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

Steel Dynamics Inc. (NASDAQ:STLD)

Q2 2009 Earnings Call

July 23, 2009 09:30 AM ET

Executives

Fred Warner - Investor Relations Manager

Keith Busse - Chairman and Chief Executive Officer

Theresa Wagler - Vice President and Chief Financial Officer

Richard Teets, Jr. - President and Chief Operating Officer - Steel Operations

Mark Millett - President and Chief Operating Officer - OmniSource Corporation

Gary Heasley - Executive Vice President for Strategic Planning and Business Development

Analysts

Michelle Applebaum - Michelle Applebaum Research

Luke Folta - Longbow Research

Sal Tharani - Goldman Sachs

Timna Tanners - UBS

Charles Bradford - Affiliated Research Group

Mark Parr - KeyBanc Capital Markets

Kuni Chen - BAS-ML

Anthony Rizzuto - Dahlman Rose & Co.

Brian Yu - Citigroup

Brett Levy - Jefferies & Co.

Operator

Good day everyone and welcome to today's Steel Dynamics Second Quarter 2009 Earnings Call. Today's conference is being recorded. Joining us today are Keith Busse, Chairman and Chief Executive Officer; Richard Teets, President and Chief Operating Officer - Steel Operations; Mark Millett, President and Chief Operating Officer - OmniSource Corporation; Gary Heasley, Executive Vice President; Theresa Wagler, Chief Financial Officer, Fred Warner, Manager of Investor Relations.

For opening remarks I will now turn the call over to Mr. Fred Warner. Please go ahead sir.

Fred Warner

Good morning and welcome to today's Steel Dynamics conference call being webcast today July 23, 2009 from Fort Wayne, Indiana. A replay of this call can heard and downloaded at the -- from our website later at www.steeldynamics.com.

Today's management discussion may include various forward-looking statements. All statements regarding anticipated future results or expectations are intended to be forward-looking statements within the meaning the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements [Technical Difficulty] historical facts are often preceded by such words as believe, anticipate, estimate, expect or other conditional words and are not intended as guarantees of future performance. We caution that actual future results and events may differ materially from such forward-looking statements or projections that we make today.

Some factors that could cause actual results to differ include general economic conditions, governmental monetary or fiscal policy, industrial production levels, changes in market supply and demand for our products, foreign imports conditions in the credit market, price and availability of scrap and another raw materials, litigation outcomes and equipment failures.

You may see -- you may obtain additional information concerning a variety of factors and risks that could cause actual results to differ materially from today's forward-looking statements by referring to the forward-looking statements in risk factors sections of our most recent Annual Report on Form 10-K or in our quarterly reports on Form 10-Q as filed with the Securities & Exchange Commission as well as in other reports we file from time-to-time with the Commission.

These reports are publicly available on the SEC website and on our website steeldynamics.com. After today's management discussion, we'll open the call for questions from participants, who have informed us that if they may wish to ask questions we will begin today's call now with introductory remarks by our Chairman and Chief Executive Officer, Keith Busse.

Keith Busse

Good morning ladies and gentlemen. Thank you for joining us this morning and giving us an opportunity to give you our business results update. I'm sure you all of you have read the press release. Our loss per share was $0.0.8 during the quarter, which is about $0.02 better than the bottom side of what we had indicated, due largely to the fact that we had we had income tax credits that the changed the income tax rate and benefited the company.

Net losses for the second quarter monetarily was $16 million compared to net losses of $88 million in the first quarter. A significant difference. But when you compare it to the first quarter and when you compare it to the second quarter of 2008, a significant decline. As you as all of you know, during the quarter we redid our credit arrangements with banks and issued some equity and I won't go through that in detail, but only say that the weighted average increase of shares outstanding was offset by certain unrelated transaction expenses of approximately $3.5 million.

Net sales of the quarter were 792 million, 3% lower than net sales of 815 million in the first quarter of 2009. I think this obviously speaks to pricing and not to volume. Volume was actually up, but pricing continued to deteriorate late first quarter and early first quarter, thus yielding these results. The few shipments in the quarter were 886,000 tons, better than the first quarter 700,000 approximate tons shipped.

The SDI's average steel selling price for the second quarter declined $126 a ton and the average scrap cost declined $79 per ton. So, you'd wonder why you would have better results when you we're seemingly losing margin and I think this will again speaks to both to volume and speaks to the enormous cost control initiatives implemented by the company and its employees.

I think it’s also important to note that the company's steel operations significant, the steel operations produced an operating profit of $36 million, but also had a pretax operating income as well during the quarter. So the shining star was Flat Roll, and Structural and Rail results lagged behind, and that in Structural and Rail arena we only shipped about 25% of our current capacity underlined the word or underscored current.

I think these results, they came very close to a pretax profit, but fell just short, and I think a lot of that had to do with much of the experimentation during the quarter and perfecting the art of producing rail blooms and rolling successful rail blooms. We had some quality issues, and had some write-offs that we had to within that quarter. Had we not had them we would've achieved pretax income as well even at 25% of our capacity.

And we are very pleased as we said in the report to report that on OmniSource generated operating income for the quarter May and June offsetting April losses. They not only had an operating profit, the segment had an operating profit, Omni specifically had an operating profit; and kudos to Mark's team because they actually have a small pretax income in the quarter as well. Something we didn't believe early in the quarter that we could achieve but I think again its team has done this job and had very positive results during the quarter.

Scrap result, you know went up last month anywhere from 40 to $70 depending on what we were dealing with obsolete grades or prime grades and had an increase in the month before as well. Mark and I may or may not follow (ph) the trends that may have been talked about it. My take on where we're going from here and we all have short windows of visibility is that scrap is likely to grow sideways for the delivery in the month of August. It could actually be down slightly in the month of August.

Where it's going to go after that really depends to a large extent on business conditions, flows are improving as we said in the report, we believe OmniSource will be profitable for the full year. Our fabricating operations the New Millennium Building Systems as I said continues to face very stiff headwinds as the non-residential building construction market remains very weak. And in fabrication we basically broke even during the quarter.

Talking a little bit business conditions and backlogs, we still see order entry being very strong in Flat roll. We're now moving into the month of September and about ready to -- we have orders for September. They're officially off of the books and we're about to do that. But strong flows, strong order entry remains in the Flat roll segment of our business and has not abated at this point in time. We've seen just marginal improvement in structural, not meaningful but a better trend line but not meaningful volume. Setting (ph) in small shapes at Roanoke, have improved. And we believe the operating rate at Roanoke may well approach 70% during the quarter. We're hopeful that it will.

Business conditions in steel West Virginia have recently improved and they should operate little stronger in the third quarter than they perhaps did in the first and second quarter this year. And I think Tim and his team done a very good job in the face very adverse conditions that exist in their marketplace. As with regards, construction about steels, we've had marginal improvement there but would suggest that the SP2 division will probably remain in the 50s for an operating rate or in that area, that it will not achieve a higher operating rate in the third quarter.

