Hello and welcome to today’s Commercial Metals Company third quarter 2008 earnings results conference call. I would like to remind all participants that during the course of this conference call, we will make statements that provide information other than historical information, and will include projections concerning the company’s future prospects, revenues, expenses, or profit. These statements are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these projections. These statements reflect our beliefs based on current conditions but are subject to certain risks and uncertainties that are detailed in our press release and public filings. Your host for today’s call is Mr. Murray McClean, President and Chief Executive Officer of Commercial Metals Company. Mr. McClean, please begin your call.

Good morning and welcome to CMC’s third quarter fiscal 2008 conference call. With me is Stan Rabin, our Chairman, and Bill Lawson, our Chief Financial Officer. This is actually Stan’s last call before his retirement in August, so I would like the honor of Stan to say a few words at the outset.

Well, thank you, Murray. Actually, we got our disclosure statement in early, right, as a prelude. Anyhow, I actually prepared a 30-minute speech about LIFO, but given that the market seems to get it, you know, we have a saying -- if you’ve made the sale, don’t keep talking about it. So I think hopefully now there is some understanding of LIFO and what an outstanding quarter that CMC had. I simply want to say it’s been a great ride, 38.5 years, and it’s been a pleasure knowing many of you, and the best news is the company’s in great hands. Our succession is in place, we have a very sound strategy going forward, and you can look at CMC with continued optimism.

Thanks, Stan. I’ll just say a few words about the third quarter and then Bill will provide the details and at the end I’ll talk about the outlook for the fourth quarter. As Stan mentioned, the LIFO expense was tremendous. I mean, it was a record. We never anticipated such a high LIFO expense of $0.71 per share. If you add that back to the $0.51 per share, you get $1.22 per share. However, we are a LIFO [inaudible] in the earnings with $0.51 per share so clearly, as Stan mentioned, operationally it was an exceptional quarter. Obsolete ferrous scrap prices during the quarter, depending on grades, increased 40% to 50% and rebar and merchant products have increases of around 25%. These huge price increases led to the tremendous LIFO expense. On the global basis, global demand continued to drive up international prices of ferrous scrap, pig iron, raw materials, and steel, and with our diversified business mix in these global markets clearly we benefited from these price increases. Supply in many products struggled to keep pace with demand during this quarter. When you look at rebar, the Middle East and North African markets led the way. They were the strongest in terms of pricing. The demand is just tremendous in that part of the world. In the U.S., ferrous scrap prices followed international scrap prices and although demand for rebar and merchant products was good, the tighter supply situation from reduced imports enabled steel prices to rise and be passed through. As well, with international steel prices and a weak U.S. dollar, there’s a continuation of steel exports from U.S. mills, including our own. Freight rates surpassed the highs of November 2007 during this quarter and that further demonstrates the strong demand for products such as iron ore, scrap,…

Thanks, Murray. Good morning. I wrote my own Safe Harbor language and you know what? I’m not going to be denied my time, so I’ll call your attention to the Safe Harbor statement included in the press release and in our August 31, 2007 10-K that says that in spite of management’s good faith current opinions on various forward-looking matters, circumstances can change and not everything that we think will happen always happens. In addition, we’ve given guidance regarding our outlook for the fourth quarter of fiscal 2008 in our press release. Subsequent to this call, we will not be under any obligation to update that outlook and in accordance with Regulation G of the SEC, you are aware of non-GAAP financial measures. Some of these have derived fairly straightforward from our financial statements or in common business use can be the subject of our discussions today and in our investor visits. Our website at cmc.com has additional information but sometimes there are items that may be outside our ability to discuss and you may have to be patient for us. Well, I remember clearly getting off the plane in Bosnia to attend the meeting to estimate LIFO. We had to dodge sniper fire and run into the building. I was so shaken I estimated LIFO at $20 million rather than the correct $127 million. It’s either that or big oil is somehow to blame. Okay, once again I proved myself incapable of estimating LIFO. This time I didn’t even get the correct power of 10. The price movements were extraordinary during the quarter, as Murray mentioned, and LIFO did exactly what it’s supposed to do -- in rapidly escalating price environments, it gives you a rapidly escalating expense. I don’t think that it’s always appreciated is the fact that…

Thanks, Bill. Just a couple of words on the outlook for the fourth quarter. Clearly it’s going to be in our view another strong quarter with the guidance Bill mentioned of $0.90 to $1.00 per share, with zero LIFO. Ferrous scrap prices, this is obsolete grades, are down in June by about $25 long ton. However, overseas demand plus the big price gap, when you look at prime grades versus obsolete grades, now are over $200 a ton may lead to higher scrap prices here in the U.S. That’s obsolete grades in July and August. Our rebar and merchant bar prices increased $40 a short ton on June the 1st, and will increase another $35 a short ton on July the 1st. 20-foot rebar prices also went up an additional $30 a short ton in June. So we anticipate middle margins at the mills here in the U.S. to improve during the quarter as steel price increases exceed scrap price increases. Globally, there appears to be no seasonal slowdown in demand in international markets. Normally there is some slowdown, a seasonal slowdown with the monsoon season in Asia and the European summer holiday period. But at this stage, we don’t see a slowdown. The greatest longer term risks are inflation and the credit squeeze. In the meantime, demand will continue to outpace supply in global markets, so overall the fourth quarter we see to be very strong, so it will be similar to the third quarter. And as I mentioned earlier, our global mixture of businesses will be very positive to our results. With those few comments, I’d like to now open up the conference for any questions.

