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Executives

Daniel DiMicco - Chairman, President & Chief Executive Officer

Terry Lisenby - Chief Financial Officer

John Ferriola - Chief Operating Officer of Steelmaking Operations

Keith Grass - Executive Vice President

Ladd Hall - Executive Vice President

Ham Lott Jr. - Executive Vice President

Mike Parrish - Executive Vice President

Joe Rutkowski - Executive Vice President

Joe Stratman. - Executive Vice President

Analysts

Kuni Chen - Banc of America Securities

Michael Gambardella - JP Morgan

Timna Tanners - UBS

Michelle Applebaum - Michelle Applebaum Research

Luke Folta - Longbow Research

Mark Parr - KeyBanc Capital Markets

Michael Willemse - CIBC World Markets

David Lipschitz- CLSA

Sal Tharani - Goldman Sachs

Debra Fine - Fine Capital Partners

Nucor Corporation. (NUE) Q2 2009 Earnings Call July 23, 2009 2:00 PM ET

Operator

Good day everyone and welcome to the Nucor Corporation second quarter, 2009 earnings release conference call. As a reminder, todays call is being recorded. Later, we will conduct a question-and-answer session and instructions will come at that time.

This webcast may contain forward-looking statements as the finding section 27A-I-1 of the Securities Act of 1933. As amended including statements regarding among other things the companys business strategy and growth strategy. Expressions that identify forward-looking statements speak only as of the date statement is made.

These forward-looking statements are based largely on this companys expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond their control. Future developments and actual results could differ materially from those set forth in contemplated by or underlying the forward-looking statements.

In light of these risks and uncertainties there can be no assurance that the forward-looking information will prove to be accurate. This webcast does not constitute an offer to purchase any securities nor solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the companys stockholders.

For opening remarks and introductions, I would like to turn the call over to Mr. Daniel DiMicco, Chairman, President and Chief Executive Officer of Nucor Corporation, please go ahead sir.

Daniel DiMicco

Thank you. Good afternoon and thank you for joining us for Nucors conference call. We appreciate your interest in Nucor. Joining me for todays call are the other members of Nucors senior management team; Chief Financial Officer, Terry Lisenby; Chief Operating Officer of our Steelmaking Operations, John Ferriola; and Executive Vice Presidents, Keith Grass, of our DJJ Group, Ladd Hall of our Flatroll Group, Ham Lott over our Downstream and Fabricated Products group, Mike Parrish over our Bar Products Group, Joe Rutkowski of Business Development and Joe Stratman of Plate and Beam.

After briefly reviewing our second quarter results, we will take your questions. First and most importantly, I want to say thank you to all the members of the Nucor team for your hard work in where are the most challenging steel market conditions we have seen in our lifetimes.

Your unrival commitment to safety, continue improvement, cost reduction and taking care of our customers is positioning our team to come out of this economic depression stronger than when we undertook.

I realize this as a time of hardship and difficulty for all of 21,000 men and women of Nucor and our David J. Joseph and Harris Steel subsidiaries. You have my deepest gratitude and at the same time, I want to reiterate to you my strongest conviction, working together as a team through this economic crisis, will pay big dividends when inevitable economic recovery arise.

In fact my confidence grows each day as I learn of new market place successes throughout Nucors diversified product portfolio. Again, thank you and keep up the great job each and everyone of you is doing for the Nucor team. You are a big part of the reason that Nucors best years are still ahead of us.

Nucor reported a second quarter 2009 loss of $133 million or $0.43 per share. Our results were better than our guidance issued last month for our second quarter loss in the range of $0.55 to $0.65 per share. The second quarter also represents a 30% improvement from our first quarter loss of a $190.0 million or $0.60 per share.

There is another very important factor to know when comparing our second quarter performance with that of the first quarter. Second quarter results carry a substantially greater burden, approximately $115 to $116 million, which is roughly double the first quarter level, from accelerated consumption of high cost pig iron and scrap inventories that are sheet metals.

Approximately, $80 million difference to the negative. As you may recall, these inventories, primarily pig iron, were purchased prior to the collapse of the economy, and raw materials pricing in last years fourth quarter. We made the decision midway through the first quarter of this year to dramatically accelerate the consumption of the high cost of metallics inventories.

Of all the decision severely penalizing our short term earnings, it is the right decision from a longer term perspective. It has improved both our cash flow generation and our operating flexibility moving forward. Our better than expected second quarter performance result from stronger orders production and shipments as a quarter progressed.

Business condition is bottomed in April, with average weekly steel mill shipments from May up by 21%, over the April level and Junes average weekly shipments increasing 8% of the May level. The upturn in shipments was led by volume gains and our sheet, plates and beam mills.

Second quarter results also benefited from stabilization in metal margin spreads during the months of May and June. There is one other very important factor to note, we are proud that we have accomplished all of this without laying off a single Nucor employee or going through what has been called the great recession or the worst downturn experience in our lifetime.

In addition, the seasonal improvements in demand, it also appears that customer inventory destocking has run its course. Our customers are now ordering at the rate, their customers are ordering from them. The up tick were seeing is because the apparent demand is moving closer to real demand or end used demand. However, we do not believe there has been any significant approval in real demand.

This improvement is in apparent demand along with steel price increases suggest that we should realize some improvement in third quarter results compared to second quarter. However, the third quarter will again carry a heavy burden from consuming the balance of our high cost pig iron inventories.

Our fourth quarter results should benefit from significant improvement in raw material costs. We continue to believe real demand and the steel market is in for a long slow recovery, and there will likely be some bumps along the path to recovery. This prolonged and sole recovery is the inevitable result of the challenges faced in correcting the structural balances that created the economic crisis were in today.

