美國鋼鐵 (X) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to United States Steel Corporation's third quarter 2007 earnings conference call and webcast.

At this time all phone participants are in a listen-only mode.

Later there will be an opportunity for your questions.

Instructions will be given at that time.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Manager of Investor Relations, Nick Harper.

Please go ahead, sir.

Thank you, Gail.

Good afternoon and thank you, everyone, for participating in United States Steel Corporation's third quarter 2007 earnings conference call and webcast.

We will start the call with some brief introductory remarks from US Steel Chairman and CEO, John Surma.

Next I'll provide some additional details for the third quarter and then Gretchen Haggerty, US Steel Executive Vice President and CFO, will comment on the outlook for the fourth quarter.

Following our prepared remarks we 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 future 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 effect those statements are referenced at the end of our release and are included in our most recent annual report on form 10K and updated in our quarterly reports on form 10Q in accordance with the Safe Harbor provisions.

Now to begin the call, here's US Steel Chairman and CEO, John Surma.

Thanks, Nick.

Good afternoon, everyone.

Thanks for joining us.

Earlier today, as you probably saw, we reported solid third quarter results with earnings of $2.27 per diluted share, which includes a $27 million pretax charge related to inventory acquired from Lone Star and discreet tax charges totaling $11 million.

You may recall that we discussed the potential inventory charge on last quarter's call.

Excluding those items, if you care to, which reduced net income by $28 million or $0.23 per share, our results were $2.50 per diluted share.

From an operating perspective we reported third quarter segment income of $433 million or $78 per ton.

A good performance, especially given the market challenges experienced in each of our operating segments.

Our North American Flat-rolled segment had a very good quarter, with operating income of $170 million, ordinarily $50 per ton, almost double what Flat-rolled earned last quarter.

Our key markets were generally stable during the quarter and remain so today.

And still market fundamentals are generally positive.

Service center inventories and Flat-rolled imports continue to decline throughout the year and are currently at relatively low levels.

Very high ocean freight rates, the relatively weak U.S.

dollar, high scrap prices and the prospects for a significant increase in the seaborne iron ore price, has us cautiously optimistic that the North American flat-rolled market could be poised for some improvement.

The North American economic outlook, of course, will be a factor in when that may occur.

These favorable trends strengthen our optimism for the longer term, particularly since the weaker U.S.

currency should continue to discourage imports and favor many of our steel consuming customers.

Global raw material cost pressure only furthers our expectation for an eventual improvement in North American flat-rolled pricing.

We're limited in what we can say about our pending Stelco acquisition beyond the presentation and press releases made available on our investor website that summarize the transaction and a number of other public documents that have been filed recently regarding the various closing procedures.

Both parties continue to work through the few remaining closing conditions and we expect the transaction will close shortly, perhaps as early as tomorrow.

Gretchen will describe our financing plans for that transaction in a moment.

Business case for the Stelco acquisition is very strong, as the addition of the Stelco assets will allow us to expand our customer-base in North America, increase production at our Minnesota ore operations and expand our supply chain in providing semi-finished steel to our flat-rolled and tubular finishing facilities in the U.S.

The potential synergies are significant, especially as we better utilize and balance our low cost raw materials and our geographically dispersed raw steel and finishing facilities to serve an expanded North American customer base.

We have teams in place working on the integration process to ensure we can generate the more than $100 million of run rate synergies by the end of 2008.

Our third quarter European segment operating income of $152 million, or nearly $105 per ton, continues our string of strong results.

We did have higher raw material and outage costs and reduced shipments in production associated with blast furnace outages, including our Serbian blast furnace major rebuild project and of course the normal European summer pause.

The European market remains reasonably firm, especially in the central European corridor where we ship the majority of our product.

Unprecedented levels of flat-rolled imports, particularly from China, have resulted in higher than optimum customer inventory levels and some pressure on spot prices and order rates.

As you may have noticed just yesterday Eurofer, the European Steel Producer Association, initiated trade action against unfairly traded imports of hot dipped galvanized product from China.

We are members of Eurofer and we support this action.

Recently we had the formal dedication of our new automotive galvanizing line in Slovakia.

As evidenced by the number of important customers, public officials and other dignitaries in attendance, this project is a high-profile investment in the region.

I want to thank everyone involved for their hard work in bringing the new line to on time completion.

We look forward to increasing our participation with the automotive and appliance manufacturers in the region and to securing greater contract business volumes in 2008.

Also in Slovakia, we recently announced a voluntary early retirement program.

Employees who elect this program will terminate their employment prior to the end of 2008.

We anticipate the program will generate substantial future cost savings through long-term productivity improvements.

We will not know the employee response to the program and the amount of the resulting fourth quarter charge until later in the year.

Now turning to our Tubular segment, excluding the inventory charge I mentioned earlier, we earned $74 million or $156 per ton of shipments on shipments of 473,000 tons.

Shipments and cost increased during the quarter, as we continue to integrate the operations acquired from Lone Star into the US Steel supply chain and establish our unified business model.

Average proceeds were lower as prices for energy market products trended lower and a larger share of our overall product mix was welded product, which is generally at a lower price than seamless.

Our tubular distributors continue to focus on inventory management during the quarter, with high levels of inventory in imports, particularly from China, weighing on domestic shipments and prices.

With the Lone Star acquisition, we're now the largest supplier of OCTG product in North America.

We have established a new distribution network, with a limited number of authorized distributors.

And we are shifting to a made-to-order business model.

The new distribution network should allow us, and our customers, to improve management of inventory and production across the business cycle and it will also allow us to enhance our relationships with end users of our product.

The integration process is well underway and we are on pace to generate at least $100 million of annual run rate synergies by the end of 2008.

The primary source of the synergies will be semi-finished steel supply as we integrate the assets acquired from Lone Star into the US Steel supply chain for hot-rolled product.

Additional benefits include leveraging procurement and best practices and overhead reductions.

Along these lines, in September we permanently closed the two small electric arc furnaces and rolling mills in east Texas.

The full benefit of these actions will be recognized in 2008.

In summary, the third quarter was a very active and productive period for US Steel.

With the Stelco acquisition, progress on the Lone Star integration, and the dedication of our new galvanizing line in Europe, we've taken major steps to improve each of our main business segments.

Now I'll turn the call over to Nick for some additional information about the quarter's results.

Nick.

Thank you, John.

Capital spending, which is detailed by segment in the earnings release, totaled $210 million in the third quarter.

Our current plan for 2007 has total capital spending at approximately $725 million with $520 million for North American operations and $205 million for European operations.

