美國鋼鐵 (X) 2010 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the United States Steel Corporation third quarter 2010 earnings call and webcast.

(Operator Instructions).

Later, we will conduct a question and answer session, and instructions will be given at that time.

As a reminder, this conference is being recorded.

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

Dan Lesnak, Manager of Investor Relations.

Please go ahead.

Thanks, Toni.

Good afternoon and thanks for participating in the United States Steel Corporation's third quarter 2010 earnings conference call webcast.

We'll start the call with some brief introductory remarks from US Steel Chairman and CEO John Surma and next I'll provide some additional details for third quarter and then Gretchen Haggerty, US Steel Executive Vice President and Chief Financial Officer will comment on the outlook for fourth quarter 2010.

Following prepared remarks we'll be happy to take your questions.

Before we begin however, I must caution you today's Conference Call contains forward-looking statements and 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 included in our most recent Annual Report on Form 10-K and updated on our Quarterly Reports on Form 10-Q in accordance with the Safe Harbor Provisions.

Now to begin, here is US Steel Chairman and CEO, John Surma.

Thanks, Dan.

Good afternoon, everyone.

Thanks for joining us on what I expect was a busy day for the group.

Earlier today for the third quarter, we reported a net loss of $51 million or $0.35 per diluted share, which included a foreign currency gain that increased net income by $0.96 per diluted share.

Our third quarter results also included a loss from a small asset sale that decreased net income by $0.11 per diluted share.

Our segment loss from operations was $80 million compared with income of $241 million in the second quarter.

Our third quarter segment loss from operations included $86 million of costs associated with structural inspections and repairs that I'll get into in more detail in a moment.

The $321 million decrease in our quarterly segment operating results from the second quarter was primarily due to a $272 million decrease in our flat-rolled segment than a $44 million decrease in our European segment.

For the first nine months of the year, our segment income from operations is $148 million, primarily as a result of a strong performance by our Tubular segment.

Third quarter results for flat-rolled came in well below our original expectations, due to a combination of increased costs at our flat-rolled facilities, as well as lower volumes and lower prices.

Results for the third quarter also included approximately $30 million of costs related to operating inefficiencies, due to disruptions caused by the structural failure at Gary Works.

A bit of background on the structural inspection and repair matter, which was quite significant for the quarter for us.

In 2007, we formalized a program to perform inspections and repairs of strategic assets at our major operating locations at specified intervals, spending about $10 million to $20 million per quarter for several years.

After the structural failure at Gary Works earlier in July, out of an abundance of caution and in consideration of the safety of our employees and commitments to our customers, we accelerated certain aspects of our structural inspection program at all of our facilities.

The costs associated with these activities totaled approximately $80 million in the third quarter, for our flat-rolled segment, as we performed extensive inspections in repair work on the entire Gary Works raw materials transportation system, on similar structures at Great Lakes Works, and on numerous other structures at all of our facilities.

We're continuing our efforts to accelerate inspections and repairs and expect that the fourth quarter will reflect about $40 million of spending to complete the transportation system projects at Gary and Great Lakes as well as numerous other small projects at all operating locations.

Our average realized prices were $12 per ton lower than the second quarter as the benefits of higher contract prices were more than offset by a decrease in spot prices throughout the quarter, as was the case with the AISI industry utilization rate hour flat-rolled raw steel capability utilization rate trended down during the third quarter.

We operated at 70% of raw steel capability in the third quarter, down from 82% in the second quarter and our shipments decreased by 6% to 3.8 million tons.

Industry utilization was 69% for the third quarter as reported by AISI, as compared to 75% in the second quarter.

Also, our raw materials costs increased more than we anticipated as our operating configuration for the quarter resulted in the consumption of some higher cost materials that we had acquired earlier in the year to facilitate higher operating levels.

Although we are currently faced with difficult market conditions due to the continuing uncertainty over the pace of the economic recovery, we continue to move forward with projects that will better position us over the long term as the economy recovers and the market returns to traditional levels of steel consumption.

As we have discussed previously, some of the more significant projects include a new coke battery at our Clariton works and installation of two carbonics modules at Gary Works that will provide up to 500,000 tons per year of a carbon alloy coke substitute.

Our objective is to increase our coke production capabilities and reduce our exposure to the merchant coke market which is one of the tightest and most volatile of our raw materials markets.

In addition, these projects should improve our energy efficiency and environmental performance and in the case of carbonics, provide us with the flexibility to better match our coke production with our blast furnace requirements.

We also continued to work with our customers to develop the products they will require as we seek to meet higher safety and environmental standards for the markets they serve.

