for this first quarter we'll do a little better than that because we intend to, assuming we have the right assets, from a carrier standpoint, we intend to keep shipping via rail during more of first quarter than we otherwise would have done.

Then on the Gary blast furnace outage coming up in the third quarter, I think Nick talked about the capital side of that, we haven't talked yet about what the cost of that outage could be, but it will be substantial, Gretchen, I don't know.

Nick, you guys have anything you want to comment on there.

We'll say more about that when we get closer to it, when the plan is more well developed but it will be expensive.

100 million a reasonable guess?

For the cost portion of that?

For the expense portion or opportunity cost.

That's probably high.

Opportunity cost or the accounting?

If you include opportunity costs that's probably different --.

That's a little different, yes.

But if you just look at opportunity you can calculate based on whatever margin assumption you want, but just from an actual cost standpoint in the quarter that's probably a bit on the high side, but it's a big price tag, John, you're in the right ballpark.

Maybe more 75 out of pocket is what I'm thinking, John.

No opportunity cost, but that would be kind of the cost of doing the furnace.

Some of those things, you know what it's like, you don't know until you actually get in to see what you have to do, how much you have to do, sometimes higher, sometimes lower, but it's in that ballpark.

You're talking 100 days?

A little bit less than that.

We think we have a better way to do it that will cut some time off that, but for round numbers that's okay.

Maybe 10 days less, but somewhere in that range, 90 to 100.

Those numbers will probably slop in the 25 -- in the second quarter, some in the third quarter, maybe a little in the fourth quarter.

As we get a little bit closer and get the schedule set we will be able to give you a little more specific guidance on that.

Thanks.

We have a question from the line of Timna Tanners with UBS.

My questions have all been answered.

Thanks very much for all the detail.

I was just going to ask one little thing if you could indulge me, on the plate potential for producing plate, I've been told you can make some of the thinner gauges of plate and was curious if you could please expand on that.

We do make what's called strip mill plate on our Gary strip mill.

It would it compete with plate in a minor kind of way, but there's some excellent applications for strip mill plate and we have we think the best strip mill in the world to do that on and we make a lot of money doing it right now, but it ordinarily wouldn't be competing straight up with discrete plate.

There may be occassions because of availability it would, but for the most part it's got its own market and the discrete plate guys have their own market and the discrete plate guys have their own market.

And about what's the quantity there?

If we ran 6 million tons on that mill it would be in the hundreds of thousands, I would guess in that range.

Thanks again.

Congratulations on your quarter.

Thank you.

Thank you.

Thanks.

We have a question from the line of Chris Olin with Longbow Research.

Good afternoon.

Hi, Chris.

Just a couple questions.

First is, given your more conservative volume outlook, any chance that the automotive or your contract customers purchased ahead of '05 contracts coming up for the year?

No, I don't think so.

That's a fairly strict -- strictly adhered to supply chain that doesn't have a lot of human intervention in it quite frankly.

We're making to their build schedule and I think we each play that pretty straight as far as I know that wouldn't we the case.

Just some more clarity on spot pricing.

I'm getting 2 different opinions on how strong the market is.

Is it safe to say that the January price increases did not hold from where you see it?

I'm not sure that we had a lot of January price increases, but what we're looking for, of course is what the market is going to offer and we don't -- we didn't see prices moving up, though, during January.

Have you seen any type of irrational competitors in the marketplace that might have been bringing it down more dramatically than first thought?

No.

We tend to pay attention to our own knitting and not bother too much about anybody else, but no I think the biggest thing we're dealing with now is bumping up against inventory.

If there's not a demand, it's kind of tough to compete with inventory.

We have gone a little long, but we do have time for one last question and that question comes from Brian Rayle's line with FTN Midwest Research.

Most of my questions have been answered as well, but I was wondering sort of on the contract side if you had seen a move sort of traditional spot buyers moving to the contract or traditional contract buyers going to the spot or doing some kind of mix of spot and contract mix?

Just kind of wanted to get with the pricing environment if there had been any move there.

I'd really have to consult with my commercial folks to get real granular data, but at least in my personal conversations which have been substantial and extensive with customers on this subject, I don't know that I heard much about anyone wanting to move off of a contract into spot.

I think that runs into availability concerns.

Price is one thing, not being able to run your plant is something else.

So I didn't see that, I don't think that would be the direction.

On the -- those that are in the spot moving to contract, that was certainly a discussion and contract maybe instead of being one month spot maybe it was a three month letter, that would be a move in that direction.

And then there were those that are more intermediate where we did talk about some variable mechanism where we indexed off of something we could both agree upon that gave us the right flex in the price.

It made them comfortable, it made us comfortable, but they got the volume they needed.

So I would say not any move one direction, but some towards more contract, largely focused on somewhat well-founded concerns about availability.

And there hasn't -- has there been any real change in the last couple of months with the duration of any kind of buying from the service centers?

No, no, I don't think so.

Again, this is all a matter of inventory management, both us and them and it's the normal process we go through, and not really any change in behavior markedly that we can observe by them or by us for that matter.

With that we would like to thank everyone for their participation and we look forward to talking to you next quarter.

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