Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

United States Steel Corporation (NYSE:X)

Q4 2012 Earnings Call

January 29, 2013 3:00 pm ET

Executives

Dan Lesnak – Manager, Investor Relations

John P. Surma – Chairman and Chief Executive Officer

Gretchen R. Haggerty – Executive Vice President & Chief Financial Officer

Analysts

Shneur Gershuni – UBS Investment Research

Evan Kurtz – Morgan Stanley

David Katz – JP Morgan Chase & Co

Brett Levy – Jefferies & Company

Timna Tanners – Bank of America/Merrill Lynch

Luke Folta – Jefferies & Co.

Brian Yu – Citigroup

David Gagliano – Barclays Capital

Richard Garchitorena – Credit Suisse

Justine Fisher – Goldman Sachs

Arun Viswanathan – Longbow Research

David Martin — Deutsche Bank Research

Sal Tharani – Goldman Sachs

David Lipschitz – CLSA

Mark Parr – KeyBanc Capital Markets

Operator

Welcome to the United States Steel Fourth Quarter 2012 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to our host, Mr. Dan Lesnak. Please go ahead.

Dan Lesnak

Thank you, Mary. Good afternoon, and thank you for participating in the United States Steel Corporation’s Fourth Quarter 2012 Earnings Conference Call and Webcast. For those of you participating by phone, the slides are included on the webcast are also available on your Investor section of our website at www.ussteel.com.

We will start the call with introductory remarks from U.S. Steel Chairman and CEO, John Surma, covering our fourth quarter results; next, I will provide some additional details for the fourth quarter; and then Gretchen Haggerty, U.S. Steel Executive Vice President and CFO, will comment on a few financial matters and our outlook for the first quarter of 2013. Following our remarks, we’ll be happy to take your questions.

Before we begin, I must caution you that today’s conference call contains forward-looking statements, and that future results may differ materially from statements or projections made on today’s call. For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release and are included in our most recent Annual Report on Form 10-K and updated in our Quarterly Reports on Form 10-Q in accordance with the Safe Harbor provisions.

And now to begin the call here is U.S. Steel Chairman and CEO, John Surma.

John P. Surma

Thanks, Dan, and good afternoon, everyone. Thanks for joining us today on what I understand it’s been a very busy day for most of you, we appreciate you taking the time to be with us.

Earlier today, we reported fourth quarter net loss of $50 million, or $0.35 per share, our net sales of $4.5 billion and shipments of 5.2 million tons. These results included a benefit of $0.6 per share from the favorable settlement of the supplier contract dispute.

Although, our segment operating income was significantly lower as compared to the first three quarters of 2012, our Flat-rolled European and Tubular segments all reported positive results in the fourth quarter. While the global economic recovery has been slow and uneven, most of the markets we serve have shown some improvements over the last two years.

Overall, steel consumptions has increased, but in North America and EU, it still has not returned to pre-recession levels. We have focused on improving our cost structure and our operating performance factors that we can control. And our fourth quarter results this year are significantly better as compared to fourth quarter’s of 2011 and 2010.

Before I go into more detail on our segment operating results, I would like to comment on safety. We continue to make significant improvements in safety performance, which remains our company’s key core value. These improvements, both in the reduction of injuries and the elimination of workplace hazards are evident throughout all areas of our company. 2012 is our best year in terms of producing the rate of the most serious injuries, as our days-away-from-work rate was reduced by 8%.

In addition, our management team combined with the efforts of our production and maintenance employees made significant strides and risk assessments and hazard elimination, further reducing the exposure of our employees to potential injury.

In 2012, seven operating facilities went the entire year without experiencing a days-away-from-work injury. Our Keetac facility has not had a days-away-from-work injury in over three years, and our Fairless Plant has reached almost six years without a days-away-from-work injury, zero really is possible.

In 2013, we continue our efforts to maintain and improve upon a sustainable safety process that provides the opportunity for every employee to return home safely each day. We believe that our focus on safety also has tangible benefits in terms of productivity, reliability, quality, and cost control.

Now back to the numbers. For the full year, our segment operating income was $855 million, an improvement of almost $800 million as compared to 2010, with all of our segments reporting positive results in 2012. The sale of U.S. Steel Serbia at the end of January 2012, resulted in a significant improvement for our European segment year-over-year, while our North American results were similar to 2011.

Now, turning to our Flat-Rolled operations, we reported income from operations of $11 million in the fourth quarter, improvement of $83 million, or $22 per ton as compared to the fourth quarter of 2011. The decrease in operating income from the third quarter was primarily due to lower average realized prices and higher energy costs partially offset by lower raw materials and repair and maintenance costs.

Following the completion of several major projects earlier in the quarter, our facilities ran extremely well with fuel utilization rates at our U.S. plants well into the 90% range. 2012 was the first year that our flat-rolled segment reported positive operating results in each quarter since 2007. Our flat-rolled shipments in the fourth quarter decreased slightly.

Automotive demand remained strong and most of the markets we serve were generally stable. In total, North America remains a relatively attractive market in comparison to many other regions. Imports did increase in the fourth quarter and continue to negatively impact both prices and shipment levels for our flat-rolled segment.

Now turning to U.S. Steel Kosice, we reported an operating profit of $7 million in the fourth quarter, a significant improvement over the fourth quarter of 2011 loss of $22 million. For the year, USSK operating profit was $51 million as compared to an operating profit of $44 million in 2011. While economic conditions in Europe continue to be challenging, this operation has remained profitable in all but the most difficult steel market conditions.

While we expect raw material costs for our European operations to increase in the first quarter reflecting price trends in the global iron ore market, we anticipate improving demand in many of the markets we serve with several showing a positive direction in the first quarter as compared to the very difficult market conditions in the fourth quarter.

Our Tubular segment, income from operations was $32 million in the fourth quarter, off significantly from the third quarter due to lower shipments and prices as drilling activity and line pipe purchases slowed late in the year. For the full year, our Tubular segment shipped almost 1.9 million tons which included record shipments of premium alloy products and reported operating income of $366 million.

While U.S. rig counts trended down throughout the year after peaking in January more than 2,000 rigs and finishing the year at 1,763, the average weekly rig count in 2012 was 40 rigs higher than the 2011 average resulting in record consumption of oil country tubular goods as well as a strong year for line pipe used in gathering and transmission systems. Despite finding rig activity throughout the year, imports continue to come in at historically high levels exceeding a 50% share for the year at both the oil country tubular goods and line pipe market segments.

Before I turn the call back to Dan, I’d like to discuss our continuing efforts to improve our cost structure in North America. Carbon costs continue to be the biggest market exposure that we manage and I’d like to provide an update on our overall strategy to achieve the lowest cost to produce hot metal in our blast furnaces.

For several quarters now, we have been discussing with you our investments in few facilities at Clairton and Gary to become self sufficient in our coak making capabilities and eliminate the need to purchase expensive and often lower quality coke in the merchant market. And we have aggressively worked to adjust our coking coal blends in order to lower our overall coal cost.

We have taken advantage of opportunities to utilize the abundant supply of competitively priced natural gas from the continuing development of share resources in North America. This development is a significant driver for our Tubular segment of course, and has enabled a significant change to our Flat-Rolled segment cost structure, primarily through the use of natural gas to decrease the use of coke in our blast furnaces.

