Good day ladies and gentlemen and welcome to the Second Quarter 2007 Allegheny Technologies Earnings Call. My name is Brandy and I will be your operator for today. At this time, all participants are in listen-only mode and we will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Greenfield, Director of Investor Relations and Corporate Communications. Please proceed, sir.

Thank you, Brandy. Good afternoon and welcome to Allegheny Technologies earnings conference call for the second quarter 2007. This conference call is being broadcast live on our website at Alleghenytechnologies.com and on ccbn.com. Members of the media have been invited to listen to this call. Participating in the conference call today are Pat Hassey, Chairman, President and Chief Executive Officer and Rich Harshman, Executive Vice President Finance and Chief Financial Officer. After some initial comments we will ask for questions. During the question and answer session, please limit yourself to two questions to be considered of others on the lines. Please note that all forward-looking statement made this afternoon are subject to various assumptions and caveats, as noted in the earnings release. Actual results may differ materially. Here is Pat Hassey.

Thanks Dan and thanks everyone for joining us today. ATI’s diversified global markets, broad product offerings and operational execution, delivered another quarter of profitable growth and sales and earnings. Sales increased nearly 22%, compared to the second quarter of 2006 and net income increased 43% to $2 a share. Segment operating profit was over 24% of sale. We remain focused on our performance and execution, resulting in a first half of gross cost reduction of $54 million. That puts us on track to meet or exceed our one year 2007 gross cost reduction target of 100 million. Financial metrics were again solid, return on capital was 36%, return on stockholders equity was 49% and net debt to total capitalization is now under 1%. Cash flow from operation during the first half was $187 million, even with further investments of $390 million in managed working capital. In addition year-to-date capital expenditure totaled $152 million. Cash on hand was $530 million at the end of the second quarter. We plan to invest about $450 million in 2007 for capital projects that support our growth objectives and reduce our cost. These investments included new titanium sponge capacity, new titanium nickel based alloy melt capacity, new plate capacity and improved growing capabilities in our flat rolled products. This capital projects are all self funded. To further strengthen our balance sheet we are in the process of replacing our existing $325 million secured domestic revolving credit facility with a new $400 million unsecured domestic revolving credit facility. We are pleased that this new credit facility has been extremely well received by our bank group, and the new facility should be in place by the end of July. This new credit facility provides ATI with reduced letter of credit and borrowing rates and removes an impediment…

(Operator Instructions) And your first question comes from the line of Dave Martin with Deutsche Bank. Please proceed sir.

Thank you and congratulations on the result. I wanted to, I guess first focus on the flat rolled business, and can you give us a sense of what your shipments in the quarter would have been to the service center industry? And then I guess secondly whether you've seen any improvement in order activity or business activity, noting the fact that you said you are kind of waiting for nickel prices to stabilize and maybe we've seen a bit of that in a recent weeks?

Dave, I think we probably had one of the largest quarters in shipment and distribution, customer base than what we ever had, very lowly. As you saw we shipped about 133,000 tons, 270 million pounds. And as I said earlier over two-thirds of our profits are now coming from product line either direct or through contracts that are outside of our normal spot business into the general market place. So, it hasn’t been a good market. It hasn’t been a good market for a couple of reasons, one is basically is that nickel prices are on the rise and people are wondering when this is going to stop. Now the nickel prices have been coming down and of course the next question with the surcharges, with the largest drop in surcharges over the next 60 days than what we ever seen at, close to $0.70 a pound. No one is buying one more pound than what they need to sell the next day. So, we are in that situation that, if we look at that at market and we know that in the general distribution market, that the inventory turns have moved down to four. Okay so three months supply, okay. When you look at a three months supply, the question now is the end markets, if the end markets are as we’ve heard from several of the conference calls from large distributors, were pretty good, meaning that these markets are growing with the 2.5% to 3% growth rate in the U.S. economy. They are pretty good, meaning that you have to supply them, meaning that even if you wanted to delay shipments, say 30 to 45 days, you are going to start pulling metal into that marketplace, because you are simply can't have the shop empty. The customer is not buying anymore than they need. The distributors not buying anymore than he needs, and I think we have seen some announcements today even this week given now that the Chinese, that they are cutting back 30% to 50% for August and that’s understandable in any imports, because you can’t afford to use imported metal, when you’ve got a 65 to 90 days lead time and you haven’t seen the stabilization in the price of nickel. So its domestic production, it’s going to be domestic supply, and I think we are fairly confident that we are going to see those markets start to ramp up towards the end of the third quarter throughout the fourth quarter.

Okay. That’s helpful. And then secondly, if I could, just on the outlook, I am trying to understand your comments and what that means for the third quarter in the Flat-Rolled business, given the dynamics with the service center. I've seen the average cost in the third quarter, why would the result in that segment be any worse than what you reported in the second quarter?

I think the issue that we have got that we are really dealing with there is forecasting what happens with raw material prices. And as we do the accounting, up or down, with the raw materials, I don’t think the quarter, if making your point, Dave, is going to be much different. I think, could be even a little stronger maybe in commodities, but the question is what happens with the price of our basic raw material called nickel, that price stays where it is, and stabilizes. I think we are going to have a good quarter.

Okay. Thank you very much.

Your next question comes from the line of Tony Rizzuto with Bear Stearns. Please proceed.

Thanks very much. Hi, everybody and good results.

Hi Tony.

I have got a couple of questions here. Just to focus on titanium and I wanted to pursue the decline in your average selling prices for titanium and titanium alloys of 7% according to your new release. And accordingly it relates to the reduced index pricing associated with lower raw material cost. My question to Pat is this, as you build out your internal sponge and melting capabilities, which conceivably should reduce your raw material cost, is it fair to think that you could achieve gross margin expansion, particularly as we get, maybe some of those factors in the marketplace, such as the medical inventory overhang and the A3A issues and start to get the demand from the build rate from these new airliners kicking in?

I think, you re right on, Tony. I think that’s what you have said is right, where my thinking is. What we’ve seen in the second quarter we had some overhang in the commercial bar inventories, especially our distributors, which I believe now, got pretty much straightened out and into the second quarter. And so, we see some products and exchanging as you see from our notes also that we saw 43% more airframe titanium in the quarter than we sold in the previous quarters. So, as you move into that market and you also had an increase along with that same line in our jet engine business for nickel-based alloys. And nickel-based alloys don’t carry the same margins, and of course all these things blend in together. We came out of this thing a couple percentage points down of about 32 something, 32.5, 32.3, something like that. My own opinion is I am at where you are at. I think you asked the question. Do I think that will have margin expansion beginning as early as to third quarter and on? And I think the answer in my view is, yes.

Appreciate that Pat. I do have a follow up too. I think maybe in the last quarter, there was mention of titanium mill product shipments growing 25% year-on-year in '07. Are you comfortable with this assumption?

When we look at, where we are and we look at the comparison of the first half of 2006 to the first half of 2007 we are up 15% to 20% and if we look at what happened in the last half of 2006, in comparison of the first half of 2006, and we look at our fixed contracts and what we now know as projected full rates, we are very comfortable with our 25% growth.

All right Pat, that's great. I would leave and let some other folk ask some questions. Thank you.

Thanks very much.

Your next question comes from the line of Kuni Chen with Banc of America Securities. Please proceed.

Hi, good afternoon.

Hi Kuni.

Just wanted to circle back on titanium, as far as what you have been seeing in the spot market maybe over the past month can you give us a bit of color there? do you see spot prices turning to bottom out here, and just what are your expectations in the second half?

I think spot prices have come down and you are basically talking about from using a scrap standpoint on solid processed scrap. Its down to about 1450 of course that then will effect the overall prices of ingots and margins that you get for that based on 1450 are still the same. But as use your inventory that’s washing through the system, remember we ship basically at time-of-effect. We price the time of effect to shipments so we are looking at lower prices there. There is some squeeze there that washes out of the system. So I think that my comment earlier about the margin expansion is there to come back. And as I look at the ramping in this aerospace side of the business, I also said think that there has been some supply channel changes with the Boeing contract throughout the industry at some other distribution side of the market that is now shaken out, those inventories will then be adjusted and come back in the line that, I am pretty confident that if we had bottom we probably are close to it or in it.