These structural balances are excessive leverage, artificially induced consumption resulting from the credit level and mercantilist trading practices and abuses. The economic challenge is ahead for the U.S. economy was serious, and what happens in the U.S. still has a tremendous impact on the global economy, like no mistake about that. Events over the past ten months have once again made that very clear.

Quite simply, the time is longer we do, for policies in the United States, which will rebuild our balance in trade, rebuild our infrastructure and rebuild our energy independence. That is a road to creating true investments for the tax payers money. Real investments in Americas future, creating real jobs that add long term value and lead to substantial economic growth and a better standard of the living for our children and our grandchildren.

We are still looking for our nations leaders to recognize the urgency of taking these necessary actions to restore the long term health of the economy of the United States. Otherwise, well be facing the granddaddy of all jobless recoveries; having said that, the Nucor team looks ahead with both great determination and confidence, and our ability to continue to be a steel industry performance leader, regardless of the economic landscape.

Our disciplined execution of our long term growth strategy has one objective. Delivering attractive long term returns on our shareholders valuable capital throughout the cycles.

We have proven our ability to perform to the up cycle that is evidenced by a six-fold increase, the cyclical peak earnings from 2000 to 2008. It was also demonstrated with our U.S. steel industries leading return on equity during the most recent cyclical upturn from 2004 to 2008, which was delivered using the lowest debt leverage in the industry.

Today, we are again providing improving our ability to perform through down cycle. The current downturn unprecedented severity is highlighting the value of our business model. We only have to look back as recently has what we achieved during the last economic downturn over 2001 to 2003 to see that.

Quite simply, we position Nucor for a greatest period of growth in our history, their performance record is, why Im baffled and disturbed and I sometimes read commentary and investment community that describes Nucor as the defensive name in the steel sector. To the contrary, I believe and see strong evidence that the Nucor team plays both offense and defense exceptionally well. Thats the only way you win in the Super Bowl.

Most importantly, I expect a strong performance record throughout cycle to continue. The value of Nucors business model includes its proven, adaptability and flexibility throughout the cycle. Whatever past the economy in steel industry conditions stake in the months ahead. Nucor is extremely well positioned deliver attractive returns to our shareholders.

As you heard me say before, the keys to our business model are both simple and powerful, that includes Nucors strong balance sheet. Nucors highly variable and low cost production. Nucors diversified product portfolio, and high flexibility production process and most important of all, Nucors highly productive people with the can-do attitude.

I now ask our CFO, Terry Lisenby to provide you some details on Nucors financial position. Terry.

Terry Lisenby

Thanks, Dan and good afternoon. Nucors liquidity position remains extremely strong. At the close of the second quarter of cash and short term investments totaled $2,200 million. That is an increase of $300 million from our first quarter cash position of $1,900 million.

Very healthy operating cash flow generation has enabled Nucor to maintain strong liquidity, while also funding first half of 2009 outlays totaling approximately $775 million. These were for a long term debt retirement, profit sharing and incentive compensation payments for 2008 to record earnings performance, and a payment for 2008 federal income taxes.

Additionally, we paid cash dividends to our shareholders of more than $220 million in the first six months of this year. During cyclical downturns, Nucors cash flow benefits from a counter cyclical cushion provided by lower scrap and steel prices reducing the working capital requirements of our businesses.

In contrast to a year-over-year decrease of $1.3 billion in net income for 2009s first half, cash flow provided by operating activities declined by less than $200 million over the same period. Our liquidity position is also enhanced by the fact that we have no borrowings on our $1.3 billion unsecured revolving credit facility. That facility is not matured until November, 2012, and we have no outstanding commercial paper.

Ill reiterate a point made my Dan, on our work maintaining Nucor strong financial position has been accomplished without laying off a single Nucor employee through this unprecedented downturn, we are proud of that achievement by our team.

At the close of the second quarter, debt totaled $3.98 billion and our debt-to-capital ratio was 29%. The weighted average coupon rate on our fixed rate debt is 5.7%. After retiring a $5.4 million industrial revenue bond in August, our next debt maturity is not until 2012. About $2.2 billion of our debt or 70% of the total matures in 2017 and beyond.

Our work raising capital of last years second quarter, $2 billion of equity and $1 billion of long term debt was down on very attractive terms and had allowed us to avoid any costly capital rising this year that would be diluted to our shareholders.

Nucor has earned the highest credit ratings of any North American metals and minings company awarded by Moodys and Standard and Poors. Nucors balance sheets strength and industry leading credit ratings give us tremendous flexibility in managing and growing our business.

For example, our debt-to-capital ratio of 29% provides us a significant cushion relative to the 60% debt-to-capital corner limit in our credit facility. Capital expenditure for the first half of 2009 were $240 million. For full year 2009, we continued to project capital expenditures of approximately $400 million.

First half of 2009, depreciation and amortization totaled $278 million, and we expect about $590 million for the full year. Our capital spending budget for 2009 represents a substantial decline from 2008 capital spending that exceeded $1 billion due to the completion of a number of major projects last year.

Nevertheless, we remained focused on taking advantage of attractive capital investment projects provided by the current economic storm. The Nucor team looks forward to building on our companys long tradition of being effective stewards of our shareholders valuable capital, and we would like to thank you for your interest in Nucor. Dan?

Daniel DiMicco

Thank you, Terry and now Ill ask John Ferriola to report on our Steelmaking and raw material operations, John.

John Ferriola

Thanks Dan. Good afternoon. Let me begin by thanking all members of our Nucor Steel Mill and David J. Joseph and New Iron Raw Material teams for your outstanding commitment to working safely and taking care of our customers in this very challenging environment.