We have increased natural gas injection capabilities on our blast furnaces allowing us to maximize our use of gas and reduce our coke rates. For the startup of the Clairton C Battery in the first of two Carbonex units at Gary Works in conjunction with the improvement in our coke rates, we now have the capability to produce all the coke we need in North America.

All blast furnaces have unique operating characteristics. And with all of these capabilities in place, we now have the ability to optimize the blend of fuels to attain the lowest carbon cost for each particular furnace, as well as the ability to continuously adjust our fuel blends to maintain the lowest cost based on the changing relationship between coke, injection coal, and natural gas.

In addition to cost benefits, this strategy also allows us to make more effective use of our investment capital. The capital cost of producing our coke rates through the increased use of natural gas has been minimal and has allowed us to become coke self sufficient without investing in additional coke making capacity beyond the Clairton C Battery and the Gary Works, Carbonex units, and increasing our ability to invest in other potentially high return projects in the future.

Now, I will turn the call back to Dan for some additional details on our fourth quarter. Dan?

Dan Lesnak

Thank you, John. Capital expenditures totaled $187 million in the fourth quarter and $723 million for the full year. Capital expenditure are projected to be approximately $800 million in 2013. Depreciation, depletion and amortization totaled $171 million in the fourth quarter and $651 million for the full year 2012. DD&A is expected to be approximately $690 million in 2013.

In the fourth quarter, pension and other benefits costs totaled $140 million and we made cash payments for pensions and other benefits of $188 million, which included a $75 million contractual contribution to our trust for retiree healthcare and life insurance.

Full year 2012, pension and other benefits costs were $512 million and cash payments including the $75 million trust contribution totaled $567 million. We also made a $140 million voluntary contribution to our main defined benefit pension plan in 2012.

Now, Gretchen will cover some additional financial items and our outlook for first quarter of 2013.

Gretchen R. Haggerty

Thank you, Dan. I’d like to start with our projections for our pension and other benefit costs for 2013, which we expect to be approximately $440 million, a decrease of over $70 million from 2012, but still quite a bit higher than pre-recession years when discount rates were higher.

The discount rate used for the remeasurement of our plan that December 31, 2012, was 3.75%, as compared to 4.5% at the end of 2011. The negative effect from using this lower discount rate was more than offset by the favorable effect of retiree medical benefit and plan design changes in the new labor agreements we entered into effective September 1, 2012, as well as the natural maturation of our defined benefit pension plans and asset returns that were in excess of our expected returns.

In addition to lower costs, we expect our cash payments in 2013, excluding any voluntary pension contributions to be approximately $550 million, down slightly from the 2012 level of $567 million.

Our cash from operations remain positive in the fourth quarter. For all of 2012, cash from operations was just over $1.1 billion. As we recovered from the low point of the global recession, we rebuilt our working capital base throughout 2010 and 2011 from the extremely low levels that we had at the end of 2009. So last year, 2012, our operations were more stable than in prior years, and we managed our working capital to more appropriate levels, making working capital a source of cash for us. Excluding changes in working capital, our increased cash generation over the period reflects our improving operating results.

In 2012, we reduced our net debt as reflected on the balance sheet by approximately $450 million as the cash we generated in excess of our capital spending in dividends was used to repay borrowings on our credit facilities and to increase cash on hand. So we ended the fourth quarter with cash of $570 million and $2.4 billion of total liquidity.

Now turning to our outlook for the first quarter, we continue to be challenged by uncertain global economic and steel market conditions. We expect a slight improvement in the European and tubular segment operating results, with flat-rolled segment results expected to be near break-even. Total reportable segment and other businesses operating results are expected to be comparable to the fourth quarter.

For our flat-rolled segment, steel buyers in North America continue to exhibit caution early in this year, but recent increases in our daily order entry rates suggest increased cost demand as the quarter progresses. We expect higher shipments in the first quarter, than the fourth quarter with increases across many of our industry segments. Average spot prices are expected to be higher than the fourth quarter, as recently announced price increases take effect. Lower prices for our market-based contracts, which tend to lag the spot market are expected to offset the higher spot market prices with overall first quarter average realized prices for the Flat-Rolled segment being comparable to the fourth quarter.

Raw materials costs are expected to decrease slightly as lower coal prices are partially offset by higher scrap prices. And our total operating costs are expected to be slightly higher compared to the fourth quarter.

Now, for our European segment, first quarter results are projected to improve compared to the fourth quarter due to a significant increase in shipments. Despite the continued economic challenges, shipments are anticipated to increase due to additional contract volume and improving spot market activity caused by service center and distributor restocking.

Average realized prices are expected to decrease due to a higher mix of hot-rolled shipments, as well as the effect of lower firm contract prices, which are partially offset by increasing spot market prices. Iron ore costs are projected to increase in the first quarter as John mentioned.

For Tubular, we expect first quarter results to improve compared to the fourth quarter due to decreased operating costs and a slight increase in shipments as drilling activity begins to improve.

Our average realized prices are expected to be slightly lower as compared to the fourth quarter, while operating costs are expected to decrease due to reduced repairs and maintenance costs and improved operating efficiencies.

I will turn the call back over to you Dan.

Dan Lesnak

Thank you, Gretchen. Mary please [key lines] questions.

Question-and-Answer Session

(Operator Instructions)

And we have Shneur Gershuni from UBS. Please go ahead.

Shneur Gershuni – UBS Investment Research

Hi. Good afternoon, everyone.

John P. Surma

Hi, Shneur.

Shneur Gershuni – UBS Investment Research

I’ve got two questions. The first one on Tubular, the second on Flat-Rolled, starting with Tubular, the fourth quarter was definitely a difficult quarter, I understand it is expected to be better. But it sounds like it’s going to be challenge compared to some of the numbers we’ve seen in previous quarters. There is supposed to be a pick up in drilling activity in the Gulf of Mexico this year. Just kind of wondering when we would see that impact?

And then despite the fact that it’s flattish to downish rig counts we might actually see more well counts in longer laterals and so forth. The U.S. Steel is expected to benefit from that as well, so where is the type of guidance a lot it has to do with the imports coming in and sort of taking away some of the opportunity?

John P. Surma

Well, I’ll take a step Shneur. I think the Gulf of Mexico has been a good new story for us. Already, I think the rig count was at 50 and may be went back to 48 in the last day or two, there must be something moving in some place. But that’s the best level of activity in the Gulf in quite sometime, and it’s very good place for us. We have some of the larger diameter heavy ore capabilities in both Fairfield and also in Erie, and we are booking those mills quite well for that business.

So we’ve already had some of that. The more that goes on in the deep Gulf in particular, the better that suites our particular facilities and more is better. So we encourage them to continue to keep drilling and those are great prospects and once they do a discovery well and develop it, then the platform in 16 or 18 additional wells that’s hopefully for us and we hope that would continue.

In terms of the – I think you are really asking is how much footage will be drilled and how would that mean for us and we have I guess at the rig count for 2013 we see what other prognosticators who probably think more than we do. And say we take a look at what the oil field service folks have said, couple of them have already reported and we look at that very carefully of course. There is certainly a move to longer laterals where that’s geologically possible, because the productivity is quite good, and they are really good at doing it. That suits our product very well, our Alloy/Heat-Treat shipments were at a record level for us in 2012 and that’s one of the reasons.

