美國鋼鐵 (X) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to United States Steel Corporation's first quarter 2010 earnings conference call and webcast.

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

Later, we will conduct a question and answer session.

Instructions should be given at that time.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr.

Dan Lesnak.

Please go ahead, sir.

Thank you, Karen.

Good afternoon.

Thank you for participating in United States Steel Corporation's first quarter 2010 earnings conference call webcast.

We'll start the call with brief introductory remarks from US Steel's Chairman and CEO, John Surma.

Next, I will provide additional details for the first quarter.

And then Gretchen Haggerty, US Steel's Executive Vice President and CFO will comment on the outlook of second quarter 2010.

Following our prepared remarks, we'll 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 affect those statements are referenced at the end of our release and are include the most annual report on Form 10-K and updated in our quarterly reports on Form 10-Q in accordance with the Safe Harbor Provision.

Now to begin the call, here is United States Steel Corporation Chairman and CEO, John Surma.

Thanks, Dan.

Good afternoon, everyone.

Thank you all for joining us.

Earlier today for the first quarter we reported a quarterly net loss of $157 million, or $1.10 per diluted share, a significant improvement from the fourth quarter, as we substantially reduced our operating loss in our North American flat-rolled segment, our European segment returned to profitability, and our tubular segment continued to improve on its already solid performance.

Net interest and other financial costs in the first quarter of 2010 included a foreign currency loss that decreased net income by $56 million, or $0.39 per diluted share, due to the remeasurements of a US-dollar denominated intercompany loan to a European affiliate and related Euro US dollar derivatives activity.

As previously disclosed, we reported a deferred tax charge of $27 million as a result of the US healthcare legislation enacted in the first quarter.

Also, as the result of the conclusion of certain tax examinations and the remeasurement of existing tax reserves unrelated to the new US healthcare legislation, we recorded a net tax benefit of $30 million in the first quarter.

In total, these two tax items increased net income by approximately $3 million, or $0.02 per diluted share.

Now, let me turn to our operations.

We reported a first quarter loss from operations of $57 million compared to a $329 million loss from operations last quarter.

Our operating results have been making a slow and steady recovery since hitting a low point in the first quarter of 2009, until this quarter, when the benefits of improved utilization rates and selling prices began to be realized in a more significant way.

Our segment loss from operations was $13 million, essentially break-even on a per-ton basis, compared with a $245 million, or $53 per ton loss in the fourth quarter.

The improvement in our quarterly segment operating results from the first quarter of 2009 through the fourth quarter of 2009 was $212 million in total, while the improvement in this current quarter alone was in excess of $230 million, driven primarily by a $204 million improvement in our flat-rolled segments.

Our utilization rates have strengthened from extremely low levels in the first half of 2009 and shipments are at the highest level since the global economic downturn began in late 2008.

While the improvement in our results as compared to the fourth quarter was most pronounced in our flat-rolled segment, both the European and tubular segments continue to make progress in becoming increasingly profitable.

A significant improvement for flat-rolled in the first quarter 2010, from the fourth quarter of 2009, was primarily due to the benefits of higher average realized prices and shipments, operating efficiencies, and decreased costs for facility repair and maintenance, energy, and facility restarts and increased inter segment shipments to tubular.

Our flat-rolled raw steel capability utilization rate increased to 73% in the first quarter of 2010 compared to 64% in the first quarter of 2009.

We completed maintenance work at our number 14 area blast furnace, number 14 blast furnace Gary Works in mid-March and had all steel-making capacity in operation with the exception of our Lake Erie Works before the end of the fourth quarter.

Our ability to achieve a 73% utilization rate in the first quarter when Lake Erie Works was down for the entire quarter in our number 14 blast furnace at Gary Works operated for a very brief period reflects an exceptional performance by our operators, as they were able to operate all of our other furnaces at extremely high and consistent levels throughout the quarter.

Shipments increased 12% to 3.6 million net tons and average realized prices increased to $654 per net ton, an increase of $21 per ton from the fourth quarter 2009.

As we began realizing the impact of increasing spot market prices later in the first quarter.

Fourth quarter results reflected continuing employee and other costs for total facilities including approximately $50 million, solely at our Lake Erie Works compared to $80 million in the fourth quarter 2009.

As we announced earlier this month, the USW represented employees at our Lake Erie Works had ratified the new three-year labor agreement and we expect to restart steel finishing, both steel making facilities in a staged process throughout the second quarter.

First quarter 2010 results for our European segment improved from the fourth quarter of 2009, primarily due to the benefits of a 22% increase in shipments to 1.5 million tons.

Average realized Euro-based transaction prices were slightly lower than the fourth quarter, as spot market price increases later in the first quarter almost completely offset the impact of lower prices earlier in the fourth quarter.