Okay great. And then just on the -- as far as new contracts, potential contract, we are hearing some noise out of the oil and gas sector. Perhaps there may be some big pieces of business to come there. Just wanted to see if you can flush out any details or figures in that front?

I think there are great opportunities there and I was impressed the other day that the U.S. just launched its first energy platform for natural gas in 8000 foot seas. The technology is great, but that more importantly for companies like ours that’s a long way to the floor and that’s the long way offshore at a 123 miles and that’s were the resources are going to be. So we view that oil and gas business the ability for us to have qualifications for offshore type applications. The duplex alloys that we were offering in places of other alloys at lower prices to be tremendous opportunity for us and not just in the short-term, but in the next several years.

Okay. And then just, my last question, I will turn it over. You know in the past we have talked about M&A that you are looking for a strategic and accretive acquisition? I guess could you help us understand what your strategic parties are whether that’s melting, forging, fabrication or some other area? And just give us a sense as to what type of synergies you would look for in an acquisition, is that more cost based or growth based?

Well, I think there’s two important parts to any acquisitions. First of all, it has to fit the strategy of the company and our expertise in this specialty metals and in the aerospace, oil and gas, chemical processing businesses. Our current strategy has been to make sure we are an integrated supplier, but we were very cognizant of where the market is, we were very cognizant of the participants in the market. So we like market growth that allows us to position ourselves in markets that would be accretive to the company and fit our strategies. And we are currently engaged in a lot of organic growth parts, but that doesn’t mean that we aren’t talking about those things that would be important for the company over time.

Okay. Thanks. Good bye.

Your next question comes from the line of John Hill with Citi Investment Research. Please proceed.

Thanks everyone and thanks for a very informative call and congrats on a strong result.

Thanks John. How are you?

Just going back to the stainless side of things, a very impressive margin performance here. 20.7% hanging above 20% for the second quarter in a row. And this on quite modest volumes relative to capacity, relative for last quarter I think it does really underscore our transformation you were talking about. Can you just help us weigh through basically what happened between since the second half of last year and the first half of this year to allow those margins to set, reset so much higher in a business that was traditionally described as a extremely sensitive to base load volume?

Well we have been transforming that business since 2004 basically and we have changed the organization to emphasize the markets that we want to go after and I have changed the organization. We have changed the direct P&L responsibilities to business sectors or sub-sectors, if you will, within our Flat-Rolled products group, putting some very, very qualified, great people under Terry Dunlap in those positions. We have refocused our international operations in Asia and Europe to emphasize those products that we think we have good opportunities to do. We completed our strategic renewal analysis where we make money, where we don’t make money. We have pruned and expanded our commodity product customers. I mean that pruned and expanded some. We have taken a great deal of cost out of our Precision Rolled Strip. We have grown the capacity of our electrical steel business. We renegotiated long-term contracts for many of our product lines and entered the titanium market in Flat-Rolled, both in sheet and plate, in a much larger way, and so we basically changed the mix. We continue to have a capital program rolling through that business, that has given us upgrades on our rolling equipment, upgrades in our melting shops, refocus the market productivity. That we are talking about at 40% improvement is the formula that I am talking about, is not a easy number, it’s a formula that said, let’s adjust this business and give ourselves credit for the change in mix, but give us no credit for pricing and no credit for any of our [adjusted raw] pounds per hour. So, when we look at that, we truly have a 40% gain, that’s taking a lot of cost out of the business. You take that cost out of the business, you refocus the organization, you concentrate on international markets, use the strength of the international selling because of the dollar, focus on the products that you do well with, partner with the right customers and you see a $166 million quarter.

Yeah, a great perspective. Switching gears a little bit, I just wondered if you could talk about the nuclear opportunity. We talk so much about the chemical process in aerospace. Westinghouse was out today with some announcements about the number of new reactor builds. And how should we think about the opportunity for ATI in nuclear and is it possible to distill it down to some kind of volumetric numbers we can work with?

It’s a great question. We are working on the same question. I can tell you some general opinion. I think the potential on the nuclear side is every bit as big as a potential that we first saw on the titanium side three years ago. Now how well that we can address that and move our operations and our capacities to achieve where we would like to be, will be a question. I think the market opportunities are tremendous, I think our technology is the best in the world. And it’s going to be question of, in that build of nuclear facilities, who can supply the materials to meet those demands.

Yeah, fair enough. And on that subject, I guess, in terms of meeting demands in nuclear we have the exotics last quarter, missing some shipments how we are doing on that?

I think we are trying to run them of the facilities we have at 100% utilizations. We've have had some issues doing that and it isn’t a matter of opportunities in the market, it’s a matter of our ability to execute and to move the shipments. So we actually did better in the second quarter. In fact the question you are asking me, I'll be better prepared to talk about it in the third quarter, because we have summit meeting on the topic that you are talking about with all the right people in our company in the next two weeks.

Sounds great, thanks again guys.

Thank you

Your next question comes from the line of Chris Olin with Cleveland Research Company Please proceed

Good afternoon.

Hi Chris.

Pat, I saw Boeing announce the long-term titanium supply agreement with a Chinese producer, I guess earlier this year. Do you think this has anything about the quality of sponge that’s now coming out of Asia and again now looking at this as a potential major supplies threat going forward just appreciate some of your thoughts there?

I don’t think we see it as a potential major supply threat. I think the Chinese are going participate at some level with the producers that have been qualified producers in this industry for a long time there is two or three in China that have a small percentage of their total capacity that is capable of doing that. The build in China of the major capacities that have been announced are more on the industrial side of the business. So many small companies trying to move things up, but I think overtime, you’re going to see some Chinese production in this total business and of course the question is against sponge and where is the world going to get enough aerospace sponge to meet the demands, especially as more of these programs come online, the 380 starting end of this year, of course Boeing ramping up. We’re taking weight out of the some of the other existing programs, with possible further usages of titanium. The [x-body 350] coming on stream in 2012 and later. And I think you are going to see still a need for more sponge.

Okay great, then just on the titanium demand side. I was interested in the amount of shipments going to the airframe customers. Does this suggest that the 787 beginning to order more material for that platform or is that going somewhere elsewhere now?

We never can tell exactly what Boeing is doing with it because the course of the material we are supplying is in a semi finished note form and it goes into all of their programs. And all of their first tier suppliers they can use it for. But I don’t think there is any question that we are going to see the acceleration and ramp on the 787 program late this year beginning first quarter next year.

Got you. Just real quickly, do you have any exposure to this broker issue that one of your competitors are discussing today?

The answer to that is, thank God, no.

Okay great,

We don’t use that individual.

Your next question comes from the line of David Macgregor of Longbow. Please proceed

Yes. Good afternoon gentlemen.

Hi David

I was little bit late on getting on the call, but I think you made reference to roughly two-thirds of your shipments are subject to escalators and agreements is that what I heard?

No I don’t think, no I think we said that there is two-thirds of our Flat-Rolled Products profits are coming from our key growth markets and that we have entered into agreements into that business that support those key growth markets.

Okay. Is there any way you can shed some more light on the whole notion of escalation agreements within your contract sales, I realized you can’t get into definitive terns, but is there someway you can help us understand maybe in the aggregate just the sensitivities and what are the key drivers behind those?

I think we have some very unique clauses and some unique protections that we put into long-term agreements. I will let Rich Harshman to give you a few of the details on those.

Okay. Thank you

Hi. David, yeah, each contract is different. There reason is that framework from the standpoint of what the customers are asking us for. I will say that for the most part we structure agreement to protect ourselves from the volatility of raw material costs. And you do that either through indices or surcharges or in the case of some of the long-term supply agreements for titanium like with Boeing. That’s the importance of being fully integrated back into making your own sponge so that you have a very high level of confidence in terms of what the cost of that sponge is going to be, which becomes an important factor and the assumptions you make in terms of how you cost and therefore price that particular contract. On the conversion costs side, virtually all of our contracts have some sort of inflation protection pricing mechanism in it dealing with things like energy cost and labor rates and supply costs and so on so forth, so when we look at LTAs across the company, all of the significant LTAs that are material to each one of our operating companies have to come in here for Pat and my review and we stress test them and look at different scenarios to make sure that we are very comfortable from a risk management standpoint and many of them after a period of time as it’s a long-term supply agreement that run seven or 10 year, they have to re-open our clauses that are designed to protect them a against inflation.

So, that’s a helpful answer. Thanks, Rich but I am trying to just also understand sort of lag with respect to time that some of this escalation might actually play through to your benefit and I mean the extent that we would get a move and say an energy market or labor market or raw material market, how much time would transpire for you to start the realize the benefit? Would it be marked up the next quarter or in the following year or…?

Yeah, once again it depends on the contract, in some cases this on a quarterly basis and in other cases its on an annual basis, but they are all really designed to afford us a great deal of protection in an extreme inflationary situation.

Would it be fair to say that there is a greater majority of quarterly than annual?

No I think we probably gone as far as we want to go though in terms of discussing the intimate nature of our long-term supply agreement.

Well, I appreciate that. Thanks Rich.

Thank you, good afternoon.

Hi, Bob.

Hi. Okay, I've got just few questions. I guess one is just talk about with the titanium business, you mentioned the airframe there falling demand obviously picking up dramatically here in the second quarter. I imagine it hurt the margins a bit as you pointed earlier. Can you maybe quantify how much that hurt your margins versus how much the titanium sponge expanding has helped your margins?

I don't really want to get into the details of that Bob, but I think for people looking at what should they think is going to happen in the next six months.

Right.

I really feel like that drop down to the 32%. So we are going to see those margin we cover somewhere let's say from that 32% to 35% this year.

And what's that going to be driven by? Just the mix getting a little bit better, that’s your point earlier on some of the new stock-in that took place and then sponge?

It's going to see a little bit better mix a little bit stronger coming out of the jet engine makers, as they match up with the airframe side and I think the overhang on the medical bar side of this thing is going to correct itself. So, some of those is simply a mix change, some of it is simply catching up with the life factor on the scrap prices and some of it is just simply the balance between the airframe and the own products business. I can tell you though that as I look at the business, the most important part of that segment is going to be overall topline and bottom line growth in revenues and profitability going forward.

Absolutely, and on the Flat Rolled Products business, I mean obviously nickel pricing didn’t start falling off really until June. Can you maybe just talk about what the volumes look like in April and May and what the volumes were like in June?

I think the volumes were fairly consistent with people looking through the mills to give them the opportunity to run as close to their demand levels as possible without holding the risk on the nickel, because of the changing nature or the perspective changing nature from day to day. So most of the mills put in ready coil, they are close to ready coil, and that particular situation won’t last forever, but it is a fact today that the mills are the people that are sitting with, and supporting their distribution guys as closely as they can. But over a period of time what we need to see is 60 to 90 days of fairly -- some fair stability in this nickel pricing market and you will see a changed market for volumes and stainless steel sheet.

And last question if I could, is related to the capital structure. Now obviously, what a difference a few years makes, with the dividend rate being cut several years to go. Obviously the dividend now is much lower than it was in late 90s, early 2000s, in a much better shape from a cash perspective, you mentioned the debt net, the cap being less than 1%, in lieu of acquisitions, how do you think about the dividend, the current dividend rate, in addition to potential share repurchases, because it sounds like all the CapEx, that you plan on doing obviously is being taken care of with the cash flow.

It is self funded. We have raised our dividend the last two years to where it is today and both the increase were I think 60% and 50% from what the bottom was. So that part is coming back, I think we have a growth opportunity you know I just mentioned earlier, we’re going to be looking at some of the nuclear business items. But one of the things that you are seeing from ATI in total was, if you look and just run the top line growth of this company, if you take the current year from last year, and just annualize where we are to-date moving forward, you are going to see that this company is growing again on a top line basis over 20%. And if we can find that kind of growth in products that offer us what we consider good returns and profitable growth. That’s where the money is going to go.

Okay. Thank you very much.

Your next question comes from the line of [Dan Wayland] with Bear Stearns. Please proceed.

Hi, everyone.

Yes.

Most of my questions have been answered. But just a quick here on substitution, we have being hearing for several quarters now about substitution to lower nickel bearing alloys. Is this close to leveling off your, how much more room do we have for additional market share gains?

Yeah, that’s a great question, Dan, and it's one that I have asked, and the answer and the fact of the matter that I get is that -- We didn’t talk about the percent of our shipments in the second quarter that were 200 series versus 300 series for specific reasons. But this thing hasn’t backed off at all. And it's a question that even with the nickel prices that are leveling off let’s say at $14 to $15, there is still significant savings for people. And the interesting part of course is those people that move out of the necessity possibly earlier on over the last 18 months now, are using 200 series alloys and products that are competing against people that are not and those people that are not using them are taking a very hard look at using it.

Okay. Great, thanks a lot.

Your next question comes from the line of Scott Blumenthal with Emerald Advisors. Please proceed.

Good afternoon, gentlemen, congratulations.

Hi, Scott.

I have a question for Rich. Rich can you talk a little bit about the terrific leverage that we saw in the SG&A line and maybe some of the places that you have been getting, some of those improvements sequentially it was very nice?

Yeah. Hi Scott. We spend a lot of time focused on fixed cost and part of what we've accomplished over the past four years is to take, you go back to 2003, 2004, is to take a lot of the fixed cost including SG&A out of the equation where you do see going back and looking over the past couple of years, an increase in SG&A from a pure dollar amount. You've always seen a much lower as a percent of sales. I mean down to 4.9%. So, we treat except for the incentive compensation based upon performance, I mean that we treat that as the cost that has significant opportunities to leverage off it as you grow. I mean when we grow sales by as Pat mentioned 20% a year, our objective from a management standpoint is to maintain a kind of headcount that we have across these companies as we had and when we were 20% less than sales. So the leverage there is not only on the SG&A side but quite frankly it's also on the cost and control side because a significant part of manufacturing cost will also affect them. So I think that we spend a lot of time on that and to the extent that we continue to target profit growth in the topline,we are continuing to target holding our line on SG&A.

I understand that as ramp the topline average that you get a lot of leverage. But that number, that absolute number is I think lower this quarter than it has been for the last six. So I was wondering if you have some special initiatives that you are able to tackle if there was some specific thing in there that you could pull out and say, that’s where you got that from this quarter?

No not really, I think its combination and actually when you look at the natural expense account, it’s a combination of a lot of things not only at the corporate level but in the operating company as well The business unit Presidents are part of, really their incentive compensation is still basically in the same criteria as the corporate officers. So there incentive lies to maintain and focus on cost reduction opportunities at the SG&A and the fixed cost level as well. But there isn’t any one thing to point to other than the something we will continue to focus on and make sure we are very efficient.

Okay well. We appreciate that, thanks. And if I may get one for Pat also. Pat, you talked about the $450 million of gross investments in the current fiscal year and you went to mention three or four things, one of which was additional rolling capacity. And I think when you and I met a few years ago one of the first things that you told me was that we are not going to price the percentage of our cost, but we are going to price to value and I think that we that we really saw that come through this segment this quarter. So we have seen a tremendous jump in revenues from flat year-over-year, even less like a 40% drop in pounds coming through there. So can you talk about the additional rolling capacity and is that going to be replacing current capacity or if you see just down the road things are so good with nuclear opportunities and things that are going on in the aerospace industry that you are going to need just that much more capacity, in addition to what you have now?

I think there’s two words here Scott, one is we have capacity, but question is capability. And so we have invested money in our large Zanzibar mills, to make them state of the art in control systems and speed and profile, all the things that would give us absolutely great product that can compete with any mill in the world. So we have the most modern Zanzibar mill, two big large mills in our Vandergrift plant, both modern to with the latest controls on each mill. We are modernizing another mill in [Lowisko] plant, which is now a plant dedicated to titanium sheet. We have also upgraded some other mills, across the precision roles strip systems. So we are looking at that. We are also looking at these global markets with an eye to where we can increase our capabilities and increase our uniqueness on a global basis as to the kind of products that we can make, which will include alloys and gauges and type of control systems that we put in and the type of equipment that we have, is going to be the question going forward. We are also not ignoring just crops move in the United States by 2011 and we also understand where those markets are and we also understand the kind of products and how we want to niche our position within the global market stream. So we are looking at, when I am talking about rolling assets the ones that money we have spent thus far has been returned assets to move our quality level, reduce our cost, increase our capabilities. And I would think that, that strategy of reducing our cost, improving our capacities and in improving our product offering is what we are looking for when I talk about rolling modernization.

Hey great, that’s really good information. Thank you.

Your next question comes from the line of [Sunil Gathader] with Sentinel. Please proceed.

Hi. On your high performance metal side, the titanium side, your price per pound continues to decline. How should we think about it going forward? Is it that the ramp of the airframes is going to put a pressure on them despite no change in the margin levels?

I think you should continue to view that as we grow forward. We are going to grow the top line and the total number dollars and that our margins overall will be north of 30%, but as I said earlier I think in the shorter term we are looking at margins that would be increasing from the current level to second quarter between 30 the current level of 35%.

Okay, so it would be more driven by volume in that case, your top line would be?

Yes absolutely.

On the inventor situation you did mention that inventories are pretty low, they are quite tight and probably there might be restocking beginning. Is it the sense that there’s a function of the end demand, the end demand might be weakening somewhere or soft basically that's why your customers are trying to maintain low inventories and they are not ordering or is it fact that you mentioned about that they had to retail nickel prices stabilize. But the end-demand may not be improving at all, probably. Is that the way we should be looking at or…?

I think that the end market demand is still, as most people are describing it, as pretty good. It’s being masked or camouflaged by the effect of the change in nickel prices between now and September moving down $0.70 a pound. So no one, everybody is using the inventories they have on hand to get through a period where they can buy lower cost metal, because of the price of nickel. That will only work for the number of days that you have inventory available, and as I said, we know that in the U.S., the latest, at the end of the second quarter, that U.S. service centers were about a, had four turnover a year or a three months supply, so that going forward and from the comments that we hear, the metal that we are selling and the metal that’s going out the door may have some further inventory reductions to what is possible, but we are almost at the end of that, where we are going to see the real demand in my view in the next 30 to 45 days.

If I might just chip in with a last follow up question on this. If you think that the things are going to reaccelerate, somewhere at the end of the third quarter, then is it not logical to think that nickel prices may start to pick up again?

Well, I think that nickel today is, it seems to be stabilizing in that $14 to $15 range, and when we look at the three months forward price we see that same kind of thing and I think that this adjustment was more the dynamics and changes on the LME than in the demand from the marketplace and those changes are now in effect and have influenced the correction that we are seeing. So I think the demand in maybe has pretty well set up that at the current prices. But I’m not forecasting the future of nickel.

Okay thank a lot.

Ladies and gentleman your final question comes from the line of David Campbell- Owl Creek. Please proceed.

Hello.

Mr. Campbell, you line is open. You may proceed with your question.

Here we go. I wanted to talk about nuclear a little more. You mentioned along the way that you see it now as an opportunity as great as you saw titanium when you invested in that business. Would you say that you see I know this far into the future, but did you think nuclear is as great an opportunity as you see titanium being now?

What I think we have is certainly resurgence on a global basis of understanding nuclear power. The technology has certainly improved. The publics attitude towards nuclear power is now one of the green attitude of that being clean power and when we look at the overall needs of the United States and announced needs of a power generation, that is something in the range of 48 nuclear, possible nuclear power plants to be built in United States. The number I think in the next 30 years in China is something like 300. There is rebuild to do on the existing nuclear facility that have been in service for 35 years so this is a whole new opportunity. There is only about three or four major suppliers in the world of these kinds of products. And so it's going to be a question of how fast this industry ramps up? When does it begin and what kind of capacities are necessary to meet the growing demand rates and we are in the process of making those same analyses that you are asking me. So I would say the opportunity appears to be as great as the titanium opportunity when we first began exploring it some three years ago.

Are there any barriers to entry that are material?

There is tremendous technology and barriers to entry, very similar to the titanium business.

And if this, this may be kind of too far in the future for public investors, temporary, so I wanted to ask you the questions directly and then on a public call is whether you have been contacted either private equity or by interested potential strategic acquires?

No. We have not been contacted of anyway.

Okay. Thank you, guys. Congratulations.

Thank you. Well, I think this concludes our questions for today, and I want to thank everyone for joining us. We appreciate your support, we appreciate your interest in our company and we appreciate the discussion that we’ve had during this call.

Thank you Pat, and thanks to all of our listeners for joining us today. As always new releases maybe obtained by email and are available on our website. Also rebroadcast of this conference call is available on our website. That concludes our conference call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, you may now disconnect.