And additionally, the rig efficiency in terms of how long it takes to get down to get out to get tract and to get in production is really, really good. I mean they’ve turned this into an outstanding operation sounds to manufacturing process as we see it. And it may well be that even with lower rig count that the actual number of wells drilled could be higher, the amount of footage could well be similar or higher than last year. So I think in our view, the overall demand probably is similar to last year maybe little bit higher. We think the demand and things that we’re particularly good at the Gulf and some of the Alloy/Heat-Treat demand should be as good as last year.

We hope there is of course the spectrum of imports which are well over 50% as I noted. The extent that that’s mostly on the lower end carbon, it’s not in our zone directly although we do some of that, but it does affect the overall structure from a pricing standpoint in inventory levels.

So we’re very mindful of that and we are mindful of where its coming from and what their cost are, we think and what the prices are we can see and that’s something we have to take in mind and decide if we take action that may well be something we do. So and if you’ve diagnosed it pretty well all those things are in there, we think the picture for 2013 can be pretty good, but just looking after for the first quarter we’re coming from a slower start and we’ll see how we do quarter-by-quarter.

Shneur Gershuni – UBS Investment Research

Great. And a follow-up question with respect to flat-rolled, I guess there is a still little confuse about the guidance for Q1. You sort of commenting that it would be close to break-even. Given the amount of maintenance that was spent last year, you would expect sort of an increase in your capabilities in 2013, the natural gas to coke switching and so forth. And then finally a tailwind on improved net core cost, kind of wondering why we end up kind of flattish is the tailwind on core costs not as good as we would have thought and so forth. I was wondering if you can expand on that a little bit.

John P. Surma

Fair question. I’ll make a few comments and Gretchen you want to add on from her perspective. But just a couple of things, one would be that you mentioned coal, we do expect lower coal cost for the year. We won’t get all of that benefit in the first quarter. There is some carryover inventory that we have to move through. So we typically give you figures that say, what our overall purchase cost will be, we think on average for the year.

First quarter would be still lower than fourth quarter, but higher than the second, third, and fourth 2013 and we’ll come out to an average that’s probably 20% or so below where we were last year. So we have some tailwind that’s the term in the first quarter, but not as much as you might have expected and we’ll get more of that in the second, third and fourth quarters.

We do have continuing benefit from optimizing our fuel blends on the blast furnaces that I commented on. We continue to push the envelope on gas and on injection coal and on coal blends. Our coke rates are quite a ways down and I think we have very, very competitive carbon cost in terms of overall reduction cost. But there is some other things that we’re benefits in the fourth quarter. Small items we don't talk about a lot to be inventory adjustment to few other items, Gretchen, you want to mention that we’re good in the fourth quarter that we don’t plan necessarily on the first quarter.

And we do have slightly lower maintenance costs in the first quarter versus the fourth quarter. Although this is the quarter we typically do a good bit of work in our Minnesota Ore Operations, because we’re not going to shipping position necessarily and we get a lot of the orders worked on there on the different lines and that’s well underway and we’ll spend some money on that during the quarter, that’s a – those are the few lines and then Gretchen anything you want to add to that.

Gretchen R. Haggerty

No, I think you captured it right. We do expect a benefit from lower coal cost this year, but John described it exactly right, it’s not going to all come through right in the first quarter. And these small items, we had some favorable items in the fourth quarter that aren’t going to repeat themselves. And there is really no one single item to call out and we did have the one thing, we did have like an extra months worth of benefit from re-measuring our labor contract which was probably anywhere of $5 million, it’s that kind of thing that were absence at.

John P. Surma

We do expect I think slightly higher scrap cost and natural gas cost, those are both going the other way, so…

Gretchen R. Haggerty

Right.

John P. Surma

They are not huge amount for us but they all add up to something.

Operator

Thank you. Our next question comes from the line of Evan Kurtz with Morgan Stanley. Please go ahead.

Evan Kurtz – Morgan Stanley

Hey, good afternoon.

John P. Surma

Hey, Evan.

Gretchen R. Haggerty

Hey, Evan.

Evan Kurtz – Morgan Stanley

Hey, just a question on the future, I’ve heard a lot of reports floating around here, the news of some people looking at that asset. Just wonder if you could give us some color on how you think strategically about Kosice and how that fits in with the portfolio?

John P. Surma

Well, it’s – as I said in my comments, it’s an excellent facility with excellent productivity, capability. We spend a good bit of capital there over the years trying to improve the product range and so we got a good position in automotive now, tin plates and electric motor land et cetera. We’re doing some other things now, we’ve got a good color coating line, we are trying to choose some of those capabilities out. So I think it’s an outstanding facility, it’s in a difficult part of the world, but really good cost structure, good energy position and in the part of Europe it’s probably been about as good as any part of Europe, it becomes an overall demand.

So it’s a good facility in what historically has been a pretty good place and as a result of that we guess we have some expressions of interest in the facility to see if it would not be work more to somebody else and it would be to us.

We think we have a responsibility to our shareholders to explore that in the context of our overall capital allocation, that’s what we’re doing, but really no decision made at this point. So that’s really all we can tell you, it’s an excellent facility, not surprising others might be interest in.

Evan Kurtz – Morgan Stanley

All right. Would you be able to walk me through may be some of the liabilities associated with that facility as far as may benefit liabilities and any financial liabilities and so forth.

John P. Surma

Well, I will let Gretchen comment. But really it’s, when we acquired a facility in 2000, it was free and clear and really the structures are such – social structures are such that we don’t really have those kinds of things that they really are the minimal. So it’s just a pretty clean operations as far as that goes. Gretchen?

Gretchen R. Haggerty

When we had disclosed though that we do have some upcoming capital commitments on the environmental side that, we’ve estimated over the next number of years to be on the order of $400 million or so. So, that would be probably the base line that might have the impact on.

John P. Surma

Yeah, good point.

Evan Kurtz – Morgan Stanley

Great, that’s helpful. Thanks a lot. And then maybe just one other question, you didn’t talk really about the DRI much on this call, but I know in the past you’ve thought about as something that you might invest in the future here in the U.S. Any update on that, is that something that we could perhaps see as early as 2013?

John P. Surma

Nothing, formally update, I mean, the technology and the economics around natural gas and DRI are still really good. So like I mentioned was not intentional, it’s very good technology and it’s got a really good place in North America, I think because of our energy position.

It’s possible we might have something to talk about this year, trying to find the right time, the right place and for a project of that magnitude, just given our capital position we’ve very cautious about getting into any major new projects as given all the uncertainties in the world we have to deal with. But we still find the technology any opportunity very, very attractive and we would like to find a place for that inside of our production profile, we’re just trying to figure out that right way and the right place to do that and there may be some things behind that in terms of pellet investment to make sure, we’ve got the right material as well, it could be helpful. So we’re looking at a lot of things, but it’s excellent technology, the economics are really good, and we’ll continue to look at it.

Operator

Thank you. Our next question comes from the line of Dave Katz with JPMorgan. Please go ahead.

David Katz – JP Morgan Chase & Co

Hi. I was hoping we can just come back for the U.S. Steel, Europe kind of guidance. So obviously on slide 17, you are guiding to increase shipments, but lower prices and the higher costs get overall higher results given that the lower price and the higher cost would indicate perhaps on a per-ton basis margin compression and per-ton margins were already relatively low in fourth quarter, I was hoping you could kind of support us back to the higher operating results?