However, the reported averaged realized price for the segment was $50 per net ton lower than the fourth quarter of 2009 due primarily to currency translation.

Our capability utilization was 87% in the first quarter of 2010 compared to 80% in the fourth quarter of 2009.

We completed maintenance work on the number 3 blast furnace at US Steel Kosice in early February and all five of our European blast furnaces were in operation for the majority of the first quarter.

Our first quarter 2010 tubular results improved from the fourth quarter of 2009, as the benefits of increased shipments were partially offset by increased costs for sealed substrate.

Operating rates increased to all of our major pipe facilities, most notably our welded pipe facility in East Texas, as the ongoing developments of the shale gas plays has continued to support increasing rig counts.

Shipments increased by 50% to 310,000 tons, primarily due to increases in welded pipe shipments.

The reported average realized price for the tubular segment decreased to $1389 per net ton, as compared to $1462 per net ton in the fourth quarter of 2009, mainly due to product mix, as our welded product shipments more than doubled from fourth quarter levels, and the impact of bottoming spot market prices towards the end of last year.

Now, let me turn the call over to Dan for some additional information about the results.

Dan?

Thanks, John.

Capital spending totaled $125 million in the first quarter.

We currently estimate that full year capital spending will be approximately $560 million.

Depreciation and lease amortization totaled $165 million in the first quarter and we currently expect to be approximately $660 million for the year.

We made cash payments for pension and other benefits of $252 million, which included a $140 million voluntary contribution to our main defined benefit pension plan.

For the full year, we expect pension and other benefits costs to be roughly $420 million and we expect cash for pension other benefits, including the $140 million voluntary contribution, to be approximately $705 million.

Net interest on the financial costs totaled $108 million in the first quarter, including a foreign currency loss of $63 million.

Excluding foreign currency effects, interest expense in the second quarter forecast to be $58 million, reflecting the full quarter effect of the newly issued 7.375% senior notes and repayment of the outstanding balance under the US Steel credit facility.

Our first quarter 2010 effective tax benefit rate of 4% was lower than the statutory rate largely because losses in Canada and Serbia, which are jurisdictions where we have recorded a full valuation allowance for deferred tax assets to generate for accounting purposes.

Also included in the first quarter 2010 tax benefit is the impact of the two tax items John discussed earlier on the call.

Lastly, for the quarter, we averaged 143.4 million fully diluted outstanding shares.

Now, Gretchen will give you additional information and the outlook for the second quarter.

Thank you, Dan.

During the quarter, we took several actions to enhance liquidity, maintain a strong balance sheet, and position us for growth over the long-term.

On March 16, we issued $600 million of 7.375% senior notes due 2020.

We received net proceeds of $582 million, which will provide us with the financial flexibility to pursue investments of long-term strategic importance without impacting our ability to meet anticipated increased working capital requirements, as business conditions recover.

As Dan just mentioned, we made $140 million voluntary pension contribution to our main Defined Benefit Pension Plan, and additionally we repaid the $270 million of outstanding borrowings under the US Steel Kosice revolving credit facility which matures in 2011.

As of March 31, 2010, we had $1.4 billion of cash and $2.9 billion of total liquidity, as compared to $1.2 billion of cash and $2.5 billion of total liquidity at December 31, 2009.

Dan indicated that we now anticipate our 2010 capital spending will be approximately $560 million, modestly higher than our initial capital budget of $530 million.

We're moving forward with permits and engineering on several projects of long-term strategic importance in all three of our segments, with the added support of our successful financing.

The majority of the spending for such strategic projects will occur over the next several years.

We will provide some additional details in our first quarter 10-Q.

Now, turning to our outlook, we anticipate being profitable in all three of our operating segments in the second quarter of 2010, as gradually improving business conditions should be reflected in our operating results, most notably for our flat-rolled segment.

We continue to experience healthy order rates from most of our end markets, resulting in increased production levels.

In North America, reported inventories in key end markets such as automotive and service centers, remain below historical averages, as do flat-rolled product imports.

In Europe, imports have also remained below historical averages and reported inventories remain low across our end markets.

Our tubular segment is also benefiting from both increased order rates, particularly for small diameter alloy oil country tubular goods and a continuing steady decline in reported US oil country tubular good inventory levels from the record highs of early 2009.

In summary, we remain cautiously optimistic in our outlook for end user demand for all three of our operating segments, in line with a gradual and continuing economic recovery.

Our second quarter 2010 flat-rolled results are expected to improve as compared to the first quarter of 2010.

The benefits of increases in averaged realized prices, higher trade and intersegment shipments and lower energy costs, are expected to be only partially offset by higher raw material costs, mainly to scrap and coke, and increased facility repair and maintenance costs, including the facility re-start costs at Lake Erie Works.