(Operator Instructions) Your first question comes from Michelle Applebaum of Michelle Applebaum Research.

I have -- first of all, congratulations to Stan. I’ve known you for 28 years and you are one of the best people I’ve ever worked with, so -- second, I am the first question and I have to apologize because I have an accounting degree and I took a class called inflation accounting in graduate school, and I still am not getting some of this discussion here about LIFO. Can you explain to me what the difference is between saying LIFO expense was $129 million and you were forecasting 20, and saying costs were higher than expected?

I don’t know about the costs were higher than expected, but clearly as we rolled into the third quarter, we did not have the $147 scrap adjustment in front of us. We had looked at adjustments in price increases in the neighborhood of $20 or $30 a ton, consistent with other springs where with the thaw, the material flow increases and generally there’s a correction. Clearly that didn’t happen and you -- although you can’t quite straight-line it, I mean, you can see that going from a $30 expectation to well over -- well, it went up almost $200 during the quarter, that you are not going to get it right.

You know, I thought I was asking you what’s the difference between missing LIFO and costs were higher than expected? Was that answering -- I mean, I understand it’s hard to forecast LIFO but what’s the difference between not forecasting LIFO correctly and costs went up higher than expected?

Well, costs did go up higher than expected. If you just want to discuss on a FIFO basis, there’s no question that --

There’s energy.

Yeah, energy, alloys, I’d agree with that, Michelle, that LIFO simply reflects the underlying reality that a lot of the cost inputs went up. So that’s absolutely correct.

Okay. All right. My other question was yesterday we saw Mittal buy Bayou Steel and it’s just interesting how they are sort of a little bit pregnant in North America in the long product business. And I was just wondering what you thought their plan might be and how that might impact from a competitive perspective what you guys are doing.

Michelle, we don’t comment on our competitors. I mean, in the general terms, maybe, but we don’t know what their strategy is so -- I mean, clearly you’d be better to ask them directly. We just don’t know.

Michelle, the only issue for us is whether Bayou as a mill behaves any differently than they have up until now as a result of the acquisition, and we would anticipate no negative effect.

That’s a good point. So consolidating -- I don’t -- I’m not good at geography, so you’ve got this Louisiana, Texas, kind of Mexico thing now that Mittal is sort of tacking by you onto an existing franchise, right? So we’re talking about more consolidation into an existing plane, right?

We obviously favor consolidation -- to have a financially strong company in that part of the world is better for us than a weak competitor.

And you don’t want to comment on what you think longer term they might be doing? I mean, it’s kind of fascinating that they may have looked at [Chapperal], I’m not sure 100%, but then right after [Chapperal] changed hands, they are building in Quebec, which if you know Lakshmi Mittal, you know he hasn’t built a lot. So do you get any sense that they might be building in other parts of North America or anything like that?

We honestly don’t know, Michelle. As I mentioned, the strategy, we can’t really comment on. I mean clearly with this latest acquisition, it’s got port facilities so if the strategy is to export, that’s a possibility. But as I mentioned, you are probably best to direct the question to them.

I guess. Okay, thank you very much.

Your next question will be from the line of Chris Olin with Cleveland Research.

I have three questions here, and I guess I’ll start off with the obvious one -- when I look at the fourth quarter LIFO adjusted outlook, it’s down about $0.22 from the third quarter. Now if you are assuming scrap falls, that should be a positive margin drive to the F&D domestic business. I’m just wondering what’s weaker? Where are you more negative sequentially in terms of your outlook?

I would say that first of all, in context of the third quarter was an extraordinary quarter, so a dollar or the $0.90 to $1.00 guidance we gave for the fourth is still a very strong guidance. I would say it’s fabrication, when all is said and done, Chris. And that is with the continual price increases, there’s another one that will take effect on July 1st, the fabricators will continue to have a rough time at it.

Okay, but are you assuming that scrap falls during the quarter, that would adjust the surcharge down?

No, Murray will -- well, you can --

Well Chris, it fell in June for obsolete grades and if you asked us that question a few days ago, we would have said flattish July/August, but it could be, as I mentioned earlier, could well now be an upward movement July/August, so it’s a little bit too early to say. I mean, what you really need to watch is the global markets and as I mentioned, there doesn’t seem to be any seasonal slowdown this year. It could happen July/August, but we don’t see it quite at this stage. So there is a real possibility that scrap may well increase here July/August.

And what would that do to the domestic mill margins then in the quarter?

Well, they always have a catch-up period, of course, and they are catching up now because scrap only rose obsolete grade -- that is $10 in May, came off $25 in June, and the prices of rebar merchant bar products have been increasing May, June, and now July. So the mills will catch up. So as I mentioned earlier, we would anticipate the metal margins to improve at the mills. It would mean a big scrap jump say in August that may jeopardize that, but we don’t see that at this stage.

And Chris, there’s still a gap between the import price, which keeps going up, and the domestic prices. And in fact, given the current prices in Turkey, I mean, there’s virtually no way any Turkish material can be sold into this market.

If I can back into that then, then you are expecting a pretty bad quarter for F&D sequentially versus that number you put out there?

No, no, no -- we expect another strong quarter, because the F&D, the international, which was our [inaudible] and distribution --

I’m sorry, I mean domestic F&D. That’s the delta, so it will be significant?

Well, I would say that given the LIFO burden they carried during the third quarter, they may actually improve, Chris. But you asked, I would think your question was aimed operationally and that was our answer. But LIFO is always the swing factor in this sort of thing.