John P. Surma

Well, these are all small numbers to begin with. After going through a lot of work to make a million tons of steel and shipping of these are small numbers and we would like them to be much, much larger, but so we maybe implying a lot more precision, which we’ll use in there. But we have some benefit on, we’ll do a little better on carbon cost, but because of what’s happened in the annual market even though we are not necessarily pricing off of that, we’ll get some higher ferrous cost.

We expect to have some benefit in terms of volume you’ve heard with questions comments for about pricing, there are some spot pricing benefits, the overall price is not particularly attractive. And I think we’ll have, there is another case of our team doing a really good job on the cost side, keeping all the other costs we can control in very good position and it’s a very efficient plant and we’re able to stay profitable, barely, which it was much, much more. If we put all together, we’re able to stay profitable, because our group is controlling cost really, really well. Gretchen, do you want to add?

Gretchen R. Haggerty

You mentioned the higher volume that does have…

John P. Surma

Yeah, we do have some additional shipments, which – so I think our utilization rate in the fourth quarter were 77%. I think that’s quite low for Slovakia. We’ll probably operate, we would expect much higher than that in the first quarter.

Gretchen R. Haggerty

Yeah.

John P. Surma

And that has a pretty significant per unit benefits from a cost standpoint. It’s a good point Gretchen, thank you.

David Katz – JP Morgan Chase & Co

Okay, thanks. And then from my second question, although a while ago we had heard some concern about potential strikes at the ports, which could inhibit importation of 10, how if that all would that affect your business?

John P. Surma

I don’t have a good answer for that. When we heard about the port strikes, I asked our folks both on things we have outbound and things we might have inbound and some things that will be becoming inbound that we want to come inbound if we could help it. And what I was told was, there really wasn’t anything that significant for us. We do have some outbound shipments, but you’re going to be able to make the schedule that we were committed to before there was any action on the 10 or things that matter. I’m afraid I really don’t have a good answer for that, but it wasn’t on most of things we were concerned about. So my sense would be that we thought there were sufficient supply available to us for however long we have taken.

Operator

Thank you. Our next question comes from the line of Brett Levy with Jefferies & Company. Please go ahead.

Brett Levy – Jefferies & Company, Inc.

Hey guys. Really the only question I have has to do with [ThyssenKrupp] and their assets and your status on bidding on them, what are your concerns?

John P. Surma

Hi, Brett, I guess the latter part is pretty hard to answers, since it’s hypothetical. But the specifics of that, you have to really address to the seller. They are the ones that are conducting a process and then we would be in a position to say is that, we said for a long time that we look at things that might be attractive within our business model that would add value and things that are in the product ranges we’re familiar with and geographies that seem to have some regional association where we are and these assets fit those criteria. So I think that’s really all we could say that fits our criteria and their matters of interest, really anything specific beyond that, it’s hard for us to comment on within the rules that we are operating under.

Operator

Thank you. Our next question comes from the line of Timna Tanners with Bank of America Merrill Lynch. Please go ahead.

Timna Tanners – Bank of America Merrill Lynch

Yeah, hi, good afternoon.

John P. Surma

Hi, Timna.

Gretchen R. Haggerty

Hi.

Timna Tanners – Bank of America Merrill Lynch

So I wanted to ask a little bit more just taking a step back and you talked about your carbon cost being a really important focus for lowering your cost structure and you’ve made a lot of advances there with natural gas and with all the other initiative. But what are the other ways that U.S. Steel broadly over the next five years can lower its cost structure? You talked about DRI, can you cut labor cost, can you do things with your people, you have kind of fixed cost in a lot of areas. So just wondering kind of how you look at your ability to cut cost further?

John P. Surma

That’s a good question, Timna. We look at cost all the time. We’re just reviewing all those things earlier today. And each business unit at the business unit level has a continuous cost improvement plan value, it’s hugely expressed in dollars per ton, it’s not insignificant and then that gets pushed down and populated to all the different operating units in any place where there is cost to the company. And we hammer away that and usually we end up fracking up more in terms of savings than we had as an objective.

If you look at where the big cost are you named us and on the labor side not as big as it used to be our productivity rates are way better than they used to be following up a couple of the labor contracts where we’ve agreed the productivity is a good thing and that’s been very helpful to us. We will continue to work at that, some of that is capital enabled, some is just through different ways that we can find do a little bit more with the few fewer peoples attrition would take place, so we will continue work on that whether there is any big breakthroughs coming up, it’s a little bit harder and more problematical to look at.

The carbon thing I think still remains one of our biggest opportunities at the single biggest cost that we actually can manage when there is market exposure. And where technology and things like working on our stove and hot glass deliver capability to see if our higher hot glass temperature sort of 1800 Fahrenheit, we go to 22, would plug into the equation and we use more injection coal, what does that mean for gas and, what’s the relationship of those things at that particular time, because depending on how much coke we’re displacing with gas and it might not be the good thing.

We focused a lot of attention on that. And then on the overall maintenance cost, trying to find ways to string the time out longer between major blast furnace projects and that maybe refactory innovation and using more copper and less cast down depending on the value.

So let’s say, it’s across that whole range Timna, but I can’t give you any specific breakthrough right now. We’d focus all – and we just focus on all those things and I would say, we continue to do that. Gretchen?

Gretchen R. Haggerty

Thanks, Doug.

Douglas R. Matthews

Okay.

Timna Tanners – Bank of America Merrill Lynch

That covers a lot of ground, that’s helpful. Okay, and then I just want to switch to Canada if I could real quick two areas, one is, we’re hearing like Gary has a contract due in the next couple of months, any thoughts there. And then under what conditions do you think about restarting Hamilton? Thanks.

Douglas R. Matthews

Sure. Well, the – I think we disclosed that there is a contract exploration like Erie, I want to say April 15, is that April 15, April 15.

Gretchen R. Haggerty

Yeah.

Douglas R. Matthews

And we’ll get about that fairly soon, or we’re optimistic we’ll be able to reach a competitive contract without any disruption as we did back in September with the larger group of plants in the U.S. So that’s on the agenda, and we’ll get to it fairly soon and again optimistic we’ll reach contracts. Hamilton really nothing new to report, we look at it all the time, we measure what’s the current market situation is. We try to think about the sustainability of the market situation if it looks favorable.

And then we take a look at what the cost are and say, is there, is this something we can do based on what the demand is and those conditions really haven’t occurred recently when you look at overall steel consumption if you look at U.S. and Canada combined. We’re still 10% or so below where 2007 or some pre-recession number would be, and that’s taking a while to get back to that. We are making gradual progress every year. I think the world steel forecast for this year is an increase of 3.7% like that. But we just haven’t had the right combination of factors. We would love to make it still in Hamilton, but we got to find a way to do that in Nanticoke at the same time.

Operator

Thank you. And next we have Luke Folta with Jefferies. Please go ahead.

Luke Folta – Jefferies & Company, Inc.

Hi. Good afternoon.

John P. Surma

Hi, Luke.

Luke Folta – Jefferies & Company, Inc.