I cannot emphasis enough the importance of everyones being focused on safety. Nucors best deals are still ahead of us and we want all of our team mates to be around to enjoy them. The second quarter of 2009, was another period of extremely challenging market conditions for our Steelmaking and Raw Material businesses. These statistics tell the story.

Second quarter steel shipments of 3 million tons where about half the year ago quarterly shipments of more than 6 million tons, our second quarter steel mill capacity utilization was 46%, a slight gain over the first quarter rate of 45% and our steel mills average selling price for the quarter dropped 39% from the year earlier level.

However, as Dan mentioned in his comments, we are encouraged by the improving trends in orders, production, and shipments that began during the second quarter. April was the bottom, May was stronger than April and June was stronger than May. Our second quarter capacity utilization was up only modestly from the first quarter. There was significant improvement in monthly mill utilization rates for each product through the second quarter.

With stronger demand, we are implementing price increases in each of our products for the first time in about nine months. These stronger business conditions have continued into July. Across all of our steel mill products, we believe the catalyst for this upturn in demand is the result of service centers completing their inventory, destocking cycle.

Service center inventories in June, was 6 million tons, their lowest level since August of 1983. Service center inventories have been reduced by 46% from their peak level in August of 2008. Months of supply across all products were 2.4 months. Collaterals months supply were even lower at 2.1 months. As a result, service centers have recently increased their buying to match end use demand. At the same time, we see little indication that end use demand has improved.

Our expectation is to no signification improvement in end use demand over the balance of this year. Very simply, we see a steel market environment in the months ahead that favors producers such as Nucor. Heres my reasoning behind this important point. With inventories at historic lows and any inventory building likely to be restrained by tight credit conditions, customers will increasingly value the services of supplies who can meet their needs for steel quickly.

They will look to supplies who have sufficient financial strength to whether top economic times. Another important component of our value proposition will be our product line diversity that offers one stop shopping opportunities for customers. Our steel mill assets and most importantly our people put Nucor in a very favorable position to gain market share and build a long term earnings power.

Our electric arc furnaces production process can be turned on and turned off very quickly and with our long standing no layoff practice at our steel mills having continued through this unprecedented down turn our people are ready today, not tomorrow, not next week or next month, take care of our customers. I will now briefly review the fundamentals of each product group.

Nucors Bar Mill Group achieved impressive bottom line performance despite the first half of 2009s very top market conditions. First half 2009 shipments decreased 44%, from the year ago period. However, second quarter 2009 shipments increased 16% over the first quarter. This was the result of seasonal demand strengthening in construction markets and attractive export market opportunities.

We have announced two price increases for Bar Products. The first increase was effective in June. The second will be effective in August. While demand has improved somewhat in recent months, we still expect overall bar market conditions to remain challenging.

We have two exciting Bar Mill group growth projects to update you on.

Our new Memphis SBQ Mill expands our product offerings to include rounds from three inches to nine inches in diameter and it positions Nucor with the broadest, highest quality, and lowest cost SBQ price offering in North America. Memphis has been melting and casting for a year with as cast blooms, ship to customers in the U.S., Western Europe, Korea, India, and Mexico.

In January, our Memphis team started shipping prime rolled bars to customers. Our SBQ mills are excited by their opportunities to grow in Nucors business in energy, automotive, heavy equipment, and service center markets. Equipment improvements have been completed at the previously idled Kingman Arizona, wire rod and bar mill.

With an investment of just $65 million and an annual capacity of 500,000 tons, a Kingman facility allows us to better serve our wire rod and rebar customers in South Western U.S. markets. We look forward to beginning production, when there is sufficient improvement in market demand. In the meantime, we will continue to increase our presence in this region using products from our other bar mills, Nucors Structural Steel Group, also preformed well in an extremely depressed market.

First half, 2009 shipments decreased 56% from the year ago period. However, second quarter 2009 shipments increased 12% over the first quarter. Even with the capacity utilization rate below 40% for both the second quarter and the first half of this year, our beam mills have remained profitable over this period. Our teams at Nucor model and Berkeley are doing outstanding work on costs in this very difficult market.

Demand for beams has been improving since bottoming in April. In addition to customers filling holes in their inventory, we are seeing project activity increase in such market segments as hospitals, power plants, government buildings and schools. We have announced two price increases for beams, the first effective in June and the second effective in August. Well there has been a slight up tick in demand; we expect beam market conditions to remain difficult for the balance of 2009.

Nucors plate mill groups shipments for the first half of 2009 decreased 51% from the year earlier period. We believe the plate market reached bottom in May. The improvement is the result of nearing the end of our customers inventory destocking and an increase in project related volume for the energy sector, specifically wind towers.

We have announced two price increases for plate, the first effective in June and the second effective mid July. Building on our strength of product breadth and diversity, both of our plate mills, Hertford County, North Carolina and Tuscaloosa, Alabama, are doing extensive product development in both new grades and new sizes of plate to grow our product offering.

Particular emphasis has been placed on X-grades and high performance steels that will expand our opportunities in end use market such as Energy, Bridge and Ship building. Our planned new plate heat-treating facility at Hertford County is another exciting opportunity to grow Nucors plate business. In the second quarter we completed our equipment purchase agreements.

Our plate heat-treating project team did an excellent job on both pricing and quality. This project will greatly enhance our product offering to our plate customers. Nucors sheet mill group shipments for the first half of 2009 decreased 57% from the year earlier period. However, with improved auto entry, we have announced a series of price increases for sheet products effective in July. The improved order entry is the result of winding down of service energy stocking and an incremental improvement in demand from automotive and HBAC market segments.

During these very depressed market conditions, our sheet mill teams have also been extremely productive in developing new products and strengthening customer relationships to compare for the better days ahead and our new galvanizing facility at our Decatur Alabama Sheet Mill is already proving to be an excellent growth platform for us in the value added coded sheet steel market.

In fact, I hold in my hand as we speak a piece of the first prime galvanized coil from our new galvanizing line at Decatur. This line started up two days ago and that first full coil after start up was prime quality. This line is truly a Cadillac, and will enable us to expand the products we can offer to the galvanized market and it increases Nucors sheet mills groups total coded steel capacity by one-third.

Congratulations and thanks to the entire Decatur team for a great start up and a very timely one. In addition to earning qualification files, the line will be running overflow orders from our three other galvanizing lines, which are at full production. We are excited about the potential this galvanizing line gives to our team.

Our raw material assets the David J. Joseph Company and our new iron DRI plant are an extremely important part of Nucors success. Their importance and value to Nucor grows everyday. First and foremost, as significant long term profit generators for Nucor, and secondly by providing us valuable scrap market intelligence.

While DJ. Josephs brokerage and processing volumes have been approximately half of year ago levels; improvement was noted in each month of the second quarter. The third quarter is off to a stronger start as well. Demand for our transportation related assets and for nonferrous metals has improved. Thats good news as both tend to be leading indicators for our industry.

In conclusion, our Steelmaking and Raw Material teams are working hard and working together to grow our competitive advantages in our long term earnings power. We are excited about the opportunities we see ahead and we greatly appreciate your interest in our company. Thank you. Dan?

Daniel DiMicco

Thank you, John. This time I would like to ask Ham Lott to update this on Nucors Fabricated Construction Products businesses, Ham.

Hamilton Lott

Thanks, Dan and good afternoon to everyone. Demand was extremely weak for our fabricated construction products in the first half of 2009. Compared with last years first half, steel drillers production decreased 54%. Steel deck sales tons declined 42%, and metal buildings volume fell 49%. Our fabricated rebar tons had increased 13% compared with last years first half, as a result of the volume contributed by the Ambassador Steel fabrication plants acquired by Harris in August of 2008.

Nucors growth in fabricated construction products began more than four decades ago. We are well experienced in managing through economic and destruction market down cycles. In fact, our company has a long history of taking advantage of the downturns to grow stronger. We grow stronger, while many of our competitors cut their capabilities for serving customers and that is exactly where our energy is focused in the current market.

Nucors growth opportunities in fabricated construction products have never been brighter than they are today. Most importantly, I want to say thank you to all of our team members at Harris Steel, NUCONSTEEL, the Nucor Building Group, Verco and Vulcraft for your excellent work managing through these unprecedented market conditions. You are positioning Nucor for continued attractive growth in our long term profitability. Dan.

Daniel DiMicco

Thank you, Ham. At this time, Id like to open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Kuni Chen - Banc of America Securities.

Kuni Chen - Banc of America Securities

I guess this first question on the pig iron issue. What would you say is the minimum utilization rate that you would need to run at in the third quarter to completely workdown these excess inventories?

Daniel DiMicco

Ladd, do you want to answer that?

Ladd Hall

Well, around 50%.

Kuni Chen - Banc of America Securities

So 50% gets you completely worked through this quarter?

Ladd Hall

Thats correct.

Kuni Chen – Bank of America

I guess just one other sort of strategic question. On the M&A front, obviously there is a lot you can do given your cash position. Can you just talk about whether or not you are seeing opportunities developing in the market and kind of where your priorities would be whether thats sort of upstream, downstream, other mills, international? Just give us some perspective there, please?

Daniel DiMicco

I can summarize with the one word answer, yes. Two, as we said several times, way too early based upon the success that the industry had prior to this financial collapse and economic crisis to be thinking about actually moving forward with acquisitions. We think that we are set all along, and that would be 12 to 18 months, kind of time out period between when this collapse took place and when you started to see that kind of activity.

We have really changed our opinion on that. We are maintaining our contacts with everybody that we were talking to before the economic and financial collapse in last call, and those discussions theyre alive and as weve mentioned back then we had somewhere between $1.50 billion to $2 billion in acquisitions that were looking at, yesterdays prices.

Those conversations are keeping the doors open, why everybody feels more comfortable and one thing start to show that the economy truly is on demand, which we have not seen yet. So as far as any sense of urgency to do to anything, we have none, and we will act when we feel a lot more comfortable and what we see out there with respect to our economy in the direction that the country is going.

Operator

Your next question comes from Michael Gambardella - JP Morgan.

Michael Gambardella - JP Morgan

Dan, I just have a question with something that you and a few of the other executives have mentioned in terms of your view of the market being fairly restocking and I dont know how you can say that when the automotive production numbers that people are talking about are up over 40% in the second half versus the first half.

I know you dont do a tremendous amount with automotive, but other guys do and other guys get little bit more busy on automotive, it frees up a little bit space in some of your areas as well. So, can you comment on that, it just doesnt seem to jive that you would be seeing just a restocking if automotive productions up so much in the back half of the year?

Daniel DiMicco

Well, first of all, Michael. We havent seen the 40% increase, okay. So, beware of overly optimistic forecast. So far through the fourth quarter and the first half this year, most overly optimistic forecast improvement could be grossly incorrect, whether it will be in our industry or elsewhere.

Secondly, the automotive industry is not of the size that it used to be to drive the overall steel consumption in this country. So, thats couple of things that you have to be weary off. If there truly is a 40% increase in production of armor deals and hence a corresponding increase in the amount of steel consumed, Nucor will benefit from that because we have a larger footprint in automotive today than we have had in the past 10 years.

Okay, but and our footprint is not only in flat rolls, its also in special bar quality and forgings and what have you, but the reality for our economy is that this is going to be very slow, gradual uptrend and so far we havent stopped passing along the bottom and in some cases we havent stopped going down. So, at this point in time to be forecasting any kind of serious optimism for the second half of the year is very premature in our estimates.

Certainly people are free to make those optimistic or more optimistic cause, but we would not be so quick to do so and we would, so far we have been very cautious and our caution is paid off to be more correct in that.

Michael Gambardella - JP Morgan

Okay, but automotive by trade publications is about 20% of demand usually in domestic shipments, is that correct?

Daniel DiMicco

Well, whats usually about today, all right?

Michael Gambardella - JP Morgan

Well, if its, 20% and theyve been operating at such low, low levels in drawing that inventories. Peoples projections and the companys projections are somewhere above 40% increase in production. I would think thats got to have some impact other than just restocking.

Daniel DiMicco

I know, but, Michael, we have to look at 40% over what.

Michael Gambardella - JP Morgan

Over the first half, which is a real low level, Im just saying?

Daniel DiMicco

I am talking about very low levels on absolute terms; you are talking in very low levels of tons.

Michael Gambardella - JP Morgan

Its low levels of tons and a low level of consumption market. I mean everything is low levels.

Daniel DiMicco

Well, I dont know if you have seen some of the information out lately about the auto parts suppliers and their predicaments. They are in a building to get funding, getting a the couple of articles regarding that, I think, the automotive industry is far from out of the woods. I think, the supplier base is far from out of the woods and thats all due to the fact that the economy is far from out of the woods, I dont know what else to say Michael, I dont want to get into a further.

Michael Gambardella - JP Morgan

Okay, I just have one other question just on the pig iron.

Daniel DiMicco

And from my opinion that I gave to you, so whats your next question?

Michael Gambardella - JP Morgan

My next question is on the pig iron Dan. How much did you walk in on the price and volume hit back in December?

Daniel DiMicco

December of last year?

Michael Gambardella - JP Morgan

Well I thought that you had said utilizing...

Daniel DiMicco

No, we said before the drop off occurred. Our purchasing of pig iron occurred well before the drop off that we saw on the fourth quarter, the fact that it occurred well before September of last year, probably most of that pig iron was ordered in the second and third quarters of last year, more towards the end of the second quarter. I reread to you what we said, is that we were talking fall off in the fourth quarter.

So those purchases were all made well before that. We made no purchases in the fourth quarter.

Michael Gambardella - JP Morgan

I mean just back, say in the third quarter then; how much did you lock in and was that through fixed pricing?

Dan DiMicco

All pig iron purchases are fixed pricing, first of all. They are all bought on a stock market, they are all bought three to six months ahead of time and when we were buying pig iron the market was going great guns, there was no financial collapse on Wall Street or anything like that in the cards, and the forecast for fourth quarter was for the some downturn seasonally and operations, but nothing like the 60% fall off that we saw.

So, what we said way back, if you go back and check the previous calls Michael, youll see that what we said was we are going to end up with twice the amount of pig iron that we needed.

As things got worse as we’ve indicated, utilization has got down to the low 40s, high 30s for the industry and those pig iron supplies take a long time to work through the system. So we said way back, that it would be until third quarter that we would get through the excess pig iron and the high priced pig iron.

Again, there were no purchases in the fourth quarter. Most of the purchases were second quarter, maybe beginning of third quarter and they are all done at a fixed price at the time that you execute the deal. It just takes months before they actually show up and the timing of the collapse in September; October was not conducive to being able to avoid that, and we werent interested in canceling business with people that weve done long term arrangements with, because theyve honored them in the reverse in years past, so its one of those things where you just got to bit the bullet, take your medicine and move on.

Operator

Your next question comes from Timna Tanners - UBS

Timna Tanners - UBS

Two straightforward questions hopefully. Export opportunities you alluded to on the bar side, Im wondering if you can give us a little more detail overall on the export opportunities, given some differentials were seeing in the market, and if you can comment on any evidence you are seeing of stimulus-related spending?

Dan DiMicco

Ill take the second one first. Zero. Having an impact, very concerned as to whether that will materialize at all before the end of the year. The states dont have a whole lot of money to match funds or what have you.

So as we said at the beginning, the stimulus package was extremely week on conventional infrastructure and really infrastructure of all types. Very little of that money has been spent to date. People claim its all going to be back end loaded, well see, but Im very concerned about the fact that its taking much longer for what little stimulus we got in infrastructure to work its way into the system and so far, its zero.

The only place where maybe you could say there has been some benefit is with the automobile companies havent been restructured, and the process of being restructuring and being saved by the government, the taxpayer in particular. That’s helped some of the automotive side, but as far as construction, non-residential, residential, commercial, theres been very, very, very little impact at this point in time.

As far as exports go, Mike, John you want –

John Ferriola

Overall, our export percentage of our total product is about the same, a little bit off from last year. Last year we exported about 10% of our products, this year to date weve exported about 9.3% of our products.

The breakdown is mostly billets. They account for about 75% of all the exports and the rest is between sheet and plate, a little bit heavily weighted to sheet product.

Timna Tanners - UBS

Can you just comment on where youre shipping to and how you expect that market to transpire?

John Ferriola

Sure, North Africa is a pretty heavy market for us. Central and South America have always been good markets for us, given our locations in the south and thats where the most of our product is going.

Dan DiMicco

Timna, one last thing on exporting opportunities, certainly the dollar has again started to weaken. Unfortunately, with a good reason based upon our economic situation and the slow recovery that is being forecast by most economists.

So as the dollar weakens, it does open up more opportunities as the global economy picks up, but those opportunities at this point in time will be few and far between, but they hopefully will be growing opportunities as we move forward. Next question, please.

Operator

Your next question comes from Michelle Applebaum - Michelle Applebaum Research.

Michelle Applebaum - Michelle Applebaum Research

First up, we are looking at your conversion costs in the quarter and it seems like you had a very significant decline. Your operating rate was unchanged and I was kind of surprised by that. Can you tell me what specifically contributed to that? Will you be retaining those cost reductions going into the upcoming quarters?

John Ferriola

Michelle, its a good question and a good observation. Theres no one specific thing that I can point to. What I can tell you, its an example of our culture and the experience that Nucor has in operating in these environments. Everyday our team mates are finding new ways to shave a few pennies off, of making a ton of steel and as I visit our facilities, they share these ideas with me and I can tell you, every one of them will be sustainable as business conditions improve.

Dan DiMicco

Some of the areas that are paying off for us, were always continuously looking at ways to reduce our energy consumption and learning how to run and schedule yourself efficiently at lower capacity utilization rates, our team has done a great job of that and they keep getting better at it.

Obviously, weve been working very hard in respect to supplies and services and getting our costs of materials down. Getting our suppliers to participate and getting through this difficult market. So its been a host of things, but I agree 110% with John and the rest of the team.

Our people out there have been extremely creative in cutting costs dramatically and they will be sustainable, those cost cuts and I wouldnt be surprised if theres more.

Michelle Applebaum - Michelle Applebaum Research

The next question, I wanted to ask. Timna was asking about exports and I think John, you were answering year-to-date and I didnt get a sense of where you thought the export opportunities were going to go to in the second half. Because I think weve all noticed theres a big discrepancy, pricing offshore is higher. Do you expect to see more of that or did you already answer that?

John Ferriola

We expect to finish the year out pretty close to where we were last year at about 10%, we dont see a big difference in second half over first half. We think it will be up a few percent. We continue to work with our Novosteel team to find those opportunities and take advantage of them. In the second half, there might be potentially some more opportunities on the sheet side for export, while billets will continue to be strong.

A new focus area for us, Ive mentioned the South America and Central America. We also have a good team located in Asia and we see opportunities for us growing in Asia. Thats a target area for us and we are in the process of opening up our first international office in Dubai, to open up some more opportunities in the Middle East for us.

So, we are excited about the export opportunities in the second half.

Michelle Applebaum - Michelle Applebaum Research

For the record, I thought that your outlook was considering where weve come from, very optimistic.

Operator

Your next question comes from Luke Folta - Longbow Research.

Luke Folta - Longbow Research

My first question, I wanted to get a feel for where capacity utilizations might be going in the third quarter. Are you able to us some color regarding each of the businesses? Where you might be seeing gains and where not?

Dan DiMicco

As weve stated in our printed material, and in our script. We started out the first quarter and every month throughout the first quarter, utilization rates went down because order entry was going on.

It turned in April and May and June were all up-ticks. We ended up finishing somewhere in the vicinity averaging around mid 50s in capacity utilization overall and there should be the ability to maintain those.

We are a little cautious about forecasting, significantly increased utilizations throughout the fourth quarter, because we are still concerned about real demand making its move. We may see some up-tick in automotive, but we may see some downtick in some other areas, whether it be appliance or in non-residential construction and what have you.

We are a very diversified product mix company; we are just about in every market. So, at the end of the day the net-net might be where we are at in June in terms of capacity utilization in the mid-50s to slightly up, but if theres the opportunity obviously, from demand in the marketplace to do more that, well do at the table with everybody else to get the increased utilization, but we are very wary of the economy overall. We have to be very careful to disassociate the stock market from whats actually going in demand and the economy.

Markets are always looking down the road considerably and what were talking about is over the next quarter or two. We think there will be opportunities for improved utilization, but we dont think theyll be significant.

Luke Folta - Longbow Research

Do you expect moving forward in 3Q, there would be a much greater flat roll contribution compared to what we saw in 2Q?

Dan DiMicco

We think our bar products will continue to make good, solid increase the contributions, we can see the flat rolled has the potential to be better in third quarter. Fourth quarter is up in the air, because you dont know how the automotive companies and the manufacturing community is going to deal with their holidays and end of year stuff because the whole year has been pretty well miss-matched.

When theyre normally down, they havent been down; theyve been down more than not. When they actually take more time out, its a little unknown at this point in time, but we should see an increasing contribution from flat-rolled as well as bar products.

However, at the end of the day, overall construction both non-res, res and commercials are still suffering and if you take a look at the Architect’s Index and if you take a look at the projections there, thats still getting either worse or in very bad shape from the standpoint of improving backlogs, looking out towards fourth quarter and into next year.

So if we get a kick from what infrastructure spending, there will be in the stimulus package or if they come out with a stronger infrastructure spend as the Civil Engineering Society has recommended. That could turn around, but we will see kind of a balance between those two.

Throughout the second quarter, as John mentioned all of those areas beams, plate, sheet, bar saw improving utilization rates, but again we believe thats based upon the inventory adjustments. So watch real demand, because thats whats going to dictate everybodys order book from here on out, in all product lines. I hope that answers your question.

Luke Folta - Longbow Research

Yes. If I could ask one more quick one and one word answer will be fine on this one. In light of the cost reductions that youve been able to achieve, the price increases and even modest improvement in capacity utilization in 3Q; should we be considering at/or above break-even levels, even in our probability distribution for what we should be thinking for 3Q?

Dan DiMicco

We are definitely seeing an improving earnings environment in 3Q, but as far as pinpointing any further than that, youre going to have to do like always, wait until the midpoints between our conference calls for our best shot at our guidance.

You saw how close we were this time, giving our best efforts. We were, fortunately significantly better than our late quarter guidance, but the utilization rates can make so much of a difference and when you get a very strong end of quarter performance and end of the quarter shipments, it can impact even those late quarter forecasts, but right now we do see an improving earnings environment, but listen guys its all relative. Improving, versus second quarter, yes, but nowhere near where we need to be and with that as an industry and as a company, a tough road ahead.

Operator

Your next question comes from Mark Parr - KeyBanc Capital Markets.

Mark Parr - KeyBanc Capital Markets

How are you doing? You sound pretty good today.

Dan DiMicco

When we started this conference call, the operator made the mistake of saying that this was going to be our second quarter 2008 conference call and we all started laughing here and crying at the same time, saying, yes, we wish we were back in the second quarter 2008. Having said that, please ask your questions.

Mark Parr - KeyBanc Capital Markets

Ive got a couple of pretty quick. First; could you give us a sense of, if you got September order books open, and any of your product areas or kind of where you are from a lead time standpoint?

Ladd Hall

Yes, we just barely opened up for September. So we dont have a real good feel yet, other than the contract times that we had already in there. Well know in the next couple of weeks how thats going to turn out.

Dan DiMicco

Were just going to go around the table. Mark, so if youll be patient youll get feedback from each of the product EVPs.

Joe Stratman

Mark, this is Joe Stratman. On the plate side of the business, we are still taking orders into August, but we are also taking longer term contractual, project type orders into September on plate.

On the beam side we are running, essentially a published four week cycle. Now, that can move based upon, if we get more tons we can expand days on the mill and add some capacity utilization, but basically we are running at a published four week cycle.

Mike Parrish

Mark, on the bar side of the business, its a mixed bag with [inaudible] and merchant bar and SBQ, but in generally we are probably out a month and a half to two months depending on the vision and the product group.

Mark Parr - KeyBanc Capital Markets

Thanks for that. I really appreciate it. Dan, do you have anything that you could share with us, any color on where you think August scrap might end up relative to July? Id also like to get an update on Louisiana and the raw material integration strategy.

Dan DiMicco

The raw material integration strategy is evolving, as we had already said it would, but the big iron project in Louisiana is still on hold, nothing has changed there. On the last couple of calls, the feedback we gave you then still holds true, we have not have not got unencumbered permitting yet from legal challenges. Thats still on track for the end of the year, first quarter of next year.

As weve said to the Governor and publicly, the cap and trade legislation is a big unknown. That will have an influence on when, and if we go forward with that project, also the state of the economy, the time that we get the permitting officially in our hands and in our pockets without legal encumbrance.

If the economy is not significantly better than today, that will delay it, but were still moving forward. Weve got other raw material strategies in place that were looking at and discussing and doing studies on. So, the overall strategy of being a producer of roughly 6 million to 7 million tons is still intact and as far as, what was the first part of your question?

Mark Parr - KeyBanc Capital Markets

The August scrap.

Dan DiMicco

Well lets see, it should be down $100 a ton, I think.

Mark Parr - KeyBanc Capital Markets

You really dont want to say that.

Dan DiMicco

No, we dont get into forecasting whats going on with respect to scrap. Its been a little surprise by the strength of the scrap market considering how capacity utilization in this country is still down, certainly the export activity to support that. Keith, do you have any comments to clarify that a little bit for Mark.

Keith Grass

Probably, just from the standpoint, Dan over the last 45 days we have seen domestic pricing move up, just basically to match where export pricing had been and enable us to redirect flows back into the domestic markets, which weve successfully done over the past 30 days.

I think into scrap processing facilities, we’ve seen a steady increase as John alluded to earlier. Our volumes through the yards of suppliers come up of scrap and at this point, it seems to be somewhat in balance as weve felt over the last couple of weeks.

Mark Parr - KeyBanc Capital Markets

Do you think theres an opportunity for some supply constraints on the prompt side to emerge in the next several months?

Dan DiMicco

Well, the reality is, theyve probably already been there and if our friend Michael Gambardella and the auto analysts are correct about the auto industry increasing production by 40%, the opposite should happen.

There should be more scrap coming into the marketplace and we’ll all certainly hope thats the case, that we do see those kinds of up-ticks in automotive production and also to prompt scrap.

Probably the biggest interims of scrap pricing, I dont think Keith would disagree with this up to now and [inaudible] pretty much has talked about the exporting strength in places like Turkey and China and what have you.

I think the Turks have probably gotten a little ahead of themselves, from Ive read about their markets for finished products. So, how consistently they interact in our market going forward is a question mark.

Theres some argument that the Chinese strength has been mostly due to theyre trying to get the best possible drop in iron ore prices, so theyve increased their scrap consumption.

Time will tell whether that had any play in what we saw in the amount of scrap going to China and certainly as the integrated steel producers bring on blast furnaces, there is a to and fro balance between how much scrap they use per heat, but also to probably utilizing more scrap overall, so exactly what impact that would have on the market is an unknown, but there is some potential for things to kind of sell out a little bit here in the next month or two and well just have to wait and see.

Operator

Your next question comes from Michael Willemse - CIBC World Markets.

Michael Willemse - CIBC World Markets

I was wondering if you could give me your average cost of purchased scrap in the second quarter. Not the scrap that went through cost of goods sold, but what the average purchase cost was?

Dan DiMicco

Thats not something that we give out. We do give out what our usage numbers were and thats it.

Michael Willemse - CIBC World Markets

On the 150 to 160 million in pig iron that was worked down, that would have went through the scrap costs line, correct?

Dan DiMicco

Thats correct.

Michael Willemse - CIBC World Markets

Then next question. If I look at bar and structural shipments, it was up quite a bit in the second quarter versus the first quarter, maybe you touched on this a bit in the introduction, I missed it, but a 16% increase is quite a bit.

Was that entirely due to inventory adjustments and I guess seasonal, anything else there?

John Ferriola

It was inventory restocking and as I mentioned, we also saw some incremental increase in project activity. What I mentioned, schools, hospitals, those types of projects. Weve seen some incremental improvement in those areas.

Michael Willemse - CIBC World Markets

More government related?

John Ferriola

Lets just say public work related.

Dan DiMicco

Far and away, its inventory adjustments. Inventories getting back in line, where our customers are reordering based upon their actual demand, not actual demand less what they pick out inventory.

Operator

Your next question comes from David Lipschitz - CLSA.

David Lipschitz- CLSA

Most of my questions have been asked and answered. In terms of your contract business, how much do you have contracted for the rest of the year in your flat roll business?

John Ferriola

In our sheet business, its between 30% to 35%.

David Lipschitz- CLSA

Are people looking to do more contracts right now, or are you looking to sign more contracts or where do you guys stand?

John Ferriola

Well, the contracts that we would be talking about now would be for next year and frankly, its to early in the season to begin any serious negotiations. That will take place sometime around the September time frame.

Operator

Your next question comes from Sal Tharani - Goldman Sachs.

Sal Tharani - Goldman Sachs

I have two quick questions. One on LIFO Terry, should we take the average of the first two quarters for the next two quarters or $115 million credit each quarter?

Terry Lisenby

With that or little less for the third quarter, its a little too early to tell for Q4, yet.

Sal Tharani - Goldman Sachs

Dan, on the international JVs you have, can you give us some color on whats going on over there? I believe there was some new mill you were going to build over there, and also the Mexican distribution center?

Dan DiMicco

Nothing has happened in Mexico up to this point in time. It was put on hold back in the fall. We put everything else on hold. As far as our JV partnership with [Duferco] the new mill that you are referring to was a bar mill that was built being built in Sicily. Joe would you like to..

Joe Stratman

First of all, the market condition over there, there is a Duferco, Nucor mill it’s right now a structural mill and you can just mirror the structural business here in the States and the ride its had with whats happened in Europe.

As for the merchant bar mill, that mill will be ready to start up by the end of August and basically we will be making a market judgment at that time as to when is the right time to start it.

That mill is located at the same site in Sicily as one of the beam mills now and they actually run parallel. So well have the advantage of using the same crew, same personnel and we could run either the structural or bars, depending upon which market is stronger. So thats a decision we intend to make here late summer, early fall.

Operator

Your next question comes from Debra Fine - Fine Capital Partners

Debra Fine - Fine Capital Partners

If you think that most of the order increase has been restocking, and I agree with you and you, and you obviously know more about than we do about this. If demand still remains very week, if you see significant more capacity coming on, particularly the Thyssen plant, does it not appear to you that significant capacity has to go out of the US for you all to get back to a normal sustainable level of profitability, if you are as embarrassed as you sound?

Dan DiMicco

As you know, Debra what you see is what you get with me. So, yes, Im as embarrassed as I sound and as far as the capacity going out, youve heard more than one CEO talk about the fact that, when this whole thing turns around we expect overall steel usage to be down from previous peak cycles.

Yes, we do believe there will be capacity that disappears and the capacity that might disappear. The likelihood of that occurring will increase as we go further along here. Theres absolutely no doubt that youre going to see a very slow recovery in steel consumption, as well as in economic activity in GDP growth in our country as we go forward.

We are talking about years here, we are not talking about months, and we are not talking about quarters. So, yes, there will be a shake out and there will be a smaller domestic industry.

Hopefully, well be able to make some of that back by getting more support from Washington on trade issues, which it appears we will be getting, in which case what used to be coming in at the levels weve seen over the past five or six years will be greatly reduced as a percentage of the market, but even with that we will see substantial capacity disappear.

Debra Fine - Fine Capital Partners

The longer that it takes the capacity to go out, if theres any way to encourage that process, it will be beneficial to everybody.

Dan DiMicco

As you know, Debra, the market will take care of that and shake things out on its own and obviously we are strong believers that at the end of the day, the strongest and most efficient will get through, unless governments step in and change that course of activity.

So, with our position, our strong balance sheet, our increasing cash position, our ability to borrow, high credit ratings and our very low-cost efficient operations. We will stand to benefit along with several others, when the shake-outs do occur, but it’s hard to envision that shake-out not occurring.

As far as the Thyssen Krup start-up goes, I think that’s been continually been pushed back. I don’t know really where it stands right now. I think Thyssen Krup has had its hands full with the untimely death of one of their really top young leaders in that plane crash out of Brazil, a really super individual.

So everybody is kind of getting their handle on what’s going on out there. When they actually start that facility up, I think they will be very careful about doing that, if things go as we believe they will go. So time will tell.

Operator

With that we have no further questions. I’d like to turn the program back over to Mr. DiMicco for any additional or closing comments.

Dan DiMicco

Thank you all for your questions, and yes, I even mean you Michael Gambardella. I’ll be happy Michael to further discuss those questions with you, to make sure I give you the best answers possible.

I have one last thought, the most important one, and that is to share with you before ending our call, that the work the Nucor team is doing in 2009 will definitely be laying the foundation for future record years to come. Our best years are still to come and I want to thank all of our teammates for working safely, working smart, cutting costs and taking care of those customers. Thank you all, and have a good day.

Operator

That does conclude today’s conference. Thank you for your participation.

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Source: Nucor Corporation. Q2 2009 Earnings Call Transcript
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