Average realized prices are expected to benefit from increases in both spot and index-based contract prices, which now reflect higher published market price assessments.

We expect to complete the re-start process at Lake Erie Works late in the second quarter.

Our remaining steel-making facilities are expected to operate for the entire quarter, and in recent weeks, these facilities have operated at over 95% of raw steel capability.

We expect second quarter 2010 results for our European segment to improve, as compared to the first quarter of 2010, primarily due to the benefits of increases in Euro-based transaction prices, partially offset by increases in raw material costs.

Shipments are expected to be comparable to first quarter levels.

We expect to operate at slightly higher overall utilization rates as compared to the first quarter, reflecting increased raw steel production at US Steel Kosice, however, US Steel Europe's raw steel availability will be limited due to operational issues, with one of two blast furnaces in Serbia.

We currently expect the number 2 blast furnace at US Steel Serbia to return to full production before the end of the second quarter.

Second quarter 2010 results for tubular are expected to improve from the first quarter of 2010.

The benefits of expected increases in average realized prices and higher shipments are expected to be only partially offset by increased costs for steel substrate.

Operating rates are expected to continue increasing throughout the quarter, in line with demand trends.

That concludes the outlook.

Dan?

Thank you, Gretchen.

Karen, can you please open the line for questions?

(Operator Instructions) Our first question comes from the line of Kuni Chen with Banc of America.

Please go ahead.

Good afternoon, everybody.

Hi, Kuni.

To start off, can you walk us through the North American utilization rate.

I think I heard Gretchen say that you could run at over 90% utilization in the second quarter here, can you, can you just clarify, again, where you see yourselves potentially running here, and do you think that's sustainable as we look into the second half of the year?

Maybe talk about some of the puts and takes in terms of how you think about running your system in the second half.

Sure.

This is John.

Just a couple of things.

I think our earnings release said that if you exclude the effects of not having Great Lakes -- Lake Erie available and then the time where we didn't have Gary 14 available, we were at 94%.

So that was designed to indicate the point which you may have read, we operated extremely well during the first quarter.

I think Gretchen indicated that in recent weeks, that same group of facilities now including Gary 14 has been running at over 95% capability.

So, again, very strong performance in every facility.

The only exception being the fact that Lake Erie is now just in the process of coming back up.

I think our release indicated, as you look further out, that number one, we don't have any large planned maintenance projects in the second quarter.

When we get into the third and fourth quarters, there will be some maintenance projects that ordinarily would take place in the blast furnace end of things and we don't have them scheduled yet, but there will be occasional two or three-week projects that will dampen that a little bit, but not significantly.

So we would intend, if the market allowed us to, to run pretty full through the rest of the year.

The Lake Erie plant, we're just putting together our re-start process right now, and I think the order we listed facilities in in the earnings release was done with some purpose -- will be up and available to us in a fairly short period of time, and we got to get some slats in front of it to make it efficient.

That will be helpful because it allows us to run our distribution to Canadian customers in a much more efficient way than routing flaps through Detroit or otherwise.

Then we've got to get the high end back.

That's going to take a little more time and be pretty well into June before we have coke-making and iron steel-making up and running.

That's merely a matter of getting the environmental facility stabilized on the coke side and getting the furnace restored because there's some work to do inside the furnace that we have contractors looking into right now.

We don't know how long that's going to take.

I think it would be for the most part the entirety of the quarter to get everything up and running at Lake Erie.

Assuming we get all of that done in the quarter, we'll be able to fire on all cylinders, getting into the third quarter, and whether we maintain that will depend largely on the markets and we'll wait to see how that goes.

We can't really see that far out.

Okay, great.

Just one, one follow-up if I may.

Just on iron -- obviously that's a big benefit for you in North America.

Given what we're seeing globally in terms of the spot prices.

Can you, can you talk about what your latest thinking is in terms of how you can perhaps best leverage that cost advantage now.

Would you think about trying to develop the business as a merchant supplier of either slab or pellets?

Sure.

Excellent question, really.

Couple of things all the way along there.

There's no doubt where the iron resource structure in the world is going, at least everything that we read, don't know exactly what's happening.

Not sure anybody does.

Everything we read talks about very large increases, no more benchmark, spot, or index, something like that.

The kind of price levels that would take you to begins to say that, there may actually be some economics in moving material to weaken, extract, and process in Minnesota or Michigan a little further than has been the case in the past.

That's a little ways out for us I think.

As we run at decently high levels in North America, we can consume almost everything we can make today.

But we do have an expansion project on the griddle in Minnesota at our Keetac facility to really bring back a fairly old pelletizing line that would need to be completely rebuilt and refurbished at some cost, but it would be economical for us to do it and we're working on the permitting process there I think that was in our 10-K as I recall in the last year or so.

It's useful for us in the current state of affairs to get as much of that resource into a steel product or an iron product in North America as we can.

And we are actively participating in the slab market, both domestically and potentially internationally.

And as we've talked about in passing before, it may make sense for us to have a big machine in one place or another in order to maintain high utilization of blast furnaces when for some other reason we don't have an ability to take the iron away.

We're just in the early stages of some of that thinking, but getting more of that resource that we can extract very efficiently into the marketplace is a very good thing for our shareholders.

Our next question comes from the line of Dave Martin with Deutsche Bank.

Thank you.

I wanted to ask first about net coal.

Can you comment on your met coal position or supply for this year, and any exposure you may have to the Massey situation at their UV B-Line?

Sure.

Since you bring up that subject, I would just say that we're all expressing our condolences to our colleagues at Massey and the families affected by it.

Just a tragedy and our heart goes out to all of them.

As for the impact on us, we do buy coal from a wide variety of suppliers, I think more than 25 mines or something like that in North America, including Massey, and to some degree, in connection with the blend that we buy from the affected mine.

We do have a variety of long-term contracts.

We're in the process of purchasing additional coal to meet our business requirements because of that issue.

But also with the Lake Erie coke plant coming up.

We're confident we'll be able to meet our expectations for full requirements for the year through the wide group of pretty good suppliers we've developed relationship with.

We've talked in the last quarter or two about we expect that our 2010 met coal costs in North America to be less than our 2009 met coal costs, and I still think that will be the case.

It may not be as low as we expected it to, because anything we have to do now is in the context of a somewhat better market, but we are confident we're going to get our supply and we're confident we're going to have it at decent costs when we're done.

Okay, and you mentioned coke.

Can you remind us how much coke you purchase annually and what proportion of that comes domestically, as well as internationally?

It really depends on what level of iron-making we're into, to answer your question.

It could be on the order of 2 million tons.

Could be less, could be more.

But it's not an inconsequential amount.

And we will be buying from some domestic merchant sources, technically speaking, that the new gateway coke battery at granite city that we disrupted with some coke as an outside source, but I'll put that aside.

We buy from a variety of other merchant suppliers and also from Asian suppliers and from Latin American suppliers, European suppliers.

I would expect that as the year goes on, we'll continue to do business with all of those different sources.

Okay.

Our next question comes from the line of David Gagliano with Credit Suisse.

Please go ahead.

Great thanks.

My first question is regarding your mix in each of the three segments.

What was the rough application between spot and contract business in both the US and Europe in Q1?

And what do you expect that split to be for Q2 and Q4?

On the tubular side, what was the actual split between welded pipe and seamless in Q1, and what do you expect that mix to be moving forward?

I'm going to take those in reverse order and work my way back through.

Gretchen and Dan can remind me if I forget a piece of the question.

On the tube side, we are probably moving into a 50/50 mix in the first quarter with welded seamless.

I don't know if that's exactly where we were.

Maybe Dan can give me a high sign if it's much different than that.

With the substantial increase in volumes, a lot of that came through the weld mill.

So I would think we're roughly at 50/50.

Probably would be situated in roughly that position through the rest of the year, absent some major change in the market.

So I think in general.

In tubular, I think that's where we'll be -- give an update on that.

In Europe, we generally would be from a contract standpoint, 30% or less, which I think is roughly where we were in the first quarter, maybe a little bit less than that.

And I don't see that changing much during the course of the year, just given our product mix and how we do business and who we do it with.

In Europe, quite a bit less contractual oriented, more spot, short-term oriented.

Then in the North American flat-roll business -- I would expect that to be the same.

Working towards North America, then, I would say that our firm contract commitments in North America continue to be at about 20% of our business, which I think has been consistent now for a number of quarters.

Don't expect a lot of change, 1 or 2% here or there through the course of the year.

We have another 10% or so that are contracted, have some cost-based reference, and that's to stay a fairly constant effort after that.

That gets you to 30.

We probably have another 30% or so that are pure spot contracts.

Maybe a bit more than that.

Then the remainder would be a variety of index-based contracts that would be either monthly or quarterly.

I don't know that we have anything on a semi-annual basis somewhere around 100, I hope.

And that mix, I think would stay about the same during the course of the year.

It could vary if one market's stronger than another.

But by intention, it would be about the same.

Okay, perfect.

Thanks for the great detail.

And just the follow-up question.

Regarding your met coal needs for next year, for 2011, I was wondering if you could just simply remind us how much met you'll need in 2011, how much is already under fixed pricing contracts, and when were those contracts signed?

Thanks.

In 2011, our needs will be about the same.

I guess 9 million tons, somewhere plus or minus, in that zone.

And we do have some commitments in 2011 actually beyond that, not -- and pretty substantial volumes, volume commitments, but not much of that is priced.

Some it, but not very much.

Those contracts were entered at a variety of times, but in almost every case back, certainly into 2009 on the or sometime earlier than that.

It would be a large percentage would already be covered.

I'm sorry.

Go ahead.

Thank you.

Our next question comes from the line of Timna Tanners with UBS.

Please go ahead.

Yes, hi, good afternoon.

Hi, Timna.

Can you talk more about more in Europe, it sounds like the raw materials cost increases are being passed through pretty quickly.

But just wondering if you could give a little bit more color on how that's going and the market conditions there in particular.

Also, you know, if you can remind us how much of that is really tied to the global contract pricing, please?

Sure.

And the latter instance, it's not really tied directly per se.

There are some of our materials on the fair side, as there are kind of contractual triggers based on what the published world settlement price is.

I'm not sure how we're going to find out what that is.

That's a bit of a challenge, but it will follow that same direction.

I think the general trend that you would read about would be the general trend that you experience in both ferrous and to some degree, metallurgical coal and coke in Central Europe.

We have, our Company has been too successful in obtaining reasonable price movements in the first quarter and so far into the second quarter.

I hate to do this on the phone.

It's not our plan, but I think given where the cost increases are, in order to have some margin, I think it's necessary to do that, than maybe do that a bit further.

I think there's some uncertainty in the market certainly around what the real raw materials cost are and how they are going to be felt.

For some producers, including us, we haven't felt the full brunt of that yet.

For us, I think it's important for us, in order to maintain a reasonable return on capital and have investment capital available to get a fair return and it's going to be hard to do that without some reasonable price relief in the face of these material costs.

The market in Europe, if that was your last point of your question, where we live is pretty good.

I think in the D4 countries, it's been okay and in the Balkins, it's been okay.

North and west, not so strung, still reasonably good, and European manufacturing activity has been improving, not gangbusters, but reasonably good, so our ability to make steel and sell at our facilities has been pretty good in recent months and we look forward to doing that again in the second quarter, as we said.

And if I could ask also, particularly you talk about inventory costs coming down from higher levels.

But where do those stand and at what point do you think we'll get down to a level that would allow you to run more in line with kind of where market conditions are?

Probably we're getting nearer to that point.

These inventories are hard to track in that sector and we look at a variety of services.

The point, expectation would be about six months supply, plus or minus, that's probably pretty close to where we're getting to now.

That would mask a little bit of a bigger inventory position in the carbon grades and probably a not so big inventory position in the alloy and E 3 grades, but the low inventories has come down reasonably well in recent months and maybe not as quickly now, as we're getting to a little bit lower level, and it may be that operations and inventories and consumption are coming into some better degree of balance and that's fine with us, if that's where we are, and we expect to be running pretty well through certainly the second quarter as we talk about and really depends to some degree on the energy price position and if the drilling rig rate stays up flirting with 1500 like it is today, that's a pretty good place for us.

Thank you.

Our next question comes from the line of Brian Yu with Citi.

Please go ahead.

Thank you.

Good afternoon.

Hi, Brian.

Hi.

Question relates back to the question Timna just had, which is just on the European iron ore costs, could you give us a sense of what the percentage increase that you're baking into your first half guidance?

Well, our guidance was restricted -- I don't want to imply more precision than that, than is necessary, and the exact number, I have written somewhere, but it would be in the context of the kind of increases that you all are talking about.

So it's not, a small percentage.

It's 50, 60, 70, whatever -- depending on buying, pellets, whatever, when a contract was entered, et cetera.

It's a pretty healthy increase.

That's what we're expecting to contend with.

Have all of your suppliers gone over to the corollary ties or are there some trag letters who want to give you some annual?

I don't think they are giving us anything honestly, but there are some that on the coal side, for example, that we have somewhat longer time with, contractually.

It's good for us, good for them.

On the metallic side, almost exclusively quarterly.

There may be some that would go a little bit longer, but we've moved almost entirely quarterly.

Thank you.

Our next question comes from the line of Luke Folta with Longbow Research.

Please go ahead.

Good afternoon, guys.

Hi, Luke.

I know it's not reflected in your share price, but I want to say congratulations on good results this quarter.

Thank you.

Our timing wasn't good.

Most of my questions have been answered, but I wanted to ask just what your guys' impression was as far as what we're seeing in the import trends for OCTG.

I think there's been some pretty meaningful increases.

Do you think this is a function of we're short supply, we're short capacity basically and this is feeling the hold in some of those sizes, or do you think it's market share gain on the part of the imports?