Quick question I guess on the carbon cost side, you talked in terms of the number, I guess down 20% down number that throughout earlier per ten year coal cost. Could you just talk about what the annual coal contract price changes year-over-year and also if you could give us some sense, because you’ve been making so many different improvements on reducing the coke rate and natural gas injection all that. What do you think your carbon cost per steel ton is going to be down in 2013 relative to 2012?

John P. Surma

Well, see if Gretchen, I’ll cover the first part and see if Gretchen can figure out the ton we’ll have to do a couple calculations there, I’m not sure I have it handy. But well on raw steel North America it’s $20 or $30 probably something like that, something in that range, but I think the coal’s numbers you are looking for, Dan correct me if I’m wrong, but we used as a reference point in 2012. We talked about 188, and I think the point estimate for and it’s an estimate for 2013 would be 152. Dan, does that sound right?

Dan Lesnak

It does.

John P. Surma

That’s for the year. It wasn’t the first quarter number as I said earlier to an earlier question, that’s for the year, and those are point estimates, but that’s probably a reasonable assessment. I’m just observing that, I think that’s roughly 20% if my math is right. That – inside of that keep in mind that when you look at 2011 to 2012, our figures didn’t increase nearly as much as the benchmarks did. And so that’s reflected in what’s happened in 2012 to 2013. But if you look inside of it and get something its comparable a hard coking coal number that would be comparable to the figure you would see in the eastern Australia benchmark.

The overall reductions we have are a little bit more. So I think our directions were quite similar and what you are seeing in the overall composite is just the type of coal we are using, we’ve changed a lot in the last couple of years and this is what the cost is, this is the best cost for us.

Luke Folta – Jefferies & Co.

Okay, that’s helpful. And then last quarter you guided to higher maintenance costs in the fourth quarter and it looks like they actually fell if I read it right. So did you push out some work there or it – was just the estimates too high, can you give us a sense of what happened there?

Gretchen R. Haggerty

I think – honestly I think what happened Luke is that the – we did a really good job of doing the work that we had in that quarter and that we had done faster unless those expenses than we thought and then they otherwise – our Flat-Rolled guys did a really good job managing their cost in the fourth quarter.

John P. Surma

Yeah.

Gretchen R. Haggerty

And they have higher shipments. And so we actually really ended the quarter better shape on cost and volume than we were expecting.

Luke Folta – Jefferies & Co.

Okay. And just one more quickly if I could, the new labor contract for North America or for the U.S. I think had a wage increase provision in for 2013, can you give us some sense of what sort of impact that might have?

John P. Surma

Well, it’s small enough, but it doesn’t make my list big changes, because I…

Gretchen R. Haggerty

Yeah, we will have it disclosed.

John P. Surma

Yeah, it’s a relatively modest amount, we’ll have something in the 10-Q but perhaps – but it’s a relatively small amount, it doesn’t make a list of things we try to call out to talk to you about, so I would say it’s relatively modest amount.

Gretchen R. Haggerty

We’ll highlight that to you. We have to find it in the document, but we did disclose in the Q I’m pretty sure.

Luke Folta – Jefferies & Co.

Okay, thanks a lot guys.

Operator

Thank you. Our next question comes from the line of Brian Yu from Citi. Please go ahead.

Brian Yu – Citigroup

Hello, thank you. Good afternoon. Hey, John, could you talk about the fixed price contracts with the auto and the appliance producers and traditionally is that flat hopefully up in 2013 versus 2012?

John P. Surma

A little bit, we don’t like to talk too much about individual customers of course. But just in general contracts either firm in 2012 to 2013, you always have to consider where you are coming from and the duration and the market, I will answer there is lots of qualifiers to put around it.

But in general, when I put it all together and look at it, I think that 2012 to 2013 would be slightly down, slightly might be a percentage something like that. So I would say, contract pricing, because there is some adjustable items in there. We will look at as being relatively consistent 2012 to 2013 maybe slightly down will be the direction.

But I think we’re pretty pleased with where we ended up. We’ve got great relationships with our contract customers, and we spend more time talking about quality and delivery and technology and the future that we do about pricing necessarily, but I think we did okay.

Brian Yu – Citigroup

Okay. And my second question is just on, you mentioned imports having impact on domestic pricing. We are looking at the international China, European prices, they’re not that far off from the U.S., there is some other dynamics in U.S. that’s contributing at besides imports, but any color you provide would be helpful?

John P. Surma

Well, I think when you look at – in front of me, we take a look at data points across the range of geographies and what insurance and customs duties and other sort of things and China has moved up quite a bit and they’re not particularly different than the U.S. prices, North American prices are. I think it’s more of an issue in the Black Sea CIS countries particularly on the hot-rolled side. And then in some of the Asian territories on the flat steel products has become more of a problem from price standpoint with quantities of cold roll and coated, galvalume and thin plate and that those are products where even a small amount can really have an effect on the market when it’s indiscriminate. So, even though the volumes were up some what, the impact particularly in the downstream products has been much more pronounced and something it has our attention.

Operator

Thank you. Our next question comes from the line of John Tumazos with Tumazos Research. Please go ahead.

John Charles Tumazos – John Tumazos Very Independent Research LLC

Good afternoon.

John P. Surma

Hi, John.

John Charles Tumazos – John Tumazos Very Independent Research LLC

It’s a little hard to understand how orders and housing are so good, lumber prices rose 12 straight weeks through the winter, and the farm economy, fertilizer prices, container board is booming around at 95% last month. Why are these poor steel customers so scared?

John P. Surma

Well I don’t know John. You have to ask them, I suppose, but I think that’s the nature of the market and I think the fact that the larger piece of the market distributions, service center for state processors those kind of folks. They are very concerned about holding inventory only to have a BD value that’s happened to many times and you know the price volatility in the marketplace has become much higher amplitude, we think may be that 2013 might be slightly less an effort.

I just think they are very concerned about being stockholding too much inventory and with lead times late in the last year, calendar year, really coming into and may be three weeks or so for hot roll. There really wasn’t any reason to hold the inventory and I think that really get people on the side lines. Now our order rates have been better, and this is so far in January this year and progressively improving, and so we think that’s a good sign, but I just think that those who hold inventory for living are very concerned about holding inventory right now, because they’re concerned any hold getting stuck with something that we don’t want to hold. That’s the only answer I can give.

John Charles Tumazos – John Tumazos Very Independent Research LLC

John for undifferentiated commodity sheet products, do you think your business would be better if you charge 10% less to sold a lot more imports didn’t – more expensive relative to domestic steel and these distributors would be little bit less frightened?

John P. Surma

Interesting idea, John, I don’t know we have – we think pretty competitive cost, so we produce pretty well now, and shift into these markets pretty well as it is, I think if the intermediate inventory holding types of customers were less concerned about imports and serving with (inaudible) I think that would be a big help and we would feel better by the two, but whether that would change the psychology to the market John, I don’t know. It’s an interesting question.

Operator

Thank you. Your next question comes from the line of David Gagliano from Barclays. Please go ahead.

David Gagliano – Barclays Capital

I just have a couple of quick questions. First, just to clarify want comment in the outlook commentary for the Flat-rolled businesses. The press release’s total operating costs are expected to be slightly higher compared to the fourth quarter. That’s the total number correct? Unit costs are expected to be down sequentially or is that fair to your per ton cost?

Gretchen R. Haggerty

Yeah, because we are expecting higher shipments, so I would think just the last small numbers that we’re dealing with here that I think it probably would be.

David Gagliano – Barclays Capital

Okay. And then on the tubular segment, can you remind us again the 47% that program business in Tubular. Are there any – how the price is set for that? Are there lags and when do those prices roll and things like that?

John P. Surma

Program business is in recent quarters and probably in this current quarter will be more than 50%. I think that’s our program customers are really come our way. I think we’ve developed a relationship with them. It’s generally a program that has us commenting a certain amount of capacity and our customers saying us they need [pipe] take that mining capacity and the prices are negotiated in arms like basis generally once a month, maybe once a quarter so that got periodically. So it’s a negotiated price discussion. In most cases, there is a few where we have some indexes and things like that. In almost every case, it’s a negotiated price.

David Gagliano – Barclays Capital

Okay. But there is no, okay, that’s what I need. Perfect. Thanks.

John P. Surma

It does take time. There were some price changes in the marketplace mostly ERW not all, and usually that takes a quarter or so it work its way through because of these kind of arrangements.

Operator

Our next question comes from the line of Richard Garchitorena with Credit Suisse. Please go ahead.

Richard Garchitorena – Credit Suisse

Thanks. Good afternoon.

John P. Surma

Hi, Richard.

Richard Garchitorena – Credit Suisse

My first question, just on the CapEx $300 million for this year; can you give any color on in terms of what were the major portions of that are going to?

Gretchen R. Haggerty

I think we do have – we still have some fairly significant carryover on our coke projects that we are wrapping up. The Carbonex facility and some carryover on our Clairton C Battery, and then I mean it’s a series, so we’re probably be the single biggest…

John P. Surma

And if we have though I think no one has asked about it, but we do have some maintenance plan this year and in that process, there will be some blast furnace work that would be of the capital nature, it would be more significant and more substantial heart workers kind of things. And that would – there would be some of that that would take up a good bit of that capital.

There is a big chunk of environmental and infrastructure spending and probably the single biggest thing would be mining equipments and other mining activity, we have a lot of equipment we buy and this happens to be a year, I think we’re going to be buying a little more than normal, so lot of mining equipment also. So it goes pretty much across the board, but there is no real one single nameplate project that we can give you other than that, the coke things were finishing up.

Richard Garchitorena – Credit Suisse

Okay. And then my other question just you talked about the savings on the carbon cost side, can you talk a little bit about iron ore, pellets and Keetac still I guess on the Board at some point?

John P. Surma

That’s still there, I think our overall pellet operations are running extremely well both our wholly owned and joint ventures and cost very competitive as they have been, I think they will stay competitive. The Keetac expansion is certainly a possibility that we have – the opportunity to get into, but it’s a big project for us and given this world we are in kicking off a big project like that in this world with uncertainty not just about capital in the market and cash flows, but also about straightforward on iron ore where is it look like, what’s the economic zone and so depending on your assumptions in the future, you get up quite different sense to the economic here. So we were taking our time to think that went through, but we still have the opportunity to do it. And the resource is not going anywhere, it’s still there.

Operator

Thank you. Our next question comes from the line of Justine Fisher with Goldman Sachs. Please go ahead.

Justine Fisher – Goldman Sachs

Good afternoon.

Gretchen R. Haggerty

Hi, Justine.

Justine Fisher – Goldman Sachs

I just have a question for Gretchen, and I feel like I’ve asked this before on conference calls, but I’ve got no lot of calls about this recently, so I wanted to ask it again. Plans for the converted it becomes current in a few months and we are getting a lot of questions about we find them the convert market and the bond market how is the company planning to approach that?

Gretchen R. Haggerty

Well, I think we’ve already done some things to allow that to be a little bit more manageable, just being the main thing because we got rid of our maturities in 2013, so I really don’t have anything to worry about this particular year. It’s not the kind of I mean, I think its reasonably financeable at the level that it’s at, but its not my favorite strategy to wait until May of next year and have that done so, I think it wouldn’t be unreasonable to think that we might try to take care of some of that or at least maybe financing advance of some of that before we – before this year passes.

Unidentified Analyst

Okay. And then just a question on the Tubular market, as far clearly imports our problem as far as the domestic capacity is concerned, are you guys seeing any signs that there might be some sort of slowdown in some of the domestic capacity expansion that we’ve seen or do you think that there may continue to be an issue on that side in addition to the imports?

John P. Surma

I’m sorry Justine you are asking, if we think that capacity expansion will continue or it might have slowdown in a baker, was that your question?

Justine Fisher – Goldman Sachs

Yeah, I mean there is a lot of U.S.-based Tubular capacity that’s coming online and I was just wondering what your thoughts are as far as the future of that is concerned regardless of whether we can spend the type of imports with some sort of duty or not?

John P. Surma

That’s a good question. I think we’re certainly concerned about it. It is a good bit of capacity, good bit of it is aimed lower than the food chain and where we do most of our work and still there some we’ll content with. If the economic theory works out right, lot of that capacity course we displays them imports of in fact I think fairly traded and loss of the economics were hold.

We’ll see that doesn’t hold, but there’s a certain amount of demand and you can make your judgment about how much demand that is an future and of the U.S. energy sector continues to develop there could be more, but we can see pretty well we have in the next year or two probably within reason. And does the market need more capacity to serve that I guess that’s what you’re asking and I wouldn’t think so but that’s not my decision.

Operator

Thank you. Our next question comes from the line of Arun Viswanathan from Longbow Research. Please go ahead.

Arun Viswanathan – Longbow Research

Thanks for taking my question. How are you guys doing?

Gretchen R. Haggerty

Okay, Arun.

Arun Viswanathan – Longbow Research

So the first question I guess is on the sequential breakout, I mean what you guys think through the year this year. There’s been a number of price increases last year, will those start to flow in, in the second quarter or how is that agile with your guidance as well?

John P. Surma

Well, there were a number of price moments just within last week or 10 days or so if that’s what you are referring to and its really too hard…

Gretchen R. Haggerty

Right.

John P. Surma

That’s what you’re preferring to and it’s really too hard – it’s hard to tell too soon and also very hard to tell what that impact might be. But for us at least, assuming things go reasonably well on that front, we would get some benefit from that in the first quarter, we get more of it directly on spot business in the second quarter and then indirectly eventually through some index changes we hope also in the second quarter.

So I think we’d get some benefit. Keep in mind that I think our overall spot [book] are estimated on the order of 30% or so. So it’s not a huge portion of our business and we’ll take that already get through it. But we get some benefit in this quarter. And the only assessments I’ve seen so far from outside parties that one was at 630, Midwest which was up by 27 sum from the last assessment. So that’s going to be move in the right direction, but it will take some time to see our success in business.

Arun Viswanathan – Longbow Research

Okay.

John P. Surma

Conversations with our customers right now.

Gretchen R. Haggerty

Yeah, but I think overall we indicate, we thought spot price is going to be up quarter-over-quarter.

John P. Surma

Yeah.

Gretchen R. Haggerty

And so that would really imply that our expectation would be, that would flow through our market-based contract…

John P. Surma

Yeah.

Gretchen R. Haggerty

Into the second quarter.

John P. Surma

But it also reflects the fact that our first quarter book headed of some relatively the best prices because it was very competitive at that time. So, yeah it was very, very difficult. So we would expect it first quarter should be better as Gretchen said.

Arun Viswanathan – Longbow Research

Okay, thanks. And the other question I guess I had was on Europe. What’s the long-term view there? Are you comparable with your position maybe is it improving year-on-year, but and when you say shipments are going to be up significantly, can you just quantify that a little bit more for us or…?

John P. Surma

Well, just on longer-term view, I’ll let Gretchen comment on the shipments. But on a longer-term view, it’s an excellent facility with all the good things that I enumerated earlier on this call, and we’ve been doing business in Slovakia for more than 10 years and that made really good returns there and made great money there most of the time, and so good government to work with.

We get along fine with them and the countries are very positive from the economic development standpoint. We like manufacturing that’s why all the automobile manufacturers are there. So we think we can do real well there for the long-term, whether somebody else think they could do better is a different question. Gretchen, you want to comment on the shipments?

Gretchen R. Haggerty

Yeah, I know I guess that when we say significantly to us that means kind of a magical thing. But I would say probably order of magnitude, you’re looking at 150 or so, thousand times would be 75% let’s say, over.

Operator

Thank you. Our next question comes from the line of David Martin with Deutsche Bank. Please go ahead.

David Martin — Deutsche Bank Research

Thank you. I had a question first on pension healthcare costs. And Gretchen, you had said that your cost in 2013 would be down little over $70 million versus $12 million…

Unidentified Company Representative

Right.

David Martin — Deutsche Bank Research

…versus the fourth quarter annualized it’s more or like $40 million. But I guess what I’m wondering is that, all that declines embedded in your reported segment guidance or does some of it fall outside of that the segment reporting?

Gretchen R. Haggerty

Yeah, I think probably most of it will fall outside of the segment. It is embedded the bit there. But if you think about our retiree benefit expense line, it tends to be maybe 85% or so of a total. So we’re looking at maybe $60 million of quarter. So again right on each quarter of total benefit expense was what I think that we would be expecting based on the total.

David Martin — Deutsche Bank Research

Okay.

Gretchen R. Haggerty

Most of the retiree benefit expense is going to retirees, yeah.

David Martin — Deutsche Bank Research

Okay. And then...

Gretchen R. Haggerty

Most of the OPEB and pension plan side.

David Martin — Deutsche Bank Research

Okay. Could you tell us what your assets and liabilities for year-end and then lastly just coming back to your comments John on coal costs? Have you purchased 100% of your anticipated coal requirements for this year ex-Hamilton?

John P. Surma

Well, Hamilton Coke plant is running, so it’s included. So we’re not actually there. But along with the gold mill and two galvanizing, we have operating rates and we’ve got great employees there. Our coal costs or coal volumes for the year are spoken for either through contracts or with some carryover volume from 2012 or with some auctions we have to increase volumes if you would need. And so we think we’re pretty well situated to have flexibility to get what we need at very competitive prices and to manage the inventories in a place we want it. So we’re in pretty good shape.

Gretchen R. Haggerty

Yeah, and then on the pension, I guess are you really interested in the unfunded status. So I can give you order magnitude.

John P. Surma

It will be in 10-K.

Gretchen R. Haggerty

It will be in 10-K, but so on the OPEB side because of the significant reduction in obligation that we told you that in September as a result of the contract, even though we had a higher discount rate we did that better than expected our asset performance. So we’re down about $500 million on funded status on the OPEB side. So it goes from 2.7 to about 2. And then on the pension side, the discount rate effect was increasing obligation more than our asset, performance was beneficial. So we probably went from about 2.4 to 2.7. So those will be roughly the numbers you’ll see when the 10-K comes down.

Operator

Thank you. Our next question comes from the line of Sal Tharani with Goldman Sachs. Please go ahead.

Sal Tharani – Goldman Sachs

Good afternoon.

John P. Surma

Hi, Sal.

Gretchen R. Haggerty

Hi, Sal.

Sal Tharani – Goldman Sachs

John, question on Stephen I know you don’t want to comment, but couple of years ago when metal steel bought Olsen, they got the fast indicative to divest something in the U.S. and they divested I believe, it’s my last point. And you’ve said that the K that metal – also metal now get tested and they have divest on the assets because of the department justice requirement. Would that be of interest you like if Cleveland, Ohio plant or Indiana Harbor West plant, would that fit in your portfolio if you get the opportunity to look at them, in case you don’t get some plant?

John P. Surma

It’s just a hypothetical sales. I’ll take it in that context as a hypothetical. But I’ll give you the same answer. Again on your earlier comments is that we like to look at things that are within our geography, regional product range, some physical market synergy potential and (inaudible) as mentioned probably would fit that.

I’d just also absorb that over the years, we looked at some of these things before for the current and to have them. So that would not be anything new for us. We would look at anything, will be available, and it was in our zone we would take a look at it. So we generally done that pretty thoroughly.

Sal Tharani – Goldman Sachs

And would you have to expand you iron ore production for that to add any more furnace?

John P. Surma

Well, it depends on a lot of different things. We were in the Slab business today and if there is a chance to convert that, and we’re in the Hot-Rolled business today, so it depending on what the issue is, depending on what’s available, if it’s just a cutting line, it’s one thing, if it’s a blast furnace that where the steel shop something else really would depend on where in the sort of zone of production it was and we would have capability across that whole range, it all stands where would be.

Sal Tharani – Goldman Sachs

Okay, great. Thank you very much.

John P. Surma

Okay.

Operator

Thank you. Our next question comes from the line of Dave Lipschitz from CLSA. Please go ahead.

David Lipschitz – Credit Lyonnais Securities Asia

Right. Hi, my questions have been answered. Thank you.

John P. Surma

Okay.

Operator

Thank you. And we have no more questions in queue. I’m sorry, we do too. Tony Anthony Rizzuto with Dahlman Rose. Please go ahead.

Anthony Rizzuto – Dahlman Rose & Co ·

The scooter is fine. Hey, everybody, how are you?

John P. Surma

He needs no introduction.

Anthony Rizzuto – Dahlman Rose & Co ·

Thank you. There you go. I just got a couple of questions here and obviously thanks for your stamina on this call. You were kind enough to give us some sense of other contracts. I wonder if you can comment about your tin mill business that you are doing just directionally on those contracts? And I just want to delve into the maintenance expense area a little bit, in your third quarter guidance that you gave for the fourth quarter and I heard you respond to a question earlier.

Originally the main expense was supposed to be down and you did a little bit better on that. But I was wondering how much lower was it in the fourth quarter versus the third quarter? And then overall for 2013 you’ve talked about a blast furnace and maintenance there, I was wondering if you could give us a kind of a figure and how that might compare as you see in 2013 shaping up versus 2012?

John P. Surma

Here are a couple of things, and I’ll let Gretchen look at the specific about the quarter to quarter, but just then in general on the overall maintenance as we currently see it, maintenance broadly define, you have the major projects that we take production on just for in other maintenance cost and we would categorize and gather. Probably 2013 is down, compared to 2012, not a huge amount, not a $100 million, but probably more than $10 million $20 million, and that’s going to depend on how the equipment behaves and what we end up doing for the rest of the year. But we have been spending more heavily last couple of years, either in total or on per ton basis, and I think our equipment has become more reliable and has been performing better, and I think it’s starting to pay off for us cost is improving as well.