Okay. I guess just switching gears real quickly, you are kind of making some positive comments about the underlying demand for non-residential construction and I’m just wondering, what’s your visibility on that? Or how do you feel about the potential of cancellations considering the cost inflation with some of these key materials? Where do you get your confidence in that comment maybe beyond this summer?

Well, we mentioned steady. I mean, some areas are clearly declining. I mean, you look in there, our joist business, which is exposed to the box retailers, et cetera. That’s down 15%. It seems to have leveled the last month or two. And other areas [that are] definitely non-residential will reduce over time with projects being cancelled, as you mentioned, the credit squeeze, difficulty of getting finance. But there is a big sector out there non-residential -- I’m not saying it’s immune but like the highway work, et cetera, and that continues quite strong. The energy sector, clearly anything related to energy is very strong. And maybe we’re blessed in this part of the world being in the Gulf Texas area. Those areas are really quite strong. So it’s a mixture. So I guess the word would be steady and certainly some areas are definitely declining.

Okay. I’ll leave it at that, and then Stan, let me just wish you the best of luck. It was great speaking with you and I hope you do well.

Thank you, Chris.

Your next question comes from Sal Tharani with Goldman Sachs.

Can you give us some more color on the Croatian mill in terms of -- what I understand, you have a pipe mill, which you are ramping up, and then you have additional capacity in the mill at the [inaudible]. When do you expect you can produce extra billets, or if you think that is a viable option to go that route?

We have to spend, and we plan to do so in the next 12 months, considerable CapEx to improve the melt shop and also the caster. We need to modify that caster because at the moment, it produces octagonal billets and the market needs round billets, so until such time as we can change that caster, we can’t sell billets in the outside market. Croatia we have to say is a turnaround. We were over-optimistic early in terms of sales and it will be well into next year until we are making significant progress at that mill, but we do have plans to aggressively spend the CapEx, and also we’ve got short-term plans in place to cut costs and improve efficiencies. But that’s going to be slower than we anticipated.

So the volume or the capacity for caster right now -- or how much can -- what is the capacity you can put on the caster? Is it 300,000 [inaudible]?

It can be higher than that. I think it’s approaching 400,000 or 450,000. It’s a big caster but our furnace can’t produce that much steel, so it’s kind of academic right now about the caster. We do have -- as a matter of fact, we have bought a pre-owned, I believe the word is, a pre-owned furnace and with the plans that we have in place, we will be able to expand the melt shop’s capacity and at the same time, revisit the caster so that it is able to cast the more commercially viable sizes.

With $1,000 a ton, or $900 a ton, whatever billet prices are, that could be a pretty big improvement in profitability in that business.

Yeah, we agree. We agree completely and it is certainly one of the driving factors behind the Polish mill with our excess, or at last our current excess mill capacity and selling billets into that market. We agree completely.

And longer term, Sal, it does appear that the demand for semis in the merchant market will continue because countries like Russia, Ukraine, are using more of their own raw material, Brazil. So presumably there will be less -- there will be this increased demand we think for semis.

And we think, to Stan’s point, and also with China basically cutting off the exports of semis, we think globally semis, billets, and slabs are going to be in tight supply for the next two years, unless there is a tremendous demand pull-back, but there’s just not enough melt capacity globally to fill that void left by the Chinese.

And also considering, even if you don’t make too much pipe or are not able to sell it because of the orders or whatever happened in the past owners and they discredited the company, billets can be a very good profitable business, just running the billets over there.

Right. Croatia realistically, Sal, we’re 12 months away on having extra capacity of that caster.

Okay. Now on the scrap side, I think that -- does scrap prices in Asia, and you guys have a lot of understanding of that market, do they follow pig iron prices as well also?

They do. If you watch the trend there, pig iron prices have obviously risen dramatically. Pig iron is tight but certainly there is a direct correlation with scrap prices in Asia with pig iron.

I was looking at an older table where pig iron and scrap generally have a $40 delta and pig iron now is $150 higher than the scrap, so there is a good chance that scrap can even go up further?

We would think so, yes.

I think that is one of the data points where Murray was referring to there could be upward pressure in scrap prices in July and August. That is certainly one of the indicators.

And since, as you know, Sal, we have the scrap operation now in Singapore that we are physically, we are very much on top of that market.

And also on the domestic slab business, if I see -- if I strip the LIFO out, you made $73 a ton this quarter versus $37 a ton last quarter. How much of that is manageable or you can maintain or sustainable, because I know some of that has to adjust because the prices were ramping up, but once the prices stabilize, even at a higher level, this delta or this margin should come down a little bit. Is that correct to assume?

Yeah, it will come down some but I think it’s going to stay well above the historic norms.

Definitely, I mean, it will be higher but generally in rising prices, just because you are buying at a lower cost during that time, you probably make a little extra.

Yeah, that’s correct, Sal.

Okay, and the margins, if I look at your margin expansion of scrap down $25 and rebar merchant up $35, that’s a $60 delta increase in margin. Do you think you are conservative on your mill guidance?

Sal, we’re not going to say.

Sal, remember too the recycling includes non-ferrous and during the third quarter, we didn’t have the margin expansion in the non-ferrous that we had on the ferrous side.

You didn’t have any margin expansion on the non-ferrous?

Generally speaking, you know, those prices were relatively -- they didn’t have that kind of movement.

Great. Thank you very much and Stan, I look forward to meeting you at your going away party.