As we noted with Flat Roll, with strong hope we are running at near capacity and plan to do so in the foreseeable future. So we see, being able to maintain fairly flow operating rate in July, August and we believe all of our entry will remain fairly strong for the remainder of this quarter at least and should produce some fairly significant results there.

Our mills are in terrific shape. Our recycling yards are in great shape and our fabricating operations are also in good shape. All of them are ready for any surge in business activity when they come.

While we believe that Flat Roll, the business conditions will remain healthy in the near term, we have only seen that as we set margin improvement in long products and we have yet to see any real signs of improvement in the construction, and the marketplace.

Based on our view finder at this point of time or our view of the world at this point in time, we suggested that in the third quarter, our earnings and earnings not losses really good to say that again; we've had a couple of bad quarters really related a lot mark-to-market revaluation of inventories, business conditions, low volumes, low selling values.

I think we have hit the bottom and we are going to start to rebound in almost every segment. Even though the long products segment may remain weaker for certain time, tied to construction environment, but I do think that we've reached bottom of destocking and we're in a period where the -- specially in the automotive mainly where I think we suggest that the fixed inventories in General Motors and Chrysler weakened substantially, and they're in the process of rebuilding that pipeline, service centers are in the process of climbing off the bottom that they may have -- their inventories may have dipped too far inline of slightly improved business conditions.

So I think from a service center perspective I believe that they will now order steel at the same rate that they're going to consume it and or ship it, which would be at better operating rates for the industry in general just based on that result alone. As I said I think our range in the third quarter we expect earnings in the range $0.10 to $0.20 for quarter. I do not look for this number to deteriorate, as we update guidance in September and it could slightly improve.

With that brief report and concise report, I'd now like to turn this over to Theresa Wagler, give her an opportunity to speak to other elements of our financial results as she does each in each and every quarter.

Theresa Wagler

Thank you Keith. Good morning everyone. I'd like to talk just a little bit about the enhancement that we made to the capital structure in June, through the joint insurance of common stock and convertible notes. We issued 31,050,000 of common stock at a public offering price of $13.15. And we issued convertible securities at 508% due 2014, of 287.5 million. The conversion premium was 30% and the underlying shares are attributed to that offering are just a little bit under 16.4 million shares.

And that proceeds raised were just over 675 million of which we used 550 million to prepay our term loan and we also reduced our revolver during the quarter by 117 million through the excess net proceeds. In connection with that as Keith mentioned earlier we had additional expense in the quarter of about $3.5 million related to write-off of financing cost and the unwind of an interest rate swap.

In addition during June, we amended our senior secured credit agreement to offer greater financial covenant flexibility, for not only to reminder of 2009 but actually throughout 2010. Our total debt leverage covenant was actually suspended through December 31, of 2010 and in this place we instituted a first lean leverage. Now the maximum amount on that is 2.5 times and then it steps up actually to three times at December 2010. At the end of the second quarter that calculation was 0.28 times. And way you should consider that is the revolver is our first lean outstanding balances plus about 25 to 30 million of LC's and other secured debt.

We also modified our interest coverage financial covenant. It was two times, now it's 1.25 times and -- that upto 2.25 times. And in addition we engaged the borrowing base attached to revolver. It's 85% of our accounts receivable and 65% of our inventory. At the end of June that would have allowed for about $773 million worth of the borrowing on our $874 million revolver.

During the quarter, we reduced our debt by $370 million and we improved our debt to equity capitalization from 62% at the end of the first quarter to now 53% and we expect that to improve throughout the remainder of 2009. We also improved our liquidity to just over $650 million and now our debt maturities are actually just few million dollars a year until 2012 at which point our revolver will be resilient (ph) and we'll have 700 million of senior notes become due.

We have 215 million outstanding shares at the end of the quarter and from a working capital perspective we reduced working capital to $33 million during the quarter. Trade receivables remain relatively flat, approximately 92% are current or less than 60 days past due. And our inventories decreased 95 million. That 95 million was predominately between finished goods at our steel operations. And at our steel operations. And the scrap was mostly related to volume, volume reductions and most significantly at the Flat roll mill due to the increased production.

Capital that we invested during the quarter was about $73 million and over 73% of that was related to our project in Minnesota for the nugget manufacturing facility. For the remainder of 2009 we expect to spend between 150 and $175 million in additional capital expenditures. Over 70% of that -- or about 100 million of that would be anticipated to be used at the Minnesota project for the both completion of the nugget plant and the continuation of mining facilities.

The effective tax rate as Keith mentioned earlier did change during the quarter. It was 48.4%. On a go-forward basis we expect it to be 41.3% and that was related to lower earnings and the fact that we actually have to provide FIN-48 or what we call uncertain tax exposures for the year. We also had $126 million federal and state income tax receivable. During the second half of 2009, we should have received about a 25 million of that back in cash and then the remainder would be reduction in expense or cash paid back to us during 2010

Interests rate on a gross basis was $42 million during the quarter, but you need to take into the consideration about 2 million of that was the write-off of the financing costs during the quarter and the effective interest rate was 6%. Capitalized interest on construction projects was 4.6 million and I would model anywhere between 35 and 40 million probably closer to 35 million on a quarterly basis for a net interest expense for the remainder of 2009, and if you're looking at depreciation and amortization I would model approximately 55 million per quarter

And then finally on this comment, I know many of you track the Flat Roll shipment by product type. During the quarter we had hot roll shipments of 150,000 tones taken in oils of 42,000 tones, cold rolled of 45,000 tones, hot-roll galvanized at 78,000 tones cold-roll galvanized at 57,000 tones, painted products of 56,000 tones and Galvalume of 27,000 tones for a total of 450,000 -- 455,000tones tonnes of Flat Roll shipments. Keith.

Keith Busse

Theresa thank you for this excellent report. Dick over to you next and want you to talk about steel operations.

Richard Teets, Jr.

Thank you Keith, good morning. Steel operations continues to improve our safety efforts that help go for the performances and above transportation department is down by five years without lost time and accident. Congratulations. Capital results gone over one year with no recordable and the tax also had a no recordable performance in the second quarter.

Also Pittsboro has been another quarter well through the quarter. Approximate operating rates as Keith mentioned with the mills in the second quarter with Flat roll is 66% and as he mentioned are fully booked for August with a little bit over opening for some hot-bands but not much.

And also the capacity is fully booked for August. The structural mill as I said is operating at 25% a little sign of improvement, SPQ and the merchants of Pittsboro was above 40% a little more than that and with certain product improvements describing oil media and so forth. And merchant borrows at real note 52 to 65% were holding steady. Actually our new bookings were that we've had since July 2008. And I know one month doesn't make it, but it's a positive sign. And also stimulus continues operative lower levels due to the pressed go-to-end markets, but is optimistic for the second half of the year.