So I would say in general, we probably would have less in 2013, may be few with blast furnace projects, although one of my think will be larger project assuming we pull it off of this way, but the schedule is of course fluid, and most of that would take place in the second and third quarters it normally does. Probably less than we had in 2012, so I think on balance maintenance probably down to some degree.

On the thin plate those activities Tharani were included when I gave my overall assessment of contracts by being down a little bit, that’s a market segment, which for us has exhibited a great deal of stability over the years, it’s excellent customer group. We make really good product and (inaudible) closing the things that you all don’t have in your entries and we are very proud of it. So, excellent products and our relationship is very positive and overall commercial relationship it’s inside that slight down were number that I gave you before.

Anthony Rizzuto – Dahlman Rose & Co ·

All right. And John I always appreciate your view of the larger picture developments in the industry, and obviously recently there have been more discussion about carbon tax. And it seemed to be kind of in the President’s address and I was wondering, what your thoughts are there and impacts that you see from a manufacturing perspective in the United States?

John P. Surma

I think all the folks in the Washington have to do is read the European newspapers. And see if that’s what you want. The gradually dissertation of heavier sector, in particular, industry, the reduction of energy supplies, the two largest EU industry association trade groups recently wrote letters to the EU commission saying that the U.S. advantage in energy is almost unassailable and will result in severe damage to the European manufacturing position. And that’s probably true over time.

So I think all we have to do is look at what Europe’s done where they’re into no nuclear, no coal and all wind, and (inaudible) on that. And then see what result that’s gotten, and by the U.S. carbon emissions have been far better control than European emissions the program there is on virtually no good. That’s what we want. I can’t figure out why. We have perfect example of what that looks like, and I’m not sure who would choose that. So I’d like to think that our policy makers will be more thoughtful and have a slightly more inform due once you can see with some other things due in different parts of the world.

Operator

Thank you. Our last question comes from the line of Mark Parr with KeyBanc. Please go ahead.

Mark Parr – KeyBanc Capital Markets

Okay. Thanks a lot, thanks for taking my questions.

John P. Surma

Hey Mark.

Mark Parr – KeyBanc Capital Markets

Hey John, how are you? Good call today, thanks for all the color.

John P. Surma

Thank you.

Mark Parr – KeyBanc Capital Markets

I had a couple of questions, just curious on the tubular side, is there any color you can give in terms of the growth in tons that you might expect from off shore applications in drilling for 2013?

John P. Surma

Nothing I have in my head, Mark. Let’s say, we had a pretty good year, last year off shore and the extent there is more rigs, we’ll have some. But inside of our roughly 2 million kind of shipping capability 19 and 2012 something like that. I won’t going to guess that maybe what the capability we would have to get into that kind of a market a few hundred thousand tons probably at the most, maybe little bit less than that probably. So that’s the kind of zone we’re in. But it’s really good business for us and it takes away a lot of medal. Productivity rates are really, really high and more of that we can get on about and get offshore to a rig where we like. So whether it’s going to be a real meaningful percentage change, I don’t know, but every little bit counts, its really good business for us.

Mark Parr – KeyBanc Capital Markets

I guess I was thinking about that in terms of the new heat treat line in Lorraine.

John P. Surma

Yeah.

Mark Parr – KeyBanc Capital Markets

And was that really put there to enhance your capacity for offshore?

John P. Surma

Yeah, it would be a more of the onshore markets. It’s a smaller diameter heat treat.

Mark Parr – KeyBanc Capital Markets

Okay.

John P. Surma

We have a large diameter heat treat that would put it in Lorraine in 2001 or something kind of I remember right so.

Mark Parr – KeyBanc Capital Markets

Okay.

John P. Surma

So that the new number six Q and T was really aimed at the 4.5, 5.5 zone lot of the onshore casing uses now.

Mark Parr – KeyBanc Capital Markets

Yeah, all right. One other questions if I could as far as the – I just getting it up data on advanced high strength steel. And how does the ProTech thing, I know you may have mentioned this, or may have missed it, but how is ProTech expansion coming along and any color that you want to give on kind of this ongoing discussion between steel and aluminum for the body and light?

John P. Surma

Well, I don’t think we mentioned it Mark and just for the record of the discussion between us. It’s not between us and the material you mentioned, between us and the customers and we’re doing really well with that discussion. I think we should have updated you on that side. And we’re making good progress the near lines ProTech in Ohio, we are doing coal commissioning now. I think we actually have some of the furnishes lift to began factory dryout and getting that ready.

I think the entry reals have coils on them, and we’re working through the control systems there. I think there maybe as far as the well if I have it right last report that I saw. And get into we’ll actually have a core going through the system at some point in the next month or two and actually expect to have products coming off sometime in the spring. And so we look forward to getting up to speed as quickly as we can. We’ve had a lot of customers that are already involved in discussions about that. We think it’s an excellent answer to automakers who want to maintain the kind of strength and liability and elongation formability that steel provides with all the manufacturing benefits goes with that, magnetic handling and all those seems goes with it all that credibility, but also given a really good way to this.

So we think this is a really great product, it’s going to allow a lot of customers to achieve a lot of the way, savings they want, but maintaining many of the benefits that steel has among them are really good value, as well as a way lower carbon footprints if you look at the total life cycle than any of the other material. So we just think it’s a great answer, that’s a long speech Mark, I’m sorry but it’s one I like to give and we’re excited to have the plant almost done. We look forward to having it running later in the year.

Mark Parr – KeyBanc Capital Markets

Just one follow-up if I could ask on that. I mean, are the economics compelling enough that you can really get a premium for the incremental value you are adding upfront?

John P. Surma

Well, I guess I would say at this point Mark, we have a lot of capital invested here, this is going to be a premium product, and we expect to have a return on our capital, we think that’s only fair, and we think there is enough value creation here that our customers can get a really, really good value particularly comparison to other materials and still leave some for us to have a good return on our investment.

We think we are in a good place here and our customer should be able to benefit, because this is a really first-class product with great strength capability, great elongation capabilities, and something is going to make their job to maintain really inconsistent virtues of lightweight and high strength and safety, that’s a hard thing to do and we think that let them do it.

Mark Parr – KeyBanc Capital Markets

Well, I apologize for calling the less dense material by name….

John P. Surma

That’s okay. You’re allowed to, it’s okay. We don’t mind, it’s okay.

Mark Parr – KeyBanc Capital Markets

All right, John. Good luck on the first quarter.

John P. Surma

Thanks, Mark. Thank you very much.

Operator

And we have no more questions in queue.

Paul Malcolmson

Thank you, Mary. We certainly appreciate everybody joining us today, like John said, probably very busy day for everybody.

John P. Surma

Thank you all.

Paul Malcolmson

And we certainly look forward to you joining us again next quarter. Thank you.

Operator

Thank you. Ladies and gentlemen this conference will be available for replay today, after 5:30 p.m. Eastern Time through February 5, at midnight. You may access the AT&T TeleConference replay system at any time by dialing 1-320-365-3844 and entering the access code 277533. Those numbers again are 320-365-3844, the access code is 277533.

That concludes our conference for today. Thank you for your participation and for using AT&T Executive TeleConference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: United States Steel's CEO Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts