Steel Dynamics, Inc. (STLD) Q4 2010 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to today's Steel Dynamics Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] Joining us today are Keith Busse, Chairman and Chief Executive Officer; Richard Teets, Executive Vice President of Steel Dynamics, Inc. and President and Chief Operating Officer of Steel Operations; Mark Millett, Executive Vice President of Steel Dynamics, Inc. and President and Chief Operating Officer of OmniSource Corp.; Gary Heasley, Executive Vice President of Steel Dynamics, Inc. and President of New Millennium Building Systems; Theresa Wagler, Executive Vice President and Chief Financial Officer of Steel Dynamics, Inc.; and Fred Warner, Investor Relations Manager. For opening remarks, I would now like to turn the call over to Mr. Keith Busse. Please go ahead, sir.

Actually, Melissa, we're going to turn it over to Mr. Warner.

Thank you, Keith. Welcome to the Steel Dynamics Fourth Quarter and Full Year 2010 Conference Call. The call is being webcast live January 24, 2011, from Fort Wayne, Indiana. Later today, you'll be able to replay the call from our website or download the call as a podcast. During today's call, our management will be making some statements that are forward-looking. All statements regarding anticipated future results or expectations are intended to be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements, which, by their nature, are predictive and are not statements of historical facts, are often preceded by such words as believe, anticipate, estimate, expect or other conditional words. These statements are not intended as guarantees of future performance. We caution that actual future events and results may differ materially from such forward-looking statements or projections that are made today. Some factors that could cause actual results to differ include general economic conditions; governmental, monetary and fiscal policy; industrial production levels; changes in market supply and demand for our products; foreign imports; conditions in the credit markets; the price and availability of scrap and other raw materials; equipment performance or failures or litigation outcomes. You may find additional information concerning a variety of factors and risks that could cause actual results to differ materially from today's forward-looking statements. Refer to sections entitled Forward-looking Statements and Risk Factors in our most recent annual report on Form 10-K and in our quarterly reports on Form 10-Q as well as in other reports we file from time to time with the Securities and Exchange Commission. These reports are publicly available on the SEC website, www.sec.gov, and on our website, www.steeldynamics.com. Now we'll start today's discussion with comments from our Chairman and Chief Executive Officer, Keith Busse.

Good morning, ladies and gentlemen. It is again a pleasure to be with you and to comment on our fourth quarter and yearly results in 2010. As you can see, we had net income in the fourth quarter of $8 million or $0.04 a share. And for the year, $141 million or $0.64 a share. Obviously, it's a fairly significant positive change from the loss suffered in the year '09, which was a small loss of about $8 million and about $0.04 per diluted share on the year. I think one of the things I'd like to note is that our net sales in '09 were $4 billion, and they climbed this year to $6.3 billion and not quite '08’s $8 billion, but given all the growth projects we have in the hopper and the fact that the markets are returning to some semblance of normalcy, I would expect our sales next year to probably get up to the $8 billion level in the year 2011. So as it would regard our earnings, I think it's so noted that our earnings were $0.04; that included an impairment charge of $0.03 related to the company's write-off certain fabricating assets, which were necessitated by the acquisition of commercial metals fabrication operations and the fact that we would no longer operate in the future these assets, certainly in a fabricating vein. I might also note that during the quarter, we had some substantial unrealized gains in nonferrous and that our unrealized losses in OmniSource during the fourth quarter, which amounted to probably, after-tax, approximately $0.02 a share. So when you add back the impairment to the $0.04, as most of you have realized from all the commentary, I think it was fairly posited this morning that SDI was midrange in between the $0.05 and $0.10 that we had early on predicted. And if you take into consideration the unrealized hedging losses, which should come back to the company in the first quarter, we were probably closer to $0.09. So almost at the top of the range, if you will. Early in the quarter, our flat-rolled operations really did suffer from low volume in pricing. However, beginning early in November, order entry, I might say dramatically increased and was quickly followed by significant price increases related in part to increased scrap costs. I might also note that the Steel Operations did achieve an operating income of $91 million, which is 4% greater than the third quarter results in that segment. As of regard, OmniSource and its results, they were fairly weak in the fourth quarter. As I said earlier, impacted by unrealized hedging losses, but we are expecting OmniSource will have a fairly good first quarter. And for that matter, right now, we think it's going to have a pretty positive year overall. So we're pleased about the direction we're headed there. Our margins are greater at this point in time. I think that they have been at any time in our recent history. And for that matter, at any time in OmniSource's most recent history. I'd note that the average external steel selling price for the fourth quarter decreased $29 a ton from the third quarter average of $782 but increased $67 a ton from the fourth quarter of '09's average of $686. And as so noted, the fourth quarter's average ferrous scrap costs per ton charge was unchanged from the third quarter. At the bottom of Page 1 of our release, we talk about the fact that steel shipments were 5.3 million tons, not quite the 6 million-ton level of '08 again, but we'll certainly get there, we think, this year, this year being 2011. And we're not quite back to the $7 million. And as far as Omni goes, we're not quite back to the 7 million tons of capability we have there, but the volume is growing; if you annualize the 1.2 million tons of ferrous shipments in the fourth quarter, that annualizes to nearly 5 million tons. And I think we'll see even higher volume pass through Omni in 2011. The company's Iron Dynamics facility paid money in the fourth quarter. Mesabi Nugget again was impacted with a pretax loss of earnings of about $13 million or after-tax of about $0.04 a share. I'm going to let Mark comment certainly more extensively on Nugget, but we had a planned outage to repair some issues that were giving us grief late fourth quarter. And then even later in the fourth quarter, we were impacted by another sort of unplanned outage to repair another issue. I think we have almost all the issues, I would tell you, behind us this at this point in time, and probably the outlook going forward is fairly positive. We will still have losses in the early part of 2011, but we should reach a break-even, the way it's being forecast now, by midyear, certainly third quarter-ish, if you will. So I think things are finally going in the right direction. It is an awesome technology, and we think it will deliver on its promises as we walk forward. Looking ahead to 2011, we think the outlook is very favorable. We expect slow but continual improvement in the U.S. economy, and we could see increased volumes certainly compared to 2010 for both, as I mentioned earlier, our Steel and Metals Recycling operations. Our current expectation is that steel consumption should grow in 2011, the automotive transportation, energy, industrial and agricultural and construction equipment sectors. As noted, residential and nonresidential construction activity is likely now at its bottom. Thus, we expect to see continued soft to very moderate near-term growth and demand in this sector, but nonetheless growth. These trends support an improving operating environment for all of our segments. But as noted, it's difficult to offer a view for the entire year. But I think it's important to note that, given our current activity, we anticipate substantially improved first quarter 2011 earnings for all of our segments compared to the fourth quarter and will, of course, provide quantitative guidance for the quarter in the March time frame. So those really conclude my specific remarks, and I'd like to turn it over at this time to Dick Teets, allow him to comment on the steel segment operations specifically.