It's hard to say.

It's probably some of all those things.

It's been a fairly attractive market and -- fairly traded, free country, and everybody can take their shot at it.

We think we're pretty competitive and we're going to get our share, maybe a little more than that.

If it's imports or somebody else, fairly traded, I guess that's okay.

It's probably a little bit of replacement of other important material, some market share, opportunistic trading and the fact that this is a pretty attractive market.

And just on the tube side, when you think about how much of your product offering can be used within the shale plays, is it -- could you give a feel for how much of your capacity is suitable for that?

Well, just a couple ways to look at it.

One would be all of our line pipe can be used anywhere.

We don't care -- it doesn't care if the gas comes out of shale or anyplace else.

Our line pipe is just fine, particularly in the Marcellus, where the gathering and distribution network has not been established, it's pretty good line pipe territory, that's just fine from our standpoint.

Down hole on the OTGC side, one of our mills that -- is a very large diameter seamless mill, that would not normally be applicable to shale activity.

It's not impossible, but not normally.

Everything else would be and the majority of our well mill capacity would be, so it would be the largest share of our capacity would be well suited to any kind of shale project.

Thank you.

Our next question comes from the line of Michael Gambardella with JPMorgan.

Please go ahead.

Yes, good afternoon, John and Gretchen.

Congratulations on a nice improvement.

Thanks, Mike.

Got a question on the Gary 14 furnace.

My understanding I think from what you said in the past is that one furnace represents about 15% of your North American flat-roll capability.

It's 8000 tons a day, plus or minus.

You could probably work out the math.

In that vicinity, yes.

So then if you're running at 95% of your capability today with that furnace, your North American flat-roll operations in the second quarter should have shipments about 14, 15% higher or more?

I didn't run the percentages, but I think you're pretty good with a calculator, Mike.

I'll let Gretchen comment on that further, but I think you heard Gretchen's comment about our current utilization rate.

If we would continue at that level, I mean assuming we ship everything, which would be our plan, that would take us in that direction.

Thank you.

Our next question comes from the line of Sal Tharani with Goldman Sachs.

Please go ahead.

Good afternoon.

John, how are you seeing the order flow at the moment at these levels, since they have increased a lot?

I know you are thinking all this capacity because the order book is good, but how about new orders?

How is that?

As we indicated in our release, we continue to experience healthy order rates.

I think our order rate has been good.

And I think we're viewed by our wide range of long-standing customers as a very good, committed supplier, and they like doing business with us and we like doing business with them.

So order rates have been good, across really a wide range of markets and undoubtedly construction remains in the more distant zone, but even in construction markets going off an absolutely terrible last year, have moved up a bit the piece we see.

And this is the construction season.

Order rates have been good.

Okay, and I didn't get the pension number, Dan.

What were the pension costs in Q1?

I missed that.

The cost was up 105.

We're looking pretty consistent, so about 420 for the year.

Thank you.

Our next question comes from Charles Bradford with Affiliated Research.

Please go ahead.

Could you talk a little bit about the situation at Hamilton.

I understand the labor contract is up this month.

First of all, is that correct?

Secondly, have you started negotiations yet?

It's the labor contract and I think this is I'm sure disclosed somewhere, in our public record, is up at the end of July or first of August or sometime like that.

And, there will be an appropriate discussion at an appropriate time.

I'm really not prepared to say we're having discussions now or not.

As a matter of honor, we keep that between us and our union.

In your 10-K for last year, you talked a lot about the coke situation, delaying the billion-plus rebuild at Clairton and some other facilities that might have to go down.

Can you update us on that situation.

Sure.

I think what was in the 10-K remains to be, remains factual and accurate as of today.

And our 10-Q, which will be going in later tomorrow--

Momentarily.

Maybe later today.

We'll comment a little bit on our capital outlook.

That would include some construction and continuing engineering work going on at Clairton right now on that project.

And sort of final definition of it may not be complete yet and we have some other dates to get through.

But I think we're moving forward on that project, which would include I think as you alluded to, Chuck, taking some older batteries down because of our commitments on our air permits and our current strategy fully comprehends all of those things that were talked about and we're under way there and we're in the permitting process in Indiana with respect to some of the carbon alloy facilities we talked about.

Our next question comes from the line of Mark Parr with KeyBanc Capital Markets.

Please go ahead.

Thanks very much.

Hey, Mark.

Hey, John.

Congratulations.

It was nice to see that turnaround in the momentum.

Too bad the market kind of took the gas out of the stock today, but I think that's hopefully just a short-term thing.

Thank you, Mark.

We hope so, too.

We're confident at the end of the day the market will take an appropriate view and appropriate value.