Thank you, Sal.

Your next question comes from Timna Tanners with UBS.

I just wanted to follow-up I guess and make sure I understand some of the answers to some of the earlier questions, if I could. You noticed the gap between global and domestic prices is being able to maintain a domestic price at or perhaps above current levels, but maybe you could help us understand why there is a gap between -- on long products between global and domestic and can we see the U.S. price actually kind of revert to more of the global price, with rebar globally quoted at $1,200 and above?

I think clearly on the demand side here in the U.S., it’s not as strong as in the global market, so we don’t see U.S. rebar prices, for argument’s sake, reaching the levels in the Middle East in some of these hot markets. We don’t think that that’s going to happen. Clearly there’s upside potential for rebar prices here in the U.S. I think that’s quite clear. You know, as mentioned earlier, non-residential in some areas is weaker. Rebar was going into condo building and in markets like Florida, we don’t have steel frame houses because of hurricanes. You have masonry brick, which uses rebar. I mean, that market is clearly down; mind you, a lot of that was 20-foot length rebars which were imported. But we think where the markets are now, there will be differential. Rebar prices in the U.S. are likely to remain lower than international prices, and particularly while the dollar remains weak.

Okay, that makes sense but then, taking that to the next level, what does that mean in terms of opportunities for export? How are you positioned? If you can give us an update on your thinking vis-à-vis export.

Well, our mills are really running flat out at the moment. We did export one shipment of rebar and we will probably test certain markets over time, because that’s the beauty with a weak dollar with high international rebar prices, you know, the mills have the ability and some of our competitors have more capacity than we do to do that, so even if demand falls off here in the non-res side, you have that ability to export not just rebar but merchant products and obviously billets. This is such a hot market, as we mentioned, maybe for the next couple of years, in markets in Central and South America and the Middle East, as well as in Asia. There’s just a tight supply situation on billets.

Sure, okay. That makes sense. And then finally, I think taking your point on how the mills domestically at least are running flat out, can you give us an update on the timing of some of your expansion projects? You mentioned that CapEx looks like it may be pushed out a little bit. And do you have any new thoughts on uses of cash beyond current expansion plans?

Actually, we have now posted our presentation, so I will no longer be able to surprise, but it’s up on the website now and there is a -- I’m just going to read from it, Timna, because you all didn’t have any reason to look for it but there is going to be slide and it’s number 9 in the presentation. It gives the project overview and the summarized version of it says that we expect Arizona to be commissioned in late summer, early Fall of next year. We continue to make progress on our air permit but the bureaucracy is slow and we have been delayed there. The Polish wire rod block, which is the first of the two big expansions in Poland, will be commissioned at the end of this calendar year, in December of 2008, so that’s right on schedule, doing well. And then the brand new mill, the brand new flexible section mill in Poland is expected to be commissioned in early 2010, so those are the three big ones. Right now in terms of uses of cash, I think it’s essentially going to be to continue on acquisition opportunities for the most part.

Okay, great. Thank you very much.

Your next question comes from Sanil Daptardar of Sentinel Asset Management.

Just a clarification on the LIFO guidance for the fourth quarter; in one of the comments you mentioned that in the case of Poland, you are chasing prices, which means that there would be a LIFO expense in the international arena. That means for the domestic mill, domestic fabrication, there would be a LIFO income. Is that the way to read about it, or is there something else in that?

Yeah, there’s a couple of things. One, we don’t use LIFO in Poland, so that would not be affected by it. The zero comes from yet another profound analysis where the argument goes like this -- pricing may tick up a little bit during the summer based upon factors we’ve already described. Should be -- now again, this is an assumption -- should be offset to a great degree as we drive our inventories down as we head to year-end. There’s always a push to get the working capital down, both in receivables and inventory by year-end. So the initial overall framework within which to understand zero was that pricing may increase some, but we hope to drive the inventory tonnage down. And that’s all domestic related. As I say, there is no LIFO overseas.

In case of driving the inventories down, you are assuming that the shipments will be down also in the fourth quarter, or the shipments are going to --

No, we are expecting very strong shipments and as Murray indicated, the fourth quarter is traditionally our best quarter from the standpoint of shipments and -- we are just about at capacity right now, so we -- in order to meet demand, we will have to ship out inventories.

Okay. In case of the demand in the U.S., you tried to break down what areas were strong and which areas are -- if you can just recap that to get a better understanding that where the weakness may persist and we can [address the effect, the shipments] in probably two or three quarters down the road?

Well, we mentioned on the non-res area the areas that are weaker, you know, the box retailers, shopping centers, condo building, even light commercial -- those areas are definitely weaker than what they were. The highway works, most public works, et cetera remains very good.

So the areas which are weak, what percentage of your shipments go into those areas?

Infrastructure makes up in excess of 30% of the shipments here in the United States.

So if these areas weaken, can the highway works offset the weakness in those areas in terms of the shipments or they can’t?

I don’t think it’s going to pick up. I think it’s really a question of this is a supply driven market and that is the lack of imports into the United States, for every ton that domestic demand may fall, we suspect import supply will fall as well and therefore, the balance is going to come out all right. And in the alternative, as Murray mentioned, if the markets do fall here in the United States, you ship it overseas.

Providing the U.S. dollar remains weak and international prices and demand remain strong, which we see for the next several months anyway, there’s the opportunity to export. So non-res would have to really fall away dramatically we would think to have a significant effect.