Thank you, Keith, and good morning, everyone. I'd like to give some additional comments to what was in the press release and with what Keith has mentioned about each of the Steel Operations. 2010, the Flat Roll Division produced over 2,730,000 tons, setting a new annual record by more than 100,000 tons; and shipments of over 2,640,000 tons, setting a new annual record there also by more than 100,000 tons. My congratulations to everyone supporting the Butler operation. The mill is currently running at full capacity with a five- to six-week backlog on both hot-rolled and cold-rolled products. Although there have been some pre-price increased buying, it seems as if the steel is moving through the supply chain. Our service center customers report solid shipping, and some of our construction customers have stepped up their manufacturing activities. From a pricing perspective, we have a buildup February at the $800 a ton hot-rolled number, and we will be opening a March book above that number. The Techs operated at 77% of capacity for the year with the fourth quarter being the worst at 65%. However, it was a transitional quarter, as December shipments were nearly equal to the total of October and November. In January, the rate continued to improve to 85%, and it appears that the quarter will average around 90% when completed. Columbia City continues to deal with the weakest of all of our markets. In 2010, they operated approximately at 35% of present capacity. The exciting news is that the sales of our standard-strength rail products finished the year strong. We are selling more of the rail and long-welded lights [ph], and the bottomness in [ph] production of shorter length peices will be reduced with the installation of approximately $18 million worth of finishing equipment. Pittsboro continues to make the most of a historically large backlog by operating at full capacity. Congratulations to everyone at Pittsboro for setting annual records for tab [ph] tons at 630,000, rolled tons at 575,000 and shipped tons at 570,000 tons for the year. Increased rolling rates are expected in 2011 when capital prices are completed during the Spring maintenance outage. Bottlenecks in the bundling area, and mill production scheduling optimization are targeted for improvements. The Roanoke Bar Division operated the melt shop at 90% of capacity during the fourth quarter and the rolling mill at 83%. Shipments in December were the largest of all the months in 2010 and for the year totaled 505,000 tons. This exceeded the total in 2009 by 41%. Business conditions for bar products and Rebar improved in the fourth quarter, but order entry continues to be adversely impacted by the lack of commercial construction activity. Steel of West Virginia experienced a great 2010 due to a significant increase in orders for special steel sections serving the OEM markets. Tons shipped in 2010 increased by 16% over '09. The melt shop is running at full capacity, and the mill is being supplemented by Philips [ph] and Roanoke. The number one mill is scheduled 100% of the time, but has been producing fewer tons than historical due to more short runs resulting in increased sub-times [ph]. The number two mill is also scheduled full, and it has been producing at historical tonnages. We're looking for an even better year in 2011 at Steel of West Virginia with expected increase of special sections, the continued improvement in the truck trailer market and process improvements through capital projects. Keith?

Thanks, Dick. We're going to go to Mark now.