This Europe thing is -- one thing I was wondering, if you had -- I don't know if speculation is the right word, if you had any comments or thoughts about what's going on in Greece, you know, in the Balkins, with the debt situation.

Does that create any challenges for your European operations here over the next 6 to 12 months?

That's a really good question, Mark.

We were just talking about it recently.

Our colleagues in Europe worry about that situation a lot less than people in New York do.

And our overall business in that part of the world, including, again, Greece, by the way, has been reasonably good in this early part of the year.

So that's not to make light of it.

It's a serious situation, of course and the -- it hasn't been a major setback for us in the area that we do business in.

Gretchen, anything you want to add to that?

No, I would say that, we still coming out of the economic problems in general there, and we have some customers that may have more challenging credit issues, particularly smaller customers I would say.

But really I would agree with what John said.

Our business has been moving in the right direction.

Okay.

As a follow-on, a little bit different tactic.

I don't think this question's been asked, but is there any -- you're operating your mills at a very strong rate in the US.

The some people might suggest that, well, maybe you're overproducing and you indicated that your order book is very solid.

But I was curious if you could just comment a little bit about how you see the mix between production and order momentum, or maybe if you could make a comment about lead times.

I would also be interested in any comments you could provide about lead times in the OCTG market as well.

In the latter instance, lead times in the OCTG market is a pretty hard thing to pin down.

I would just say there that there is traditionally a relatively short lead time and spot oriented.

We are doing some programs that have a little bit longer view on them with some really critical key customers and are interested in our supply and we're interested in their business and we've been able to make a really good arrangement with a good number of them for a good chunk of our capacity.

But otherwise, it's a relatively short lead time from order to delivery and our order book usually fills up relatively late.

On the flat-rolled side, looking at the hot-rolled number, we would guess our lead time, consolidated around six weeks, maybe a little less than that.

The industry, as we best guess at it, about the same.

I would just say that we might have brought our lead time in just a tad recently to make our customers feel a bit more comfortable about their position in getting what they're ordering, but not much of a difference, and our order rates across a range of markets doing just fine and we are increasingly involved in semi finish slab business domestically and we'll take a look at some international things, too, and that certainly helps support a very strong operating rate.

Inventories?

I'm sorry.

Gretchen makes a very good point.

Inventories we can assess, finished goods, inventories that the auto folks might have, lines, inventories, comments in the news yesterday which we were delighted to see.

Major equipment manufacturers.

Again, we saw comments yesterday by one of our big customers we were delighted to see and service inventories, all inventory's relatively tight and our customers are cautious and we're fine with the cautious buyer.

I think it keeps our position and theirs in the right frame and we are reasonably confident as far as we can see that that's remaining.

John, thanks so much for that color.

And look forward to chatting with you again soon.

Thanks, Mark.

Appreciate your help.

Thank you.

Our next question comes from the line of Brett Levy with Jefferies & Company.

Please go ahead.

Hi, guys.

In the tubular division, you guys mentioned pricing had kind of dropped in the fourth quarter or towards the early part of the fourth quarter.

If you were to just give us a rough sense from, you know, the trough to now, where average selling prices have gone for welding and where they have gone for seamless, just so I can kind of model in the full extent of the increase.

And then do you get another round of increases announced for May on both fronts?

It's really hard for us to do that, and it's also there's some sort of commercial value in what you're asking for that we're a little reluctant to get too far into and I hope you can forgive us for that.

But just in general, it hasn't been all that long since prices bottomed and things seem like they are moving in the right direction.

So while there have been a number of increases announced by us, or at least our customers, informed by us in the last three to six months, it's really been getting us to where we can start moving things maybe back in a better direction.

And from bottom till now, I don't know that it's a huge number, and I'm kind of reluctant to say, expert and seamless, because it really varies so much by-product.

And one particular type of product, even though they are both welded and SBG could be a whole lot different than another one.

I just would say that the direction is the right direction from our standpoint, steady, and we've got some ways to go to get back anywhere where we were just a year and a half ago.

It's more like 10 to 15% than 30 to 40% like what you're seeing in sheet?

Well, I'm not going to get into percentages either.

I don't think that's in our commercial interest.

But the rate of change in the last few months in sheet has been more substantial than tubular.

I think that's consistent.

In terms of utilization, you've given a lot of information on the utilization of sheet metals.

How about on the tube mills and talking in general where you are on welded and where you are in seamless in terms of utilization.

Sure.

It's a little harder to respond to that question quite honestly, and, because we don't have blast furnaces running to give you an easy reference point.

One way I tend to look at it would be to say how are we doing versus our great record year in 2008, and if you look at our volumes now, we're not where 2008 was, but we're moving in a much better direction I think in the first quarter, if you take the third quarter of 2008 as like a half million tons, 250,000, more or less of each of seamless and welded.