We recently announced the addition of ACRYLUME CF, a new chromium-free coated flat-rolled product that supports green building and design practices in the construction industry and we continue to work with our automotive customers to develop the advanced high strength steels they will need to meet future vehicle safety and emissions standards.

Third quarter results for our European segment also decreased from the second quarter, as Euro-based transaction prices increased less than we had hoped and were offset by higher raw material costs and lower shipments.

Third quarter shipments were negatively affected by the European financial crisis, the summer seasonal slowdown, and a mini destocking cycle.

Our European order book bottomed in July as many of our customers took their holiday vacations.

The market started to rebound in August as low inventories and customer expectations of rising prices began to affect the market; however as demand returned, European steel producers brought on additional capacity to meet the anticipated increase in demand, and spot prices fell from June levels in July and August.

In Europe, we're proceeding with two significant cost reduction projects involving pulverized coal injection.

We're adding a third PCI system in Slovakia to allow us to take advantage of current coal grinding capability to inject coal in all three blast furnaces, when fully commissioned in the second quarter of 2011.

In Serbia, we're constructing a new facility with unloading, grinding and injection capability for coal injection on both blast furnaces.

After commissioning in the fourth quarter of 2011, this project will offset the need for approximately 175,000 metric tons per year of purchased coke.

Third quarter Tubular income from operations was $112 million, an increase of $16 million over the second quarter, our fifth consecutive quarterly improvement.

As the favorable impact of increased realized prices for both welded and seamless products more than offset the impact of slightly lower shipments.

In our Tubular segment, we continued to pursue projects and initiatives to increase our Tubular capability and product offerings and expand our markets.

The construction of a new heat treat and OCTG finishing facility in Lorraine, Ohio is underway.

This facility is sized and strategically located to address the growing needs of the unconventional shale plays.

Major equipment should begin arriving this quarter and production is scheduled for the third quarter of 2011.

In addition to the new facility at Lorraine, we've already made various process improvements in our existing facilities that have increased our capability to produce small outside diameter heat treated casing by about 20% since 2008.

We continue to gain support from end-users of our Star Seal CDC semi-premium connection in horizontal wells being drilled in the shale plays.

Demand for this connection has increased nearly 400% since 2008.

We also recently completed three field trials of our new gas-tight premium connection Patriot TC in the Marcellus Shale region.

The trials were successful and the connection is quickly gaining interest from the market.

We continued to build and strengthen our relationships with key end Tubular users.

As part of this effort , we have begun construction of a new Tubular Innovation and Technology Center in Houston.

This facility will be similar to our automotive center in Detroit.

Completion is scheduled for the end of the first quarter 2011.

We also recently opened a Tubular sales office in Calgary that will help us to build customer relationships in Canada, and develop our business in that important region.

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

Thanks, John.

Capital spending totaled $184 million in the third quarter, and we currently estimate the full year capital spending to be approximately $700 million.

Depreciation, depletion and amortization totaled $163 million in the quarter and we currently expect to be approximately $660 million for the year.

Pension and other benefits costs for third quarter totaled $106 million and cash payments for pension and other benefits were $127 million in the quarter.

For the full year, we expect our pension and other benefits costs to be roughly $425 million and we expect cash for pension and other benefits to be approximately $690 million, which includes the $140 million voluntary contribution we made to our main Defined Benefit Pension Plan in the first quarter.

Net interest and other financial costs were $78 million favorable for the quarter and included a foreign currency gain of $135 million.

Excluding foreign currency effects, interest expense for the third quarter was $58 million and we expect it to remain at that level in the fourth quarter.

Our third quarter 2010 effective tax rate of 15% includes a $29 million favorable catch up adjustment as a result of the decrease in our estimated annual tax effective tax rate.

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

Thanks, Dan.

Our cash balance decreased by $575 million in the first nine months of this year primarily due to a $728 million increase in working capital as market conditions and order levels improved from the historic lows in 2009 and we significantly replenished raw material and steel inventory levels consistent with higher operating earnings.

During the third quarter, we took several actions to enhance our liquidity position.

We increased the size of our Accounts Receivable facility from $500 million to $525 million and extended the term until July of 2013.

We entered into a new EUR200 million three year revolving credit facility at US Steel Kosice, replacing a similar facility that would have expired in 2011, and we entered into a new EUR20 million revolving credit facility at US Steel Serbia that expires in August 2011, replacing a EUR40 million facility that expired in August of this year.

Our liquidity remains strong as we ended the quarter with $643 million of cash and total liquidity of approximately $2.2 billion.

Now turning to our outlook, our current order entry rates reflect the uncertain economic situation in North America and Europe despite customers reducing inventory levels in light of short lead times, while our contractual customers order rates are consistent with traditional down times, taken late in the fourth quarter.

Fourth quarter results for flat-rolled are expected to be in line with the third quarter as reduced spending for facility repair and maintenance including structural [infractions]and repairs in the absence of operating inefficiencies resulting from the structural failure at Gary Works will be offset by decreased average realized prices as a result of lower spot market and index based contract prices and lower shipments and production volume.

We're continuing our efforts to accelerate inspections and repairs, and expect that the fourth quarter will reflect about $40 million of spending as much of the significant repair work was completed in the third quarter and as John mentioned we still have work to finish on the transportation systems at Gary and Great Lakes in addition to numerous projects at all our locations.

We expect to operate at an overall lower raw steel capability utilization rate than in the third quarter as our Hamilton Works blast furnace was idled in October in response to reduced order rates in Canada and the United States and as we have completed some scheduled maintenance work at other facilities in October.

We will adjust our blast works configuration to coincide with order rates.

While the labor agreement covering our Hamilton Works operation has expired, and we've not reached an successful agreement, we continue to operate the coke battery, coke mill and one galvanizing line at Hamilton.

We expect fourth quarter results for US Steel Europe to be comparable to the third quarter as lower raw material costs and reduced spending facility repair and maintenance are offset by lower shipments.

We expect lower Euro based transaction prices in the fourth quarter, however the overall Euro based average price is expected to be higher than the third quarter as we saw as a higher mix evaluated contract shipments.

We expect raw steel capability utilization rates to be lower than the third quarter as with the blast furnace and US Steel Serbia in response to reduced order rates and again we will continue to adjust our blast furnace utilization at US Steel Europe in line with customer order rates.

We expect our Tubular segment to remain profitable for the fourth quarter but we do expect lower results for the third quarter, industry inventory levels are near the high end of the normal range.

Our program customers and distributors are actively controlling inventory levels going into year-end and imports particularly from South Korea have increased in recent months.

As a result, we expect lower shipments and average realized prices partially offset by lower costs for steel.

That's the outlook, Dan.

Thank you, Gretchen.

Toni, can you please open the line for questions?

Certainly.

(Operator Instructions).

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

Please go ahead.

Good afternoon, guys.

Hi, Luke.

First I wanted to ask if you could give color as far as what you're seeing for met coal contracts next year?

Sure.

We're really just into the discussions with our major suppliers now, Luke, and we really hate to get into a commercial negotiation in this context so it's probably best that we not do that.

We're aware of what's going on in the market.

You are too, but we're just in those conversations right now, and we'll have a better picture in January when we are together, and we'll give you, as we always do whatever we know at that point so I think we said before we do have some carryover volumes that move well into 2011 and 2012 and we're just working with our suppliers now in how to arrive at a price on that, some of those have structures that give us a price, others have negotiations and we're in the discussion right now, so just not right for us to get into that discussion in this context, so please forgive us.

That's okay, and just as far as your European business can you give us a feel for what the raw material costs -- what the costs you're paying for met coal are in the third quarter, maybe how that changed in the fourth quarter?

Sure.

I can give you a couple guesses.

I think there haven't been big changes from third to fourth, and there's been quite a lot of volatility in the last two years but from third quarter 2010 to fourth quarter, I would say on the metallics side altogether, pallets and center fines and lump ore, I think we're relatively flat and pallet prices are in the 120 range probably somewhere in that zone, and on the coal side, also relatively stable from third to fourth and we're pretty well North of 200 there on met coal, and we are buying some purchase coke, that's of lesser consequence but in the $400 range.

And relatively stable third to forth.

Okay, do you mind if I ask one more?

Sure.

Just in regards to your outlook for Tubular for 2011, I know you guys do most of your sales through distributors but you have those program arrangements set up.

Can you give us a sense of what your visibility on 2011 is at this point and what you're seeing so far?

Thanks a lot.

Sure.

The visibility I think Gretchen commented on what we could look into the fourth quarter and see.

I don't know that we have any particularly good visibility into the 2011 time frame yet, the drilling budgets and capital budgets are being developed.

I think we have some expectations, maybe aspirations, particularly on the liquid side.

That would remain a healthy consumption area that's going well right now.

The economics are certainly very supportive of it.

On the gas side, I think there's pretty good trends in gas consumption we would hope and maybe that would continue to stabilize and support good gas drilling but I think if there's room to move in the opposite direction, it might be gas just because the price level hasn't been as supportive but we don't really have much knowledge or insight into anything in 2011 so far.

Okay, thanks a lot.

Okay.

Can we go to the next question?

Yes I'm sorry.

The next line is Michelle Applebaum with Michelle Applebaum Consulting.

Please go ahead.

Okay, hi.

Hi, Michelle.

It makes me wonder looking at all of the results and the outlook and what's going on in the market in terms of thinking about the long term.

We've already had more than two years in this market and the only thing that's really consistent is volatility, unpredictability, and you have a business model that the industry does, it doesn't do well with that.

When do we start thinking about what do you do different, what can you do different to minimize some of the damage?

I mean, you can't, you guys are doing a great job fixing the economy what can we done, but you can't do a lot about that.

What can you do as a Company to help the business model?

Well it's a good question, Michelle.

If we had any real magic solution, we would be out working on it right now rather than talking to all of you.

Well I'm highly confident--

No offense intended but I think we have to do the only thing we can do which is try to keep our costs under control and find a way to get more of it variable and less of it fixed.

That's been the Holy Grail for us a long time and we make a little bit of progress incrementally but not that it's going to change the business model right now.

I think we have to take a pretty sober and hard look at what the long term demand trends are.

We take that look and we still believe that long term demand trends for US Steel consumption ultimately probably return to something like normal and if they don't, it implies a big step down in standard of living, I don't know if the American people have signed up for that just yet so our view would be still one of longer term optimism on North America and the US in particular from an economic standpoint and if the economics get lined out right to North America and the US, then I think steel consumption should move back to where it traditionally has been over 20, 30, 40, 50 years.

In that world we can do just fine.

If the overall consumption rates settle out someplace lower, then I think we all have to look, we would have to look exclusively at our configuration and see if we're configured right for the world we're in, but it's a little bit too soon yet even though its been a long slog of two years as you point out, a little too soon for us to make that judgment just yet.

Okay, can I ask another one?

Go ahead.

Okay, so we're all talking about the plant and the start up and I'm just wondering what your thoughts are in terms of how contracts roll off in the next year.

Everyone is focused on new tons coming into the spot market, but you've got contracts rolling off every now and again on your high value-added mix and a new competitor bidding those out and I'm just wondering do you think there's a chance we could see declining prices in these longer term, in the appliance automotive kind of products?

Well we've had price increases and price declines both over long periods of time so I'm sure there will be periods of both unfortunately but there's been so much said about that particular subject by others that I don't think we have anything original to add quite frankly.

I'm sure there will be a formal competitor and when the industry is operating last time I heard at less than 70% utilization having additional volume into the market is not a positive thing from our standpoint, but we'll compete as best we can, on service and on value and if we do as good a job taking care of our customers we'll be able to keep our customers and maybe attract new ones as we have, so I wish I had some glib interesting comment on that.

There's a few I'm tempted to give you but I won't.

There's really nothing we can add.

It's going to take a while for that to play out and what has been seen so far is less than has been talked about.

Okay, that's true.

I agree.

A lot more words than discounts.

Thank you.

Thank you.

Thanks, Michelle.

Thank you.

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

Please go ahead.

Thank you, good afternoon.

Hi, Timna.

Hi.

Wanted to ask the comment Gretchen made about aligning your configuration with demand is an important one.

Can you give us a rundown of kind of what's idle right now?

We know Hamilton is in the latest but what preparation you're making for kind of the quiet period of the year and how you're configured?

In the earnings release it might have been too subtle but Hamilton is -- the Hamilton blast furnace and steel shop are idled temporarily.

Coke plant running well, I might add, as well as the cold mill and one of the galvanizing lines.

We had had some scheduled outage time already this quarter in both the Mountain Valley Works here and one of the Granite City Furnaces so we already had some down time to do scheduled outages so far this quarter.

We don't really have any specific plans to take anything else down.

That depends on how the order book comes in.

If it turns out the order book doesn't support our current configuration, we'll have to do that.

Keep in mind, Timna, we can flex our overall production of existing furnaces by some degree without taking a furnace all the way off, so we take periodic stops, we don't keep the wind on the whole time, we don't push the furnaces the way we can, so we can flex over some reasonable degree without having to have a complete furnace outage, so we don't really have anything to say on that, except if you look back at our record, our record is when there aren't enough orders, we don't make the iron, and if we have to take a furnace off to do that if that's the most economical way we'll do that we don't have any other decisions to do it today.

Got it.

My other question is about your annual contacts not something I'm sure you'll want to talk about with detail like your met coal but conceptually speaking you have much of your own iron ore locked in, how prepared are you to negotiate annual contracts at more fixed prices, maybe take some market share from some of your competitors that are facing more volatility on the cost side.

We have been willing to engage in firm contract pricing for some time whether it's six months or a year, not a whole lot beyond that, because we feel like we've got decent visibility on our key cost components but it's got to be the right contract, the right customer, the right volume, the right terms and the right price, so we're willing to do that but it's got to be things we can both agree on.

Whether that gives us an advantage over someone else who might be trying to find that business, we'll let the customer decide that but if it does that's great an if it doesn't we'll still compete anyway so we're prepared to do that and we're just in that sort of season right now of having those discussions so I think you're correct.

We don't want to get as many details about it but I'd just point out that if you look at the current spot price structures which you can see in CRU or MEPS or whatever, Steel Benchmark, if you look where we were a year ago we're actually above there so the market even though it doesn't feel good today is actually better than it was so we think we're in a decent position to have a good discussion and we think our record of serving our customers very well is going to stand us in pretty good stead.

Next question comes from the line Mark Liinamaa with Morgan Stanley.

Please go ahead.

Hello.

Hi Mark.

Hi.

Historically, I thought in terms of the flat-rolled business kind of being in a position where it could make money in the mid 60% operating rate level, is that still a fair assumption and could you maybe help reconcile in addition to the Gary and some of the special things what made that different this quarter?

We've looked at that, Mark it's a good question.

We looked at it over a variety of scenarios over the years because I wondered the same thing.

I think one thing that has affected us is if you look back at where we might have been three, four, five years ago, the cost of coal and carbon, coke for us and coal for us has changed so dramatically that it's really changed the cost structure in a big way and the price structures haven't always accommodated that much of a change, and I think that's made the breakeven analysis maybe a little bit different for us than it was before, particularly as we've been buying more purchase coke because our coke infrastructure needs some replacement work as you to we're working on that, I referred to it in my comments, so it makes it more difficult for us at those levels because we need to have a more stable carbon and coke supply and the cost of that has been much much higher so I think that's one thing that's negative.

The other thing is at this level the overall industry utilization rates when we had low utilization before it's because we weren't in a position to produce but the overall market was in a relatively good balance.

Here we're in a position where everybody is in the same relatively lousy position so I think us making money at 65% when the overall market utilization is 85 is one thing.

When the overall market was 69 we're at 69.

That's much more difficult and a much different story.

And roughly to the extent you'd be willing to comment, can you say what your operating rate is today?

Well, I can but it wouldn't be, I can't actually today but it wouldn't be very meaningful.

I think we're just in the process of bringing up the two furnaces that I had mentioned that we're off for regularly scheduled maintenance they were a couple weeks each, one here in the Pittsburgh area, one at Granite City, so with those down, we were probably running below the AISI number but those coming back up we should be at or generally above, we've been running slightly above the AISI number most of the year, 5% or 7% something like that.

So we were probably below, more periodical because we had a couple furnaces down, and when they are back up we had to be back up her AISI was a little higher than that.

Thanks, and good luck.

Thank you.

Thank you.

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

Please go ahead.

Thank you.

John?

Earlier there was a question about your contract position for met coal.

I was wondering if you have any tons you're going to take receipt of in 2011 that were priced either this year or the prior year.

There wasn't much, Brian, that rolled over or that wasn't a rollover, some were longer term deals that we had with volumes that stretched out over periods of time.

There wasn't much that went into the future with the firm price.

Some had a firm price but not very much, well less than a million tons probably.

Some had reference prices and indexes, so there was fairly little that had a firm or particularly firm, older lower price, there was more of course so that's not going to help us much.

Can you give me a sense of what the general mix is in terms of the various types of met coal that you would buy in a typical year?

High coking?

We're pretty much across-the-board.

I don't have those percentages to hand our normal coke blend.

Dan can find it out and let you know but we run lots of different batteries, lots of different blends and we're buying low, mid and high, so I don't have the exact blends and the exact totals in front of me.

Dan can find that out and let you know.

Okay, thanks.

Thank you, our next question comes from the line of Sal Tharani with Goldman Sachs.

Please go ahead.

Hi, how are you?

Hi, Sal.

Two questions.

First on pension.

You have been doing voluntary payments for quite some time in the good days and then including this year, and it is no secret that discount rates are going to be lower so GAAP will be higher.

Do you think there will be a significant payment needed next year?

Are you talking about on pension payments, Sal?

Yes, pension payment.

Not the one in the P & L impact but just the payment to make up for the gap which will be widened because of the lower discount rate.

Well, we actually have pretty good health or pretty good credit balance right now, but I think you're right.

With discount rates being lower and the performance of the market over the last couple years, the pressure on having a higher payment is probably there.

We've been making $140 million and that is a voluntary payment, because we don't really have to make, we're going to make it voluntary, but we could probably, we would probably be in a position to make a somewhat higher payment than that, but we're not into the substantial mandatory payments.

I mean, I could see us drifting up more towards $200 million at some point but that might be the range in the near term.

So $200 million in 2011?

Yes, we haven't determined what it's going to be yet, but it dependent on where things, where rates end at the end of the year, but I could see it in that range, $140 million to $200 million.

Okay, great.

And John?

On OCTG, you were involved in that case, or you were a party to the case against the Chinese imports and that has obviously been settled but imports have increased from other countries, you mentioned South Korea and we can see from the numbers published by the Commerce Department.

Is there any chance or is there any movement right now to put a stop on that also by the OCTG in the US in terms of putting a counteracting, contributing claim on South Korean imports?

It's a good question, Sal.

We don't usually comment on that until we do it and we usually don't, our record would say we usually don't take those actions unless we know we're going to be successful with a high degree of probability.

The fact that we observe that in our release might suggest we're keeping an eye on it.

We are and if we believe that there is behavior that's outside the bounds of our nation's trades laws we know what to do and how to do it so nothing to report specifically yet but my sense is if we do, you would be among the first to know.

Thank you.

Okay.

Thank you.

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

Please go ahead.

Thanks very much.

Hi Mark.

Hi, good afternoon.

I had two questions.

First, and John, you went through this, all the detail of the cost and the inspections and the repairs going on in the domestic flat-rolled business.

I was just wondering, is there any way you could give us a little more quantifiable color on the magnitude of cost reduction or call it profitability enhancement you expect from the 2010 initiatives in 2011?

Their domestic flat-rolled?

Yes, I don't really have anything quantitative Mark.

Let me make an observation for you.

Maybe two things.

There's if you look at the lump of spending we had here in the third quarter and then a little bit elevated level in the fourth quarter we were planning on higher spending to begin with because we had a number of these projects planned, but the one was about a week late.

We were planning on working a section that failed about a week later, but the larger amount of costs this year, this quarter or next quarter, probably some perhaps we should have done before, we just weren't ready to get the projects done or we didn't get the inspections done in the right time.

That's possible.

Some we had scheduled and some is pulling ahead and spending we would have done later, so to the extent we're pulling something ahead we won't need to work on these two biggest structures at Gary and Great Lakes for I would think some time, because effectively we've replaced the entirety of the structures and in the case of the Gary structure, it's 5,000 feet long, it's about a mile, it's like a super highway with clover leafs at either end.

I walked the entirety of it a couple weeks ago.

It's four tracks across, a big structure and we take plates off, we do very detailed inspections, we replace, we weld, we cut.

It's a lot of work, and that's the reason it cost so much, but once we're done, it should be in good shape for quite a long time so I think we should not need to do as much repair work, but we'll probably keep inspection work up at a fairly high level to insure that we catch things sooner, which means we can fix them more easily.

Seems like a simple response.

So I'm not sure how much more profitable we'll be but we should be able to avoid some expense in the future as a result of that.

I had one other question.

Sure.

I was wondering if you could talk about your taconite position over the next six to nine months in terms of whether you're going to be about in balance or maybe a bit supply short or a bit supply long, I'd just like to get color on that.

Sure, it depends on how much we have to use, if we had to do that, it would be easy, but assuming we're running at a decent level, we are pretty well in balance our two equity facilities are running well nearly full and the two joint venture equity mines are running fine as well as far as I know.

We have some contractual arrangements where we get some material through things that are dated and will run-off at some point but at decent prices, so we should have plenty of material.

For us it's not just having it.

It's getting in the right place at the right time.

Some of our plants it's not effective to rail to so they have to go on waters.

We have to get material in there and that usually leads to a bit of an inventory build in the fourth quarter as we're getting material in position for the winter months so I think we'll be pretty well in balance, if by some good circumstance, we were running at 95% utilization, we might have to hustle a bit, but I think we would probably be pretty well covered for any reasonable level of operations 85% plus or minus.

Just one last quick question.

If you had to lock out Hamilton, what would be the potential idle cost up there in the Canadian operations?

I don't know that number Mark off the top of my head, but thinking back to last year, when we were working through those things, the Lake Erie Works if I remember right was $60 million in a quarter or something like that.

Did that sound right, Gretchen or Dan?

It might be something less than that but I don't remember exactly.

It would be less than the first early time and maybe it would eventually work it down to a lower number but it would be in that zone.

We're not saying that's the case or we're doing that but it would be less than the Lake Erie number was.

Terrific.

Thanks very much.

Thank you.

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

Please go ahead.

Hi, guys.

As you look forward and you can break this down between the seamless and OCTG, as you look forward to 2011 especially in the context of natural gas in the low threes now, what do you see as the level of pipeline and gathering system activity looking into 2011, because these things tend to be planned at least on a somewhat intermediate term basis.

I'd say there's been decent activity level on pipeline projects in sort of new areas like the Marcellus here, where there isn't a lot of gathering infrastructure, there hasn't been as much.

There's some, but as areas are being developed and wells are being drilled, they aren't necessarily always being completed because of the price position.

Some are being drilled and completed and not finished with tubing and not hooked up to gathering, so the larger pipeline replacements, new pipelines, that business is coming back a bit.

There's more credit available for projects so we're doing better there.

The actual sort of well by well gathering infrastructure in the developing shale plays because of the gas situation, gas price situation I'm not sure it's a terribly optimistic picture but it should be okay but I don't know we have any particularly good visibility into 2011 yet but the pipeline project activity that we get quotes on or that we get quotes on for flat roll to supply other people who do it that has been okay I'd say, but not great, just okay.

Up or down versus 2010?

Oh, I'd guess flat but I don't know it would be terribly different than 2010 but I'm giving you a real guess there but I don't have a lot of good data points in 2011 yet.

It's just too soon and because of the volatility I'm reluctant to make predictions.

Thanks very much guys.

Thank you.

Next question comes from the line of John Tumazos, John Tumazos Very Independent.

Please go ahead.

Oh, thank you.

Your comments on premium couplings and other, I guess, accessories is the right word are very interesting.

Back 30 years ago, there used to be a division of US Steel called Oil Well that made land rigs.

We remember it well and we wish we still had it.

40% EBIT margins when times were good.

It would be wonderful to develop a few product lines and I guess it was National Oil Well that bought Hydro but could you talk a little bit about the accessories to tubes and extra services and the potential to make that ass-kicking good business.

That's a very technical term, John, but we know what you mean.

We like that.

I think it's a pretty good business now.

We can wistfully think about how the world might be different if we had hung on to the Oil Well division many years ago.

It's now a constituent piece of National Oilwell Varco, if I remember right NOV, it's a perfect Company that we have some knowledge of so it was a great business then and I wish we still had it.

Our foray is to move initially into the connections where that is because our customers told us that's what they needed and having the complete package of the connection and the couplings, which we make by the way, because we have a coupling manufacturer, that's quite convenient that has been a big story for us and a big reason for our strong performance financially and from a volume standpoint, our customers are also telling us they need some wellhead services and field service engineering skills, we're developing an organization, providing those services now and that's in an early stage but we're getting better at that as well.

We have other aspirations around lubricants and other things that would be relevant for our application of pipe.

We're all sort of sticking with things pretty close to the pipe right now but we have those kinds of aspirations, and three or four derivatives of the things I described to you and I'd say, John, sit still and hang on and you'll see more as time proceeds.

The Patriot Connection which is our first developed premium connection, we think is really important step for us, and we hope to be able to talk about it more as time goes on.

Stay tuned.

Congratulations.

Thank you.

Thank you.

Our last question comes from the line of Charles Bradford with Affiliated Research Group.

Please go ahead.

Good afternoon.

Hi.

A lot of talk about ThyssenKrupp pretty obviously, but on the Tubular side, there's some new capacity being built also, Boomerang comes to mind, the Chinese venture.

Are you seeing any impact of that in the market?

I wouldn't say significant impact yet, Chuck but I'd make the same comment there.

You're right.

Those are all things worth watching and we're watching them very carefully.

I think when you're in the market in a big position like we are, having additional capacity is not something we admire, but nothing we can do about it, except compete as effectively as we can.

I think we have a lot more to offer our customers than any of those folks do.

I think we have the certainty of having 20 million tons of steel behind our pipe mills and customers in a tight market.

Don't have to worry if they're working with us, if they aren't working with us and we have a lot to worry about, and we make that point to them all of the time.

We have metallurgical capability because of our melt that nobody else has, we do things metallurgically that no one else can do with the kind of melt source they can have so we think we'll have a lot of advantages but on the lower end carbon casing it is going to be a competitive market.

It already is and that will make it more competitive and that might all be bearable but if imports continue to edge up to where I think the last market share I saw was 46% that is a very disconcerting matter, those two things coming at one time, so we're watching them both and the one we'll compete against as hard as we can and the other we'll make sure the competition is fair.

It's a good question.

One other question.

I think three years ago, when you bought Steelco, you made a number of commitments to the Canadian government.

I believe they all expire on Sunday.

Is that true?

I think that may be the case.

It was a three year thing and I think they are called undertakings technically and I think that's correct.

We still have what I'll graciously call a difference of opinion about how they should be applied that still are mired in court proceeding but the undertakings themselves all of which and there were some numbers 30, 40, some number like that we have complied with and fully discharged but for two that were affected by the great recession so I think you're correct.

But they do expire.

Yes.

That's what I wanted to know.

Thank you.

Okay, thank you.

We have a follow-up question and last question from Michelle Applebaum.

Please go ahead.

Hi.

Okay, I guess my first question is how come your call is ending at 2:47 in the afternoon?

That hasn't happened in a long time.

I guess it's probably a bottom in the stock?

I think you guys had a lot of work today and a lot of calls and you're probably worn out.

Well I'm going to ask another question.

I can't leave it, can I?

We appreciate your loyalty by still being on.

Go ahead.

Okay, yes.

30 years of loyalty I've got to have my head examined don't you think?

And I was going to tell you before you rain all over Oil Well National, guess whose idea that was?

Okay?

Thank you.

Thank you.

So and you guys were pretty happy about that at the time if I recall, so are there going to be anymore trade cases?

Well that depends on if there's anymore unfair trade and if there's more unfair trade we'll probably have trade cases and if there isn't we won't.

Well if unfair trade is material comes in from countries with higher costs that are selling below their costs, which since nobody is making money everybody must be, then wouldn't you argue that a big chunk of what's coming in is unfair?

What's it doing coming in if we're lower cost and everyone is losing money?

That's a pretty fair definition of it, Michelle, for just between us.

I think we watch those things carefully as you know, and we have not been reluct about to make sure our rights are appropriately discharged when we think we have a case, but we're not much for filing cases for the sake of filing cases.

We file cases to win and our records have been pretty good and we don't file a case unless we think for sure almost we can win.

Well you know that I learned this business working for a trading company.

Yes.

And so I know how it's done and I've got to tell you I couldn't imagine you not winning any case you might file right now, but I hear you.

It doesn't sound like you've got anything in the hopper, right?

No, I didn't say that, Michelle.

We're watching things very carefully.

We always do.

Stay tuned.

Okay, thanks.

Thank you.

Bye-bye.

Thank you.

We have a follow-up question from Mark Parr with KeyBanc Capital Markets.

Please go ahead.

Thanks.

Again, I'll pile on here with Michelle seeing as how you've got a few extra minutes.

One thing looking at the global raw materials situation on ferrous metallics, iron ore is priced significantly above where it was in 2008, if you look at some of the recent spot offerings out of India into China or even the north coast of Australia FOB, if you look at shredded scrap which is primary exported ferrous material for this country to go into the Asian marketplace or into South America, wherever, scrap prices are actually 40%, 50% less than they were in 2008, and John, I just wonder if you have any thoughts or any color you might be able to provide that would help to reconcile what appears to be a tremendous divergence on the raw material situation.

Yes, it's an interesting conundrum Mark.

I don't have any particularly good revelations except that the amount of new pig iron capacity that's been brought on around the world still is coming at a pretty good pace particularly in the Asian countries and EAF capacity has lagged behind and I think that's the answer until EAF capacity gets further expanded, not necessarily in the North America or even the Americas period, but there were a lot of projects announced back in 2007, 2008, and 2009 and in the Middle East and North Africa, in places like Russia and CIS countries and I was thinking that would tighten up the world trade market and pull a lot more out of the US market.

I'm an amateur, we're amateurs compared to others in the scrap business both buying and selling in this country but I think as long as the overall EAF relationship is more or less in balance and our scrap generation is pretty strong and the fact that maybe US scrap consumption hasn't been as strong is because of lower operating rates across-the-board, then that relationship has tended to diverge, it probably won't come back until that balance gets a little bit back in focus, but that's sort of barnyard logic.

I'm not an expert and wouldn't pretend to be.

Well I appreciate the color.

Thanks very much.

Thank you.

Thank you.

There are no questions at this time.

Please continue.

That's all we have for today.

We appreciate everybody being on with us and we'll talk to you again in January.

Thanks, everyone.

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