Just a few comments of color [inaudible] at OmniSource's, ferrous shipments were at 1.2 million gross tons for Q4 down 9% from Q3 as what the contracted flow and inventory was accumulated for the upcoming quarter. The market downtick in October was offset in November and December, allowing ferrous metals spread to increase 16% quarter-over-quarter. Year-over-year, ferrous volumes reflected the recovering steel economy, arose to $5.2 million gross tons, up 43% relative to the $3.6 million gross tons shipped in 2009. Ferrous margin remained fairly flat year-over-year at just 3%. As Keith suggested, steel shipping volumes were still well below our anticipated capability to make 7 million tons. Home ferrous shipments quarter-over-quarter were down 10% to 230 million pounds, largely due to depressed foreign demand, particularly in copper. The depressed copper market on that demand was certainly not reflected in market pricing as the comex rose 22% through the quarter, clearly demonstrating the dislocation of supply and demand metrics from the market industry and also the growing impact of hedged trading and also exchange-traded funds that require fiscal backing. Although demand was constrained, our shipments being down 10% from the third quarter, we continued to make opportunistic buys as the spreads expanded to historically high levels. To protect margin, as we’ve discussed before, we continue to run a flat copper book, whereby all inventory and all forward sales are hedged. As the market price continued to drive upward, the hedged position netted a $6.2 million unrealized loss for the quarter. It should be emphasized that this is a non-cash loss and will be redeemed in the first quarter when the inventory is sold and those positions are unwacked [ph]. For 2010, the cumulative hedging impact was an unrealized loss of only $1.9 million. Unfortunately, the lower non-ferrous volumes, in combination with the unrealized non-cash loss, largely offset a stronger ferrous performance. For the quarter, operating income was $9 million, lower than the $22 million seen in Q3 but more than double that of Q4 2009. Colectively for the year, improved ferrous metal margin, a lower operating cost per ton, along with stronger ferrous and non-ferrous shipments drove a $99 million operating profit, substantially higher than the $57 million recorded in 2009. Change to Iron Dynamics. The Iron Dynamics team, I believe, had a great quarter. Despite a scheduled six-day maintenance outage, their continued improvement programs led to a record month. They produced the highest volume of DI [ph] ever. In turn, a record 48,000 metric tons of pig iron was shipped along with 7,000 metric tons of HBI. They've also done a tremendous job on the raw material front. They’ve eliminated a dependence on iron ore by consuming 100% recycled mill scale and thus reduced the impact of the inflation iron concentrate markets that we've seen this past year and a market that will continue to rise through this year. As pig iron pricing continues to climb, Iron Dynamics will add significant financial value through 2011 as well as being integral to the great productivity efforts of the Butler sheet mill. In Mesabi Nugget, shipments were limited to about 18,300 metric tons of iron nuggets through the quarter. And productivity, as Keith suggested, is still being handled by issues related to its pioneering effort. In November, an extended shutdown was taken to replace a small portion of refractory lining. After restart in December, the furnace design did not adequately accommodate the associated hop expansion, and it resulted in a mechanical defamation [ph] of the hop support system. Furnace was subsequently shut back down for repair. I believe the team did a monumental job actually bringing it back into concentricity, and we returned to production last week. They are battling minus-30-, minus-40- degree temperatures, which is something new to us in an operating mode, but they are getting the place back in operation. Some mechanical issues still remain relative to hot, cold grinding in delivery systems, but I think we have those in hand. We are confident of the process itself, and we believe significant progress is going to be made in the very near future. Regarding the mine permit. The permit process is progressing. Discussions with state agencies have been favorable. The target permit date either later this year or early 2012. Keith?

Again, buying permit late 2011 or certainly no later than early 2012. Thanks, Mark. Gary?

Thanks, Keith. Demand for joist and deck products remained roughly the same in 2010 as it had been in 2009, which, as you know, was off from the 2007 peak by more than 50% [ph], and of that, 50% were for its average of the last 10 years. During the fourth quarter, we controlled 12 facilities. There are three that we have operating, one that we are starting up, two that we are reconfigurating and optimizing to be started up soon, two that are idle and four that we are dismantling, relocating equipment and demolishing what's not going to be relocated. When we're finished, we will have six operating facilities, and one facility that will be used to produce other products, products other than joist and deck, and will be available to handle any surge capacity incurring the peak demand that we may see a few years out. For the three operating facilities that we had in the fourth quarter, they generated a modest operating profit for the quarter. Of course, that was offset by the cost of demolition and relocation in the idle finance [ph] et cetera. As these acquired facilities are optimized, they will have more capacity and a lower cost structure than they had in the past, so the three that we're starting up in the West will give us a new footprint, a broader footprint, and they will be more efficient than they have been and they will have additional capacity over and above what the capacity had been under the previous owner. Our sales team is building a backlog for the new plants, and we are going to increase employment and production activity as the backlog justifies hiring new people and the order flow stabilizes. As we look forward to 2011, we expect some modest improvement in nonresidential construction activity, and therefore in demand for joist and deck products. We expect New Millenium to benefit significantly from this new larger footprint, which allows us to serve a new set of customers, a realigned industry and our aggressive cost structure as we move forward into this year. Thank you.

Thanks, Gary. I wanted to note one slight correction. I talked to Dick about it. He noted in his remarks that February was at $800. I think what he meant to say from backlog perspective, because we filled out February at $800 a ton and are now achieving north of $800 in bookings for March. The average backlog for February will probably be in the $700 range, if you will, because it's pulling forward a lot of $600 kind of numbers in the not too distant past. I think about it, the $700 number was only thrown out there a month or so ago, so it's hard to achieve $700 when it's not even a month old. So I wanted to correct that and didn't want anybody to imply that the order entry is weak. Order entry is actually very, very strong, and we are controlling order entry. And I think it’s in our financial best interest not to get the cart too far ahead of the horse. So it's a very positive thing from our perspective, certainly not a negative thing. Theresa, would you like to offer up some comments about our finance?