I think the economists have consistently underestimated for several years now the extent of this global infrastructure demand, and when you go these -- I mean, it’s quite extraordinary. We were just in Russia. It’s just -- the BRIC certainly but emerging countries in general, and that’s not to say there aren’t issues. You know, Vietnam now does have a credit crunch, so you can certainly get slowdowns in these emerging countries but I have to tell you, this global infrastructure thing is just extraordinary.

Just one last question on the Poland side -- have you seen any kind of changes in the demand pattern there in Poland, or the demand remains pretty solid there? Or you don’t foresee any kind of changes there for the next three or four quarters?

No, the demand looks very solid. Steel consumption growth rate is higher than the GDP in Poland, which is around 5% to 6% a year and with Poland, they’ve got the European Cup coming up in 2012, they are starting to spend the E.U. funds on highways and infrastructure. We foresee Poland as a very good market. And the other thing is this year, unlike last year, there are no imports from Turkey. Turkey is just focused on the Middle East and North Africa, which are getting the best prices. So the Poles are getting some imports from nearby countries but it’s fairly neutral and so they are in a good position, certainly for this fourth quarter and the foreseeable future up until fall time. Clearly a severe winter slows down construction in Poland but that’s a few months away yet.

Okay, great, thanks. And Stan, I wish you a very happy retired life.

Thank you.

Your next question comes from Brian Yu with Citigroup.

A question here regarding the Americas mill price realization -- when I look at the spot market prices for rebar for the quarter and in May, and it’s averaging about 775, and you guys had posted 718. It’s one of the widest spreads we’ve seen in some time. Can you comment -- does this relate to some pricing lags, maybe product mix related to billet sales or something else that’s driving it?

It’s clearly the lag, Brian. I wouldn’t hide behind product mix. That’s one of my favorite -- you almost set me up to give you one of my blow-off answers, but no, it is lagging. I mean, the mills at any one point in time are going to have 30-day backlogs that they have to, and maybe a little bit more than that, but anyway for argument’s sake that they do have to grandfather and -- the spot price is always -- well, the realized price is always going to lag the spot price, whether up or down.

Okay, and this is not one of those instances where prices are sticky on the way up but not on the way down? So we should going forward just assume there’s a 30-day price lag and use that as a proxy for realizations?

I’d agree. You know, if imports were more of a factor, you might have a little bit more resistance on the way up but that is not the case right now.

All right. And on the Americas F&D side, with the pace of rebar price increases slowing, can we expect F&D profitability to at least improve sequentially, even though it’s a loss?

That would -- on a LIFO basis, that would certainly be my expectation.

Okay. And then lastly, we’ve been just anecdotally hearing and reading a lot about demand destruction and project delays due to high steel prices. Are you seeing any of that on your F&D business and what’s been your ability to try to hold the F&D margins flat in light of the steel prices, on new projects?

We are seeing some of it, yes. In terms of margins, I mean, they have a problem, obviously, with these rapidly rising rebar prices and if you are talking the joist merchant bar prices to pass those price increases on, so that is an issue.

We will honor the contracts that we’ve made and in doing so, know you do take a beating. Now, they are going under -- they are not taking this sitting down, obviously. They are trying to change the book of business by being more aggressive on bidding one and two month work, bidding work that can have escalator clauses in it and by bidding prices that are -- that they would feel would be comfortable in spite of any possible increases. But it does take a while and a lot of fabricators, they are not going to make it during this period of time. I mean these prices -- I mean, we see it obviously as it comes off of our own mill. We have this dual distribution strategy of selling not only to our own sister companies but to their competitors as well, and there are going to be some people who just don’t make it during this period of time.

I think in terms of the end users, the bigger issue -- on the commercial side, not -- non-residential, the commercial side, not the public sector. The bigger issue is the credit crunch I think rather than rising material prices. And I think that’s what will then again turn the market back up again, is when credit availability improves. We don’t know when that will be but I think that’s more of the issue.

Okay, got it. Thank you.

Your next question comes from Eric Glover with Canaccord Adams.

I was wondering if you could comment on the availability of scrap, particularly in the U.S. There’s been some talk that the sharp run-up in prices that we’ve seen has actually drawn material out that may impact the supply going forward, and I was wondering if you could comment on that.

Well, there’s no doubt if you look in the last couple of years with obsolete grades, flows have increased significantly. But when you look at industrial scrap, obviously that’s not the situation. That comes from manufacturing, so definitely obsolete, there’s been more collected and it’s a bigger market than it was. You would have to say there’s a limit to how that market can grow but at these prices, people are collecting scrap from everywhere. I mean, people are even digging it out of the ground, et cetera. So when there’s also some other activities that the police take a lot of interest in, which we won’t comment on but basically yeah, the supply has been very strong at these prices.

I think some of this conversation about whether we are heading into ultimately a scrap shortage, this comes up every decade or so. You’ve probably seen it three or four times, Stan.

Yeah, we’ve been in the scrap business now almost 100 years, the steel business almost 50 years, and this is one of these recurring phenomena which is usually pointed toward trying to have some type of export controls, is usually the ultimate, which if course is a complete fiasco when we get those. But I’m not anticipating at all that we would get those, and -- but that’s -- usually it’s some move to somehow restrict the free market from operating. And there’s no -- we exported last year 16 million tons of scrap, which was a record. If the mills -- we’re on both sides of it. If the mills want to keep it here, all you have to do is pay the price to keep it here. The mills have enough scrap and we still export it as a country 16 million tons.