In the first quarter, we're probably getting somewhere on the order of 60 to 70% of that.

That will give you some sense of where we're going.

We've got some capacity yet to go, but we're in a much better place than where we were three or six months ago.

Thank you.

Our next question comes from the line of Dave Katz with JPMorgan.

Please go ahead.

Hi.

I was hoping that you guys could talk a little bit about any plans that you have in terms of tubular units to take advantage of the growth of the Marcellus shale region.

Sure.

We have talked about just in general and I think in the 10-Q, which Gretchen indicates we will file shortly, we'll have a little more specifics on our thinking for our project at our Lorraine tube works, west of Cleveland, and we've got a line there that we think we can do some things on.

Initially from a finishing side on finishing and tempering et cetera, that will allow us to serve the Marcellus certainly, but also some of the other shale plays as well, because we may begin to get limited on some of the finishing and tempering technology that we have in other facilities.

That would be our first aim.

I think that would be well suited to the Marcellus shale.

We think the customers would be very happy about it and we'll begin -- we're doing engineering and looking at permitting on that right now and we'll have a little more to say about that.

That would be the first stage of a project which could be a little bit larger and longer than that.

But that's probably where we'll start.

I think we're really able to serve our customers' needs in the Marcellus shale right now.

This will better position us in the future, as that grows.

And not just the Marcellus.

From there, we would be going east and west and south, if necessary.

Very good.

And then as a follow-up to one of the other questions, in terms of the growth that you're seeing in terms of capacity utilization, obviously with the lead times that you have and the order rates that you have, the customers are definitely there for you, but anecdotally from your customers, have they indicated that they have moved their business to you from somewhere else?

Oh, there's a lot of commercial value in that, too.

I would say that it's more likely we've had that occur than the inverse, if I could be oblique about it.

And we've had more customers talk to us, this is an unscientific survey, but more customers would be indicating they need more supply looking forward and fewer are saying they need less.

I think that's a sign of the overall economy.

And it may be a sign that they view us as a pretty dependable and reliable sign.

Our next question comes from the line of Brian Yu with Citi.

Please go ahead.

Thanks for the follow-up.

John, with regard to the US flat-rolled side, obviously Q1 shipments surprised the upside.

Can you comment on which particular end market surprised you.

And then secondly, Q2, as you're guiding for higher shipments, is there any particular end market where you're expecting that incremental pickup?

I would say pretty broad-based, Brian.

I don't think -- no one comes to my mind, no one market being particularly exemplary.

Automotive remains a good market for us across a wide range of very good customers.

The pipe and tube conversion market remains an excellent market for us across a wide range of customers, coated material, appliance markets are pretty healthy right now.

I would say across our general marketplace, things look pretty good.

We will have greater volume of trade slab shipments as well in the second quarter, at least that's our current expectation.

And that will take a little bit more of that going away.

Thank you.

Our final question comes from the line of Michael Gambardella with JPMorgan.

Please go ahead.

Yes, thanks for the follow-up.

In your European operation, given the quarterly nature of the iron ore benchmark pricing, or the iron ore pricing now in the world, you know, outside the US, do you foresee going to a pricing structure that would include an iron ore surcharge in your flat-rolled pricing in Europe than with others?

I guess that's possible.

We don't have that much business that has a firm pricing structure with it today.

So that might be possible.

We wouldn't necessarily resist that.

We have some of those types of contract in North America today and we have discussed that type of structure, not in the current environment, but earlier with some of our European customers.

So I don't know that we would not pursue that if it was in our best interest.

But I think it's just too soon for us to see how that's going to shape up.

And I think that bridge may get crossed by others who have greater contract commitments going forward than we do and no doubt will be observing that and reading with great interest what folks like you and others write about.

One last thing.

Your CRU index contracts that you have, are they based, if you have a quarterly contract, is it based on the weekly average of the CRU price for the quarter?

Well, it's kind of based on whatever we and our customers agree.

But in general, there's the once-per-month official, official index that's issued.

And that would most typically be what we would use.

And for the quarterly, that would just be an average of the three months?

Yes, most usually.

We succeed in making it even more complicated for me to understand and to explain to you by sometimes having a quarterly offset.

So instead of having January, February and March being simply averaged and then being applicable to April, May and June, we would go back to December, January and February.

So we succeed in making it more complicated.

But the basic theory, the one most prevalent would be either monthly as you described or quarterly as you described.

Okay.

Thanks a lot, John.

Okay.

Thanks, Mike.

There are no further questions.

Please continue.

We appreciate everybody being on the call with us and we finally had better news and we look forward to talking to you next quarter.

Thank you.

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