Sure. Good morning, everyone. During 2011, our operating margin improved by almost 3% in comparison to last year and volumes for all of our segments, as discussed, improved significantly. This allows more improved cost compression and operating efficiency. Our fourth quarter performance, as noted, compared to the third quarter results was impacted by decreased operating income from our nonferrous operations, again, primarily relate to the change in non-cash mark-to-market unrealized hedging positions and the impairment charge from our fabrication operations. During the quarter, our cash reserves decreased $84 million, as our working capital increased $107 million, most significantly in raw material inventory. During 2010, our cash reserves increased $178 million, and working capital requirements were just less than $360 million. We also received tax refunds of $102 million during 2010. Availability on a revolver was $909 million at the end of the year. Our liquidity remained very strong at $1.1 billion, an improvement of over $400 million compared to the end of 2009. Our ratio of debt to trailing EBITDA improved significantly during the year to a current level of 3.7x. Our first mean leverage is 0.03x and our interest coverage is 3.8x. During the fourth quarter, our capital expenditures totaled $38 million, not including the $17.6 million purchase of fabrication assets. Depreciation was $43 million, and capitalized interest related to those projects was just less than $1 million. Full year capital expenditures totaled $133 million with depreciation of $172 million and capitalized interest of $7 million. Our current outlook for 2011 capital expenditures is between $160 million and $200 million, of which $30 million could be spent in the second half of the year but is entirely dependent upon when we receive the mining permit. The current expected allocation of these funds includes 30% to 35% to both the Steel Operations and the Mills Recycling operations, 10% to 20% to our Iron operations; 3% to 5% to fabrication and the remaining to other projects. These investments are currently expected to be spent pretty evenly throughout the year, and our 2011 depreciation is expected to be in the range of $200 million. Net interest expense during the quarter was slightly higher than the third quarter due to decreased capitalized interest. Gross interest expense was $45.5 million with an effective interest rate of 7.3%. Net interest expense for 2007 was $29 million higher than 2009, of which $14 million was caused by reduced capitalized interest and the remainder was related to increased expense from our March note issuance. At December 31, we had 217.6 million shares of common stock outstanding. Additionally, we had 16.4 million shares underlying our convertible notes and 7.4 million outstanding stock options. You probably noticed that our diluted shares for the quarter were lower than typical. We were required to exclude the impact of our convertible notes from both the net income related to the interest add back and the associated 16.4 million shares. For the first quarter, we would expect that not to be the case. So currently, we think our diluted shares will be in the range of 235.5 million to 236 million shares. Lastly, for those of you who like the breakdown of our flat-rolled shipments. During the fourth quarter, we had hot-rolled shipments of 275,000, pickled and oils of 90,000 tons, cold-rolled at 37,000 tons, hot-rolled galvanized at 92,000 tons, cold-rolled galvanized at 66,000 tons, painted products at 72,000 tons, and finally, Galvalume at 17,000 tons. With that, I'll pass it back to Keith.

Thank you, Theresa. I don't have any other specific comments at this time, Melissa, so we'll open it up to the Q&A.

[Operator Instructions] And our first question will come from Timna Tanners from UBS.

I wanted to just ask you just general questions on supply and demand, if I could. So starting, I guess, with demand. Any special areas -- I know you highlighted a few, but just wondering if there’s anything that’s taking you by surprise. I know I heard a little bit about garage doors, you mentioned construction has lagged, but if you could just give us a little more color there.

Other than what we said specifically in the press release relative to the sectors that are doing well, I really don't have any additional comments. I think the only thing to note is that I think the recovery will continue to be slowed by the fact that we don't have a significant recovery going on in residential and non-residential construction arena. For the economy to have a complete recovery, I think those sectors need to move more aggressively forward than they have. But there are certainly bright spots in tractor trailer activity, automobile activity as we talked about, energy, agriculture and construction equipment, not the construction markets, but construction equipment. Our order entry is really very strong in all of our markets and growing inch by inch in the wide plains beam [ph] and rail business at Columbia City. But as Dick mentioned, that's our biggest struggle, although it is improving quarter in and quarter out. We're pleased about that, but the backlogs are really in pretty good shape everywhere else. I think I specifically noted our control of our backlog at Butler, but order entry tends to be very good week in and week out there right now. And I think that there's a very strong likelihood that that will continue well into the foreseeable future and drive pretty good first quarter results as well as potentially second and third quarter for that matter. And as we've said, we'll have more comments about that a little later on.

So if you're talking about 6 million tons as maybe a target for 2011, that would imply a 13% increase, I think, from 2010. Is that kind of where you'd expect the demand improvement to come in? Or is that including some market share gains?

Well, I think that it does involve some market share gain, and it's hard to separate one from the other. When we clearly have had some market share gain, we hope we'll continue to retain those gains and be of benefit and service to the customers that we serve. But clearly, there is some demand pull going on there. How much is going to be restocking related, that tends to be very difficult for anyone to get their arms around. The inventories were just dramatically low relative to the kind of movement motion we have out there. So I think that pull's going to kick in. I don't think the service center arena is going to overstock. I think they're clearly a little leery of what happened from an inventory valuation perspective back in '08 and will continue to ramp up their purchases, probably more specifically related to the level of demand and the very low inflection point where they were.

And then just last, if I could, on the supply side. Can you let us know if you've seen any presence from [inaudible] in the market yet and if you expect anything there?

Well, I think everyone has seen them in the market. I don't think it's probably had a major impact on us. And I would tell you that's not a focus of conversation every day for us in the marketplace. We do run into them here and there, and they have their own basket full of issues to deal with down there relative to slap, supply, and startup costs and things of that nature. And I don't know how fast or slow it's really going. But certainly, they're going to be a factor in the market, but we're dealing with a growing market place, too. So I don't think it's going to be that bad of a fit. I think the industry's operating rates on the whole will go up this year. How dramatically? I don't know, but we'll certainly get up into the 80s, in my opinion, in the year 2011.