Like I said at Pittsboro, the new products especially that's now offering 20 new sizes. Less than two inches in rounds and still West Virginia has had large spreads to their product list. Of course half of projects go to explain little more about it's recent initiatives, few operations we continue to focus.

Our priorities through safety, quality and cost reduction efforts at Columbia city. Oh I'm sorry about early of finished the last of the four that have been extended at the hype to further improve our productivity and efficiency. Columbia city work continues although slow with the steel debt going on the cash, along with the structure of the bill also is seen the structured steel and steel being fabricated at the Pittsboro chart building at facility. Pittsboro is upgraded to de-scaling systems for the enrolling now has being completed. (inaudible) all the support continues for the final hook up in the new house, last year steel West Virginia the installation in the new number rolling mill straight-rod is going well with completion scheduled for August.

Finally I'd like to report that we negotiated a successful a new five year labor agreement in steel West Virginia, congratulation to everybody. And I'd like to thanks all our employees for the safe performance, of there jobs and positive attitude in these challenging times. Keith.

Keith Busse

Thanks Dick. Before we turn to Mark and the recycling segment of our business raw materials segment of business I'd like to mention as I said earlier we talked about excellent efforts that our employees have made in cost reduction. I might report to you that from headcount perspective based on shuttered operations and fabrications and the loss of people throughout the system for a variety of reasons, voluntary resignations and headcount reductions and a right sizing effort from a business, our employee count is a graph from -- in the fall last year perhaps is highest 6800, 6850 people down to 5800 people. So we have reduced the employee headcount throughout the system by about 1000 employees which is pretty significant and most of those reductions are probably going to be permanent.

With that said I'll turn it over to Mark. I want to remind everyone that when we talk about that segment of our business OmniSource is the main operating unit within that segment, are in dynamics is producing on a regular basis as we've noted in every quarter and Mesabi Nugget makes up the third leg of that business unit that Mark's responsible for and he'll speak to where we are in the process of start up there. Mark please.

Mark Millett

Good morning. I too would like to applaud each and everyone of the OmniSource team to an absolutely phenomenal quarter, because I believe we will be the point one of the very few, if not the only one organization being posted operating earnings in this sector.

This quarters 9 million operating profit was a stark contrast to the $6 million operating loss in the first quarter of this year, ferrous shipments increased 15% from 730,000 net tones, to 840,000 net tones quarter-on-quarter; driven principally by improved steel mill operating rates. Our of ferric business first gross margins improved as transaction process appreciated and lower cost inventory fell through the system.

Nonferrous shipments dropped slightly from a 119 million pounds to 170 million pounds the drop of 20 million pounds in total shipments related principally to lower shipments from our superior aluminum business. Actually high and 11% increase in flows through the other non-ferrous businesses. And with strengthening market driven principally by demand from China, the nonferrous team executed extremely well and margins were substantially higher through the quarter.

Our posted financial performance I believe was also driven by cost containment efforts expanded throughout the organization. Right sizing the organization was completely through the quarter with a reduction in the OmniSource organization 660 employees. That took us from about 3100 employees at the height of summer last year, than to roughly 2460 employees today.

Quarterly operating expenses and $25 million a quarter in the beginning of the. As Keith addressed both the ferrous and nonferrous markets remain unpredictable, in ferrous both supply and demand dynamics continued to change. Obsolete flows are exhibiting the typical seasonal increase while industrial flow of primary scrap remains very weak as the domestic manufacturing base continues to flounder.

If the lease startups and facilities prime flow should increase over the months ahead. Additionally although difficult to quantify the recent approval of cash for clunkers, that initiative should prove beneficial. Potentially improving supply demand that could be offset to some degree or all by greater the potential of the met. Steel mill utilization has been picking up with expectation of additional immigrated capacity coming on screen

And although recent pricing levels of export demand, exports remained a wild card. So in aggregate, there appears to be no specific trend, any firm speculation of market directions are difficult I'll agree with Keith, that its got status closed to high ways to up little down, we don't see any strong direction at least in the near term.

Nonferrous markets strictly difficult, strong presence of China in our markets has softened to some degree around a greater availability scraped, a higher flows rush particularly in copper and increase metal spreads, placing there is also has been increasing particularly in aluminum and metal.

Positive note, I think for us in these tough times is the financial help and ability to provide excellent service is allowing us to capture more industrial cash that will increase our market share as the economy rebounded.

The team there is also executing extremely well through tough times. Despite to that, only lower shipments, we ship the 46,000 tons in Q2 versus 62,000 tons in Q1 as principally due to belt of sheet mills reduced operating rate. The even despite that the financial performance improved from a loss of 3.9 million down to a loss of 3.4 million. I believe there seem to be incredible job, there's been some dramatic improvement in operating costs particularly in feedstock, atomization of feed materials and a dramatic boost in that reduction in our software which is quite on incredible.

So now you look construction progress continues to do well as through the facility as a very, very well engineered plan it's the quality of installation is extremely good, and we are still on target for heat up for the factory of the November with nuggets following shortly thereafter in December. In conclusion I think the platform on the first resources and at recycling side is well positioned for the markets. Over to Keith.

Keith Busse

Thank you. Here to talk now is Gary.

Gary Heasley

Thank you. The team know a great job of pushing down costs and reducing exposure to high cost steel and what not. As between shipments 35,000 tons -- I'm sorry, shipments were 35,000 tones down to 53% in quarter two and 2008 and sales were 37 million down 6% at the impact of cost reductions and the pipe closures have offset at the decline in sales allowing generate a break even position for the quarter.

In spite of dramatic decline in sales nationwide, cumulative maintained market share in a tough competitive environment, we're seeing shipments that's nationwide off about 70% in the peaks 2006 and '07. I would say efficient choice in with the joint steel plant in the country, and I think well positioned to compete for market share in the difficult market that we see today. As we look forward we see predictions for non-residential construction remaining weak throughout 2009 and into 2010. So the focus that Steel has had on cost reductions on being efficient and running plans will continue and I think we will continue to grow share using our cost position to achieve greater market position for the company.

So in closing the teams have a done great job of, of course forcing that cost and maintaining customer service and look forward to more of that as we move forward. Keith.

Keith Busse

Thanks Gary. Karen I think we are ready for the Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We'll take our first question from Michelle Applebaum with Michelle Applebaum Research.

Michelle Applebaum - Michelle Applebaum Research

Hi Good morning

Keith Busse

Morning

Michelle Applebaum - Michelle Applebaum Research

Nice to hear some good news for a change.

Keith Busse

Have some.

Michelle Applebaum - Michelle Applebaum Research

Yeah. Can you please -- two questions; the first question is accounting question, you had $0.06 gain on your hedging contract in the first quarter and I think you expected another one later this year, was there a similar $0.06 gain for the second quarter?

Theresa Wagler

Michelle the unrealized hedging gains specifically related to copper during the second quarter were about $12 million free cash.

Michelle Applebaum - Michelle Applebaum Research

Okay, and was there anything else unusual in the quarter that may not have made the press release?

Theresa Wagler

No, I guess wouldn't call that unusual later

Michelle Applebaum - Michelle Applebaum Research

You wouldn't?

Theresa Wagler

No

Michelle Applebaum - Michelle Applebaum Research

Will you have that again in the third and fourth quarters as well?

Theresa Wagler

Well again last year we had a 35 to $36 million I believe loss related to hedging. And so that will be recovered throughout the year so if we have...

Michelle Applebaum - Michelle Applebaum Research

Right

Theresa Wagler

18 billion in the first quarter

Michelle Applebaum - Michelle Applebaum Research

Right

Theresa Wagler

Now we have 12 that

Michelle Applebaum - Michelle Applebaum Research

Right

Theresa Wagler

1 million and you would expect to get that 4 or 5 million back some time throughout the second quarter.

Michelle Applebaum - Michelle Applebaum Research

Right, but when you did it -- when you had the charge in the fourth quarter it was in the first paragraph of the press release, but it wasn't in the press release in the first quarter and its not in the press release in the second quarter and so I am just trying to determine if this is an ongoing thing or is it unusual?

Keith Busse

It is Michelle. Its unwinding and...

Michelle Applebaum - Michelle Applebaum Research

Right, right.

Keith Busse

Its varying at ends, whether its ends into the third quarter or the fourth it will end this year.

Michelle Applebaum - Michelle Applebaum Research

Okay but it's a few pennies less, and then if we..

Keith Busse

You have to understand we bake all that into our projections.

Michelle Applebaum - Michelle Applebaum Research

Oh, right I know I won't take it out. Its very clear. I was just trying to find out the magnitude because if it wasn't in there and it would be next quarter then it would have a difference. Yeah I know that your guidance assumed that $0.06 gain, and I'm very aware about. Should we expect to see again in the fourth quarter another big charge the way we did last year first quarter?

Theresa Wagler

Michelle, hedging is actually a part of, how we try and mitigate the risk exposure we have our trap operations because they are commodity space. And so, its part of an ongoing operations. The reason there was a loss in the fourth quarter is because we had extended position, as our copper markets were falling very, very, very quickly as everyone is aware. So, we don't expect that no, but for subject to the volatility of the markets that we're trying to predict our cash in our margins versus just the sales dollar. I can't speak to that

Keith Busse

And then Mark and his team, actually they've revamped the way they look at hedging and I think have a better game plan going forward.

Michelle Applebaum - Michelle Applebaum Research

Okay, yeah Omni is not a -- given that it was prior, but before you bought it, not a company I have a lot of familiarity with and so I'm asking these questions, because its kind of new in your mix as the quarters fall out. So it's interesting. So you would expect less hedging, less of this kind of impact. And also in terms of the market you were in your comments and guidance you seemed more hedged than I would have expected in terms of the outlook for Flat Roll. Is that just a matter of having been shell-shocked by the whole market the last nine months or do you have reasons why you think the market may not hold up in the summer on the Flat Roll side, are you just been conservative?

Keith Busse

I think I said that we expect to operate at near capacity which will offset the lower operating rates we're experiencing in the long products field. So I think the earning there will deliver this significant difference from a $0.10 loss to as wide as $0.20 gain I think as I'd expect to see any deterioration of our forecast numbers when we update guidance may be could a little higher too early to predict that, but I think it's a pretty reasonable move from quarter-to-quarter.

Michelle Applebaum - Michelle Applebaum Research

Oh, yeah that's terrific I mean I'm excited to see the process. So listen, great job in a very rough environment and thanks for the accounting lesson Theresa I appreciate that, I don't have a lot of experience with hedging.

Keith Busse

Michelle

Michelle Applebaum - Michelle Applebaum Research

Yes.

Keith Busse

Just one comment on hedging, you also have to bear in mind a little the -- as you unwind the contracts you've got to look at the realize the gain or losses at the same time. And so in the second quarter although unrealized gain was 12 million as we unwind the contracts and you balance out everything, it was a realized loss of 10. So it actually impacted the bottom-line through the hedging, was a couple of million bucks. So you can't say -- you can't just conclude that the hedging alone improved our posture greatly.

Michelle Applebaum - Michelle Applebaum Research

We're going to have to finish this off line, where I get confused is that if you have this $0.12 in the fourth quarter that you told us to have add to your results then it would theoretically come out somewhere later on. So I expect to see balance here so, but we can finish it off line.

Keith Busse

That's fine.

Michelle Applebaum - Michelle Applebaum Research

Okay thanks

Keith Busse

Thank you

Operator

Our next question comes from Luke Folta with Longbow Research.

Luke Folta - Longbow Research

Hi good morning guys

Keith Busse

Good morning

Luke Folta - Longbow Research

Just a quick question on the Flat Roll side, it seems pretty obvious you guys are gaining share in this business. Do you think this is a function of your customer mix or is there some strategy you're employing in this business and do you think that's sustainable once the integrate capacity transplants back online over that couple of months?

Keith Busse

Well some of that Luke, could actually be related to our ability to amongst notice. And we hope that the color of our products continues to improve the product offerings that we offer to the marketplace continues to expand. So hopefully we have good service along with good quality. We are gaining market share -- we are intentioned to gaining market share. As to are we really or aren't we really, I don't really know. It's an assumption I think we all have to make at this point.

Luke Folta - Longbow Research

Okay and then just on the recycling side, can you give us a little more color on your outlook as far as -- are you suggesting that the metal's recycling business as a whole be profitable in the second half?

Keith Busse

The metals well, the OmniSource component of that segment will be profitable in the second half as we suggested will be profitable for the year. The segment is different, the segment contains iron dynamics which will lose money throughout the year because of the low transfer values of that product in relation to it's cost structure. And that it supplies its products to SDI at market.

And market isn't that brisk at this point in time. Mesabi Nugget is just start up operation and will continue to generate some losses throughout the remainder year. But Omni will not only be profitable in the second half it will be profitable for the year.

Luke Folta - Longbow Research

All right, but .....

Keith Busse

This is our forecast.

Luke Folta - Longbow Research

I will turn it over thanks.

Operator

Next we'll go to Sal Tharani with Goldman Sachs.

Sal Tharani - Goldman Sachs

Good morning guys.

Keith Busse

Hey Sal.

Sal Tharani - Goldman Sachs

Just wanted to first confirm the utilization rates at Butler. Are you using the new utilization -- new capacity of 3 million or is it at 2.8, 2.7 and also at Columbia, are you adding the new capacity which you brought in last year in your utilization rate numbers?

Keith Busse

I don't know what BIPs using, I think we're on the same -- we're using something very close to 3 million.