Depreciation, depletion and amortization totaled $124 million in the third quarter and is expected to be about $475 million for the year, recognizing the increase related to Lone Star but excluding any affects from Stelco.

Defined benefit and multi-employer pension and OPG costs for the quarter totaled $64 million.

We made cash payments of $91 million for benefits, primarily for retiree healthcare during the third quarter.

Also during the third quarter we made a $70 million voluntary contribution to our main defined benefit pension plan, bringing our year-to-date volentary pension contribution to $140 million.

Additional detail will be included in our 10Q, which should be filed later today.

Net interest and other financial costs totaled $22 million in the third quarter and we expect fourth quarter net interest expense to be about $20 million, which excludes foreign currency gains or losses and financing activities related to the Stelco acquisition.

Our estimated annual effected tax rate for 2007 will be determined based on domestic results taxed at the statutory rate of about 38% and Slovakian earnings taxed at a flat 9.5%.

This rate in the first thee quarters of 2007 was about 17%.

During 2008, we expect to fully utilize the tax credit that has been available since we purchased USSK in 2000.

This will result in a higher effective tax rate in 2008 and subsequent years.

This matter is covered in more detail in our 10Q.

Lastly for the quarter, we averaged 119 million fully diluted outstanding shares.

Now Gretchen will review some additional information and the outlook for the fourth quarter.

Thank you, Nick.

Our cash flow has been strong so far this year.

Our cash flow has been strong so far this year, with cash flow provided by operating activities of $1.354 billion.

Excluding the Lone Star acquisition, our free cash flow after capital spending and dividends but before external financing was $852 million.

We ended the quarter with $1.4 billion of cash and about $2.8 billion of total liquidity.

As we mentioned before, of course, we continue to accrue a profit-based liability to be used to assist National Steel retirees with healthcare costs that have not yet been paid because the trust hasn't been established and as of the end of the third quarter the accrued liability for this was $462 million including interest.

As Nick mentioned earlier, during the third quarter we voluntarily contributed another $70 million to our main pension plan bringing our year-to-date total to $140 million, which is what we had forecast for the entire year.

In addition, upon closing the Stelco acquisition, we have committed to make a pension contribution of $32.5 million Canadian to the main Stelco pension plan.

Since the beginning of 2004 we have voluntarily contributed $865 million to US Steel's domestic benefit plan.

As noted in the earnings release, we repurchased 285,000 shares of common stock in the third quarter for a total cost of $28 million.

This brings our total repurchases to 14 million shares or approximately $750 million and represents more than 10% of the balance of fully diluted shares outstanding when we authorized the original repurchase program in July of 2005.

We have 7 million shares remaining for repurchase under the current authorization.

As discussed in our Stelco conference call, we intend to finance the Stelco acquisition through a combination of cash on hand and utilization of certain existing liquidity facilities.

In preparation for the closing, we have drawn $400 million on our receivables purchase agreement as well as $900 million under two new syndicated credit facilities, a $400 million one year term loan and a $500 million three year amortizing term facility.

We may access the debt capital markets to refund a portion of these facilities.

At closing, we intend to retire the majority of Stelco's outstanding debt.

A $150 million Canadian dollar note from the Province of Ontario will remain outstanding.

Turning to our outlook, for the fourth quarter we expect a decline in overall results mainly due to normal seasonal affects and several scheduled blast furnace outages.

The planned blast furnace outages in both the United States and Europe will impact shipment levels and costs.

Results for Stelco will be included in our Flat-rolled segment as of the date of the acquisition.

Our fourth quarter outlook doesn't reflect the affects of including the Stelco operation.

In the Flat-rolled segment, we expect results to decline in the fourth quarter due primarily to lower shipment, higher raw material outage and modernization related costs.

Average realized prices are expected to remain in line with the third quarter.

For US Steel Europe we expect fourth quarter European results to decrease.

Prices and shipments are expected to remain comparable to the third quarter level and costs are expected to increase slightly.

We have two plant blast furnace outages that will continue to limit raw steel production.

Fourth quarter results for Tubular are expected to be consistent was third quarter results as the benefit of higher prices and lower costs are expected to be offset by lower shipments reflecting continued high inventory levels and year-end seasonal affects.

Nick.

Gail, could you please cue the line for questions?

Certainly.

(OPERATOR INSTRUCTIONS) Our first question will come from Kuni Chen with Banc of America Securities.

Please go ahead.

Hi, good morning, everyone.

Hi, Kuni.

John, just had a question for you on Europe.

The market's obviously going through some inventory destocking.

How long do you think it takes for the European market to get back to equilibrium?

Is that a one to two quarter type issue or do you think it takes longer than that?

And can you also talk about some of the mix shifts that you're seeing in your business over in Europe?

I'll take the latter one first.

The overall mix has been relatively constant, it depends on what facilities we're doing work on.

Serbia would be our heaviest sort of spot market, hot-roll business, that's been of necessity a little bit lighter just because we haven't made as much metal there in the last month or two or three because of the blast furnace [outage].

So I think in general the mix has been relatively constant subject to just facility changes.

And then with the new galvanized line coming up, of course that will begin to move more of our business to A, decoded and B, to contract, but that'll take place gradually over probably a year's time, quarter by quarter.

On the overall outlook, Kuni, it's hard to say.

I have observed over the last couple of years that the European market perhaps follows a somewhat delayed pattern than what we see in the North American market.

That maybe is playing out here again.

The North American market is at a position where inventories have been drawn down to a relatively low level.

Now we're just sort of moving into that phase perhaps in Europe.

My guess is that it could be probably a quarter or two before we move back into a somewhat stronger position in Europe.

But the underlying consumption still looks quite good, particularly where we are in central moving towards the east.

The steel consuming economies there are quite strong for infrastructure, housing and then eventually for a more consumer oriented kind of a book.

So my sense is that it is a little ways out, but not very, very far away.

Okay, great, that's helpful.

One quick follow-up if I may, probably for Gretchen or Nick, just on the outages in the fourth quarter.

Can you quantify either in tons or days production what that means the U.S.

and Europe?

While they are looking and thinking, let me just give you a couple of general comments.

I think as the outlook said, I think our shipment level in Europe in the fourth quarter we expect about the same.

We had some outage production affects in the third quarter and we will have some in the fourth quarter.

I don't know that we see a significant difference between the two.

Gretchen, I'll let you add on to that.

I think on the flat-rolled side, we were looking at maybe $10 million to $20 million additional outages in the U.S.

on flat-roll.

As far as -- there will be a bit more in tubular, but not at that kind of a level.

And then on the European side maybe about the same as the third quarter when you get all said and done with it.