And our next question will come from Mark Parr from KeyBanc Capital Markets.

I had a question on the scrap market. In light of what's going on with met coal in Asia and the relative cost advantage that scrap seems to be having, at least over the near term. I was wondering if any of Omni's operations or if there's any talk about increased purchases of scrap by Chinese or other Asian sources to offset reduced usage of blast furnace iron.

Mark, I wouldn't say there's any major scuttlebutt or chatter out there apparently. Obviously, the met coal situation will actually impact them, but it's still a number of weeks out. There is sufficient coal, I do believe, in the pipeline on both et cetera [ph]. So it is our anticipation that the biggest impact wouldn't be for perhaps another six weeks yet. But nonetheless, it is a fear out there, but we haven't necessarily had any debate about it.

I think the markets have kind of settled in a little bit. I think in early 2010, they got ahead of themselves. Pricing is caught up a little. There's been quite a run recently in scrap prices. You may see a February is not quite as robust as December and January have been. But clearly, there's an opportunity there too for some tightness work [ph] to go up marginally. But I think Mark's right, any impact is probably a few weeks away and by then we maybe in to better flows and better weather for that matter. But I think, clearly, the problems that Australia has had is certainly going to have an impact on the spot met coal market for certainly the spot market for iron has aggressively moved up as well. There is a little separation between where scrap prices are and where pig iron pricing is, but it's not all that wide.

One other question, if I could, just if I could continue on the resource situation. It seems to me that the demand poll here in early '11 is a little stronger than many people, or perhaps even most people, would have thought 30 or 60 days ago. And I'm wondering here, Mark, if you have any comments on where you see inventory positions at mills that you're serving. And do you think the mills are a little short? How would you characterize inventory positions at the mills right now as it relates to scrap supply?

Mark, I think they jumped in, in January, in all honestly, and that's why you saw such a shot move. We were anticipating an up market in both January and February, but it sort of all but sold [ph] up in January itself. So we would anticipate market being somewhat flat probably in February. Mill inventories, I would suggest, they're kind of in sync with the production levels today.

I forgot, Theresa mentioned, Mark, that we didn't get the benefit of that penny a share or so that you–- that pop you get off with the converts, but I just added that back in and that would've allowed us to get to $0.10 almost when you consider all the extraneous stuff that was going on in this particular quarter. Overall, it was not a bad quarter. I've read where one of the analysts wrote this morning, we may be the only company that reports profit. That may or may not be true, but we've been pretty steady and pretty close to all of our estimates for some time now, and, more importantly, the future is very bright. So I guess none of us, really, as we looked at the screen this morning, could I understand why the only guy reporting a profit, the share prices were down a little and everybody else was up a little. But I'm sure that will correct when our results are fully understand here.

And next, we'll go to Dave Katz with JPMorgan.

Given that you expect, if I understood you correctly, scrap pricing to be flat, with the understanding that you're looking to push through subsequent price increases on at least flat-rolled steel, I was curious how sustainable you think that is going forward, how much more the market can take in terms of price increases.

I'm not sure I know how far the market could go. Obviously, it's a little north of $800 now. And whether or not it comes to rest there, it goes forward, go backward, I really don't have a prognostication. I think on the scrap side, as Mark indicated, a lot of people refill their stockyards in January and probably there isn’t going to be a huge level of demand driving price, but that doesn't mean there wouldn't be a bigger appetite in March and scrap prices wouldn't again push north of the March time frame. And if the world demand for scrap escalates, that could also impact it as a result of shortages in metallics and met coal, things of that nature.

And with regard to the steel prices, what kind of feedback are you getting from your customers when prices are increased?

Surprisingly, I'll let Dick speak to it as well. The customer contacts I've had, the conversations I've had, I think they have been a little bit alarmed at the rate of movement, but there hasn’t been the level of complaint activity out there that I thought there would be. Most people understand that it's both demand driven and resource cost driven and have been willing to accept it. As I said, I don't think anybody is trying to restock their shelves and get ahead of the game. So I think as long as demand stays healthy week in and week out, and it's showing no signs of letting up, I really believe there's a fair chance that these increases can stick, Dick?

That is the only thing I've heard as to that color, Keith, is the fact that people are a little surprised at the speed of the increases but not necessarily the fact that they’re warranted and that they believe they’ll stick.

And then liquidity is historically relatively high. Given that, at least on a forward-looking basis, it appears to be able to stay that high, if not go higher, absent any increased capital expenditure beyond what you've already delineated. Are there any plans for that liquidity, either to bring it down or put it to use in some other way?

Well, as you know, we're continually looking at projects. Keith’s talked about some of those in the past. In addition to that, we do have some debt maturities coming in 2012, and we are interested in continuing to de-lever as appropriate. So I think that naturally, the liquidity level will come down somewhat, even with our strong cash generation possibilities in the future. But we do want to maintain a pretty high level of liquidity going forward as well.

And next we'll go to Brett Levy with Jefferies & Company. Brett Levy - Jefferies & Company: Just to sort of stay in the same subject, do you guys at all have a priority to be an investment-grade steel company?

No, it's not a priority.

Not currently. We still intend to grow pretty significantly. At some point in time, yes, but not in today's environment. Brett Levy - Jefferies & Company: And then, just to sort of -- I know you've mentioned it in the past, and I know you've certainly been asked about it, but what is sort of the latest state of thinking on a southern sheet mill or any other major projects? And as you look at your resources costs, if you were going to embark on a project, do you think it'd be more likely to be upstream, midstream or downstream?

Embark upon what project, upstream, midstream, or downstream? We talked in the past about our Flat Roll project, and I could say we're pretty far down the trail of engineering now. We'll meet in February. We'll continue to consider our options relative to that project. I think the odds of it pushing forward as the economy continues to improve are probably pretty good in time. I also believe that the cash we're going to throw off in the year 2011 and 2012 is going to be fairly substantial and in and of itself could absorb the entire cost of the project, which leaves us with a lot more equity and no more debt, if you will. So for what you're talking about upstream, downstream, can you… Brett Levy - Jefferies & Company: In other words, are you guys going to make some acquisitions, perhaps in the scrap area, to add to your position at OmniSource?

Well, you can never tell. There's nothing in our hopper right now. Mark's doing a pretty good job, I think, building the retail side of the business up from the levels where it was at. As I said in the past, a lot of our activity there will be greenfield in nature and will probably not depart from that. As to whether or not there might be an acquisition available here and there, there may well be, but I don't know that it's going to be super significant necessarily in terms of size. Relative to fabrication, we're pretty much happy with where we are there. I don't see really any -- we're waiting on a better market. And certainly, you can drive a lot better results, but don't see us expanding a lot in that particular arena. In steel, our focus is really primarily on the new Flat Roll Mill, which I got to tell you, I'm pretty darn impressed with the work that’s been done, not only from a marketing perspective, but from a technology perspective. So we're happy about that. Nugget, we're going to continue as we start to achieve success later this year, and I think we will break even by maybe the third quarter time frame potentially in that project, which would be a massive improvement as we continue to dial in and hone in success there, there's no reasons we probably wouldn't want to continue to build another Nugget pattern [ph] to serve our interests and augment scrap going in to our own facilities today or any new facility planned in the future. Brett Levy - Jefferies & Company: And last question, talk about rail market share. Where are you now? Maybe this is something where either you or Dick want to talk about the progress in terms of making inroads with the longer rail product you have.

I think we're very small in terms of market share, clearly. So there's nowhere to go but up. But all the railroads are interested. I mean, a lot of them now have our product in-test and will probably initial buyers throughout the year, in the year 2011. And if that's only going to gain momentum at this point in time. Dick?

Yes, we shipped about 55,000 tons of rail last year, 2010. And if you consider the market was somewhere between around 900,000 tons, you can do the math and see that we are a single percentage player, but we have been growing.

Our next question will come from Sal Tharani from Goldman Sachs.

Just wanted to confirm. You said that February average price was $700, although you entered the month at $800?

Yes, we sold into the tail end of the month at the $800 level, but you're dragging along. This is from the past month or two. And so the average is certainly going to be there. It's probably in the $700 ton arena for February.

But in March, you are starting to see $800 or above $800 numbers already?

Already we see some of that. We still have some contract business that moves within that. So not everything we book, Sal, is necessarily going to be at those numbers because the index has moved forward on an average type basis, and you don't get the full impact. You're getting a better number each month you sell to your clients, but you just don't raise right on up to $800.

What percentage of your business is indexed. Do you know?

I would tell you 25% would be my guess.

And the other thing is that, on the service center side, we know there was some free buying. We saw a December inventory number came out, which was higher. I was just wondering, how is the rate of incoming orders? Has that been steadily good? Not the backlog, but just the incoming order rate. Or, has it started to flatten out or slow down?

No, it's been good. I think, as I said earlier, we probably manage it to some degree. We don't want to have it explode in our face one direction or the other. So order entry has been pretty steady. We generally can produce around 55,000, 60,000 tons a week, and order entry has been a little bit north of that fairly steadily.

And last thing is on the new mill, you did make some comments. Is there a possibility or an opportunity for you to actually partner with somebody on that? Or would that be a strictly Steel Dynamics project?

Well, there's always a possibility. We've not talked to anybody about partnering on it, but I wouldn't rule out its possibility either.

We'll now go to Brian Yu from Citi.

My question is on the flat-rolled side, Keith. I was wondering, in your discussions with customers, are there any talks about import offers? Because it seemed like they're coming in maybe at $720, $730. Is that something that you guys are wary of?

Well, I'm not concerned about it on the Flat Roll side, to tell you the truth. The market, number one, is fairly reactive to imports, should that be warranted. But when you see a number like that at the docks, there's more to it than just the boat landing. There's more cost involved to get it to the client that meets the eye rather than just the transportation bill, and then there's the issue of, do I really want to put my eggs in this basket? It's a ways off, and where will the market be and what happens if it backs up? I mean, there are a lot of issues. People are never going to stop buying flat roll abroad. I mean, it's come down sharply. We'll probably remain a non-event to a large degree on Flat Roll side. I don't see that exploding at all.

And maybe this is a question for Gary, but in terms of the pipeline, the project pipeline is coming down in your downstream operations. Any insight that's given you in terms of the construction market and maybe how that changed year-on-year over the past six months?

We’ve seen pretty good coal [ph] activity here in the first part of the year hard to read a lot into that. Clearly, backlogs are down seasonally as you're working at the end of the year, but they're better than they had been in previous years, well, 2009, anyway and going into ‘10. And it looks to us like there's going to be that modest improvement, an ever so slight improvement in non-res construction this year that we've been talking about or looking for. But there's no strong sign yet. Historically, we've seen projects that have been quoted 5x, or 6x, 7x, and then not be built. I think some of those will come through this year. So we're looking for a modest improvement.