Okay. I guess thanks for your perspective then.

Your next question will be from Charles Bradford with Bradford Research.

Good morning. A couple of questions; first of all, you alluded to shipping costs coming down some, yet the shipping companies are all extraordinarily optimistic and at the same time, we are seeing the price of moving iron ore in cape size vessels plummeting. Just what are you seeing, and can you put some numbers on it?

Chuck, we’ve seen -- you follow the freight markets very closely. They peaked in May and they have come down on most routes, depending on the size of the vessel and the destinations. But we think the markets, the freight market should remain high, a bit off the peaks of where they were, and they will come off $10 to $20 a ton. We don’t see it dropping another $20 a ton for argument’s sake, purely because of the demand is still there for raw materials, steel, coal, et cetera.

What are you seeing on moving steel specifically, let’s say from Europe to the U.S., or Asia to the U.S.?

From Asia, Southeast Asia to the U.S., it’s around about -- depending on the ports and the destinations, say the Gulf, it’s a bit over $100 a ton. From China to the Gulf, it’s around $80, $85 a ton. From the Black Sea, say Turkey to the U.S., is around $80 a ton.

What kind of volumes are you looking for from the fabricated products? Would that continue to improve or pretty much hold flat?

You mean the rebar fabrication and --

Yes, rebar fabrication.

We think it should be flattish. Some markets are stronger than others in terms of regions here in the U.S. The Gulf, Texas, you know, further west they are all quite strong. The eastern markets, there’s a lot more competition there. They are a bit weaker.

It seems like foreign prices are so much higher than domestic prices that unless you have some constraints as far as shipping, I’m just really surprised you are not shipping more overseas. Do you have any constraints on what you are able to export?

Well, it’s just the capacity of the mills, really. And there’s some markets -- clearly there are metric, you have problems on the -- from that point of view but our mills are basically full here in the U.S. and our first priority is to look after our domestic customers. If we had more capacity, definitely we would be exporting more.

And have you broken ground yet in Arizona?

Yes, but not for a full-blown construction. We’ve done grading and we are building a rebar fabrication shop there, and so ground has certainly been broken on the rebar fabrication shop and infrastructure for it has been put in.

It seems like it’s a very short period of time to build an entire mill from what you talked about before, as far as starting up next year.

Well, the point there is that the majority of the equipment, even though there hasn’t been work done on the mill site itself, all of the equipment is sitting in storage in Arizona, so you typically -- as you know how these things go, Chuck, there’s a ramping up and you have a delivery schedule that you install it as it comes in, but we now have the case that because of the delay and the lack of the ability to get started on the mill, we are all -- you know, the -- we are all pent-up and ready to go, so -- but what would typically have been more of a drawn-out construction period can be now condensed, once we get the permit approved.

It seems like putting in foundations and the like seem to take a long time.

Well, we already have all the drawings, we’ve got all the engineering. It’s just that we don’t have the permission to go. So I think we’ll be surprised too about how fast it goes but people who have been sitting on top of this project now for the last year-and-a-half are very confident that once we get the green light, we will be able to meet that time frame.

Thank you and I look forward to seeing you tomorrow.

Your next question will be from Bob Richard of Longbow Research.

A lot of our questions have been answered, just a quick one; overseas shipments, mill shipments, down a little more than our expectations. The gap between melt and roll seems rather large. Are we looking at that the right way or were you guys maybe a little disappointed in your mill shipments there over in Poland? Was the SAP outage, was that the whole bridge to it?

That was a major factor. We were out for over a week, so that was pretty significant. And if you look, third quarter last year was a phenomenal quarter in Poland. Their prices peaked in April and they really had a very strong quarter, so we were building into our third quarter this year. And unlike last year when the Turkish imports started, we saw at the end of the third quarter of last year that really impacted our fourth quarter results. It won’t have an impact this fourth quarter, so anticipate this fourth quarter in Poland to be very strong.

You also saw the melt shop running flat out because of billet sales, both that were realized during this quarter and ones that will now ship in June, so yeah, there was a discrepancy between that but the reason is we were selling and will sell more semi-finished.

Okay, I appreciate that and one quick follow-up; Bill, in your earnings release, ferrous scrap exports were limited to 45,000 tons. Just a semantics, but were you just earning a better buck here or was it shipping assets availability? Or can you provide some color on that?

As Murray said, we always prefer to satisfy the local demand first. Most of that scrap, if not all of it, went out in containers and for ferrous export, containers are beginning to get a little tight, both because of demand and because shippers are finding out that ferrous scrap isn’t necessarily the most friendly commodity to go banging around inside their containers. I think that’s the answer.

But also with the container tightness, we prefer to send non-ferrous scrap in containers than ferrous scrap. We make more margin per ton with non-ferrous, so non-ferrous gets first priority and then ferrous gets second priority.

Okay, and just a quick one -- if you have the assets, you’d make a better buck overseas than domestically, wouldn’t you? Or would you? I’m not sure -- on ferrous scrap.

On ferrous scrap, yeah. I mean, if all out, ferrous scrap were by ports so we could export at this point in time, that would be true. But a lot of our collection, a lot of our yards -- in fact, virtually all of them are not close to ports, so clearly we support the domestic mills, including our own mills here in the U.S.

And all of them are close to domestic mills, literally.

Understood. Okay, thanks very much for the color and great quarter.

Your next question will be from Don McDougall of Adage.

Just a question on the comment that you had made about highways being quite strong, the public infrastructure part of your demand. I guess first of all, how much of that, of your business does that represent? And then I’m wondering if you have a view on where the budgets will come out for next year. Just given the inflation in asphalt, steel, cement, et cetera, it seems like we’d need a pretty big increase in the budgets to kind of keep the volume of steel consumer at comparable levels. Do you guys have a view there?

Well you know, it does make up, if you add both our fab operations and the mills, it makes up almost a third of what we do here in the United States. I think you’ve done the math absolutely correct -- not that that means I want a democrat in the White House, because we’re more -- but yeah, the funding is going to have to go up. But it is one of those projects, one of those calls on the taxpayer that seems to have a little bit more bi-partisan support. But I can’t disagree with where you are heading on that, and it’s true on the -- you know, obviously we focus on steel but when you look at all of the construction materials, including the diesel for these guys to run their tractor trailer rigs, it is extraordinary.

Now, just getting back to another question, if I wanted to assume that -- or let’s just say that we get a much more steep drop-off in non-residential, commercial, public, whatever combination thereof, how quickly can you guys ramp exports? I mean, you said that you were exporting this quarter, but are there any physical constraints? I mean, could you, in a three-month period, export 20% of your volume?

You need a quarter or two, and there are some limits, depending on what markets you are trying to sell to, but 20% -- it’s possible in a couple of quarters but we would really -- you know, you need to do things like change mill rolls and all that type of thing. But certainly if the billet export markets remain strong, those we can ramp up pretty quickly and export and with our international marketing and trading organization, we are in a good position to take advantage of that.

And there’s still, although imports have dropped dramatically at rebar, we’re still, Murray, what, probably running 800,000 tons a year. In the scenario you are describing, those would presumably go to zero or head towards zero.

Got it. And then just one final one on the scrap business -- obviously it’s a great market to be selling scrap in. How long does it take before the higher costs of scrap that you are realizing filter through to the acquisition costs that you have with your collection network? I mean, is that real time or is there a lag?

I would say within an hour or so. I mean, everybody -- you know, you even got the guy who’s driving his pick-up truck checking his BlackBerry as he walks in, so it’s -- we obviously buy very favorably and we have longstanding relationships with smaller dealers and although we give them a fair price, they also realize it in periods when scrap goes down that we will be there as well to buy their volume. So we still think we have a bit of an edge, but playing hide the ball on what the pricing is is not possible anymore.

And industrial scrap does have more of a lag, because it’s generally on a formula basis, so there is more of a lag there but it works its way through.

Great. Thanks for your help and good quarter.

Your next question will be a follow-up from Michelle Applebaum with Michelle Applebaum Research.

This was a fabulous call. Thank you for all illumination. This is great stuff. Can we talk just more specifically about the global versus domestic price? Because in January, we saw this bizarre arbitrage happen where billet prices for export out of the U.S. hit $1,000 a short ton and rebar prices were 20% below that or something like that, and then all of a sudden like a rocket, you saw the bar prices come up. If you wanted to export today, and I understand you are not going to jump an export -- you’ve got customers here, you’ve got commitments here, but if you wanted to export can you give me some benchmarks of what that price would be into the export market?

For what products, Michelle? Billets or rebar?

Whatever you want in your food chain, whatever products you think are relevant to you.

Well, for us it would be billets. So from here in the U.S., if we could get ex mill prices, and assuming we had spare capacity in billets, which we really don’t, we’re exporting some, as you know, but yeah, you’d be looking at probably in metric tons, around $950 to $1,000 a metric ton would make it attractive.

Okay. You’re saying that it would be attractive to you to export at $950 or $1,000 per ton?

A metric ton, yeah.

I’m asking a different question -- what could you get today, do you think? You’re in the trading business. You should know this, right?

Okay.

I’m sorry. I’m asking a different question.

Right, well, if you look at the -- I guess Turkey is the best example. If you look at the best markets in the world, which are in the Middle East and North Africa, the current Turkish [ship] price is $1,220 to $1,240 a metric ton. And you know, they supply clear, as I say in the Middle East and North Africa, the freight is not much there, maybe another $30 a ton or so on top of that.

Well, SPB had a $1,500 a ton quote yesterday. I don’t know if you saw that --

On billets?

On bar, not billets. You’re saying $1,200 for billets?

Well, this is billets, yeah. I mean, we’ve seen --

Yeah, $1,200 for billet. I thought you were talking about bar.

No, no. We’re seeing rebar prices at $1,460 a metric ton, CNF Dubai.

Okay, so give us an indication of what your quote would be less freight. You’d have to support the freight on top of that, right, to those regions? Or is that before freight from those regions?

Well, that’s cost and freight, Dubai.

Okay, and a comparable price for billet in the United States would be what per metric ton?

Well, I mean, you asked the question on exports. You know, we’d be looking at that $950 to $1,000 a metric ton.

Would make it attractive to you.

Yeah, if we had extra capacity.

Okay, but you’re saying that the prices are $1,200, or $1,200 a ton?

This is from Turkey, yeah.

Okay, so you’re saying that it’s in the money by $300, or something like that?

No, you’ve got a lot of freight.

Yeah.

How much is the freight?

Well, you’ve got probably over $100 in freight to those markets.

Okay, so it’s in the money by $200 a ton?

We’re talking billets now, yeah?

Yes.

The billet price we mentioned, we’d say $1,200, $1,240, in that range?

Right, so less a hundred, and your indifference is going to be $950 to export a billet out of the U.S., so that would be --

No, that’s the ex mill. You’ve got to add the internal costs, et cetera. So yeah, you can see that if you had extra capacity, it would be attractive.

Okay. What I’m trying to point out to people that are so worried about demand destruction is that there’s a cushion out there in the export market, and the fact that we’re such huge net importers in the United States puts us in this extraordinarily vulnerable position here about not just your demand destruction -- you may have, if you lost 20% of your market because prices go up so much, with what global prices are doing right now, you could end up making more money exporting and there are profound implications, not only for profitability of steel companies but also for what’s going on in the U.S. economy. Because I don’t know how you stop the -- you know, you guys are choosing to arb negatively. You are choosing not to export when -- and there’s a whole bunch of reasons. I’m not saying you should be exporting, but that there’s going to be that pressure there. And so if we grab demand destruction here, not only would it be made up by export but it would be actually maybe a better thing for margins, because you are paying the costs that Turkey is paying, right? They are pulling scrap out of the U.S. and so you are being taxed essentially on that. You don’t have to pay the freight so your costs are much lower, but then they are getting those higher prices. You’re not necessarily always going to be able to see those because the U.S. market is in this screwy position. Does that make sense? And I’m just trying to get the granularity of right now, exports are in the money a couple hundred dollars a ton, you’re not doing that for a whole bunch of good reasons, but that opportunity will be there. And that’s what happened in January, wasn’t it? Why prices in the U.S. kind of sky-rocketed on the long side?

Michelle, we’d answer it another way -- I mean, clearly if our view was the U.S. dollar is going to remain weak for ever, the non-residential construction market was going to dramatically drop here in the U.S., that the North African and Middle East markets are going to remain strong for the next five years, yeah, you could change your strategy and export 50% of what you produce. But clearly, we’re not going to do that and we’ll support the domestic market here but it just highlights the fact with the big reduction in imports into the U.S., the very strong international markets, that we, our company and other steel mill non-product companies here in the U.S. should be in a very good position for the next quarter or two. You would need significant demand destruction pull-back from overseas to change that scenario. So in summary, what you are saying is correct but we will export where we can and we are going to support this market, even if there is a big price differential overseas.

A related question is on the macro side, do you see more of these export controls? We kind of touched on that. The Russians, Putin went out not too long ago and kind of threatened the Russian steelmakers, supposedly at the behest of [Gasprom], with an export tax. Do you see more of these export taxes coming along? And if you do, there’s some people saying China also -- and if you do, well, do you see more of these export taxes? Do you see more Chinese export taxes and stuff?

Our view would be yes, the tendency, you will see more government intervention. You will see it for a couple of reasons. They want to keep their domestic prices under control for inflationary reasons. But that further highlights the problem on supply, and as we mentioned during the call, certainly on semi products, billets, et cetera, with the lack of melt capacity in the world with China pulling back on its exports, it’s going to be a real issue for the next two years. And we see India now imposing export taxes on iron ore of 15% to remove -- they are only there on a temporary basis -- flat products export taxes and have increased the long product export taxes. We’ve seen Taiwan ban scrap rebar wire rod exports for a three-month period and talking about putting on export taxes. Yeah, this trend, Russia and other countries are talking about it. China most likely will increase export taxes on commercial grade, so it is there and so it will further highlight the problems with supply.

(Operator Instructions) Your next question will be a follow-up question from Sal Tharani of Goldman Sachs.

Can you give us some insight into rebar imports? The license data from the census bureau, which is sort of a backward looking data, shows that April, May imports are down about 60%, 70% from April. But are you seeing any activity for June, July, August going forward?

Sal, no. I mean, it’s a very interesting question. We see June, July, and August, very low levels of imports. In fact, the port in Houston is a good guide to check that. I mean, their inventory levels are only 70,000 tons. Historically, they are at 150,000 to 200,000 tons. They do get shipments in by rail from Mexico as well as the shipments finally from Turkey. But they’ve got no shipments on the horizon for the next three months -- that’s June, July, August -- from countries like Turkey. All they’ll be getting in is from Mexico, so rebar shipments imports are going to be very low the June, July, August period.

That should make it even tighter, this whole --

It is. It will, yes.

And in the summer months, construction generally remains very active in the U.S., so you are adding a seasonally strong period.

Assuming June imports are similar to May, and June as of today, the license that are at 26,000 tons, May was 47,000 tons. For the first six months of this year, the average will be 97,000 tons per month, which is down 40% on the first six months of last year. So that shows you magnitude of the drop-off of rebar imports. And that will continue now through summer.

The only thing, Sal, that might mitigate that a little bit would be since many of the bar mills left in the U.S. can roll both rebar and merchant bar in the same mill, on the margin you would guess the mills would roll more rebar, given the way the market is.

And another thing -- are you taking any downtime in any of your mills in the U.S. this summer?

Yes, our Birmingham mill, we are putting a new reheat furnace in there. It will be down for a couple of weeks in July. We are building up finished good inventory in the meantime but the melt shop will continue, so we can still sell billets there. So that’s the only one that we are taking down, apart from normal maintenance.

At this time, there appear to be no more questions. Mr. McClean, I’ll turn the call back to you for closing remarks.

Thanks very much. It’s been a long call. It’s an hour and fifteen minutes, so all of us have got to jump on a plane now, so thanks very much for listening to the call and we look forward to a very good fourth quarter.

This concludes today’s conference call. Thank you for participating. You may now disconnect.