So not a significant change from what we saw in the third quarter.

I think in the U.S.

we have, on the blast furnace side, three outages scheduled and these are all scheduled for a variety of reasons.

None of major duration.

They are all one, two, three week kind of projects.

At least that's how they are planned, sometimes they are longer, sometimes they ar shorter.

I think the number Gretchen gave you on a direct cost basis, $10 million to $20 million for North America, is probably not a bad number.

Again, Europe I think relatively flat.

The tubular fairly small.

The only difference I'd say is that in the U.S.

to the extent that we have those direct costs, that's one thing, but our overall capacity utilization, which was up and very beneficial in the third quarter, might drift back down a bit in the fourth quarter.

That's very helpful, thanks a lot, guys

And we will now go to Brett Levy with Jefferies & Co.

Go ahead please.

Hi, guys.

It seems at this point that it may be more attractive to build than to buy.

Can you guys sort of comment on that premise and talk a little bit about what geographies and what product areas might be interesting to you going forward?

Sure, Brett, I'll try.

I think if you're calculating what build costs are and what the implied market values are per ton, that's certainly a much closer calculation than it might have been five or six years ago when we acquired the National assets, I think, for less than $200 per ton, if I recall, and certainly the placement cost is many times that.

Today those numbers are probably a little bit closer.

We haven't been particularly tempted in that regard just yet, although we could see that North America might be viewed attractively because of some of the macro effects that I talked about.

I think in terms of regions, I mean the higher steel consuming regions that will have increasing intensity are likely to be the more developing countries.

Certainly Latin America with resource base is very attractive.

Some of the CIS countries with resource base is very attractive and naturally some of the growing Asian economies.

But in terms of our direct participation, greenfield, in that regard I think for us that's probably a little ways out.

I think we're more focused on the things we have or will shortly have with Stelco and trying to take advantage of what we see in North America as a very favorable long-term economic position here.

Can you talk about your outlook at this point?

Obviously some of the iron ore guys have kind of fired a shot across the bow and talked about 50% increases in iron ore in the press.

Obviously we won't know for sure until it's all negotiated in January.

Can you talk about your outlook for some of the key raw material costs as we go into 2008, coke, iron ore, scrap, et cetera?

Sure.

Just to take a few off, I think you all read the same things we do from a variety of sources about the seaborne iron ore and all of the signs, including very high spot prices out of India in particular into China, suggests that there's room for a pretty substantial increase, where the big buyers in China and Asia and where the big sellers in Australia and Latin America come out on that I really don't know, but all the signs point to, I think, quite a healthy increase.

From a coal standpoint.

Seaborne coal looks like it's maybe a little bit tight, but in our position in North American coal in the Appalachian basin I think the overall market looks reasonably well balanced.

We will probably have a couple dollars per ton of increase.

We've got most of that already taken care of contractually next year compared to this year.

In Europe our coal situation, likewise, I think is in reasonable position, although there may be a slightly larger increase there.

To the extent anybody's buying coke, and we do both in Europe and North America, I think the seaborne coke market, which is a thinner market, is quite tight right now because of maybe not quite as much coke coming out of China.

I think that's a market which is likely to stay relatively tight.

It's ebbed and flowed the last few years, but right now it probably looks fairly tight.

In our own book we see that for furnace additions, by that I mean molybdenum and ferromanganese and that entire group of additions, that's been a fairly tight market as well and those probably show continued tightness into next year.

And we'll go to David Gagliano with Credit Suisse.

Please go ahead.

Hi, my question is related to your annual auto contracts for 2008.

There's been a fair bit of commentary in the trade rags lately just regarding some early posturing out of Europe for 2008 and the indications seemed to be pointing for the automaker -- sorry -- the steel maker is pushing for 20% lift in auto contracts while the automakers are actually trying to limit it to a 10% lift.

So my questions are is that, in your view, a reasonable starting point for your negotiations in Europe and in the U.S.

for 2008?

Well, we're in that process right now and working our way through that.

Some completed, some not so yet.

As you know, I don't like to negotiate with important customers in this particular venue.

But having said that, we observed, as I just went through, the cost pressures which we have to contend with and I think our expectation is that we proceed into those discussions with an expectation that we want to maintain and if possible improve our margins.

And in the fact of that cost pressure, which there is a variety of reports about how much that'll be per ton, those kind of percentages you talked about seemed to me to be not outlandish, but I don't want to go into any specific details because we're still in that process right now.

When it's all said and done, we'd expect to see some improvement in our overall contract price book next year.

Great, thanks, that's very helpful.

And just as a follow-up, regarding the Tubular business, first I was just wondering about the magnitude of the expected volume decline in the fourth quarter and then secondly, if you could just share your thoughts with regards to how long you think it will take for the Tubular inventory overhang to work its way through the system.

Thanks very much .

Sure.

The overall picture, I think, in not just OCTG but also standard and line has been characterized by heavy imports and relatively high inventories.

The underlying consumption has been pretty good with gas and oil prices where they are and the amount of drilling activity which one can observe and the amount of line pipe activity for water and gas and all the things that also moves into our flat-roll business.

The underlying consumption is pretty good, the issue really is a full inventory pipeline, no pun intended, and a lot more imports than we'd like.

The imports from China are particular concern.

There's a number of trade actions underway there, as you know, and maybe more to come.

Just recently we might have observed just a slight bit of leveling in imports, including maybe some from China.

There's reports of perhaps additional export tax actions coming out of China.

All that would be positive.

We're not counting on it, but it certainly would be positive.

All that means to us that the underlying consumption is good, we're going to gear our production to what our customers need, which is how we run our flat-roll business, as you know.

If that means it's through the end of this quarter in the early part of next year before things start to tighten up a little bit and get back to a more reasonable equilibrium, so be it.

And we'll make what our customers need until then.

I'll let Gretchen comment on what the overall shipment effect might be.

I think what we tried to say in our outlook was that we are expecting higher prices and lower costs to be offset by shipments, depending on how those -- that could lead you to a little bit more neutral kind of quarter-to-quarter effect.

I think as far as shipments go, I don't think that we want to be predicting what they are, I think we just wanted to kind of guide you that we had some favorable things and some unfavorable things and that might mean it's a little more neutral.

This is a particular market where the lead times are very, very short so we're making a view, our own view of what shipments would be.

We've got it towards being a little bit on the lighter side.

But the key point is that we're going to make what our customers need and the longer that this inventory bulge takes to work off, then the little lighter our shipments will be.

And, John, you might want to just talk a little about the moving to a kind of a unified model and how we approach that.

Because that is going to have a tendency on extending lead times somewhat for some of the customers who may have purchased from Lone Star before.

It's just a little different approach.

We are, as Gretchen points out, we are going more to a made to order kind of a system.

We don't like having a lot of pipe stacked and financing inventory when we don't really need to.

I think Lone Star as a steel short company with no supply, understandably, had a much longer supply line.

Our supply line is much, much shorter.

As we transition to that, we've got to take some inventory out of the system and as a result we may not be having to make as much in the near-term.

So those are a lot of different data points, but I think the conclusion would be, it'll take a little bit more time to work all the inventory down.

Okay, thanks very much.

And we'll go to John Hill with Citi, please go ahead.

Thanks, as always, for a very detailed conference call.

It seems that observers in steel have been calling for some time for this tight supply chain to translate into better market conditions, lower imports on the flat-roll side, service centers, et cetera.

Now it seems that just because of the small matter of a global financial pandemic, this has been pushed out several months.

But I was just curious, for the record, do you see that these drivers are still in place and do you believe that the recovery case for steel into early '08 is intact or should we be thinking about some darker clouds over that?

John, I think you have to look a little bit at the overall economic outlook.

As I said, our third quarter Flat-rolled result, which are not a bad indication of how industrial activity was, were quite good considering the fact that the economy wasn't exactly going gang busters in the third quarter.

The numbers are pretty clear.

The overall service center inventories are low, getting down to the kind of levels that the last two low levels attained.

Imports have trended down, look to be continuing to do so.

And that makes economic sense because of the freight rates and the overall dollar.

I think we're set up to have a response in pricing and perhaps in restocking.

All of our customers, be they distributors, or converters, or OEMs, they're all cautious.

Because they're not quite sure where the market's going or the economy is going either.

But as soon as we see, and I hope we do see soon, some reasonable stability in the economy and maybe a slightly brighter outlook and whether that goes from consumer all the way back to industrial, then I think the factors are all in place to have a fairly decent response, which would be along the lines of the response we saw the last two or three cycles.

But I would just take it back to some reasonable comfort about the overall economic outlook I think will translate into progress in this market pretty quickly.

Great perspective.

Then perhaps a bit narrower question just on the subject of middle level inventories.

We've seen in other corners of the steel world service centers inventories come down but then suddenly mysterious mill level inventories surface and derail the story.

Obviously, there was some overhang at a U.S.

dealer with some pipe supposedly that was scrapped.

That's a different matter than the steel mills, but can you provide us some comfort that U.S.

Steel is making to order and thin on the ground?

We always do.

Our inventories have actually been drawn down.

Gretchen commented on relatively strong cash flow.

A lot of that has come out of inventory.

We continue to keep very, very tight control over that.

We have no interest in making slab or band and put it on the ground and wait for someone to take it away.

So from a mill flat-roll standpoint in North America and in Europe, our inventories are lower than they typically have been.

The, I think, the Tubular situation, again, is adjusting what we acquired into the kind of more of a pull than a push methodology that we prefer to have and we intend to get there as soon as we can.

The product, the pipe you referred to is really product that understandably might have been there under a different model.

We don't really think it's the right product to have going out with our name on it and therefore we thought that not having that in the market was a better thing to do

And we go to Chris Olin with Cleveland Research.

Please go ahead.

Hi, John, can you talk a little bit about what you're seeing in terms of the Asian Tubular quality coming in.

I know there's been some kind of press that there's been some bad product being shipped into the country and whether or not that could drive a faster recovery in the market?

Everything you read is true.

The quality, a lot of it was on structural things that we might not be as much involved in but we certainly observe.

But even into standard line and OCTG, I think the quality is spotty and questionable and not of a quality that we're comfortable in putting into our supply chain to the important customers we serve.

And I would hope that the more discerning customers would take note of that and that might give us a little bit of an assist.

That, of course, implies that that gets all the way back to China and they stop sending it this way.

I'd prefer that market forces would allow that to happen as opposed to other means.

That may well be what happens, but there's no doubt that the quality of a lot of the product coming that way is not up to the standards that we'd apply to ourselves.

But you're not seeing any kind of change in share since this began to develop?

Well, this hasn't been all that long.

I think these kind of trends take a little bit longer to play out.

I'm reluctant to say we see a trend or anything else.

All we're talking about here is really episodic comments that we pick up in the trade, but not long enough now to really see a trend.

Okay and just one more question.

Considering you had to destroy some product at the Lone Star facilities, were there any, I guess, higher than usual shipments between the flat-roll and tubular businesses to kind of offset that?

Not yet and had to, just to be clear, we chose to do that because we didn't think the product was suitable for the kind of business we want to run.

So I just make that slight amendment.

There was a variety of other material on the grounds in these Texas slab and band.

Again, a much longer supply chain because of the lack of a committed steel supply.

So we are working through that, but most of that was okay, some was not, but most of it was okay.

We're just now getting linked up directly with Granite City and Fairfield and Gary.

And we had some steel flow from our traditional US Steel plants into east Texas in the third quarter, a bit more in the fourth quarter and we'll begin to hit a better stride next year on that.

That was part of the reason for our improvement in the third quarter on Flat-roll versus (inaudible).

We will go to Michael Gambardella with JPMorgan.

Please go ahead.

Yes, good afternoon.

Hi, Mike.

I have a question.

You've been looking for raw material acquisitions in Europe, any progress there?

No.

We -- we've really looking for a raw material position.

That could be anywhere from an acquisition to an equity interest to some different type of contractual arrangement.

But nothing yet.

We continue to explore that.

Nothing that has gotten to the point of coming close to fruition or that we can talk about in this venue.

We do have excellent relationships with all of our suppliers there.

And we have a variety of different sources.

They have been good suppliers, but for the moment they're just suppliers and we're just customers.

Do you have any planned outages for the first quarter?

None that we're prepared to talk about now.

Those plans come together over a period of time.

And we're just looking now at our schedule.

Some of these things we can vary depending on what we see in the market.

Most of what we are doing in the fourth quarter has been planned just because they have to get done and it's traditionally a good time to do it for a variety of reasons.

Nothing of consequence that I could think of right now, Mike, that I'd be prepared to talk about.

We do generally tend to do work at our iron ore operations in the first quarter because of the just the seasonal affects up there.

We do normally our major outages on the equipment in Minnesota in the first quarter, as Gretchen points out.

I think if you just look at the other businesses' results quarter by quarter, that is pretty evident and my guess is we will do it exactly the same way.

When will you -- when will tubular be done with running through purchase slabs through their production?

I think by the end of this year we ought on be in pretty good shape and be on a supply line back to our traditional U.S.

Steel plants.

Maybe not 100%, but the majority of it should be worked through and we ought to be on the kind of supply chain we're looking for probably by the end of this year.

And last question, John, were you surprised that Thyssen Krupp and Minnesota Steel appear to be going forward with their projects in the U.S.?

Not necessarily, Mike.

I think in the instance of the plant in Alabama, even though we think the level of state support for that is a little bit beyond what might have been appropriate, that's not my business to comment on.

That's a commercial decision by people who have capital and they want to take a risk and let the best company win.

The fact that their view must be that the North American flat-roll market has some growth prospects and that the overall steel consuming industries in the US have a decent chance of succeeding over time, that's not much different than our views.

If they want to take a risk and invest capital that's one thing.

The one in Minnesota I think is a different calculation and one that I'm really not prepared to say much on.

I just observe it's still fairly early in that process and we will have to see how it plays out.

But I think the extent that any investment in steel in North America reflects the view that the overall market is designed to be a decent market over time with some reasonable, underlying growth in overall consumption.

We see the same thing that the weaker U.S.

dollar will tend to favor the companies who consume steel globally.

That's probably also something we would agree on.

And as long as they're all commercial market-based decisions by commercial market-based companies, that's the way life goes

We'll go to Timna Tanners with UBS.

Please go ahead.

Hi, good afternoon.

Wanted to ask for a little bit more detail on the Flat-roll product's result which was quite impressive.

On the cost side you saw a $30 per ton reduction from what has been kind of consistent, at least in the first two quarters.

If you could give a bit more detail there because it's pretty important and just to highlight how that can be continued going forward.

Sure.

Among other things, Timna, if you just look at the overall capacity utilization, we ticked up from 85 to almost 89.

That's a pretty substantial increase in raw steel capability utilization.

Those incremental tons come at a zero fixed cost, or nearly zero fixed cost, so the incremental ton for us is quite a competitive ton because we are consuming pallets that we're manufacturing at a very competitive price as well.

So overall, the incremental utilization is very, very cost effective for us.

Part of that is, I think Gretchen commented on earlier, was for steel flowing towards Texas with the Lone Star acquisition, we'll see more of that.

Otherwise, I think we just ran the facilities quite well and we put a lot of capital, particularly into the blast furnaces.

That's where the cost really usually the battle's fought and our blast furnace capability was fairly high and our facilities ran quite well.

I'd point out that the performance is more impressive when one considers that we did experience some increases for purchase coke, as the market there is tightening, and also for a variety of furnace additions, as I said, molybdenum and all the other furnace additions.

Those were pretty substantial increases.

We overcame that, and more than overcame that, and our costs actually were driven down largely by the overall higher utilization in a market that was just okay.

I think our performance in the Flat-roll business demonstrates what we can do.

In the third quarter you produced almost exactly what you produced in the second quarter.

Is there something I'm missing on utilization?

Our utilization in the Flat-rolled business in the second quarter in North America I think was about 85% and we were now up to almost 89%, I think in the third quarter.

So our raw steel production was 4.1 million up to 4.3 million.

So we did produce a little bit more.

So I am looking at shipment date I should be looking at production.

Yes.

The raw steel capacity really gives you the cost number you are looking for.

And then finally if you could give -- .

Oop, I'm afraid we lost Timna.

I think we lost you Timna.

I've been here the whole time, that's strange.

I was just trying to get a little color from what your customers are saying?

If you could just give us an update.

Is there any recovery yet or is it too soon on some of the appliance and auto end markets?

Is there anything changing there?

Sure.

As I said, I think our markets during the quarter were just stable, some were more active than others.

Those involved in (inaudible), for example, were fairly strong, reflecting water transmission, energy industry, those were quite good.

Automotive was just moderate, a little bit up, a little bit down depending on the customer.

We are very widely diversified across the customer groups.

Those that are more aligned with consumer behavior, like appliance and HBAC that reflect somewhat what the housing market has done.

We are not as strong, although not bad.

In general our markets were stable.

And I would say they are stable going into this quarter and the overriding comment I would give is that our customers were cautious in keeping inventories very tight and very low.

While that doesn't make us feel great, it does imply that when, I hope when, the U.S.

economy begins to do a little bit better, then I think the position is set up to have a pretty good response.

And we will go to Mark Parr with KeyBanc, please go ahead.

Thanks very much, good afternoon.

Hi, Mark.

Couple of questions.

First related to Lone Star, if you exclude the $27 million in non-operating charges, did Lone Star contribute to the quarter or was it a net cost?

It did, although that's getting harder for us to figure out because we're not necessarily keeping separate score anymore.

We have now really during the quarter established an overall Tubular business unit.

I think there was, I'm sure, some moderate, positive income, but now with the closure of the small electrics and the rolling mills, we've taken a big chunk of the high cost structure out and we're really teed up to, I think, perform quite well.

There was a moderate profit, but we're not really keeping score that way anymore.

Okay, just along the lines of your entire M&A orientation here in the second half of '07, in the third quarter were there any unusual costs associated, say with due diligence on Stelco or with banking fees?

Any unusual SG&A associated with M&A that you could quantify?

I don't think anything that is worth commenting on really, Mark.

A lot of that stuff is going to go into the acquisition cost.

We have to sort that out as part of our purchase when we finally make it.

So I don't really think that there's anything that's worth talking about there.

Okay.

Just had just a couple other questions.

One related to the European market.

John, we talked about Eurofer filing the formal complaints this week.

Have you or has the marketing organization in central Europe seen any reduction in availability of Chinese bands in the last say month or so?

It's hard to get good data on that.

That close in, Mark, it would only just be anecdotal.

I don't know that we've seen anything, as of at least yesterday the last time I talked to our team there.

The product flow has been pretty brisk and that's one of the reasons why these couple of trade actions were brought.

There's been a lot of discussion at senior policy levels as well from Europe, as I'm sure you follow in the trade press.

I don't know that I could tell you we've seen anything of consequence yet.

Pretty soon for that.

Are there any meaningful differences between the anti-dumping process in Europe versus the U.S.

that we need to be aware of as far as watching how this process could unfold?

Well, I'm sure there is, Mark, but I'm pleased to report that I don't really know either of the two processes very well and I think it's similar in the same kind of things about blow costs and subsidization and injury and those kind of things.

But I'm not intimate enough with the details to really do you much good on that, I'm afraid.

We'll go to Aldo Mazzaferro with Goldman Sachs.

Please go ahead.

In your European operations, John, could you comment a little bit about what you're seeing in terms of the makeup of the type of imports that are coming in?

I know you commented on China, I'm wondering whether those other geographic regions that are sending steel there.

I'd assume that the market is getting a little tighter given the strong currency and how its attracting supply, but could you comment on how your cost structure you think compares to the delivered costs of some of those imports that you're seeing today?

I think for the big importers into the EU27 on the flat side, of course, China is now, by far, the largest importer.

I think if I have my numbers right, just through the first eight months, China's well over 5 million tons for the first eight months, which is unprecedented.

The previous year might have been, comparable period, 2 million tons.

So huge, huge increase.

The other traditional importers would be Russia and Ukraine and some of the countries to the east, and Egypt, Turkey, some of the countries to the south.

And add a little bit of Asian work here and there and India has become a larger supplier as well.

So all the traditional importers have been attracted into Europe.

I don't know that we've seen any real impact on those trade flows recently.

I think the cost to get material there is a lot more expensive now than it used to be.

So for those countries that have commercial business rules, which is to say most countries other than China, they've got to be affected by the fact that the ocean freight rates are much, much higher for those that are ocean going.

And for, of course, the euro also being much stronger, that's a little more attractive to the U.S.

markets.

So no doubt some imports that might have flowed this way are flowing towards Europe.

Where that all settles out I'm not really sure, Aldo, except to say that the imports from China in particular are way out in front of everybody else and that's where the biggest problem is.

And that's where we're not subject to normal commercial market-based rules and that's where the biggest issue is and that's why the trade case was filed.

Great.

Okay, can I switch gears to the iron ore just for a second.

I know I've asked you in the past about the potential to expand iron ore in North America.

And I know it isn't something that's on the front burner.

But is there a point where the price of iron ore would justify that kind of investment and would it be possible at some point?

It's getting closer to the front burner, I think, with Stelco and I hope shortly and also with the prospect of running our other existing furnace configuration a little bit higher to make sure we can support east Texas over the long-term.

Having a somewhat steadier diet of pellet consumption suggests maybe we want to go a little bit higher.

And there are a couple of projects, sort of a mini things and then a couple that are more moderately sized projects that could kick things up by a measurable amount for us.

We're looking at that pretty actively and not prepared to clear our hand just yet.

But I think that's something that deserves a close look because the higher the world price goes the more competitive we become.

We're very, very competitive right now.

So it's something we have to give a good look at.

And we will go to Michelle Applebaum with Applebaum Research.

Please go ahead.

Hi.

It was good to see you last week here in steel town USA.

I appreciated that boat ride and left your salesman alone.

I wanted to ask you, if, I guess a couple questions.

I don't think anyone has been as impressed as I have been over the last few years by all the strategic events you've done from buying back shares to acquiring Stelco to the whole national thing in labor and just so much change in such a short period of time.

I wanted to ask a little bit more of a critical question because this issue of integration gets bigger and bigger every year with the price increases in iron ore and coal and the other raw materials.

And so we all know that you have this huge advantage.

And my question for you is a tougher question, which is, when you talk to some of your peers about and try to get out some of the carbon steel results in North America from other companies, you find it, the profitability actually, doesn't reflect that premium.

Could you talk a little bit about what that's about and what you're doing about it?

Well, it's, if I understands your question, Michelle, it's really comparative profitability, if that's what you're asking about, and we try to assess that because it's instructive and gives us a target to shoot for.

It's getting harder to find anything that's directly comparable.

Our North American Flat-rolled segment is sort of just that, it's North American flat-roll.

There aren't many good comparators anymore that we can analyze and study.

We do that at a very micro level through variety of committees at ASI, AST, et cetera..

But on a company level basis that's become extremely difficult to do because of just the way things are reported by other companies.

No criticism intended.

Having said that, we have objectives every year to improve our cost position.

We have capital plans to improve our market position.

We're striving to do the best we can do to improve our competitive position.

But in terms of giving you dollars per ton for XYZ plant versus ABC plant, it's really hard to find that out.

I wish I knew it, but it's really not something we have good access to.

I'm not asking at all about plants, I'm asking about overall carbon steel, flat-rolled results.

I think that some of the information is public, like middle, and I think your integration is much higher than theirs.

You've been less profitable, although we don't have their third quarter results.

And other companies' seem to talk freely, I'm talking about corporate-wide, about specialty versus carbon?

You haven't seen any of that, so that you can compare it?

So you are not aware of that.

I don't think they reported that way in their segment results.

They don't, Middle does, but anyway-- .

I think the reporting there, again I shouldn't comment on this, but as I recall it's for the America's, I think, and it's not quite -- if we had that sort of thing, I'd be delighted to do it.

Perhaps we've just missed it.

If you have anything, we'd be delighted to see it.

I'll be happy to send you what I have.

Then another question.

I was going to ask -- I saw a price increase on seamless pipe coming out of Sumitomo a few months ago and I never saw any response to it.

Did it not float?

I'm not aware of that, Michelle.

We're striving to get the highest price we can for our product, particularly if it was on the seamless side, I'm not aware of what happened to that or where it was.

Which products it -- and I'm not sure we compete in our market heads up a whole lot with them, probably some but not a whole lot.

So I can't comment really on that.

I'd have to look into it further.

[John Tomakis] with [John Tomakis Independent Research], please go ahead.

Congratulations.

I have similar questions to Tim and Michelle, admiring the productivity improvement in The Flat-rolled division.

In particular, some of the finishing mill end markets were not really that dynamic, like appliances from Mon Valley or tubes distributors and construction for Granite City or Fairfield and Detroit wasn't that great for Great Lakes.

Were there particular facilities that had production or productivity records and are, is your mix moving more toward grades of steel that no one else makes, like a higher proportion ultra high strength (inaudible) alloy for automotive or things that are a little more defensive when the market's a little sloppy?

Couple points, John.

Number one, we probably had some records at various facilities.

I know in the Mon Valley we had a couple of caster strings that were very, very long.

And a couple things at Great Lakes and Gary.

We've had a variety of those.

This wasn't our highest production quarter, but it was a very balanced, strong production across all the facilities and everything ran well.

And our operating group led by John Goodish and his team did an excellent job of guiding them .

Was an excellent safety performance, I might add.

And none of our markets, as you point out, were particularly going gang busters.

All you have to do is read the paper everyday to figure that part out.

The markets were just okay.

We had a good performance in light of just a sort of a reasonable market condition.

Your latter comment, I think though, is revealing.

We do have, particularly on the auto side, an excellent position and a lot of these high strength and advanced high strength steel, which are not particularly easy to make by the way and do require a lot of additional metallurgy that we have the investment in and we can make as cost effectively as anybody.

That certainly helped to keep our auto position reasonably strong in light of a relatively languid market.

But I'd just say that overall things were just okay.

We ran the plants, our team ran the plants, our employees ran the plants extremely

Thank you

We'll go to Charles Bradford with Bradford Research.

Please go ahead.

Good afternoon.

Apparently last week the European union court ruled against you guys when it comes to the emissions in Slovakia.

Right.

Where they require a 25% cut in emissions effective the beginning of next year.

Apparently you would have two choices, one is to cut production, which I doubt if you're going to do, or buy emission credit.

If you would buy those emission credits today, what would it cost?

It's hard to answer that Chuck, because that's just one piece of the puzzle.

We continue to work through, this is the national allocation plant to process, we continue to work through that.

Slovakia receives from the EU body a certain level of allowances, which then we get our share of.

There has been a variety of discussions at the ministry level in Slovakia and we think we're moving towards a conclusion, which will be, I hope, something we can live with.

We're still considering our options in that legal action because we think both the country and we were not treated fairly in that process and haven't been generally.

But even if that is not successful we think that we'll be in a position where the difference between what we're going to need and what we're going to get won't be so significant.

You have to calculate that.

The overall emissions, I'm forgetting now, but I think it's roughly two tons of carbon per shipped ton, roughly, I forget the exact numbers.

You can see what the market price is for allowances these days in Europe, whether it's $10 or $20.

But it's in that order of magnitude.

When you look at proposals that have been put forward in the U.S., for example, the Dingle Plan or some of the other arrangements, what do you think makes some sense considering that mini mills are emitting a lot less carbon that you guys are?

They do, of course, they're taking advantage of an extremely efficient national recycling system we have that makes steel the most recycled material in the world.

Most of the plants we see that right away gravitate towards cap and trade that has some romanticism to it, because of our experience in Europe we don't think is the right way to go.

It forces someone, in this case folks in Washington, to pick winners and losers.

We don't think they're particularly good at that, quite frankly.

And I would prefer it to be a system which is more, particularly for a global industry like ours, has a more global kind of approach.

What we are most concerned about would be, if in some rush to enact something, it's a cap and trade system that for some reason is applied to companies, industries like ours that what that would do without some other kind of safeguard would be to encourage production to move to other regions, such as China, where there's no limitations if they don't sign up and where the emissions intensity is two to three times higher, so we would have succeeded in doing nothing more than damaging our national economy and increasing carbon emissions.

We think that's a terrible result and we speak to anyone who will listen to us that that's not the right thing to do.

We think the IISI, AISI sponsored global sector approach, where we all work together for best available technologies and reduce our overall intensity is the best way to go.

I would remind you that due in part to the electric furnace contributors that our overall CO2 and energy intensity since 1990 in North America is down 27%.

We're way ahead of where the [KIODO] requirements would have been.

We'll go to Michael Willemse with CIBC, please go ahead.

Great thank you.

I just want to go back to a comment I think Gretchen made at the beginning about $400 million in receivables, a facility had already been set-up with the Stelco acquisition.

Is that an off balance sheet facility?

It is a receivables purchased facility.

You can see we had about $500 million undrawn.

Off balance sheet, I think, is relative, it's fully disclosed and people treated it as that.

So -- .

Okay, okay and you said it was about $400 million or $500 million?

The availability is about $500 million, we actually drew $400 million in preparation for a closing this week.

So we actually have drawn on all of the facilities and we're ready to go.

Okay.

And then, just on the inventory levels at Stelco, do you have an idea yet on how much you think, you talked about reducing inventory at Lone Star, how much do you think you could reduce inventories at Stelco to get them more in line with desired levels?

That's hard to say at this point without really being there and being involved.

We had a better feeling about the ability to do that at Lone Star because again they were steel short and they had a long supply line.

That was, I think much more apparent to us.

Our sense, at least my sense at Stelco is that based on what we have seen so far that the management team there, Rodney Mott, is (inaudible).

He's done a good job of running the facilities and have kept a pretty good handle on inventories.

I like to think that as we get our overall larger North American supply chain together, we can do better.

But I'm reluctant to say how much in terms of percentages or dollars.

That'll be one of our focus areas.

But my sense is there it won't be as quick and as apparent, it will be through normal blocking and tackling.

Okay, and just on the inventory charges, purchase accounting charges at Lone Star, do you think you'll have more charges in the fourth quarter or do you think we've ran through most of them in the third quarter?

I'd say most.

It's not impossible that we might see something.

We don't come up with a lot of excuses, as you guys know.

If it's normal routine business, that's a different question.

But I think the majority of the major things we had to deal with, we wanted to get done because we told all of you we would and I think we got through most of it.

Lastly, you denounced investments in new large diameter pipe facilities in North America.

I just wondering where you are with large diameter pipe investments?

I know Lone Star had been talking about one in Texas.

I think that's off the table now.

What about the one on the joint venture on the West Coast?

I think you have that right.

The one that Lone Star had underway is, in fact, off the table.

The one on the West Coast it continues.

We're into the engineering phase in that process and working our way through it.

It's not quite ready to pull the trigger on it yet, but we are getting close to that.

So we are still working our way through it.

Just in the engineering permitting process now, there was some progress on that in the last week or two, I think.

We think that's an excellent project with great prospects, a good partner, two good partners, actually, in a good market for us.

We're excited about it.

And sorry, when do you think it could be, I guess, finished construction?

Oh, that's, that's at least a year to a year and a half I think kind of schedule.

I haven't seen all the details on it yet.

But I would say it is in that zone, year to year in a half.

Thank you.

Thanks.

We'll go to Dave Martin with Deutsche Bank.

Please go ahead.

Yes, thank you, I had I believe two follow-ups.

First off on the comments earlier about auto contracts, can you remind us how many tons are due to be repriced for '08?

I don't know that we want to give total tons.

I mean, it would be either at the beginning of '08 or some later on.

It would be the majority of our overall auto book, which is probably a quarter of our overall businesses, going to be up for repricing.

Okay.

And then secondly, coming back to the comments about outage costs in Europe and there have been some significant outage costs in recent quarters and you mentioned the major rebuild in Serbia.

Are there any major rebuilds planned for 2008 and what costs can I associate with the major rebuild in '07?

I don't know that we have -- .

Sure there's an easy way to characterize that.

There's a certain diet of these things that are more routine like we have this quarter, which are each two or three weeks each.

Those are - fairly steady diet of those.

Some higher in some quarters, some quarters lower, the major projects where we take a furnace down for a complete rebuild, like we're doing in Serbia, is less common.

I don't know that we're prepared to say.

Those typically are more capital but they are much longer and you lose production for a lot longer time.

I'm not sure we can tell you that next year -- I can't tell you next year what exactly we're planning on doing.

Those plans are just coming together.

There will undoubtedly be some outages, some will be longer than others.

We may have a project in one of the facilities, furnaces in Slovakia that'll take a little bit longer.

Until we're actually committed to those I kind of hate to get into the details.

Okay, thank you

We'll go to Marty Pollack with NWQ Investment Management Please go ahead.

Hi guys.

A couple questions, I know there's a lot of ways of looking at some of your results, but as an example, when I look at the Tubular, year ago margins 36%, on an operating basis I think 24% Q2 and 12% in this quarter.

And clearly, the revenue impact of Lone Star is it affecting margins via mix?

I'm just wondering though, can you kind of give us a sense when we look at that whole group, is there a way to sort of think about what would be a normal stable profits on margins here and in effect how much is integration costing, it can be (inaudible) as we go forward, trying to get a sense of maybe a normalized level.

That would be one question, please?

That's probably a hard question for us to answer right now, Marty, because we're really sorting through a lot of transition stuff and trying to get, just trying to get the business on the model that we want going forward.

There's no question that there--and if you just go back and you look at Lone Star's results and their margins prior to our acquisition of them, it was a lower margin business, but they also tried to sell their -- the welded product for some higher -- they had some higher value added usage for that.

We're just trying to pull all that together and hopefully raise margins overall with the general approach that we take.

The one thing about Lone Star though is that a lot of the synergies is liable to fall out in the Flat-roll segment and as we work through that this year, we'll have a better sense of that.

So, while there should be some margin improvement from synergies related to some of those the cost synergies, purchasing synergies, things like that, most of the sourcing benefit is really going to probably fall on the Flat-roll side.

I think we saw some of that in the third quarter.

So as we get through this year and maybe get a better look at how things are going to look going forward, we might be able to be more helpful on that.

How is integration going?

Is there a sense that things are going as you expected and possibly will be, if we look into next year, would integration cost be a tailwind of some amount?

I think the or the integration's gone well on the schedule that we've been looking for.

We have a business unit established with a business unit leader, management team, and market leader, a unified approach to the market.

Distributors selected in each of the major product groups, they've been notified.

They're on board.

We're working our way through the supply chain as we mentioned.

Took down electric furnaces.

We've done everything we said we're going to do on maybe a little bit faster pace than we had originally laid out.

And of course we are all viewing that through a market picture which is a little bit murky.

I think we'll exit this year with the business unit established, the unified market approach established and we'll be able to sail into the next year and that'll give us a much better picture, as Gretchen says, of where we're going.

But I think on the actual integration plan we laid out, we're on or ahead of schedule.

On the other side, on iron ore as it effects North America and Europe, seaborne iron ore trade, those price increases possibly up 50% this year, or 30% or 40%, obviously could be very material and they would affect, I would imagine, your European operations in terms of the benchmark or pricing.

I don't know if it's pellet there they use.

But it seems like international iron ore has definitely a higher price and possibly higher cost.

On the other side, on the North America, it seems in history, one looks at Cleveland Cliffs sort of pricing trends.

It doesn't seem that we're getting the same type of leverage on pricing so that I think historically only a quarter percent, a quarter of the same price increase internationally you're seeing domestically.

So in a sense, since you're not really a third party seller, I'm not sure whether you are missing any benefits, but are you getting the same cost benefits, if in fact there's less volatility in those prices?

Let me sort of take those in reverse order.

Your last question, we don't sell them, we do occasionally, but for the most part we're producing in Minnesota our two plants over 20 million tons and consuming all that in our facilities and we'll make as much as we can because our consumption is going to be a bit bigger now.

Our focus there is to keep our costs as low as we possibly can.

Our costs next year will be, I hope, within a short distance of what our cost was this year.

While we might take some interest academically in what the Cleveland Cliffs price would be, it's not really something of great interest to us because we're not either buying or selling in North America.

The seaborne price, the higher it goes to the extent that find its way into some of our competitors, for instance.

we think that's fine in North America.

In Europe, I would just to say, Marty, we don't exactly play to the seaborne price in Europe.

That we are working with suppliers in the east who generally aren't seaborne players and as a result our materials cost center fines and pellets typically would move more aligning with spot steel prices in Europe and less so the seaborne iron ore price of.

That's normally how things have gone.

That's why in this third quarter and also in the fourth quarter, in Europe, the overall raw materials price were relatively flat because steel prices were relatively flat.

The bigger increases came earlier in the year.

We're a little bit out of that seaborne price trade in Europe and in North America.

We'll observe what happens with [HUBE], but generally speaking, the higher it goes the more competitive it makes.

And our final question today will come from [Bob Richard] with Longbow Research.

Please go ahead.

Good afternoon and thanks for taking my call.

I think this may have already been touched guys, but what's driving the Stelco synergies is the more -- the higher utilization of the finishing assets here in North America.

After the -- it's going to add about, I believe, 900,000 tons of slab.

Are you know in balance or are you still slab short after the Stelco acquisition?

The 900,000, by the way, is our best guess of that.

It might be a little bit higher, it's hard to say.

It could be a little bit lower depending on how things run in Canada.

Again, we won't know all that just yet.

That additional 900,000 tons if we choose to finish it all in North America, which would be in all probability, Great Lakes and Granite City, we'd have a little bit more room left in our strip mills, but not a lot.

We'd be getting towards the top end of what we could handle.

There may be episodes where we could handle more, but that would not quite fill us up but would get us in a much, much better position of utilization.

Not that we're going to necessarily finish all those.

There may be other options which could be selling slabs either in North America or elsewhere.

We're looking forward to exploring all that, given the macro economics we think that's a nice position to be in.

Sure and thank you for that.

One quick follow-up.

The sale of the railroad, when's that supposed to close?

That's the subject of all sorts of regulatory requirements that have to be carried out, the Surface Transportation Board, if that's the right name.

And that, in all probability, will be well into mid-next year before that would be finished.

That's got to be a material gain, I would have guessed, right?

I can't imagine the book value of those assets being all that much.

I think your guess is a good one.

Not that that, of course, was the reason for that.

I think it's quite a fair value for our shareholders and we have things we can do with that capital and having an excellent service provider to give us the kind of service we need.

It just made it the right thing to do.

But it will be a substantial gain, you're right.

Thanks a lot guys.

Best of luck.

Thank you.

Okay, we thank everyone for participating.

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