Olympic Steel Inc (ZEUS) 2008 Q4 法說會逐字稿

Good day everyone, welcome to the Olympic Steel fourth quarter 2008 conference call.

Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call to Michael Siegal, Chairman and CEO.

Please go ahead, sir.

Good morning and welcome to our call.

Sorry for the little delay, we're having a little phone problem on this end.

So I apologize for that.

On the call with me this morning is David Wolfort, our President and Chief Operating Officer and Rick Marabito, our Chief Financial Officer.

I want to thank all of you for your participation and for your interest in Olympic Steel.

Before we begin our discussion, I want to remind everyone that during this call, we will provide forward-looking statements that we do not undertake to update or that may not reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements can be found in our filings with the Securities and Exchange Commission including our annual report on form 10K.

I'm pleased to report record 2008 financial performance.

In 2008 we achieved record sales and earnings, while gaining market share even with the rapid and deep economic decline experienced in the fourth quarter.

We are particularly proud of our strong balance sheet and our ability to significantly lower our operating expenses as the industry-wide decline in sales volume continues.

Let me review some of the details from our earnings release made this morning.

Our fourth quarter sales totaled $254 million up 7.4% from the $236 million recorded in the fourth quarter of 2007.

For the full year, our sales increased 19% to a record $1.230 billion compared to $1.003 billion(Sic-see press release) for 2007.

Our sales increase was due to higher selling prices for steel in 2008 and the prior year.

Our fourth quarter sales volume totaled 229,000 tons compared to 291,000 tons shipped in the fourth quarter of 2007.

For the year, our shipments totaled 1.17 million tons compared to 1.25 million tons in 2007.

Our 2008 tonnage volume decreased by 6.6%, which compares favorably to the decline in the total steel service center shipments of 10.6% for 2008 as reported in the Metals Service Center Institutes Metals Activity Report.

Our fourth quarter net income totaled $776,000 or $0.07 per diluted share, compared to $4.5 million or $0.42 per diluted share for the fourth quarter of 2007.

For 2008, we earned record net income of $67.7 million or $6.21 per diluted share, compared to $25.3 million or $2.35 per diluted share last year.

While the economic and financial environment is certainly challenging, and it's uncertain when business levels will improve, we believe we are well positioned to weather the difficult climate with a strong, low leveraged balance sheet and a proven approach to working capital management and cash turnover.

At the end of the fourth quarter, we had shareholders equity of $29.73 per share, and only $40 million of debt and over $88 million of borrowing availability on our bank credit line.

We entered 2009 with a strong balance sheet, and significantly lower expense base that David will discuss later on the call.

We believed that our approach to running the business with sound discipline, working capital and cash turnover principles have favorably positioned us to take advantage of the market once steel demand returns.

I also want to reiterate that we have a strong and easy understandable balance sheet with no defined benefit plans, no pension or post retirement liabilities, no financial derivatives or hedges, no off balance sheet transactions other than the normal operating leases we have on some equipment and only $6.6 million of goodwill.

So again, I just want to turn the call over to David.

And thank you all for your interest.

Before I get started, Rick, why don't you go through some of the balance sheet and income statement.

No problem.

Also, Michael, you did cover the dividend.

We're pleased to report that (inaudible) our Board of Directors approved a regular quarterly cash dividend of $0.05 per share and that'll (inaudible) on March 16, 2009 to shareholders of record on March 2, 2009.

Let me cover some more of the financial information that Michael did not cover.

We ended 2008 with a total gross margin of $255 per ton and a fourth quarter margin of $172 a ton.

Strong annual margins were the result of higher steel and scrap prices in the nine months of the year, growth in our value add business and a sales mix of less toll processing businesses as compared to 2007.

The margins did trail in the fourth quarter and that was due to market price for steel declining about 50% from September to December.

For the year, our operating expenses totaled $187 million in 2008, that compares to $158 million in 2007.

However, our operating expenses totaled $36.5 million in the fourth quarter.

That was down $13.7 million or 27% from the $50.2 million of operating expenses occurred in the third quarter of 2008.

Fourth quarter 2008 expenses were also down $4.4 million or 11% from the $40.9 million occurred in the fourth quarter of 2007.

These expense declines in the fourth quarter highlight just how quickly we reacted to market downturn in terms of cutting our costs.

Our operating income for the fourth quarter of 2008 totaled $2.9 million or 1.1% of sales compared to $7.4 million or 3.1% of sales last year.

For the full year of 2008, operating income totaled a record $109.2 million or 8.9% of sales compared to $43.3 million or 4.2% of sales in 2007.

Interest expense for the fourth quarter was $611,000.

That compares to $299,000 last year and for the full year of 2008, interest totaled $1.1 million compared to $2.8 million in 2007.

Looking at our effective tax rate for 2008, it was 37.4%, that compares to 37.6% last year.

When you look at the fourth quarter rates, the effective rate was higher and that was just as we trued up the rate for the year.

We had slightly higher expense being booked in the fourth quarter.

Turning to our balance sheet, we continue to manage credit and receivables closely, given the current financial environment and we ended the year with $77.7 million of receivables.

That is $10.7 million lower than where we ended 2007.

Lower 2008 receivable level was due to lower December sales and faster collection.

Our days sales outstanding improved by two full days from 38 days in 2007 to 36 days in May.

Our inventory totaled $255 million at year-end.

Which is $76 million more than 2007 year-end levels.

During the fourth quarter, we did reduce our inventory by $58 million or 19% from $314 million recorded at September 30th.

For 2008, we turned our inventory an average of four times which is blow our preferred turnover range, and that was due to weaker than expected sales in the fourth quarter, particularly in December.

Decreased our debt during the fourth quarter by $49 million.

Ended the year with $40 million of borrowings outstanding.

And as Michael said, we're in a strong position with low leverage.

Our current $130 million asset-based revolver is committed through December of 2011 and we have no term debt and we have no future scheduled debt (inaudible).

During 2008, in addition to achieving record sales and earnings, $34 million on capital expenditures to invest in the future growth of Olympic Steel.

These projects included a new location in Dover, Ohio, commencement of construction for a new facility in South Carolina, new space in Winder, Georgia, a facility expansion that's in process at our Chambersburg, Pennsylvania location and a new stretcher leveler line in Minneapolis as well as a continued investment in our new IT system which successfully went live in our Cleveland operations in January.

Our capital structure remains strong.

The debt to equity ratio at year-end is 0.12 to 1 and our debt to EBITDA ratio is 0.3 times.

Now I'll turn the call over to David.

Thank you Rick, and good morning.

2008 certainly was an extraordinary year.

That's probably an understatement both up and down.

However on our prior calls, we've discussed our focus on strategically building a strong balance sheet as Rick has outlined and Michael discussed earlier.

While some criticize us for not using high leverage as a growth technique in today's turbulent financial and economic environment, a low leverage to financial position is serving us very well.

No one, including Olympic Steel is immune to the effects of steel pricing falling by 50% between September and December.

Service center steel shipments dropping by about 48% from the second quarter, year-end.

However, we believe that our ability to continue purchasing steel in the fourth quarter of 2008, first quarter of 2009, combined with our healthy balance sheet, positions us well to make it through this downturn and take advantage of the market when conditions improve.

From mid-September to mid-December, we reduced our inventory tonnage by about 28% and Rick took us through the financial end of that a moment ago.

We reduced that 28% into the head winds of a declining steel demand.

This reduction allowed us to participate in purchasing steel during the weak months of December and January.

As Rick highlighted, we spent $34 million in capital expenditures, in 2008 and in 2009 have committed to those capital expenditures that are in process.

This would include the roll out of our IT system locations beyond Cleveland, completion of our new construction that we started in 2008, including an 80,000 square foot addition to our Chambersburg location, 9,600 square feet addition in Winder, Georgia and new construction of a 110,000 square foot facility in Sumter, South Carolina.

We'll also complete the installation of equipment purchased in 2008, such as fabrication equipment in Iowa and a new blanking line in Connecticut.

We expect to self-fund our 2009 capital spending cash flows from operations and working capital reductions.

We also made some significant improvements in our operations in 2008 through the upgrade of the inside and outside of all of our physical facilities.

As recently announced, we are proud to have achieved the ISO 14001 environmental certification in all of our operating facilities and to have one of the first LEEDS environmentally certified buildings in the state of Georgia.

We also continue to add to an already strong management team with the promotions of John Brieck to Regional Vice President of our newly established southern region, Dan Shepard's promotion to the General Manager of the Carolinas and Steve Larson's promotion to Director of Operations and Facilities.

We also just announced the hiring of Andy Greiff, new position of Vice President of Specialty Metals.

Look forward to Andy's leadership to continue the growth of our stainless steel and non-carbon product sales.

Next I'd like to highlight our efforts to reduce our operating expenses to align our spending, the current depressed levels of the steel industry shipments.

As Rick indicated, he quickly reacted to the decline in business at the end of 2008.

Our fourth quarter expenses decreased by $13.7 million or 27% sequentially from the third quarter of 2008.

We've also made further expense adjustments in 2009.

Our initiatives include the elimination of temporary labor, elimination of overtime hours, except for customer service requirements, reduced work weeks and layoffs.

Today we have reduced our labor by 213 full-time equivalents, which equates to about 15% of our workforce.

We instituted a 2009 wage freeze to all noncontractual employees, and our senior management team voluntarily took a 10% salary reduction.

We also have a highly variable compensation program throughout Olympic Steel that is performance-based and tied to the sales and margins of our sales personnel and pretax profitability of our management and staff.

Our expense reduction initiatives to date result in the savings of about 13% or $25 million annually from our 2008 levels.

Obviously we will continue to monitor business conditions closely and adjust further if need be.

In summary, we're pleased with our record of 2008 financial performance and the exceptional efforts of the Olympic Steel employees.

We built a Company with a strong foundation that tested and experienced management team which will serve us well in this difficult market place.

We are confident that we will successfully navigate through this business cycle and emerge an even stronger Company when steel demand returns.

This concludes our formal comments and we will now open the call to your questions.

Thank you.

Today's question-and-answer session will be conducted electronically.

(Operator Instructions).

We will take our first question from Michelle Applebauem with SMI Research .

Please

Hi.

Hi Michelle.

First-- liquidity, covenants, that kind of stuff, can you put that to rest?

To rest?

I didn't know it was an issue.

We have no covenant violations, at least 85, 80, almost $90 million of liquidity availability.

If we do not reduce our working capital, which we expect to do.

We have plenty of liquidity and no covenant violations.

My question was-- I apologize it wasn't clear.

On a go-forward basis at the rate of performance that the company showed in the fourth quarter, when would you get into covenant problems, et cetera?

Michelle, this is Rick.

We are -- if you look at our covenants, we basically have a 3 or 4 financial covenants.

One is a liabilities to equity covenant.

We have tons of room there.

I couldn't imagine even getting close to that one.

We have a rolling four-quarter interest coverage task, which, as you can see at our interest levels and fixed charges, we're very low.

I don't anticipate, even at these run rates, we can go quarters without having to even have a concern there.

And then we have a minimum availability requirement under our loan agreement.

Same there, as Michael said.

We don't envision being bumped up into that one.

As we look out at 2009, covenants are not an issue for Olympic.

You can go on at this run rate into perpetuity no covenant problems?

That's our expectation.

My next question is, in terms of what's going on in credit markets in general and impact on the steel industry, you have competitors who are clearly having liquidity issues.

A, does that-- what does that do to the marketplace?

B, does that present a market share opportunity for you, C, does that present a potential growth opportunity for you to step in where someone else is having a problem?

The guys having liquidity issues and credit problems is probably not a real opportunity for us.

Our strategy, Michelle, is not to worry about the other person's issue.

Our issue is focused on trying to put the customers of choice in the locations where they assemble their product.

So if in fact there's an opportunity to move into a new location for us, which we don't presently serve, certainly we continue to do that on our growth initiatives, but I don't see us swooping in and taking somebody's business in the market where that market is performing poorly.

Because it probably is performing poorly for a reason.

As we indicated on other calls, we have bypassed a lot of sales in 2008 because of our tight credit policies, Michelle.

There are others out there who use credit insurance to back stop some things.

We've never done that.

We handle our own credit internally and we are very pleased by our low level of participation so far in credit bankruptcy.

That's interesting.

And other cycles, it was slightly different where you gained share and you were willing to step up, but this cycle is different.

The bank liquidity issues are affecting our customers as well as our competitors.

Obviously nobody has been here before, to this step of the lack of liquidity.

We have some major customers, Michelle, that I would tell you are going to struggle through this liquidity pricing.

Interesting.

Can I do one more?

Sure.

Last week, or maybe it's even a week ago before, there were four steel makers, each did their call on the same day, it was overwhelming.

This is what we were told the view was by the four guys who actually all compete with each other.

One said things had turned up already, another one said that they were going to turn up by the second quarter, and then later said late in the first.

A third laid out a couple of statistics that might be inferred to be optimistic, and then the fourth guy said things suck.

So I'm just wondering if you could give me, since it's actually two weeks later, if you have any view-- if your view is somewhere in there or if you can pick one of those, which describes the steel market right now.

Well, Michelle, this is David.

I'll take that question.

I certainly-- we won't give any privilege to the fourth quotation.

But what we do see is a confluence of a number of issues, Michelle.

We see a continuing lowering of inventory at the service center levels.

We see production at the steel mills continuing to wane and we see a severe lack of imports.

I think if you calculate all three of those somewhere in the context of one of those four comments that was made, you'll find that our sentiment is that we believe that inventories will be dreadfully low as they continue to go down and at some point in time, probably in the near second quarter, we expect some demand to increase over these very low thresholds.

And that will correspond with low inventory levels, no imports, and a frail production, statistic which I think will give a little bit of vibrancy to the marketplace.

Not huge, but we do expect a little bit of a recovery.

We still think the marketplace will be fragile throughout the year.

So you're of the apparent demand, which means purchases without inventory liquidation will pick up as a result of the elimination of inventory liquidation.

But you're not saying--do you think real demand consumption will see any pick up in the second quarter?

I think real demand as it's compared to first quarter will show some pick-up.

For an overall perspective of 2009, you're going to see a much smaller consumption than we saw in 2008.

just matching second quarter to first quarter, a little bit stronger demand, but overall '09, weaker demand across the board.

Okay, thank you.

I appreciate you actually giving a real answer.

Thanks a lot David and Michael.

And Rick.

We will take our next question from Bob Richard with Longbow Research.

Please go ahead.

Good morning, and thanks for taking our call.

Any lower cost to market issues Rick with inventory.

Is some of that higher priced inventory still hanging around if you will?

Obviously we gave our inventory turn numbers.

We're turning our inventory four times, and we're on an actual (inaudible) basis.

The inventory as a mixture of new buys, as David talked about in December and January at lower prices and inventory at the pre-December prices.

So it's a mix of all that stuff, Bob and we just -- as we move through the quarter and sell, we will continue to move through the inventory.

Okay moving off that, the OEM inventories, can you maybe talk about where the inventory levels are at your customer?

Well to the extent they give us visibility into that, we'll tell you it's exceedingly low and going lower.

Yeah.

So we've seen an extension of plants shut down that is highly unusual because they're selling from inventory and they are not reproducing that material.

We expect a very low level.

How low?

It's low.

Bob, David here.

Finished goods at most of our OEMs are being exhausted.

We've had some long-term shutdowns at many of our OEMs as they continue to dissolve their finished goods and obviously during those shutdowns they've not taken in any raw materials that would allow them to produce.

On the other side of the spectrum, I know it's always dangerous to answer a question that hasn't been asked, but on the other sides of the spectrum, which is the mill side, we also see a reduction in raw materials at our producers.

We are aware that producers, some producers are moving raw materials from facility to facility in order to eliminate those and so on both ends of the spectrum, we see inventories getting very low and then of course on the service center side of the equation, we see inventories propping based on MSCI statistics .

And just intuitively, that reduction of inventories at your customer would seem to give you guys some tail wind with your value added strategies.

Is that a little too optimistic?

I think that's right on, Bob.

I've you're right on.

I think that the economic engine, no matter how slow it becomes when it starts, it needs to be fuelled by some product.

We think we are in an ideal position to react to the customers that we have earned their participation.

We have the front end of their production and as we just discussed, their finished goods have been liquidated.

When they get going, we think we will be in great position.

We think get going is some time in late first quarter, early second quarter.

Bob, let me also comment in the stimulus package that was passed.

There is an incentive that's been passed to give customers tax credits for reduction of debt.

Our strategy to become an out source manufacturing and help our customers return a higher yield on their balance sheet and their investment.

The perfect strategy for unfortunately this very troubled time, even recognized in the incentive package that was passed.

Thanks for that color.

Very helpful.

Good luck.

Thank you.

(Operator Instructions) We will take our next question from Tim Hayes with Davenport.

Please go ahead.

Hi good morning guys.

Couple questions.

On the inventory tonnage, you were able to decrease inventory tonnage by 28% (inaudible) end of December, did I hear that right?

We decreased from peak to trough, September to mid-December by 28%.

Quarter-to-quarter September 30 to December 31 was 19%.

Okay and, your inventory turns in the fourth quarter, how did that-- how quickly did you turn your inventories in Q4?

I don't have that right in front of me, Tim, but obviously we turned for the year at 4.

I know we were turning closer to 5 times, which is our internal objective through most of 2008.

So however that math would work, I don't have it in front of me.

Obviously it slowed down.

December sales were significantly lower than we anticipated, which obviously affects your inventory turns.

Sure, and on that note, how is January shaping up?

Is that at least better than December?

Not measurably no.

And last question, any idea what your gross profit per ton might do in Q1 in terms of higher or lower than what you were able to do in Q4?

We would anticipate probably the same or a little bit lower.

Okay.

Thank you.

You're welcome.

We'll take our next question from Charles Bradford with Bradford Research.

Please go ahead.

Good morning.

Hi.

Could you tell us what you're seeing from the imported steel side?

Are they offers from the foreign-- from the traders of the foreign mills getting more attractive?

Is there anything worth buying?

Do you get any impact from the Buy America?

Chuck, David here.

Yes, I think we would be impacted with Buy America.

On the plate side of the equation.

As it went to infrastructure.

So I'll answer that first.

I don't know how we would be disadvantaged.

Obviously be only advantaged on something along those lines, although I don't think it would be dramatic.

But on the foreign side, Chuck, the offerings, they really have not amounted to much, and there really has been a, there's a reluctancy from our perspective, quite frankly to take advantage of any of those that come along.

Because there is the (inaudible) of dealing with the imports to this country versus where the marketplace is today or just too much risk involved.

We see very little participation on the foreign side, very few offers that warrant our attention.

What are you seeing currently as far as hot band or plate pricing in the US?

It looked like several weeks ago, some signs, that maybe prices would be picking up.

Now we're hearing, no, they're actually weakening.

What are you seeing?

I think they're pretty much the same.

I think they're low, Chuck.

I think the prices are low.

I think there's very few buyers out there today.

We are one of the very few buyers in the marketplace today.

As Rick and Mike both indicated.

We were able to reduce our inventory dramatically from middle September to middle December.

The fact our inventory moved up in the latter part of December was because we were active buyers and buying at the reduced transaction price.

We see those prices as staying a little bit longer than we had originally anticipated.

We would have expected pricing to maybe move up in the latter part of first quarter and it doesn't appear that it is.

Thank you very much.

You're welcome.

We'll take our next question from Sal Tharani with Goldman Sachs.

Please go ahead.

Hi guys.

Hi, Sal.

I think I asked this question last time also, in the slow down, how does your strategy of opening small satellite offices or satellite shops near your customer is working out?

Is it positive or negative?

I would say it's --again, as the customers open and bring back their demand and look for more outsourcing solutions, I think it fits perfectly.

Those small facilities, Sal, will take very little investment.

It's a lot of variable costs.

We do that only where being asked by the customer for the support.

So I would tell you, although we haven't seen it yet, because a lot of guys are still worrying about cutbacks and slowdowns.

We would anticipate still opening up some more of those facilities this year .

And looking at your balance sheets, very unleveled balance sheet, you're trading at about 0.5, 0.6 times your book value.

When things turn, how fast do you want to go, where do you think this company can go over the next couple of years?

I think even at your conference, Sal, we laid out a vision of the next three to four to five years.

Cash flow generated growth plan that incorporated about $140 million of CapEx just on new facilities.

Not even including anything we might replace internally.

So as we look out when you look at the map we presented on our end, which you can see on the website, we would anticipate in the next four or five years having probably, at least two major facilities and a number of smaller facilities.

And is there any region you think you're going to grow more than the other?

Yes, Dave, go ahead.

Sal you'll see us in some new geography.

We have--not that we've necessarily saturated the geography that we're in, but as Mike started out earlier and some of these satellite plants as we get closer to larger OEMs and enable the larger OEMs, I repeat, enable, the larger OEM to be a lean manufacturer, that's the primary purpose for these small regional facilities.

The expansion that Mike talks about that he's talked about at your conferences are some new geography in terms of extensive steel processing.

So, not on a small scale, but on a larger scale, similar to some of our larger bulk breaking facilities that we currently have.

Those are still on the horizon.

We haven't differed at all from where our perspective is on when we'll be there.

We are servicing customers in those regions from longer destinations than we choose to.

We're giving up too much margin with freight.

We want to move closer and secure those regions.

And in the distressed time, is it had opportunities to buy versus build?

It depends on the--I don't want to sound like the guys in front of Congress yesterday, but obviously, to buy a distressed company at a very low valuation, you probably don't want to buy it.

To buy a good company, it probably isn't going to sell at a low valuation.

The question of significance, Sal, obviously it's going to depend on the credit markets opening up from where they're presently at.

Literally what these guys said yesterday in front of Congress, credit markets have to change from the current environment for anybody to look at anything that's substantial.

Because you're not going to do it all on a cash transaction.

There's going to be leverage on it.

As was appropriate for the leverage-- but, that market doesn't seem to be very frothy at the moment.

So, not yet is probably the best answer I can give you.

One quick question on the operating expense side.You expect operating expense, not only that it came out in absolute number, but percentage of sale on a lower sale it came down.

Is that a trend we should expect going forward also?

There must be a minimum level where you have to--

15% of sales is sort of the number.

Okay.

Great, thank you very much.

Thank you.

(Operator Instructions) We'll take our next question from Mark Parr with KeyBanc Capital Markets.

Please go ahead.

Good morning, guys.

Good morning, Mark.

One of the things that we're trying to figure out here is from an inflection perspective, could, Michael, could you give us some color on the difference in shipping volume between October and December?

And I don't know if you want to give any color on if you think that March could be as strong as October, but I'm trying to get a sense of what you think your tonnage might be for the first quarter?

Any color you can give there would be really helpful.

From your mouth to God's ear, I could only hope that shipments in March are as good as they were in October.

I would tell you Mark, without being specific, material differences, day shipments level and so the data that's out there, reflected in the MSI data pretty much indicates the dramatic shift in the shipment levels.

We do anticipate as David said earlier that as, as people start to reopen their facilities on a normalized basis, that activity will pick up.

I also think that there could be this scenario of price spike because of the lack of inventory and lack of ability of steel production to occur-- but we, we don't have great expectations, Mark, that this market, as David indicated is going to recover in the near term to, any 2008 level, other than maybe the November and December levels, but it's going to be substantially lower, regardless.

It sounds like you guys really don't look for any sort of demand pick-up until maybe the end of March at the earliest and the current visibility just isn't there.

Mark, if we're wrong, we're thrilled.

We have the inventory to take care of it.

We're gearing ourselves to manage this business through the deep frost that we're in and unlike some others, we do have the ability to buy steel.

We think we're very well positioned to take care of our customers.

Whatever level they come through.But on the other side, I think the low leverage does get us that opportunity to do a quick reaction.

Okay.

One thing I'd also like to get your thoughts on-- getting questions from clients about when you talk about the supply discipline-- it's kind of ongoing in the weekly steel production numbers continuing to languish here.

The industry really is operating from a position of strength this time.

It's the first time in many downturns that they've been able to do that, but along with that, comes the question, how long can it really last?

And I just wonder, do you see any difference in the resolve of the industry to maintain pricing and to maintain the supply disciplines say versus a month ago or two months ago?

Hey Mark, this is David.

I think the paradigm continues to change.

I think that today's economic climate compels everyone whether they're a steel service center or a steel mill producer to be very tactical today.

Not necessarily abandoning strategies or vision, but living on a day-to-day basis.

I think that you'll find that while there is a discipline amongst the bigger players, there is not discipline amongst the smaller players and because that lack of discipline doesn't exist in the smaller players, I think it forces the larger players to have to demonstrate more flexibility than they originally anticipated.

You're talking the EAF guys have got a lot lower cost in this environment because of the scrap position.

At least on the surface.

They've got higher cost scrap on the ground, but their cost is moving, much more aggressively to the downside than the integrated guys.

I could see why that would be happening.

That's true.

The miny mill concept was predicated on low energy cost and low scrap costs, and variable labor costs, and that's where we're at today.

I think when you look at public entities that are producing steel, Mark, I think there's a realization that they have to serve their shareholders.

And serving their shareholders comes beyond servicing the marketplace.

And I think that there's a realization of that at least bubbling up here today.

Okay just one last question.

Rick, did you give-- put a number around CapEx for, 09?

No, but what I can tell you is as David took us through, we're going to finish-- our plan is to finish everything that's in process.

That would be-- depending on various stages.

There are certain things we could ramp back.

It would be between $20 million and $30 million to do that.

So $20 million is committed in terms of things that are being constructed and another $10 million, if need be, if the market really got bad, we could obviously taper back.

That's the range.

Okay, terrific.

Thanks again for all the color.

Congratulations on the achieving profitability in this kind of environment.

Thank you.

We'll take our next question from Nate Kellogg with Next Generation Equity.

Please go ahead.

Hi guys, thanks for taking my question.

Most things have been answered, but just on the inventory side, given where pricing is today and the volumes are, I guess if you could just, it sounded like you had opportunistic buys in late December, but if you could help us think about maybe where inventories are going, balancing the idea that it looks like things are going to be subdued up here for a while.

With the fact that obviously I would think as you add some of these new facilities, you will need to have some additional inventory, just because you have to put some steel in the few facilities.

We have shown over the cycles, Nate, a great ability to have good working capital turnover.

So rather than pick a net number, I would tell you that it was our objective to get back to 5 inventory turns or close thereof.

It will take us some time at these low depressed levels, because we still may continue to buy.

Right.

But I would tell you, it's still our objective to get back to our normalized working capital turnover on inventory.

Okay.

That's helpful.

Michael, I just I wondered-- I know in past calls you've given us-- and I realize you guys don't have a perfect look through exactly where all your product goes, but maybe if you could give us a color on some end markets that are stronger versus weaker or things that are looking worse than they were or better than they were?

Give us some sort of that higher level color, and that tends to help.

It's my 13th consecutive year of saying automotive is not good.

Automotive is not just challenges as we read about, but clearly the cascading effect of the potential bankruptcies and no dip financing really puts all unsecureds at very risky positions.

Clearly automotive is probably the worst--I wouldn't say the worst.

It's the most risky place to be because of the lack of demand and lack of credit availability for the consumer.

I would tell you that all industries today are depressed, other than perhaps the military side is still doing a fairly robust build, a lot of shifting in terms of models from heavy units to lighter units and back again.

And beyond the military, there are some opportunities and some of the alternative energy markets that have potential.

As opposed-- there's a lot of quoting going on, lots of different kinds of solar and wind tower fields that are out there that we hope to participate in.

And so those give us sort of the greatest uptick.

Pretty much all the road construction is waiting.

The farm equipment is waiting, export markets are waiting.

You read about the mines being shut down in Australia, so I would tell you, the two industries that look good are alternative energies and military, automotive probably being the worst market that we participate in.

I'm sure there's other bad markets out there and everybody's depressed and nobody wants to be the first guy to say things are good and it's sort of, everybody's waiting for the guy to make the first move and maybe there'll be some follow the leader.

Everybody is very concerned about liquidity, impairments, bank covenants, all the questions we've got asked is probably true for all of our customers, clearly the highly leveraged acquisitive companies, by end user particularly who have high debt have high issues as it relates to the go forward lookout of how they're going to operate.

Absolutely, no I appreciate that.

Seems like nobody wants to be hero in this environment.

I guess you can't blame them.

All right guys , thanks very much.

The color is great.

Definitely

(Operator Instructions) And we'll take a follow-up question from Sal Tharani with Goldman Sachs.

Please go ahead.

Michael, just a quick question on your assumption of (inaudible) steel in December and January, can you give us some color, are you seeing holds in inventory or is it just averaging out your costs better?

What's the reason for that.

Sal, this is David.

I'll answer that.

The reason is we continue to sell steel.

We continue to sell steel and we continue to replenish the steel we sell at a lower cost.

Therefore, expanding our margin once again.

To be specific to your question.

Both.

Slower the average and it clearly-- we sell steel, so we had holes.

Great, thank you very much.

Thank you.

And gentlemen, at this time there are no further questions.

Great, thank you operator.

As a reminder, it's not our policy to provide forward-looking earnings estimates for the upcoming quarter or year and not to endorse any analyst sales or earnings estimates.

We anticipate releasing our first quarter 2009 earnings around April 29th.

This concludes our call.

And again, thank you all for staying with us for a very long conference call.

Appreciate your interest.

Bye-bye.

Ladies and gentlemen , this will conclude the Olympic Steel fourth quarter 2008 conference call.

We thank you for