The quotes are up and backlogs are up over 2009. How much of the quoting activity will garner us an order here in the near term is hard to gauge yet.

Yes, financing remains a problem. Vacancy rates remain a problem. There's still some real challenges out there in front of the non-res industry.

And then the last question on -- just a clarification. With the Mesabi Nugget, if I remember correctly, the coal that you feed it, that's non-coking-grade, right? You're not impacted by all this big run-up in coking coal prices?

We do use some answer per [ph] site, but it's not a material on that. Usually, it was contracted through supplies through the year. So hopefully, we won't get impacted by the major spike that's about to happen, at least [ph] happen.

We should be good in 2011, anyway.

Our next question will come from Chuck Bradford from Bradford Research.

Just a little brief update, if you could, on the permitting situation. I heard what you said, but what's the hang-up up there in you getting the permits? With all the talk about jobs, jobs, jobs, you'd think they would be pushing this along because that was always something they wanted more of in northern Minnesota. Is there some local group that's the hang-up, or what is it?

The State of Minnesota, the environmental agencies are more independent than perhaps the political system, compared to other states. And so there's a due process, and we have to go through that due process.

It just seems like it's taking an inordinate amount of time, but thank you very much.

I don't disagree. Obviously, one of the issues with the Bradfield mine [ph], there are some legacy issues there that have come to light. And they want to include sort of a resolution of those issues in the mine permit. So after you do an environmental impact study, which takes seemingly forever, that was completed, and now they've asked us to go back and just review that and add a few more tests and trials and examinations and so that's the process we're going through right now.

I understand the frustration, Chuck. We're frustrated as well.

And moving on, we'll go to Tim Hayes from Davenport & Company. Timothy Hayes - Davenport & Company, LLC: I just had a few questions on the average ferrous scrap cost. You said that it was up $81 a ton from a year ago. How much was that up from Q3?

The average input cost was flat quarter-over-quarter. It didn't change for us. So whatever we reported in our third quarter release, the number was the same. I don't have the number.

We typically don't give the actual number of the scrap costs, yes. But it was continuously flat quarter-to-quarter. Timothy Hayes - Davenport & Company, LLC: And could you remind me again, what's your inventory turns of scrap at the Steel Ops?

We're currently holding about three weeks, sometimes a little more, depends on which way the market is going but about three-week inventory at most facilities. And having our brother here to my right, who has ample stocks to rescue them, so we used to carry probably six, seven weeks, and they only carry three to four now. Timothy Hayes - Davenport & Company, LLC: And then final question, in terms of the guidance up substantially from Q4, any color on how it's going to compare to a year ago? I know a year ago had some maybe unexpected strength in the recovery. But any color on how you see Q1 of '11 shaping up versus Q1 of 2010 would be helpful.

I don't remember what we have. We have $0.29 or something if my memory serves me right. And I certainly think we could achieve that, but we'll have more color on it later.

[Operator Instructions] And our next question will come from Mark Liinamaa from Morgan Stanley.

Keith, just relative to your comments that you thought the industry operating rates would get into the 80s in this year, could you contrast between longs and flats, and maybe any commentary on where you see your own facilities getting to?

Yes, I certainly don't have any data in front of me that would arm me from a flat roll versus long products perspective, but I truly believe it'll be driven mostly by flat roll. I think, in our own case, all of our long products facilities are reporting an increase year-over-year, probably in the 10% range or thereabouts, maybe even a little more, and certainly at Columbia City. But you have to remember, Mark, we're coming from a pretty low platform there. So a 30% movement there is [ph] all that many tons, if you will. But I do believe that the operating reach certainly will be higher in the flat roll arena, although you're going to see -- I think you're going to see at least 10% or better improvement from all products as well.

Our next question will come from Tony Rizzuto from Dahlman Rose. Anthony Rizzuto - Dahlman Rose & Company, LLC: Mark answered one of my questions there, but regarding Mesabi Nugget, could you guys quantify the magnitude of the start-up losses that you expect this year? You've made some qualitative comments on that, but I was wondering if you could give some quantitative guidance.

I think we talked about it earlier.

I think that the first quarter will probably look similar.

You’re talking about this year.

This 2011? Anthony Rizzuto - Dahlman Rose & Company, LLC: Mid this year, that's correct.

I think Mark commented and Keith commented that by the middle of the year, we expect to be break even. And obviously, we expect the startup losses to improve in the first half from what you've seen in 2010 so far. But we've not come out with specific numbers.

And to improve for the year, although the year will probably likely still end up with a loss, but it will be, I think, a fairly good improvement year-over-year. Anthony Rizzuto - Dahlman Rose & Company, LLC: Right, so if we look at what occurred in the first three quarters, you kind of averaged about $9 million or $10 million start-up loss, figuring that, that maybe level was a little bit unusual in Q4, a little bit lower level in the first half and moving towards break-even. So maybe for the year, maybe in the $15 million to $20 million range, might that be reasonable?

Good a guess as there is out there right now, let me put it that way.

[Operator Instructions] Our next question will come from David Lipschitz from CLSA. David Lipschitz - Credit Agricole Securities (USA) Inc.: A quick question. Can you talk about The Techs a little bit and the trajectory of order entry over the last several weeks, and where do you see that right now?

Well The Techs again had a dismal October and November and then had a very strong December. January has improved. I think I've said approximately to a expected utilization average across all three lines of about 85%. And again, as general across the board and flat-rolled, we see it continuing to improve and we're projecting approximately a 90% utilization factor at all three of The Techs. David Lipschitz - Credit Agricole Securities (USA) Inc.: So over the last several weeks, it had continued to improve?

Yes, sir. David Lipschitz - Credit Agricole Securities (USA) Inc.: And then also just quickly, can you talk about costs, Q4 versus Q1 going forward? And do you expect them to be up, flat, down, in terms of conversion costs?

Well, I think they'll come down certainly in Flat Roll because we did operate that strongly at the beginning of the quarter and certainly did a pretty terrific job of cost compression towards the tail end. It's going to start out awfully strong from a cost compression perspective. So I think Flat Roll quarter-over-quarter will have better compression in the first quarter than we had in the fourth because of the weak beginning. I think the activity level is going to change a lot at STQ [ph], and those guys are running at a maximum level and are actually obtaining beyond capacity results, not a lot of compression will probably enjoyed there, maybe a little bit in Bars, but it won’t be substantial. You'll see some in the beam arena because we'll operate at a higher level. But again, it will be impactful, but not all that exciting because it's not going to be all that strong yet, although improving.

Our next question will come from Michelle Applebaum from Steel Market Intelligence.

$70 a ton in your Steel Operations, that's pretty cool. I wanted to ask you about Nugget's. With the planned new DRI capacity that Nucor has going on and your Nugget capacity and other things going on, what do you think the impact on the scrap market will be longer term? And in the past, when there's been new scrap substitutes come on the market, what's the impact been on scrap costs and the scrap market?

Michelle, I think -- there's not enough of it available, either through ourselves or new course operations or others to probably play a meaningful role on an immediate basis. But in time, I suspect that, that will change, and there'll be more of an impact. But you must remember, a lot more is going offshore than historically has, and that did us much to push the market aggressively forward as anything else. And I don't think that's probably going to abate. And without a second Nugget battery and the impact of that and more HBI, I don't think it's going to have any downward effect on the scrap market. I think the scrap market will probably operate quite independent of this.

Do you think there's going to be more scrap substitutes built globally?

Do I think we need more?

Well, I know, you can answer that.

The scrap [inaudible] market, obviously, there are only a couple of technologies out there. Miderex [ph] being probably the more prolific. And if you looked at DRI pellet raw material, that's a very, very, very expensive commodity and will continue to be so for the next 2, 3, maybe 4 years. So I don't firstly foresee a prolific increase in HBI or DRI type facilities anytime soon.

Even with spare prices running up?

I think generally, as with most commodities, foreign demand is going to continue to drive all commodities, scrap being one of them, and is only a definitive sort of reservoir or a definitive supply within America. So you're right, scrap pricing is going to go up. But I don't see that it’s going to be a massive impact to HBI, DRI in the foreseeable future.

We achieved, obviously, success, and I think we will in 2011, we'll obviously be asking to add additional capacity on the iron range. And another one or two of those batteries would start to have some meaningful impact, but that's several years away.

And can you license the technology? Can you joint venture that globally? There's going to be demand. If your technology is a winner, isn't there going to be demand for scrap substitutes, especially starting from concentrate?

Well, I think it will be a winner, and we don't have the international rights, although we're probably further down the trail than anybody relative to product knowledge by a wide measure. And therefore, we've already been contacted by offshore interests that would love for us to go abroad and partner Nugget battery with them. But you got to learn how to walk before you -- crawl before you walk and walk before you run, and we don't have the resources or the current level of interest until we stabilize the first battery at Minnesota.

And then steel guys are typically -- scrap substitutes have been around forever, and steel guys have been burned because it's a different type of technology, so that if you do prove this out, which I'm assuming you will, you have created kind of a human capital asset here that might be valuable to others in terms of joint venture, whether you own the technology or not. Don't you think?

I think what's going to matter is our expertise as much as anything. We have those rights you were talking about in North America, but we do not have them internationally. But that doesn't mean we can't be a part of a project internationally. We certainly have the right to be. And If I'm a guy that's about to embark on one of those, I'm going to be calling you all the time because you know how to do it.

Right. It certainly has happened before. Have you been contacted by anyone to grow the Nugget? Or have you contemplated growing Nugget with a joint venture partner domestically?

We've had people talk to us domestically as well as internationally.

Okay, so we're going to watch this real close.

And we now have a follow-up question from Sal Tharani from Goldman Sachs.

For your Mesabi Nugget project, iron ore prices. Are these quarterly? Or are these annual adjusted?

Ores [ph], you mean?

Yes, the iron ore you're buying from [inaudible].

Ores [ph] are for the year.

And at this time, we have no further questions. And I'll turn it back over to our presenters for any additional or closing remarks.

Thank you, Melissa. Thank you, ladies and gentlemen, for joining our call. We had it a little bit early because most of us are going to be traveling this week, one direction or another, but we appreciate your continued support more than anything, the support of all of the employees of Steel Dynamics. It's a wonderful company, and we have some wonderful people who work for us. And we're encouraged by the fact that the light in the tunnel is getting brighter and brighter and brighter, which will have a meaningful impact to your lives as well. Thank you so much. Goodbye now.

That does conclude our conference for today. Thank you for your participation.