美國鋼鐵 (X) 0 Q0 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the United States Steel Corporation fourth quarter 2011 earnings conference call and webcast.

For the conference all participant lines are in a listen-only mode.

There will be an opportunity for your questions.

Instructions will be given at that time.

(Operator Instructions)

As a reminder today's call is being recorded.

I'll now turn the conference over to the Manager of Investor Relations, Mr.

Dan Lesnak.

Please go ahead, sir.

Thanks, John.

Good afternoon and thanks for participating in today's earnings conference call and webcast.

For those of you participating on the phone, the slides that are included on the webcast are also available under the investor section of our website at www.USsteel.com.

We'll start the call with introductory remarks from US Steel Chairman and CEO, John Surma, covering our fourth quarter and full year 2011 results as well as the sale of US Steel Serbia.

Next I will provide some additional details for fourth quarter and then Gretchen Haggerty, US Steel Executive Vice President and CFO, will comment on a few financial matters and our outlook for the first quarter of 2012.

Following the prepared remarks we will be happy to take your questions.

Before we begin, 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 included in our most recent annual report on Form 10-K and updated in our quarterly reports on Form 10-Q in accordance with the Safe Harbor provisions.

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

Thanks, Dan and good afternoon, everyone.

Thanks for the taking time to join us.

Earlier today, we reported a fourth quarter net loss of $226 million or $1.57 per diluted share on net sales of $4.8 billion and shipments of 5.4 million tons.

Excluding the effects of foreign currency accounting losses related to the re-measurement of an inner Company loan and an environmental remediation charge, our adjusted net loss was $164 million as compared to an adjusted net loss of $227 million in the fourth quarter of last year.

Our adjusted loss per share of $1.14 was a $0.44 per share improvement over the fourth quarter of 2010.

Now before discussing our financial results in more detail, let me comment on our safety performance.

Statistically, 2011 was the safest year in our Company's history.

The continued active engagement of our entire workforce resulted in improved performance in our key safety measurements.

While we are pleased with our progress in recent years and the results we achieved in 2011, we recognize that there is still much room for improvement as an unfortunate incident that occurred at our Gary Works last night illustrates.

We will remain focused on achieving our ultimate goal of zero injuries across our entire Company.

Now, turning to our operating results.

Our segments operating income was $652 million in 2011, a significant improvement from the $114 million we reported for 2010.

Our Flat-rolled segment income from operations improved by over $700 million or $46 per ton as we finished 2011 with operating income of $452 million.

Our Tubular segment turned in another solid performance in 2011 as rig counts trended up throughout the year, while we continued to face increasingly difficult economic and steel market conditions in Europe, particularly for our Serbian operations.

As we commented last quarter, we had been exploring all of our options in Serbia, because we simply were not willing to accept continuing losses.

Our Serbian operations had struggled since the onset of the global economic crisis.

As had become increasingly clear, throughout 2011, the Serbian operations were our most challenged, with complete reliance on merchant raw materials, serving a European steel market that has been slow to recover, particularly in Southern Europe and the Balkan region and a product mix that is predominantly commodity grade hot rolled product.

We took significant actions to address these issues, including changing our operating configuration to a one blast furnace operation, shifting our commercial focus toward value-added products, implementing a wide variety of cost reduction programs, installing pulverized coal injection facilities to reduce our exposure for the merchant coke market.

We have always had a very positive working relationship with the governments of Serbia, and consistent with this longstanding spirit of cooperation, we had been in regular contact with the government over the last few months keeping them apprised of the economic challenges facing our Serbian operations and our efforts to address these challenges.

However, the continued deterioration of the European market, particularly in the second half of 2011, resulted in market conditions that our operating, commercial and cost reduction efforts could not overcome.

Additional efforts to address our cost and commercial position would have entailed significant capital investment in coke making and steel finishing facilities without any certainty that these investments could overcome the exceedingly difficult market conditions in a reasonable time frame.

Furthermore, our efforts to find a buyer who might be better positioned to profitably operate the business did not provide any viable alternatives.

We therefore concluded that it was in the best interests of our shareholders to sell US Steel Serbia to the Republic of Serbia, and we completed the sale earlier today.

We expect to record a total non-cash charge of between $400 million and $450 million in the first quarter of 2012 as a result of this sale.

Our 2011 results will not be affected.

This was a difficult decision but we simply could not continue to incur operating losses in Serbia.

The sale allows us to exit the operations quickly, avoid further losses, and redirect our capital to other operations.

This is also a better outcome for the US Steel Serbia employees than some of the other alternatives we had considered.

We appreciate the hard work and dedication of our Serbian workforce under very difficult conditions.

I'd particularly like to recognize the great improvements that were made in their safety performance over the years and we wish them well in the future.

Now, turning back to our fourth-quarter results, for US Steel Europe, our operating loss increased to $89 million compared to a $50 million loss in the third quarter primarily due to lower average realized Euro based prices, production volume, and shipments, as market demand softened in response to the continuing difficult economic conditions in Europe, partially offset by lower operating costs reflecting lower raw materials and facility repair and maintenance costs.

Now while we have sold our operations in Serbia, we continue to move forward in Slovakia where our operations and markets, while still not recovered from the economic crisis, do not face the same level of challenges we had in Serbia.

Over the last several years, the GDP growth trends in Central Europe have generally outperformed the total Euro zone and US Steel Kosice is well positioned to serve these markets from both a geographic and capability perspective with the ability to supply the wide range of value-added products demanded by customers in this region.

While we are a merchant buyer of iron ore and coal, we have a high level of coke making capability and are nearly self-sufficient at normal operating levels which limits our exposure to the volatile and expensive merchant coke market.

Even through this very difficult economic conditions we have faced since late 2008, US Steel Kosice has produced positive operating results and we believe we are well positioned to benefit from an eventual economic recovery in this region.

Our flat-rolled segment had a loss from operations for the fourth quarter of $89 million as compared to an operating income of $203 million in the third quarter.

The decrease was driven largely by lower average realized prices and shipments as fourth-quarter prices decreased by $32 per ton, reflecting lower average realized prices on both spot market business and our index-based contracts.

In addition to these market related effects which totaled $185 million, we performed maintenance outages at several facilities which resulted in increased costs of approximately $50 million compared to the third quarter.

We incurred approximately $20 million in costs related to the ratification of the new labor agreement and the restart of finishing facilities at our Hamilton Works.

And as we noted in our release we had an accounting loss of $60 million on the sale of some excess pellet inventory.

This loss was incurred because we had sold pellets at a higher accounting cost which was well above our average in incremental pellet costs which were both lower than the selling price.

Considering all of these items, our facilities operated well, we maintained good cost control and our production volumes were ramping up late in the quarter as our order rates improved.

Our raw materials position in North America remains strong.

We will continue to benefit from our high level of iron ore self-sufficiency with the vast majority of our pellets coming from our wholly owned mines in Minnesota and our equity interests.

We now have all of the necessary permits for an expansion of our Keetac facility and we continue to develop the specifics of this project.

With our current North American coke making facilities, the long term gateway supply agreement at Granite City and increased injection of natural gas to reduce our coke consumption rates we currently do not anticipate the need to purchase merchant coke in 2012.

Natural gas continues to be a very cost effective fuel in our blast furnaces as a substitute for a portion of our coke needs and we're expecting our 2012 coke consumption rate per ton of hot metal to be approximately 100 pounds lower as compared to our 2010 consumption rate.

Our coke and coke substitute projects at Clairton and Gary remain on target and we currently anticipate these facilities will start production in 2012 and reach their full production capabilities in early 2015.

With the completion of the coke and coke substitute projects at Clairton and Gary, we believe we will remain self-sufficient when the markets have recovered to pre-recession levels.

We have all of our North American coking coal requirements for 2012 sourced and priced and we expect that our coking coal costs will increase by about $9 per ton in 2012, and will average approximately $188 per ton, including freight to our coke making facilities.

This reflects the benefits of our continuing aggressive efforts to include a larger portion of lower priced coals in our coal blends.

We anticipate that the markets we serve will continue to improve in 2012.

Indications are that activity in every significant flat-rolled industry segment that we participate in is increasing, some more than others but all positive nonetheless.

We expect our markets to be led by continued automotive growth with most projected vehicle production estimates above the 14 million mark, a healthy gain from the roughly 13 million vehicles produced in 2011.

Other manufacturing segments like industrial equipment and probably to a lesser extent tin mill products and appliances also appear to be positioned for some moderate increases this year.

We believe that the energy markets will continue to drive demand for pipe and tube converters and that even the sluggish construction industry may begin the long climb out of the recessionary doldrums.

Continued demand growth across all of these markets should also translate into higher and more consistent service center shipments throughout the year.

I'm confident that our people and our facilities are ready to meet our customers' increasing needs with the on time delivery of high quality products, supported by the strong customer service and technical support that will keep us the supplier of choice in these very important markets.

Our Tubular segment continued to post solid results with operating income of $119 million in the fourth quarter.

Average realized prices increased for the third consecutive quarter and were $1,711 per ton in the fourth quarter.

Shipments were 482,000 tons reflecting continued strong demand for energy related Tubular products.

Now also reflected in fourth-quarter results were increased maintenance, outage and repair costs, and some start up costs for the newly commissioned heat treated finishing facilities at our Lorain Tubular operations in Ohio.

The rig counts in the US continued to drive demand for OCTG products and have increased steadily since mid 2009.

High oil and liquids prices have supported increased drilling activity with the growth in oil directed rig counts outpacing the decrease in natural gas rig counts.

As the only fully integrated domestic Tubular producer and the only domestic producer offering a full range of products and services, we are well positioned to provide the products and services our customers need, particularly for the growing demand for heat treated OCTG products in North American market.

The new heat treat and finishing facility in Lorain is strategically located to serve the Marcellus region and the future developments of the Utica shale and we have completed projects at our other locations to increase our throughput capabilities and our ability to load our facilities with a higher percentage of premium products.

We're also continuing our efforts to develop proprietary premium and semi premium connections as the growth of horizontal drilling increases the demand for these products.

Now, let me turn the call over to Dan for some additional information about the quarter and full year's results.

Dan?

Thanks, John.

Capital spending totaled $222 million in the fourth quarter, and $848 million for the full year 2011.

We currently estimate the capital spending will be approximately $900 million in 2012 as we complete our strategic coke and coke substitute projects at Clairton and Gary and we continue the implementation of an enterprise resource playing system to help us operate more efficiently and to maximize cost effectiveness and control across our global operations.

Depreciation, depletion and amortization totaled $169 million in the fourth quarter and $681 million for the year.

We currently expect DD&A to be approximately $660 million in 2012.

Pension and other benefits costs for the quarter totaled $155 million and we made cash payments of $116 million.

Pension and other benefits costs for the full year totaled $602 million.

We made cash payments of $626 million which includes the $140 million voluntary contribution we made to our main defined benefit pension plan in the third quarter.

Now Gretchen will review some additional information and our outlook for the first quarter of 2012.

Thank you, Dan.

Let me start by providing some details on our estimated pensions and other benefit obligations for 2012.

Based on current market conditions, we have revised several of the major assumptions that drive our pension and other benefits calculations.

We've reduced our discount rate assumption to 4.5% from the 5% that we used at year-end 2010.

We've also reduced our expected rate of return on assets by 25 basis points to 7.75% in the United States and 7.25% in Canada.

Using these revised assumptions we expect our pension and other benefits costs to be approximately $535 million in 2012, about $65 million lower than our 2011 costs.

And we expect cash payments for pension and other benefits to be approximately $500 million in 2012, excluding any voluntary contributions we may choose to make and any contributions to our trust for retiree, healthcare and life insurance.

We do not have a mandatory contribution requirement for our main US defined benefit pension plan in 2012 but likely will make at least $140 million voluntary contribution as we have done for many years.

At year-end, our pension plans were under funded on an accounting basis by approximately $2.4 billion as compared to an underfunded status of $2 billion as of December 31, 2010.

At year-end, our other benefits plans were under funded by approximately $2.7 billion as compared to an underfunded status of $2.9 billion as of December 31, 2010.

We will have more details in our Form 10-K when it is filed later this quarter.

Cash flow from operations was $60 million for the fourth quarter and $168 million for the year.

Excluding working capital changes, cash flow from operations totaled $709 million for 2011.

Working capital was a source of cash in the fourth quarter as compared to the second and third quarters when builds and inventories resulted in higher investments in working capital.

As we have discussed with you over the last several quarters for several reasons we have been carrying higher raw materials and steel inventories.

In Europe, we worked down these inventories in the fourth quarter and in North America, we also have entered agreements to sell excess pellet inventories in 2012 as John discussed earlier.

We ended the quarter in a strong liquidity position with cash of $408 million and total liquidity of $1.8 billion.

Now turning to our outlook for the first quarter, we expect to report a significant improvement in our operating results for the first quarter as compared to the fourth quarter, mainly driven by improved average realized prices and shipments for our Flat-rolled segment.

Our Tubular operations are expected to have another strong performance as operating results are expected to be in line with the fourth quarter.

We expect our European segment results to reflect the effects of the continued difficult economic environment across Europe.

We expect good results for our flat-rolled segment in the first quarter as a result of increased average realized prices and shipments as market conditions improved significantly late in the fourth quarter with improving end-user demand and lower customer inventories.

While our quarterly indexed based pricing for the first quarter will be lower than the fourth quarter incorporating the decrease from the third to fourth quarter in published market price assessments, the expected increase in first-quarter prices reflects higher average realized prices on both spot and contract business reflecting increases in our newly negotiated cost based and firm priced contracts.

Operating costs are expected to improve in the first quarter reflecting reduced energy costs and facility maintenance and outage costs, partially offset by higher raw material costs.

First-quarter results will also improve as compared to the fourth quarter due to the absence of the effect of the pellet transactions that John mentioned.

Excluding the loss on the sale of US Steel Serbia, we expect first-quarter results for our European segment to improve compared to the fourth quarter of 2011 due to the elimination of operating losses associated with our Serbian operations.

European spot market prices appear to have bottomed and are expected to increase throughout the remainder of the quarter; however contract prices are expected to decrease compared to the fourth quarter.

Maintenance work has been completed on a blast furnace in Slovakia that was taken off line late in the fourth quarter and we restarted that furnace last week.

For our Tubular segment first quarter 2012 results are expected to maintain the solid performance achieved in the prior two quarters as the demand for oil country tubular goods and line pipe remains strong.

Tubular shipments are expected to increase modestly from the fourth quarter while average realized prices are expected to be comparable to the fourth quarter.

And overall, we expect shale resource development and oil directed drilling to continue to drive the rig count while natural gas drilling is being affected by the high levels of natural gas in storage.

Dan?

Thank you, Gretchen.

Can we please queue the line for questions now?

Certainly.

(Operator Instructions)

Michael Gambardella, JP Morgan.

Yes, good afternoon.

Hi Mike.

Just a couple questions.

Do you have the fourth-quarter results for Serbia?

Yes, Mike, we're going to be filing some pro forma financials in a couple days; we're required to do that.

It will be pro forma US Steel but you'll be able to figure out from what we filed that the loss was on the order of $65 million.

In the fourth quarter about?

Okay, and then do you purchase coke in 2011 and how much?

And since you aren't going to be purchasing in 2012, how much of a benefit do you think that will have?

Well, we probably purchased some in 2011, Mike.

It wasn't a lot because we didn't run as heavy and we were doing quite a bit better on our own production, plus we were using a lot more gas and we reduced our requirements.

I don't know that we didn't buy any from Asia or very little.

We may have purchased some, I think we did from some domestic sources.

And that's largely for logistical benefits where it might make sense and might not make sense to ship Clairton coke to Alabama, for example.

So I'd say it was a fairly modest effect and the benefit is not having to go far away and buy a lot so -- and there will be some improvement just by not using any merchant coke year-to-year, but I think it's more affected by the amount of gas because as I said, 100 pounds per ton of hot metal gas instead of coke is a pretty good benefit.

Right, and then you use about 100 million to 110 million BTUs of gas?

In North America maybe a little more than that these days but in that zone, yes.

And how much do you expect to save on that versus 2011?

Well that depends on where the strip goes but if it's a $2 difference you could do the math.

Just take 125 and it would a good size number.

And then the final question, I know you mentioned that the index pricing -- you won't get the benefit of that in the first quarter obviously it will come into the second-quarter results.

Right.

But how much of a penalty is that for the first quarter?

How much is the index pricing for you going down in the first quarter?

My memory tells me it's about $30 per ton on that and I think if you go back to the appendix, it tells you I think that's about 20% of our book plus or minus so I think that would give you the number you need, Mike.

And I think that we did say if you noticed in our earnings release, I believe we said that our contract pricing in the first quarter is going to be up overall, even though that contract form will be down.

The implication I think that our other contract activity was pretty successful, but down for the first quarter I think $30 unless Dan comes up with a different number.

That's good.

Pretty close to it and then unless things would change dramatically, there would be an increase of some significant amount probably in the second quarter.

Kuni Chen, CRT Capital Group.

Hi, good afternoon, everybody.

Hi, Kuni.

Hi there.

Just going back to Serbia, obviously some tough choices there.

You mentioned the fourth-quarter loss in the $60 million range, so if we just look at the fixed costs over the balance of the year, can you give us some view on what the magnitude is there?

You mean for Serbia?

We sold it effective January 31 and today everything associated with the company is going in the sale, Kuni.

No, I understand that but fixed costs looking back over to 2011.

Well, we gave you the $200 million number includes all of the costs, so we gave you that for 2011, about $65 million of that fell into the fourth quarter.

Yes, and Kuni, if what you're asking is, are there some other costs in the company that were being absorbed there that won't be absorbed there now, there may be, but it would be quite inconsequential.

Okay, got you.

Can you just give us some view on what you're hearing from your customers in the Tubular business, particularly on the gas side of the markets, if the discussion there has changed recently?

Well, not much different than what's probably in the public domain.

There have been some indications that some drilling on the gas side will be cut back in the expectation rigs to be redirected towards more liquids oriented plays.

I think that's been the trend for the last some period of time, probably continues.

Now whether or not that can all happen overnight, it probably can't so there's probably some time when that transition takes place, but we're hoping that those that are really good gas plays continue to be drilled and developed and that the rigs that may not be used in other gas plays are going to be someplace where the liquids can be drilled because there's still lots of good prospects.

So I think that migration is continuing, but we don't have any real great visibility as to how quickly or how significant any transitional period might be.

Great.

I'll pass it on, thanks.

Thank you.

Michelle Applebaum, Steel Market Intelligence.

Hi.

I'm knocked out on the Serbia sale.

Really impressive that you're able to do it so quickly and so cleanly and the numbers on Slovakia were amazing.

So, congratulations guys.

Thank you, Michelle.

And I can't ask the question I've been asking every quarter, can I?

We're confident you're going to come up with another one.

Well of course I'll come up with another one.

My question is for you is Thyssen is talking about potentially divesting CSA, potentially divesting US Americas business.

If they divest CSA, then maybe they would get a purchase agreement for the slabs and everything would be hunky dory but it would seem to me there might be an opportunity.

Would you be interested in acquiring that?

Or joint venturing or whatever?

Yes, I don't think we have any comment at this point, Michelle.

I've seen a little bit of some speculation about that but I don't know how serious any of it is.

It's just too premature for us even to think about it.

It's an interesting set of facilities, as far as we understand them, but I have no doubt they are great facilities, but whether there's anything from interest from our standpoint, way too soon to even think about that.

And can you comment on -- I think the question we've all been asking from time to time on these calls is looking at relative global pricing we're seeing US at a big premium.

We're seeing US at a big premium to foreign, and John, you remember four, five, six years ago, the first time you were CEO and I asked this question and you quoted yourself for years, because your comment then was you didn't care about the differential and now after that, you seem to care.

So just wondering how you feel about the differential in pricing, domestic versus foreign, and what you're seeing out there in terms of the impact that might have.

Sure.

I'd have to go back and watch the videotape again on whatever happened some years ago but I think currently, we could see what happened last year.

There seem to be a bit of a pickup in imports in the middle part of the year and that had some dampening effect, predictably, and that probably among other reasons was caused by a pretty good sized gap.

There's some things that are a little bit different in this year than last year.

I think overall demand is a bit more firm here in North America, that is.

And I think the supply chain is pretty well developed now and at least we are pretty current on what we are doing and availability should not be as much of an issue for North American customers.

So that wouldn't be a reason to be looking to offshore offerings.

The overall absolute level of spot pricing today is not in the same zone as where it got to last year.

I don't know if it will or not, and the market will decide that, but I think the gap is not as significant as it got to last year, so there's some moderating effects but I have to say it's something we watch carefully and we're prepared to try to deal with as best we can by being competitive.

We think our costs are in pretty good shape, but it's something worth watching.

We see no signs of it so far but at the level of prices and where foreign trade goes it's not impossible we'll see more imports, but we haven't seen it so far.

David Lipschitz, CLSA.

Yes, can you talk to me about your coking coal situation?

Prices have obviously come down pretty significantly from the summer and things like that and looks like potentially they're going lower.

Why haven't you -- why don't you wait a little longer to see how this all plays out if prices continue to go lower?

Well, our general practice has been -- our suppliers' preference has been is to try to arrange things on an annual basis.

It provides us with a stable supply and I think us being one of the first stops on the rail line or on the barge line puts us in a good position with our coal suppliers.

It may be coal prices go lower or maybe they go higher, nut we like where we settled.

We think we've got pretty good prices and we've got good supply and we're confident we're going to be well taken care of by our suppliers.

So we felt this was still a good time to make that deal and our suppliers were of a mind to do that so we're comfortable with where we are.

Small increase over last year, much less than some on your side of the table were predicting for us, of course, but would like lower but we think we ended up in a pretty good position.

Just one quick question on the coke.

You said 100 pounds, that's from 2010 numbers, correct?

From sort of exit '10 to '12, around 100 pounds would be a number, yes.

Okay, thank you.

Okay.

Justine Fisher, Goldman Sachs.

Hi.

Thanks for taking my question.

Hi, Justine.

The first question I have is just on your inventories of ore and of finished product as well.

I know that you guys have said that you would continue to build some inventories until the market improves but where do you stand now on your inventories of finished goods and also your inventories of iron ore in the US?

And how much more do you think you have to go before those are down to a reasonable level?

Might that be in the first quarter where you start really getting rid of more of those inventories?

A couple different questions there, Justine, I'll try to get them all but I think on the steel product side, our inventories were really getting restored to the level we needed to be able to provide the right level of service to our customers, particularly on the value-added product side.

In the carnage of '08 to '09 we probably went a little far in drawing down and weren't able to supply as well as we could and then when we had the slightest disruption we were then behind the 8 ball and things just went south from there.

We didn't want to have that happen again, nor did our customers want to have it happen.

So I think part of what we're doing is we're storing inventory to a reasonable level and then we do have some slab stock that we want to be able to take advantage of opportunities when they're presented.

If it turns out the market doesn't develop in a way that that's required, it's pretty easy to run those; they are standard sizes.

We won't make as much and it's a good way to draw it down.

Those are going to be sort of game time decisions so I think our steel inventory will follow the market.

If the market is where it is today or improves, we're probably not too far off where we need to be.

If the market slows down a bit from here -- it's always possible, then we would probably pull back a bit on the steel inventory and correct part of that and we just do that by making less.

On the raw materials side, we'll be probably disposing of some more iron ore if that's possible and if the market slows down we would be more aggressive on that.

We're going to run our mines pretty full but our incremental cost of production from our own pellet production is really low and we can reasonably easily sell that in a world market if we chose to.

I don't think it's going to be a long time business for us but I think it's something we could do if we need to.

So we'll moderate our iron inventory and to some degree coal and coke, just based on what our needs are and how the year develops.

So we're in a position to go either way, iron ore side some sales perhaps continuing this year; coke maybe some merchant sales; coal we're pretty well set and it should be just about what we need; so that's how we would see inventory.

Gretchen, anything you want to add to that?

No.

Okay, and then just a clarification on the $200 million loss from Serbia.

Is that all a cash loss or are there some non-cash numbers in that $200 million or is that all cash numbers?

You know, the depreciation over there, Justine, would probably run on the order of $25 million a year so aside from that, and of course one of our effective tax rate gets a little distorted because we can't -- we don't have a provision on the losses in Serbia because there's a full valuation allowance there, so those are probably the most important things about that.

Okay, great.

Thanks very much.

Thank you.

Luke Folta, Jefferies.

Hi, good afternoon, guys.

Hi, Luke.

Three quick ones if I could.

Firstly, can you give us a sense of what's operating right now across the system from a steel making perspective and what your plans are for outages for 2012?

Sure.

I'll just go to Europe for a second.

I think in the release we mentioned we brought our third blast furnace up so we now have three in Slovakia, they're all running PCI in all three and so we're up and running there.

In North America, we're running everything except the Hamilton blast furnace and steel shops and we're running pretty full right now.

We don't have any big maintenance projects planned in the first quarter and we've indicated our maintenance spending will be down in the first quarter.

I don't want to get too specific after that.

We'll have some outages during the course of the year on a number of our furnaces but when we slot them in depends on where the market goes and how busy we are.

I'd say today we're probably running, if you just take the US plants that would compare to what you'd see in AISI numbers we're operating at around 90%, maybe a little more, a little bit less, but probably around 90%.

If you include our North American in total we're probably in the 84% range, so we're planning on running in the first quarter about everything we have except Hamilton about as hard as we can.

Okay, and any thoughts on restarting Hamilton?

Well we think a lot about it but it's quite a big step and there's time and training and people and working capital.

It's not so much today's market but we've got to have a sense that there's some sustainability to a market that would allow us to get a return on the investment because it would not be inconsequential.

So we think about it, look at it, but we haven't decided to do it so far.

Okay.

In Europe with the removal of the losses in Serbia and you said prices are starting to kind of inch up there throughout the quarter for Slovakia, any chance that you're close to making a profit there in the first quarter?

Well it's a really good objective but it's a stretch.

We're going to try as hard as we can.

It really depends on how fast things come back.

One of our other problems is, of course, that we ran at really low levels in the fourth quarter and raw materials costs are coming down, but we still have some higher cost material that we've got to chew our way through now in the first quarter.

It just takes a while to get corrected but we're going to try like heck to do what you said.

That's a great stretch objective.

I just don't know if we can do it.

We're going to close on it and I'd like to think as we would exit the quarter we will do so in a profitable manner and then would set up to do a little bit better second quarter, but your guess is as good as mine as to what tomorrow's news in Europe may bring.

Okay if I could just sneak one more in there.

Regarding your fixed price business, can you give us a sense of what percentage of your fixed contracts renew on a calendar basis?

Oh, on a calendar basis I don't have that number in my head.

It wouldn't be all of them, it would be like two-thirds or something like that.

More than half would be annual calendar, there would be some that would come through at the end of April I think, or in that time frame and then a smattering that would be at the end of June.

It would be -- the majority would be at the end of the year, but not all.

Shneur Gershuni, UBS.

Hi, good afternoon guys.

Hello.

Just a follow-up on some of the European questions you just got.

In your commentary you said you're expecting spot prices to increase.

We've been hearing about rounds of announced price hikes.

Is that what gives you the confidence that the price is going to go up?

Then if you can sort of bring that back to the import question that Michelle asked earlier, if that was to occur, does the spread tighten too much and you don't expect imports at all?

Well, that would be swell if European prices went up so far, so fast, that there was no gap at all, that would be the best way to close it and that would be wonderful.

But I think the moves in Europe that we can observe so far in the marketplace that we're dealing with are still the beginning and they are somewhat tentative.

We're going to be as reasonably aggressive as we can but the market there just from a consumption standpoint is not great and the utilization percentage for the industry is still in the 60s I think is the last number I saw, so lots of capacity still offline.

So I think it's a tentative recovery and we hope that it continues but whether it would move far enough that it would affect that difference between Europe and the US, it would be nice if it did but that may be too much to expect just in the first quarter.

On the raw material side in your comments you talked about blending in some lower grades of met coal; I'm assuming it's the Pittsburgh 8 seam coal.

Is that an opportunity for you to bring that coal into the European market as well too and blend there?

It is and we already do.

Great.

And one final question on the Tubular side.

I was wondering if you can talk about the deep-water drilling opportunity; the President obviously spoke about in the State of the Union that he wants to open it up more.

If I remember correctly you're one of three mills that can actually do deep-water drilling and I was wondering if you could quantify what that opportunity would be to US Steel.

Just anecdotally, we have had some additional activity inquiries, some production runs, we're running at Lorain, particularly on the wide diameter stuff; that's where we would get a nice piece of it.

It's hard for me to talk about how much because I don't know, but that mill capacity might be 300,000 or 400,000 tons, something like that.

So that would quantify what the mill could do in total.

And the more of that, that would be going -- the walls have to be thicker now, it's a real challenging product to make and we can make it pretty well.

That's a very nice margin product for us, so it would be nice if that really came on strong.

We're seeing some signs of it but hard for me to give you a number but if another 50,000 tons at that kind of price and margin, that's pretty good business for us.

Timna Tanners, Bank of America Merrill Lynch.

Yes, hi, good afternoon.

Hi, Timna.

I wanted to ask about Tubular and about cash flow uses.

So on Tubular if I could, the guidance says that price is expected to be steady, and I was just curious how that equates -- how that matches up with rising raw material costs; have you seen those yet?

Are you expecting margins to be steady as well for Tubular?

Yes, I don't know that we see -- we expect a big change in cost.

I mean a lot of that is cost that we supply whether it's substrate for welded or rounds for seamless.

And I guess our expectations for most costs during the year are fairly flat.

So I don't know that we see a big expectation for margin compression and so margins with any expectation should be similar maybe because we get better at the products we're selling and the alloy percentage gets higher and our new Number 6 Q&T at Lorain gets us into a better marketplace, better products with better overall pricing and margin we might improve.

But costs we see is relatively flat I think.

So Flat-rolled prices going up are not going to have an impact on Tubular then?

Well no, they will have some and it's going to stay whether it's in Flat-rolled or Tubular either way, but there will probably be some as spot prices move up although they already were moving up in late in the year.

So there will probably be some but I don't think it's a large amount.

Gretchen?

We had spending because of the commissioning of the new facility.

That spending is going to go away, yes.

That will probably offset that a bit.

Okay, that makes sense.

Maybe more neutral.

But Timna, I don't think -- we're not anticipating anything in the first quarter the kind of margin compression that took place last year in the first and second quarter, if that's what you're remembering.

Yes.

It may happen and it wouldn't be the worst thing in the world if it did but it probably -- we don't have that in our expectation for the first quarter.

Okay.

Helpful.

And then on cash flows, you talked in recent quarters about projects at Keetac, of course, and then a DRI plant, and I'm just wondering with a better outlook for 2012, how do you think about those projects and your cash flow options?

Well, we continue to think about them a lot and they're viable and they're excellent value-creating projects.

The Keetac one with the permits now we're actually trying to define the project a bit better, exactly how much, what size, where it might be situated and things like that to get a better engineering fix on what it's going to cost.

But it's a big project and we haven't committed to it yet.

We want to make sure we've got the financial wherewithal to do it.

As the year progresses if we feel better about it then we'll maybe be able to get a little further along on the DRI, [AAF] side, DRI in particular.

The Keetac project is somewhat of an enabler for that because otherwise our pellet position is relatively tight.

So if we see our way clear on the pellet side and the DRI picture becomes more clear and the question there is where is the best place to do that.

We've got a pretty good idea we are working on.

We are not prepared to talk about it now, but I think it's one if we proceed with it I think you'll all find some significant interest.

Brett Levy, Jefferies & Company.

Hi, guys.

Any thoughts at current natural gas prices and locking in for the whole year?

We have done some of that already, Brett, yes.

We have a program where we take a look at what the strips are and then as things move we hit some targets and we may go a little heavier, so we're already doing a good bit of that in the physical market as we usually do.

We don't get into much derivative activity.

But we also have a separate program as we've talked about before where we look at where we have some firm pricing forward on a product so in effect creating a gas sale short and we try to cover those in a market as well and so we're doing that progressively.

But at these levels, having some gas supply established for the rest of the year and into the next year is a pretty good thing, so we're hard at work at it.

And then the second one is a tough question, because I don't know how you can answer it sort of in a public forum.

If the revenue side of the picture doesn't get foreseeably better, even than first-quarter expectations, are there a number of headcount reductions or cost cutting measures that you guys kind of have in the hopper or under consideration just to kind of make sure that cash flows get a bit more positive?

Well when you look at our overall cost structure, the employment piece of it is quite a small number these days and our overall G&A cost structure is quite a small piece when you put in materials and energy you sort of have just about the whole game.

And our focus has really been because of that on reducing our carbon costs, aggressive changes in coal blends, aggressive use of gas.

We have a number of capital projects that are designed to work on hot blast stove, temperature which allows us to use more gas and better reduction.

So our focus really is on where we can make some big effects.

And we have a normal ongoing continuous cost improvement project for every mill and every plant puts in a number and they are held accountable for that number.

It's a substantial number on a per ton basis so we're doing all those things.

In the normal course, we've had a number of special early retirement programs to take employment on.

We'll keep doing that but big breakthroughs in overall productivity like we had back in the early part of the decade, last decade with a different kind of steel worker contract, those are more difficult to come by now.

There's not that many people left.

David Gagliano, Barclays Capital.

Hi; thanks for taking my question.

A lot of them have already been answered.

I wanted to just come back to the gas hedge real quickly.

Based on all of the changes or the moves that you made on the gas side can you give us a sense as to what your average gas price was in the fourth quarter in terms of average gas cost in the fourth quarter?

I'm going to see if Gretchen can figure that out.

Trying to figure it out, yes.

Maybe we'll have Dan see if we can find something in our --

Oh, wait.

Probably about $4.25.

For the fourth quarter?

Yes.

And Dave that would be I think delivered to our burner tip basically so it's got transportation all the way to where we use it.

Okay, and then do you have any easy numbers for us for the hedges for Q1 hedge price that's locked in?

No, no, I think our expectation is it will be lower than that by some good amount but it's not a huge difference.

And I think John was trying to indicate we've got some fixed, some contracts where we're selling things so we're focusing on -- (multiple speakers)

Locking our margin.

Locking our margin there, so it's not all of our gas requirements but it's a good piece of it.

Okay.

Just last question.

I guess I'll ask the lead time question in both the US and Europe.

Can you talk about the lead times now and how they've changed over the last month, both in the US and Europe please?

That would be it for me, thanks.

Thank you, Dave.

I'd say fairly stable in each case.

The US hot rolled lead time I think is about six weeks is the last number that I saw and I think that's been fairly stable recently.

Maybe it's moved out a little bit but not -- maybe a week or so in the last quarter, but not a huge amount.

So I'd say fairly stable, and similarly in Europe I don't see a big change in Europe.

I think lead times are probably, as far as Europe is concerned, relatively short for Europe but the industry is running at low levels of capacity utilization and that's not surprising.

Okay, that's it.

David Macgregor, Longbow Research.

Please go ahead.

Yes, good afternoon, everyone.

Hi, David.

Just a question on the coke self sufficiency, I guess you have got Gary Carbonyx coming up, you've got Clairton C-Battery.

I'm mindful that these aren't going to hit full production until early 2013, but just based on the current economics today could you just update us on the expected annual savings at full production rates from these initiatives?

Boy, that's hard for me to do.

Let me say it this way.

If we hadn't done those and between the two we're talking about 1.5 million tons.

If we were -- and we've had years and we were in the market for 2 million tons so if we were buying 1.5 million tons of coke in the merchant market, let's just say we would be getting it to our plants, with a huge screening loss I might add, at $400 a ton and we're going to be making it for $350 or so, so you can see your economics there are quite good.

Yes, good.

Thank you for that.

Just a couple things for the model.

2012 normalized tax rate, the Serbian sale, what changes with respect to the inner Company loan?

And then you mentioned you may still have pellets to sell.

Could you just frame that up for us on tonnage?

Well, you're talking about the $1.6 billion inner Company loan?

Yes.

I think that's probably still there, that order of magnitude.

No change there, okay.

The Serbian matter hasn't affected that in any way.

All things being equal, the absence of non-tax-affected losses in Serbia would bring our effective tax rate down, all things being equal.

We will have to see how equal everything else is, but all things being equal, I think the number we gave you in the earnings release was $200 million so the non-tax-affected affect of that is pretty significant.

So it will be a different tax rate just because of the absence of that.

And then pellet sales, if that was the last item.

I don't know that we have a specific number.

I think the figure we've already talked about doing is about 1 million.

It depends on how the year shapes up and if we have excess depending on how much we melt, selling that much or more additionally this year would certainly be possible if there's a demand for it.

Brian Yu, Citi.

Thanks and good afternoon.

Hi, Brian.

Hi, John.

With those pellets, what's your annual purchase commitment from third parties?

Is that related to Hamilton?

Well, let me just give you the context here of that matter.

I think what we are committed to this year on contracts is a couple million tons, I believe, something like that; 2.1 million or so tons, something along those lines.

Part of that is a contract we stepped into with respect to Stelco, whether they really both came via Stelco or equity interest that was previously held and in a contract that was there and we're just sort of running those out and playing those out.

They come at quite a higher cost in our own equity production of course, for our own mine production.

I think if you add them all up, we'll produce in our own two mines, let's just say 21 million tons.

Let's just say a cost number down to the lake at $50 a ton for sake of discussion, another 3 million tons coming from our equity interests there.

The cost is a little bit higher, not quite as competitive but let's just say $60, maybe a little bit less than that.

And then these other 2 million to 3 million tons at way over $100, $120 or $40, some number like that.

So if you take the average of all that the prices we sold the pellets at we actually made money, if you compare the selling price to our incremental cost we made a lot of money.

It just so happened that some of the purchased pellets were in the position where they were the best ones to sell for logistics and customer requirement needs, and so they happened to be in a separate inventory, non-US inventory, the Canadian inventory and they were at full cost, not at average cost.

So that was kind of accidental.

If we sell more pellets they may be purchased, they may not be and the accounting effect will be what it is going to be.

The fact is those costs come through whether it was all at once like that or periodically as part of our ore average cost they would come through one way or the other.

In this case they came through in 2011 business; that wasn't the objective, it just turned out that way.

Right.

Okay, and then separately, back on the natural gas, I think in the past you've talked about maybe entering into working interest agreements as part of a DRI project plan.

Any new developments on that end?

Is that something you're actively pursuing, given where gas prices are or is that maybe a year or two out?

No, we're actively pursuing it in tandem with the development of a project.

And what we don't want to do is to have a gas enabled project without a gas supply, nor do we really want to have kind of an incremental gas supply without a project.

So we want to keep those two in tandem, although just the structure of the market today has caused us to sort of get anxious about trying to get something done on both the project and on the gas supply.

So we're still actively at it and those two should come together.

Sal Tharani, Goldman Sachs.

Thank you, hi, Gretchen, hi, John.

Hi, Sal.

Quick question.

John, did I hear right that you said that with all of the changes and initiatives you have taken to reduce the coke and coal consumption that you will not be in the market for coke this year?

In North America, we won't.

Again, we may do a little bit of buying in one place and selling someplace else or trading just for logistics reasons, but given our expectations for our melt requirements, which are pretty good for this year, yes, we think we're okay.

We think our coke production that will be coming on and our coke production from our existing facilities, we've been doing through walls and other things to make sure our batteries are running well and this godsend called natural gas, I think we're in pretty good shape.

Okay.

So when the Carbonyx project comes up, would you be just not running it if the utilization rates don't go back to the old norm levels or do you have old coke facilities you can shut down and use the coke from the new facilities?

That's a good question.

One of the points that we like about the new facility is it is flexible.

It can be taken up and down with some relative ease; we would want to see how that works of course before we get going.

My guess is it's going to be a very competitive facility and once we start it no one is going to want to stop it.

There are some other batteries in our system that are nearing the end of their lives for environmental or performance reasons and that's sort of all part of the schedule.

So it may be that that could be something that slows us down a bit.

And keep in mind it could take out some production where the Carbonyx would replace it.

Keep in mind we're still running the coke plant at Hamilton at a pretty high level and that's incremental coke in the system, not being consumed at Hamilton.

Okay.

Lastly, is there any furnace coming up for major overhaul over the next couple of years where you'd need full refractory changes and other repair?

Oh, sure, yes, we've got -- there's different grades of that.

None that would be at least not in this year's plan I don't think that would be complete, ground up rebuild like we did with our Number 14 furnace a few years ago.

We'll have a variety of hearth projects and staves and cooling members and all that, and some of them can be quite expensive.

We'll have some of those later in the year but I would put them in the category of routine work.

None that would be end of life kind of restoration this year.

At least that's not what we're expecting.

Dave Katz, JP Morgan.

Hi.

I was hoping that you guys would be able to address some of the recent WTO activity and how all that might affect you?

You're talking about the China case with respect to raw materials?

Yes.

Yes, it's an excellent victory for Ambassador Kirk and the USTR staff and other countries who joined in the case.

And it's very new and I've been sort of tied up with all of the activities we've had here in the last 24 to 48 hours, so I haven't had a chance to fully digest it.

But my understanding from our experts preliminarily is it's a very good ruling on the merits on this matter, but also more generally on just the US reasserting that we have rights with the WTO, and we shouldn't lose every case, which is how it's been for the last 10 years.

So we think Ambassador Kirk and his staff and others in the government that took that on courageously did the right thing, and we're glad the case came out the right way because the facts were on our side.

Now there's some specific things in there about coke and magnesium and other things that we have an interest in, but it's too soon for me to say how that might affect us because inevitably there's more steps to go through with the WTO.

Okay.

And then with regards to Tubular, I heard your reasoning with the likely shift in drilling as time goes on, but with natural gas prices down where they are, over time if they stay there, would that cause you to change the focus of your product mix?

No, not really.

I think our product mix is fine for oil or gas.

It really doesn't have to change.

It's really dependent more on the resource and there could be -- the resource, whether it's got oil or gas will dictate what the pipe requirements may be, so a real challenging resource that requires high end pipe, seamless, alloy connections, whether it's oil and gas, either way we like it.

I think it's more an absolute level of drilling that could be affected for some time.

Keep in mind, gas is a really good fuel and we have a large supply.

We have demand that's too low and we need to have better use of natural gas in industrial applications which we want to try to do and in every other application you can think of, it's the best source of energy, lowest carbon, most easily accessible, safest transport.

For all the reasons that have been described, we think natural gas is a great place so it's more of a demand question I think than supply.

But our pipe will be used, whether it's oil, gas doesn't make any difference.

Tony Rizzuto, Dahlman Rose.

I must be getting pretty old in my old age.

I thought I was quick on the trigger finger here.

How are you guys doing?

I got there first.

Oh, my goodness.

John, I've got a question for you.

I was wondering how you think about the supply demand balance for the OCTG market.

We've got Vallourec bringing on supply this year --Youngstown, kind of in your backyard.

And it looks like it could total, once they get up to capacity, obviously it is going to take time to get there, but it's about 10%.

I am just wondering how you see that play out, how you think about volumes and mix and any scope for price improvement in 2012.

Well, there certainly is some capacity coming on, if you just read the trade press about the things you mentioned.

We think we're going to be able to remain really competitive in the key markets that we're focused on because we've done a good job for the customers so far.

We're in the right places, the right markets with the right customers.

And what's in growing demand is the size range and the metallurgy that we can provide on the alloy side.

And quite frankly, I think our customers like the fact that we're an integrated producer and when the steel market gets tight there's nothing to worry about with us.

We have 20 million tons of steel behind our pipe mills, so I like to think that that puts us in a place where we can remain competitive.

If anything, the market is going to be competitive, maybe imports should give back part of the share that they've taken, particularly if they're fairly traded, they theoretically probably should be.

So I think it's going to be a competitive market.

It is today, and we're going to do our best to find our way in the world.

But it's a competitive market, but I think we can do -- US Steel, we can do okay.

Very good.

Just a follow-up, I was wondering if you are also planning to break out, on a pro forma basis, the prior-year results -- Serbia from Slovakia?

Our requirement is that because our K is not filed, we'll do nine months of 2011 and the full year 2010, so that should be available in a couple days, Tony.

Okay, that's great.

All right.

Thank you very much.

Appreciate it.

Thanks, Tony.

Evan Kurtz, Morgan Stanley.

Good afternoon, everyone.

Most of my questions have been asked but just one more follow-up on Tubular.

Just wanted to drill down a little bit more on just very current market conditions.

If you look at the pipe logics data is down last couple of months by bid and your guidance for flat pricing in the first quarter.

I just wonder if all that can be explained by mix and new heat treat from Lorain?

Well, our guidance has both of those things in it.

The pipe logics inventory numbers were relatively low,.

They were under four months of supply, which we think is pretty good and I think again sets up for a decent market, still over 2,000 rigs or very close to it, last time I saw.

So I think that what we're seeing in our numbers at least is pretty robust expectations on shipments, prices stable, the mix can shift a bit on us but we're -- recent quarters have been moving more towards alloy and more towards seamless.

Our new heat treat line and finishing line in Lorain has -- and we also make changes in Fairfield as well as in East Texas.

We can run the Fairfield seamless mill now a little harder and be able to finish it all in the right size ranges that we couldn't do before, so that's also helping us.

So that's moving us in the right direction.

I guess I'd expect that the first quarter should still be okay.

Okay, that's good to hear.

One final question on CapEx; you gave us that $900 million figure.

Are there any kind of big chunks of that you could break out as far as what main projects are driving that?

Probably the biggest things are the completion of the two coke projects.

Those would be two big strategic projects here at Clairton, where not too long ago we laid the 1 millionth brick and that's a big project, and the two out in Gary, the Carbonyx projects.

I think those would be the two largest.

We have got a placeholder for a few other things in there that aren't quite ready to go yet and the rest would be some of our ERP system we've been working on for years.

That's getting near the end of it as well but otherwise -- and there's some blast furnace projects, some stove projects that are designed to enable us to reduce coke and carbon consumption.

So I'd say they are all in there, mining equipments is usually a big chunk.

We have got to renew that periodically but the big tickets on strategic projects would be the coke projects this year; finishing those off.

Richard Garchitorena, Credit Suisse.

Thanks for taking my question.

Richard.

Hi.

First question is just on Europe.

You mentioned earlier the Serbian mill was producing mostly commodity grade steel.

Can you give us some detail, I don't know if it's going to be the pro forma, on the product mix at Slovakia currently?

Also, just how that will impact profit per margin per ton?

Actually, Richard we put that in a slide in the package, so if you took a look at --

I think it's slide 8.

Slide 8, thereabouts?

Yes, it's got the USSK shipments by product and mix and you can see that's about half hot rolled and then a pretty good selection of other things there.

And you can see the market scatter which is pretty good as well; really reflective of the manufacturing economies that are in Central Europe now.

So that's looking back but that's probably a pretty good indication of where we are going forward.

That's just Kosice and not US Steel Europe.

That is only Kosice and it's got Serbia out of it.

Okay, thank you and then on the raw materials side, does this sale impact the supply chain at all, in terms of obviously you're getting more self-sufficient with coke but on the iron ore supply at all?

No, you mean the Serbian situation?

The sale of Serbia, yes.

Not really, I don't think so.

There may have been some simplicity of dealing with both at once but not really.

I think the fact is logistics to get materials to Serbia were really hard.

By comparison, I think the logistics into Slovakia are quite a bit better so I don't see any negative there whatsoever.

It really shouldn't be affected by it.

Mark Parr, KeyBanc.

Hi.

Thanks very much.

Good afternoon.

Hi, Mark.

I had a couple of questions.

Based on your comments about capacity utilization, you were talking about 90% in the first quarter.

Would that, if I take Hamilton out of the fourth quarter capacity, would that compare to somewhere around 83%, 84% for the fourth quarter?

Let me just give you -- my comment was I think I said right now, we're running at about 90% in the US.

We may be there for the quarter, we may not be, that depends on how things shake out, but as I said we were at about 90% just in the US.

That, Mark, was to allow you to compare that to the AISI figure.

Then I said, I think, that we would be at about 84% overall North America and then to get that on a sort of pre-Hamilton basis, I think you'd add 9% which would get you to the mid to low 90%, I think is the number you're shooting for.

That would be about where we are today or at least where we began the year, exited the year, something like that.

Whether or not we sustain that for the whole quarter, either whether we can or whether we're required to, remains to be seen as to how things go.

I hope that helps.

Okay, yes.

That is helpful.

Another question, if I could and this is a little bit theoretical.

As you look at the business condition for Kosice right now, with order books and with the cost and the price and you compare that against 2009, would you think that Kosice's opportunity in '12 is as good as it was in '09?

Or is it perhaps depressed more than what '09 unfolded for Kosice?

'09 was pretty bad and things in Europe aren't very good right now, but I'd like to think that we maybe have a better forward look at life than we had in '09 at the time, Mark.

I tried to block that out of my memory.

It was really bad.

I think that where we are today is maybe a bit better than that -- a bit better than we had in 09.

Okay, and then one last question if I could.

It just seems like you've got an awful lot of cost momentum and is there -- a lot of people have been asking a lot of questions.

Is there any way that you could even begin to try to help us understand how much of that positive cost momentum is going to show up in the first quarter?

Well, I think we would just tell you that we expect our costs during 2012 to be not a whole lot different than they were during 2011.

We've got a little bit of coal costs going one way, a little bit of gas going the other way, some maintenance costs that probably end up being slightly lower.

Depends on how the whole thing plays out, but our costs are in pretty good control and our ferrous cost is pretty low.

Scrap is the biggest variable we have and we can all see where that goes.

I'm not sure what we can do, Gretchen, unless you have an idea to further explain that, except our costs are pretty stable and pretty good control right now.

Sam Dubinsky, Wells Fargo.

Hi guys.

Just a couple quick housekeeping questions.

First what was the maintenance outage repair costs for the Tubular business in Q4?

I just would have expected the profitability to be a tad higher, given firm pricing and lower raw material costs.

I think when we--

Order of magnitude 20.

I was going to say 20 to 25 and I think we mentioned that there was some cost associated with the start up of the new unit where we had full employment crews and didn't have all of the facilities running and producing.

So it would be at 20 to 30 in that range, which would get you to about the same level of profitability.

Okay.

My apologies if you already mentioned this but ex-Serbia, what type of tonnage do you plan to sell from the other plant and could you give us a profitability per ton target for Q1?

And I have one last question.

Are you just talking Europe?

Just Europe, ex-Serbia, yes.

So what type of tonnage are you going to expect from the other planned, ongoing?

Well, I don't think we didn't really say that.

I mean it's still a pretty difficult environment in Europe right now.

It's a 5 million tons per year -- short tons per year plant, roughly, and we're going to operate all three furnaces, so that implies 3 million or something, point something, or 4 million tons on an annual basis so divide that out that's probably where we are.

I don't know that we know enough about how the market is going develop there to come up with a profit per ton.

It will be better, I think, than as we said than what the fourth quarter was for all of Europe as we had it, but not as good as its been in some other periods.

But it will still a loss per ton and then is that correct and I just have one last follow-up.

In all probability, as I said, it'd be, our objective would be to chase a breakeven number for the first quarter, but keep in mind we will have one month of loss from the Serbian operation.

You could see the figure we gave you for the last year, and doing simple math will tell you we've got a little bit of a hurdle to overcome just in that one month.

Just to follow-up to that, when you report numbers, are you going to give a pro forma number which takes out the Serbia revenue or just going to include that as a Q1 result and ex-Serbia going forward?

It's probably a little early to decide whether we're going to do that.

We'll probably look at what the reality of the quarter was and how significant that month was in the context and if it was significant enough we would comment on it.

It's an interesting question.

We'll take it under advisement.

If there's real informational value to folks on your end of the phone in that, I have no objection to doing that.

Let's just see how significant it is.

Nate Carruthers, Steel Market Intelligence.

Hi guys, nice quarter.

Hi Nate, thank you.

I was just wondering how the restart of cold mill and Z-line at Hamilton is going and then how acceptance from customers is going there as well?

Good and good, Nate.

Thanks for asking a good question.

I was there not too long ago and the cold mill is going great.

It's a terrific mill and the people -- employees are terrific and they are as excited as can be to be back to work and it's as clean as a whistle and it's running great.

We sell cold roll directly, but of course most of it goes into the Z-line.

The Z-line is up and running, the largest zinc pot in North America I'm told, and it's a big one and it's a bit of a tourist attraction, and it's running well also.

We have been re-qualified on several major automotive accounts already and other qualification trials, re-qualifications going up today.

We have no worries about that.

We worry about it, but we think we're going to be quite successful.

Product well accepted and we expect to have that running full and booked full later in the year.

Our automotive customers, many of them have had the product before, they liked it then, they're going to like it now so they are both doing great and I appreciate you asking the question.

And then I actually have one more.

Go ahead.

So AK Steel says that they have iron ore escalators on all auto contracts over six months.

How does that work for you since you don't have escalators?

Do you guys get a higher price?

Well, we have, I think, the pie charts that we have in the back on the appendix on the slides identify that we do have some contracts that have cost escalation clauses in them.

And we have -- those are based on a variety of different cost factors and I don't really want to get too much into how our individual customer pricing arrangements are determined and I have no idea the other company you mentioned how they do theirs.

It's none of my business.

But I think from our standpoint we have done very well both for our automotive customers and with them so we like the pricing arrangements we have.

They are fair to us and I think fair to them, so we kind of like where we are and we think we did okay this year, and we think they will do okay.

Thank you very much.

Thank you.

I'll turn it back to the presenters for any closing comments.

Thank you.

I appreciate everybody joining us and we will talk to you again next quarter.

Thank you.

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