Richard Teets, Jr.

Yeah right.

Sal Tharani - Goldman Sachs

Okay.

Keith Busse

At Columbia city it's -- I think we're measuring at this year against a million and a half. We're not going to get -- not going to see a lot of progress on the medium section without an order book. So its -- we've set our capabilities there we'd probably be given the lack of practice stability to adapt on all products. Because of a lack of demand for those types of products in general. We felt the fair number would be a million and a half tons, increasing into and perhaps next year will this modify million because I think we are becoming rather accomplished at this point in time. And therefore 1.8 million might be a good number for next year but before using a million and half for sure.

Sal Tharani - Goldman Sachs

Okay thanks and you said that I believe you have said in the press release that you were actually profitable at the beam business even at 25% utilization rate?

Keith Busse

At the operating level, yes.

Sal Tharani - Goldman Sachs

Okay

Keith Busse

We were just having pre tax income by a little bit but we expect in the third quarter it could be profitable not only through operating perspective but even from a pre tax perspective at very low operating rates.

Sal Tharani - Goldman Sachs

Here's a just a little color if your operating rates double I mean that would be a huge profitability in this business because being profitable at 25% is really incredible?

Keith Busse

It would have a significant positive impact.

Sal Tharani - Goldman Sachs

Okay.

Keith Busse

I'll stay away from the word huge.

Sal Tharani - Goldman Sachs

Okay a couple of more things on share count, can you give us idea what kind of share count to use at the if all of them will be included this time all 31 million?

Theresa Wagler

Yeah. It will be Sal. The way to look at it is it will be -- the out is about 250 and that includes the 31 million. So you would use that one third quarter. And then in addition if we're -- because we anticipate making money you now need to look at the dilution factor of the stock options and the convertible notes as well.

Sal Tharani - Goldman Sachs

And your $0.10 to $0.20 includes all kinds of these options in there?

Theresa Wagler

That's correct.

Sal Tharani - Goldman Sachs

So, it means that you on operating level its going to be even much better than the EPS reversal from minus 10 to plus 10-20, since the average dilution of 12 to 15% in the EPS line?

Keith Busse

We have a dilution from the converts that we'll have to recognize as Theresa said in the third quarter given a profit for third quarter. But I think if we were on the same wavelength there Sal.

Sal Tharani - Goldman Sachs

Thank you very much.

Operator

Next will go to UBS's Timna Tanners.

Timna Tanners - UBS

Hi Good morning.

Keith Busse

Morning.

Timna Tanners - UBS

You've been very through so just a couple questions really if you could remind us what you think your exposure is to auto industry roughly and specifically on SPQ wondering why such a muted outlook give the exposure generally to auto industry?

Keith Busse

I don't think an SPQ we're all that exposed for the auto industry. We're more exposed to heavy construction markets like Caterpillar and John Deer and forging markets and things of that nature. Obviously being able to run smaller sizes with any kind of great success, would give us more exposure to the automobile and truck community but I doubt. I don't think it's that significant of exposure for us at this point of time. The other part of your question Timna was...?

Timna Tanners - UBS

Oh just overall auto exposure with the entire company.

Keith Busse

I don't think its -- its changed a lot. There's obviously little to no exposure, no exposure would be the correct term for most long products other than SPQ. And in Flat Roll we always said that we -- its hard to tell because we sell a lot of our products service center community and not a lot to OEM's but we've always said we believe considering the truck marketplace.

Timna Tanners - UBS

Right.

Keith Busse

As well as the car market place to collectively work probably somewhere between who knows 20 and 30% I mean its just a guess may be the high 20's.

Timna Tanners - UBS

Overall

Keith Busse

And that should be approving -- I think all of the suppliers have started to see better order entry because the pipelines emptied out to a great degree, a lot of that business activity is probably covered by the new domestics or the transplants but I think Chrysler and General Motors do make some very fine products that are fairly heavy in demand and therefore we should be rewarded and we have good positions in that arena. So I know John's order book at and steel is picking up and he's largely tied automotive and that should at the same time help SDI.

Timna Tanners - UBS

Okay, so just to clarify high 20% is overall company or just within Flat Rolls ?

Keith Busse

Just within Flat Rolls.

Timna Tanners - UBS

Got you. Okay and then the other question I want to ask was actually running full out to me it seems to indicate a lot confidence in the Flat Roll market and I was wondering it seems like there was some comments that indicated it was more than just end of destocking or restocking? Can you talk about the underlying demand evidence that you are seeing that gives you the confidence in the Flat Roll space please?

Keith Busse

Timna it just really order entry, we're riding against the book of business that we've haven't seen for a long time and so I said we think a lot of that is destocking related, refilling pipelines and other arenas in addition to the automobile community. But right now we're out into September, we haven't even opened the books for September we've a backlog of business specially in value added, that will go into September and with the expected order entry a positive, a pick-up in our record. And we think our Flat Roll will probably fill rather rapidly as well. So we're just forecasting our run rate against our backlog. Its all full demand in July August September and we have good deal capability we'll run it -- we'll deliver it I can't see out as far as October.

Timna Tanners - UBS

Got that okay

Keith Busse

So, we are not trying to forecast that it's going to fall into the EBIT of the fourth quarter. But I don't know that is that the rest of the of the sectors beyond automobiles, beyond the automobile deal we'll continue to pick up all that strongly. In this part of that book, you ask how much just depended in the Flat Roll and Flat Roll business. How much of it is automotive related we said iconic, remember about 30% of it is construction related as well. And that marketplace is really in attack (ph) and until we see some moment there, till we give some more confidence. It's hard to predict that the degree in we can maintain this kind of strength in Flat Roll.

Timna Tanners - UBS

Fine. And then finally any evidence of infrastructure stimulus demand in any of your products?

Keith Busse

No evidence in that but to tag onto Mark's comment about cash and clunkers. I do think whether we believe it's a one time or one year or a two year event I think will probably move a few more automobiles and I think that's probably a good thing because as Chrysler and General Motors go back to work the natural tendency when the pipe is empty is to build more cars that are actually been consumed. And the cash and clunkers could modify that equation and hopefully the two could be in a better balance. Because you'd hate to see a situation where the pipe fills up by October, November and the third shift gets laid off again so to speak. But I think cash and clunkers might be short term helpful for everyone.

Timna Tanners - UBS

Okay, thanks very much.

Operator

Our next question comes Charles Bradford with Affiliated Research Group.

Charles Bradford - Affiliated Research Group

Good morning.

Keith Busse

Hi Chuck.

Charles Bradford - Affiliated Research Group

Couple of questions, first of all what's the status of the mining permits that you need up in Minnesota?

Keith Busse

Mark?

Mark Millett

The ongoing Chuck, the we were anticipating I think getting a permit at the end of this year, first quarter or next year I would imagine of that is going to get delayed a little bit but again it's ongoing.

Charles Bradford - Affiliated Research Group

If you were to get those permits by early next year could you have the mines going by the end of next year?

Mark Millett

We can have the mine going approximately 10 months probably after we get the permit -- 10 to 12 months.

Charles Bradford - Affiliated Research Group

Okay thank you. Another question, on metalla (ph) you talked about how you scrap cost keeping down $79 a ton which is a lot more then one of your competitors just reported. But you didn't give a figure on what your cost of usage was. Would it be fair to say it's closer to $200?

Keith Busse

Below that, Chuck can't we don't give out a specific number but it was below that.

Charles Bradford - Affiliated Research Group

Below that. Okay thank you very much.

Operator

Next we'll go to Mark Parr of KeyBanc Capital Markets.

Mark Parr - KeyBanc Capital Markets

Hey thanks. I am still am at same place its KeyBanc. Good morning everybody.

Keith Busse

Good morning Mark.

Mark Parr - KeyBanc Capital Markets

I'm not sure where that one came from. Keith, I wanted to follow on to some of the conversation that Chuck had. Could you give us and update on our concentrate contract for Mesabi and what sort of cost differential you might be looking at in the next year because of the changing metallic marketplace ?

Richard Teets, Jr.

Well for the first couple of years Mark we have anticipated also hedged up That perhaps that mind wouldn't come up right on time so we have got the contract and those contracts are mix. We had some old QCM with some contract any more. We had some QCM constraint delivered, last year's pricing, and we hope others material coming in on market basis.

Mark Parr - KeyBanc Capital Markets

Okay. So you by our market basis mean you are looking at buying concentrate on a spot basically on a spot relationship?

Richard Teets, Jr.

The relationships that we have our contract is supplying but it's in fact against the Canadian concentrate project.

Mark Parr - KeyBanc Capital Markets

Ok alright. Is that represent pretty much a 100% a year of your concentrate needs until you get the mine up and running?

Richard Teets, Jr.

Yes.

Mark Parr - KeyBanc Capital Markets

Okay. That's helpful.

Richard Teets, Jr.

And again, there's a mix, we have concentrate clients from several streams, we have some other concentrate coming in from a company called Magnetation, but is actually and concentrated from the -- and that is competitively priced.

Mark Parr - KeyBanc Capital Markets

Okay that's great. In terms of you IDI talked about your improvements in raw material cost and also I think Keith mentioned that had done a significant improvement in natural gas consumption. That being said IDI is going to continue to operate a better loss this year. Could you talk about a little bit about the difference in the cost of production IDI versus the pricing because it looks like you have mentioned significant progress on the cost side even though pricing is down?

Richard Teets, Jr.

Yeah.

Mark Parr - KeyBanc Capital Markets

How much is the cost mitigated the lower transfer pricing that you are getting?

Richard Teets, Jr.

Well the transfer price right now is roughly 350 bucks.

Keith Busse

That's for liquid iron now.

Richard Teets, Jr.

That's for liquid iron.

Keith Busse

Its not solid.

Mark Parr - KeyBanc Capital Markets

Right.

Richard Teets, Jr.

So there is a sort of a hot metal credit that can be around about $25 a tone. The pig iron market is appreciating a little and also probably we would have pig iron delivered today, it would be a little higher than 350. But a sort of a breakeven number is round about iron dynamics is about $400.

Mark Parr - KeyBanc Capital Markets

Okay, how's that changed from where you were say last year this time?

Richard Teets, Jr.

Last year this time was probably closer to 450.

Mark Parr - KeyBanc Capital Markets

I'm just trying to get a sense of, is most of that reduction just a function of raw material input cost or there been any structural improvements in the profitability of IDI that you've achieved.

Richard Teets, Jr.

Its all in the treating Dave and Steven's have done, we go back to two or three years ago when we were [Technical Difficulty]. Obviously the present production cost would be a hell of a lot higher. But that is solely recycling mill scale and other materials today. I'd say given two or three years back that is a structural change

Mark Parr - KeyBanc Capital Markets

Yeah

Richard Teets, Jr.

The reduction in natural gas again sometimes necessity is the mother of invention and some of the things that we've done last couple of months we've discovered some things perhaps that we should have done year or two, but nonetheless they are quite a good significant advance that will be with us going forward.

Mark Parr - KeyBanc Capital Markets

So its always -- could you give us -- just one last question on the raw material side, could you give an update on what's you're best estimate is as far as delivered cost to nuggets to Butler?

Richard Teets, Jr.

The cost in nuggets at Mesabi given a price for transfer the concentrate not the cost but the actual cost of concentrate. So, assuming that the mine gets a market transfer price.

Mark Parr - KeyBanc Capital Markets

Okay.

Richard Teets, Jr.

Around about $300.

Mark Parr - KeyBanc Capital Markets

And then to liquefy that what -- another $20?

Keith Busse

Well. That is hard to say Mark, it's not like iron dynamics see. Gets adjusted into the hard of the we have to look at back. So it wouldn't be 60 or 70 or $80. I don't know what the number would be.

Mark Parr - KeyBanc Capital Markets

Okay, but it's what you are looking at right now is about 300 bucks plus transfer ?

Richard Teets, Jr.

Yeah.

Mark Parr - KeyBanc Capital Markets

Okay terrific and one last question if I could. On for Omni could you talk a little bit about your export mix from a revenue standpoint? And then also where do you think that the reduction in head count and some of the cost reductions you've done, how has that changed the normal spread for the scrap business going forward? In terms of dollars per ton.

Richard Teets, Jr.

I -- on the export side I don't have that in front of me Mark. I can get that for you. We'll have that in the future. So I think that's the question I was asked last about. On the cost going forward as I said we are stripped down about $25 million a quarter, as to say Q3 of last year. Obviously our volumes is down all that will be would has guess that a good $15 million of that.

Mark Parr - KeyBanc Capital Markets

Okay. All right.

Keith Busse

Mark guys just some quick math. I think if Mark's price moves up $50 a ton because market good fortune moves to deliver price of pig iron at $50 then he starts to push back in the lack of iron dynamics.

Mark Parr - KeyBanc Capital Markets

Okay, thanks Keith, thank you very much and congratulations on the solid second quarter and the second half outlook.

Keith Busse

Thank you

Operator

Next we'll go to Kuni Chen with Bank of America.

Kuni Chen - BAS-ML

Hi good morning everybody.

Keith Busse

Morning

Kuni Chen - BAS-ML

I guess just start sort of can you just walk us through any major maintenance outages across your system that we should be thinking about this quarter. And then just perhaps give us break down of the Mesabi expenses that you expect to flow through in third and fourth quarters.

Keith Busse

Well at recent in the Mesabi expense in China. As for major dip in China end up but I think we are good repair and expect no major out in the third quarter we will have normal maintenance down turns in the fourth quarter usually in the October kind of time frame three to four days

Mark Millett

That's correct the only major outing will be as long at Roanoke installing the final high ends for backhouse. But we'll mitigate that exposure by reproducing the exposure required for the rolling mill. We won't see a reduction in the rolling or shipping aspects.

Kuni Chen - BAS-ML

Okay.

Keith Busse

Question was anticipated losses in third and fourth quarter related to nuggets

Theresa Wagler

Depending on the start off Kuni, we expect somewhere between 4 and $5 million of expense in the third quarter and probably five to six in the fourth quarter. That would be assuming the heating up of the RHF in the November time frame that Mark mentioned earlier.

Kuni Chen - BAS-ML

Okay. Great, and then just, just one follow up. OmniSource you certainly looks like your having some good cost improvements there and there are certainly head count reductions. What's, what are your plans as far as costs or efficiencies out of this business going forward from here, how much more can you wring out of the operations over the next year or so?

Keith Busse

I don't think there is much more to go. I don't want to speak for Mark but when you ring 90 million $95 million out of something on an annualized basis that is pretty darn significant relation to where the earnings posture of the company was part of that.

Mark Millett

Yeah again I don't think there is a huge demand to do that obviously as volume comes back, you might as well see some dramatic change.

Kuni Chen - BAS-ML

Right okay. And actually there is a one last question, its more of an industry question I mean if I look at the spread between being wiper and beam pricing and obsolete scrap kind of look at that spread over a long period of time 10 to 15. It's typically been sort of two to 300 per ton range but certainly recently even if the despite the weak environment we are in you had a pretty significant spread, what do you attribute to that is that just the fact that high base have been locked in or there are other factors kind of contributing to that spread staying in even it is slowing utilization rates.

Keith Busse

I think it's the lower utilization rates, the spread needs to grow to remain profitable because the cost structures climb dramatically on a per ton basis extract. So those spreads are necessary to achieve profitability, it doesn't mean they are going to stay there, can project future market activity. But certainly widening spread is not been disappointing to any of us because of a lot of us to hang in there kind of breakeven makes us well profit kind of level in that business.

Kuni Chen - BAS-ML

All right good enough. Thanks a lot.

Operator

Next we'll go to JP Morgan's Dave Kapp (ph).

Unidentified Analyst

I was hoping that you guys can talk a little about the inventory expectations, the strong drop up between first quarter and second quarter almost 100 million with the expectation I know you guys can't look that far but where you kind to see that go third quarter and then as third quarter goes through if you see demands stand stable. Where do you anticipate building inventories for the rest of the year?

Keith Busse

Well if demand should pick up in long products, we probably would still be just fine from an inventory perspective. But we are not either, we are not -- we don't have huge positions relative to scrap in the long products arena and the position we have in Flat Roll has been coming down rather rapidly and can be maintained at lower levels without jeopardizing this activity.

Theresa Wagler

Yeah, Dave I would look at inventories either a significant chores used or funded from that perspective given the rest of this year it's not what we're looking at currently.

Unidentified Analyst

Okay and then sorry if I misread earlier but you had said that you had reduced employed head count quite substantially and didn't just paid it building back up again?

Keith Busse

It could build a little bit Dave but it's not going to go back up to.

Unidentified Analyst

Right and would that be possible if over the longer term we did get back up to somewhere near where we before in terms of production?

Keith Busse

Well I think the, in fabrication the operating capability of the three facilities that we have

which are well positioned geographically East of the Pacific River (ph). Their capable ultimate capability is well beyond anything we've already realized. So, you could add a little liner or two here or there which would head back some head count that we certainly could be in good position to respond to any kind of market activity. I think in the Flat Roll we -- in all related business, where the head counts aren't found as much. We're pretty darn efficient at this point in time, and we may have found we could do with our soul here or body there but there isn't any ramp up really necessary to maintain the volumes.

Certainly in the recycling arena we just think that the more efficient business systems that the Mark and his team have developed and greater focus in certain areas has increased their capability to get the sales out of the door with fewer folks at the help. Mark maybe you can add to that.

Mark Millett

Again I don't with the and the way we do things I think we've streamlined the organization. We're combining two of our divisions mid-Ohio and Northern Ohio which allows some synergy. And just looking at the organization as a whole and just making sure that we're not doing that to any one. Obviously our employee count will grow to some degree in the yards as the flows come back come back to prior levels anywhere close to them.

Unidentified Analyst

Okay thanks very much

Operator

Next we have John Somoza with John Somoza's Day Independent Research. (ph)

Unidentified Analyst

Congratulations on all the improvements. With the tough conditions in heavy construction markets, the likelihood the health care and other things crowd out the infrastructure some money that may never be spent. Do you see a case which is not writing down, not impairing not permanently shutting down but taking a rolling mill or fabricating plan offline for two or three years given the extent of vacancies and commercial buildings?

Keith Busse

Well we already taken two fabricating plants offline, but I think our -- as it relates to the heavy construction market and it's impact on Pittsboro I think there are just pass at looking in new market opportunities and looking to further penetrate the market as the new player.

Roanoke has a pretty stable plant base and I think its going to do well, and in spite of our lack of stimulus, heavy infrastructure spending, Butler the same way structural would forecast look at new products feels get with we are starting to do a lot more channels, to looking at big angles, we are looking at other opportunities. So I don't see shuttering in any of this facilities in near terms even though the outlook and the heavy construction universe looks a little dismal without somewhat hard dollars committed to the construction community or to have the infrastructure, rather than just remodeling jobs, so to speak.

Unidentified Analyst

Keith, in terms of the $1,047 realization for Joyce (ph) and related products that probably reflects bids were made 6 or 12 months ago is the Joyce division bid this new business what is the pricing on is it closer to 750?

Keith Busse

Yeah it is John its down a lot. Their inventory -- the cost of raw materials also down a lot so, I don't know that their bottom line from an operating income perspective is going to move around gigantically. It could move into a loss in the third quarter but its not going to be loss.

Unidentified Analyst

Congratulations on holding those margins as much as you have.

Keith Busse

Thank you

Operator

Next we'll go to Dahlman Rose's Tony Rizzuto.

Anthony Rizzuto - Dahlman Rose & Co.

Thanks very much. Hi everyone. Keith you mentioned in Flat Roll beds you indicated 25to 30% of the mix that was automotive and truck related and another 30% construction related what about the remaining 40 to 45%?

Keith Busse

Well it's hardly to know where all the products go. Agricultural, appliances energy would be a fairly significant market of size to be 15% by it softened. We do get involved all sorts of similar goods products exercised but things nature we are at. We make a lot of the boxes for computer hardware and we are involved heavily in that regard that segment into that market is that doing all that well either. So its pretty broad

Anthony Rizzuto - Dahlman Rose & Co.

Pretty broad. And that really for the text, now I realize a higher proportions of sales there to non auto OEMs but how is that book shift there and rough approximation of the end markets there. Would it would be similar to what you just gave us?

Keith Busse

Yeah they've got pretty good growth right now, they've also improved overtime. I'd say I don't know how far Dick how fare are they.

Richard Teets, Jr.

Well they're sold out for August and they will be today be opening for September. And so they're very positive about the outlook.

Anthony Rizzuto - Dahlman Rose & Co.

So you're operating pretty full out there?

Richard Teets, Jr.

Yes.

Anthony Rizzuto - Dahlman Rose & Co.

And just one more question then. I just want to make sure I heard correctly that OmniSource, did I hear you say that you've rung out 95 million annualized in cost savings since the acquisition?

Keith Busse

Yeah somewhere around the 90 95 million.

Anthony Rizzuto - Dahlman Rose & Co.

Okay and now you guys have moved your corporate headquarters should we expect any meaningful cost savings or are there are any other initiatives you guys have already done a lot and you are on a pretty lean ship is there anything else that we should be thinking about for the balance of the year?

Keith Busse

I think most of that has been accomplished. We have the building for sale either we lease it or sell it, in this markets a open question should we sell it might take in some income that was unexpected but other than that, nothing to report there.

Anthony Rizzuto - Dahlman Rose & Co.

Okay all right good performance thank you.

Operator

Next will go to Brian Yu with Citigroup.

Brian Yu - Citigroup

Hi great thanks question on long price side of your business general feed back from your sales force that customers there are still this destocking or did you get a sense that they're basically kind of ordering at same pace that they're selling the product at?

Keith Busse

I think upto recently they've been destocking. Destocking in unusual way -- to each other to could be stuck, and eventually that hits it's bottom as well. And then you have true measure of economy is that from a real demand perspective but that we don't know yet.

Brian Yu - Citigroup

Okay and then could you moving over to the Flat Roll side I know you've mentioned that you'll open up your order book soon. This is just for customers to occupy a slot in the middle, right -- prices, I don't think it have been determined yet?

Keith Busse

Well. I'm not going to speak to pricing but that's been determined our mind and we'll be out in the market here shortly.

Brian Yu - Citigroup

All right directionally will they be out in September?

Keith Busse

We'd like for them to be.

Brian Yu - Citigroup

Okay. Thank you.

Operator

Next we'll go to Brett Levy with Jefferies & Company.

Brett Levy - Jefferies & Co.

Most of the questions have been answered, can you guys fill in the 2010 CapEx and if there's not an absolute number for 2010, can you at least talk about the major items continuing in Mesabi Nugget et cetera?

Keith Busse

Brett we haven't went through the budget exercise to firmly define 2010 yet. That's yet to be done. But there are no significant CapEx expenditures on that rise and there is a couple million here and a couple million there. But no big ones.

Theresa Wagler

The one thing that would be last to be determined upon when we would receive the environmental committee for the mining operations, as that could be up 60-$75 million potentially in 2010 but again it's -- that would be the only significant project that I'd be aware of.

Richard Teets, Jr.

We have a couple of million dollars -- $5 million of environmental work we're doing in a meltshop down in this (inaudible) West Virginia here. And we also have completed these in a week but of course many of our expansion projects and so forth we're going to review that a little bit, and reinitiate once again the incremental opportunities, but not necessary just to open flood gates and what we'd Pittsboro expansion as well as the Columbus city spend cash to projects in the near future.

Brett Levy - Jefferies & Co.

And maintenance around a hundred?

Theresa Wagler

No, its not that high. Remember when you talk about maintenance CapEx we're talking about those small projects that Dick would have just mentioned. So I would say that may be this year $60 million in normalized year.

Brett Levy - Jefferies & Co.

Got it and then last question is that as it relates to the scrap business obviously there is a scrap needs to worked off before the scrap business can same utilization as to many more customers. By your best guesstimate around what month that kind of run rates, does it looks as if the scrap overhangs start to go away?

Keith Busse

Lots of pondering Brett.

Richard Teets, Jr.

For our inventories or for the industry?

Brett Levy - Jefferies & Co.

Both.

Keith Busse

We have scrap, lets just put it that way. The flows have improved, demands is not all that significant get domestically. Fund demand has abated a little a bit. I wouldn't say the inventory over hangs are significant for anyone at this important time, wouldn't describe them as significant any way.

Richard Teets, Jr.

I think Brett, we I think are in great position inventory lines. I would suggest that there are other companies out there that they have been cash conscious to control bad inventories, so I would suggest the steel mill community as a whole is pretty tough by inventory. The scrap sector itself you've got a mix, but most of the scrap area here of a got a reasonable inventory. But that's been liquidated here as the noises have puffed up.

Brett Levy - Jefferies & Co.

You think you got a 50% of the innovation scrap business by the end of the year?

Richard Teets, Jr.

Well again that's...

Keith Busse

We run it, 50% situation already with the [Technical Difficulty].

Brett Levy - Jefferies & Co.

All right thanks very much

Richard Teets, Jr.

Welcome.

Operator

Our next question comes from Wayne Avle (ph) with Kessler Capital.

Unidentified Analyst

Thank you and congratulations on the century breakeven

Keith Busse

Thank you Wayne.

Unidentified Analyst

I realize you fixed your balance sheet but is there any quick math that there might make sense for you and have you, you can't obviously tell us the specifics but have you had any conversations with any organizations with some equipment that might fit in well with your set of assets?

Keith Busse

That's something that we wouldn't comment online.

Unidentified Analyst

But just in general is there anything out there that might be interested or are you likely to have any initiative?

Keith Busse

That's not something that we're going to comment on

Unidentified Analyst

Okay thank you.

Operator

And our last question comes from the Sal Tharani with Goldman Sachs.

Sal Tharani - Goldman Sachs

Can you give us some color on the working capital on the working capital for Q3 what do you expect?

Theresa Wagler

Yeah again even the same instance that we talked about from a working capital perspective, Sal I just wouldn't look at it to be a significant use or stores, but for need right now. As anything you nay even add receivables increase potentially at the Flat Roll and that otherwise I'd look at neutral.

Sal Tharani - Goldman Sachs

Thank you very much.

Operator

And it appears that there are no questions at this time. I'll now turn the conference back over to your speaker for any additional closing remarks.

Keith Busse

Thanks Karen, and again Thank you everyone. The questions were great as always and I hope we answered in appropriately, So all of our employees I want to say thank you for hanging in there and doing the elements work. I think that flows through the veins of this company is the best of any steel maker anywhere in the world. And I know we still have tough times ahead of us and certain long parts but we'll get the job done in the end. The country will return, the family (ph) will move forward together. But we thank you so much for your cost control efforts and hanging in there with all of us. You are the best, thanks.

Operator

Once again, that does conclude our conference for today. Thank you again for your participation.

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: Steel Dynamics Q2 2009 Earnings Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts