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Executives

Dan Lesnak – Manager-Investor Relations

Mario Longhi – President and Chief Executive Officer

David B. Burritt – Executive Vice President and Chief Financial Officer

Analysts

Sal Tharani – Goldman Sachs & Co.

Meredith Bandy – BMO Capital Markets

Luke Folta – Jefferies & Co.

Dave A. Katz – JPMorgan Securities LLC

Curt Woodworth – Nomura Securities International, Inc.

David Gagliano – Barclays Capital, Inc.

Tony B. Rizzuto – Cowen Securities LLC

Evan L. Kurtz – Morgan Stanley & Co. LLC

Timna Tanners – Bank of America Merrill Lynch

Michael F. Gambardella – JPMorgan Securities LLC

Brian Hsien Yu – Citigroup Global Markets Inc.

Aldo Mazzaferro – Macquarie Capital Inc.

John C. Tumazos – John Tumazos Very Independent Research LLC

Andrew Lane – Morningstar Research

Chuck A. Bradford – Bradford Research, Inc.

Philip N. Gibbs – KeyBanc Capital Markets, Inc.

Sam Dubinsky – Wells Fargo Securities LLC

Evan L. Kurtz – Morgan Stanley & Co. LLC

Matt Murphy – UBS Securities Canada, Inc.

United States Steel Corporation (X) Q4 2013 Earnings Conference Call January 28, 2014 4:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Fourth Quarter 2013 Earnings Conference Call. At this time, all the participants are in a listen-only mode and later, there will be an opportunity for questions. (Operator Instructions). As a reminder, today’s conference is being recorded.

Now I’d like to turn the conference over to our host, Mr. Dan Lesnak, Manager of Investor Relations. Please go ahead, sir.

Dan Lesnak

Thank you, Justin. Good afternoon, and thank you all for joining us on the United States Steel Corporation’s fourth quarter 2013 earnings conference call and webcast. For those of you participating by phone, the slides that are included on the webcast are also available under the Investors section of our website at www.ussteel.com.

On the call with me today will be U.S. Steel President and CEO, Mario Longhi and Executive Vice President and CFO, Dave Burritt. Following our prepared remarks, we’ll be happy to take your questions.

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

Now to start the call, I’ll turn it over to our CFO, Dave Burritt.

David B. Burritt

Thank you, Dan. Good afternoon, everyone and thank you for joining us. Turning to slide three, adjusted fourth quarter 2013 results. We reported income from operations for our reportable segments and other businesses of $146 million, an improvement from the third quarter and our eighth consecutive quarter that we have been profitable at the segment level and our fourth quarter results reflect better conditions than those faced as we exited 2012. We are pleased to close the door on a tough year. We weathered the storm with five years of losses and are ready for a better 2014.

In 2013, we got your attention with the $1.8 billion goodwill impairment charge and secured your interest with a five-year labor agreement at Lake Erie Works, permanently closed both the hot end of Hamilton Works and coke batteries number five and number seven at Erie Works.

As promised, we will do our best to bring new process, productivity and performance improvements each quarter as we earn our right to grow. Our leadership team and employees are being inspired by the possibilities of the Carnegie Way. Our business transformation is underway and we know we must do better and our confident is growing that we will.

Dan will now provide additional details about fourth quarter segment results.

Dan Lesnak

Thank you, Dave. Our Flat-rolled segment had operating income of $87 million in the fourth quarter, as we realized benefits from higher average spot and market-based contract prices. Shipments increased slightly as steelmaking resumed at Lake Erie Works in October, providing the supply to offset the blast furnace projects that we completed at Gary Works and Fairfield Works in the fourth quarter. We also benefited from lower costs, as our operations ran well and our plant operators did an outstanding job of managing their costs and we were able to complete our blast furnace outages projects at Gary and Fairfield efficiently and under budget.

Our Tubular results decreased as compared to the third quarter. Shipments decreased as drilling activity was constrained by end users working to stay within their 2013 capital budgets as well as customers managing their inventory levels at the end of the year. Imports, which remained high ahead of the anti-dumping preliminary determination and the OCTG trade case next month, and additional domestic capacity continued to pressure Tubular selling prices. Our Tubular results were comparable to the fourth quarter of 2012 despite lower prices, as we reduced operating costs and made progress in our semi-premium and premium connection volumes.

Results for our European segment improved in fourth quarter and returned to profitability due to higher shipments and lower facility repairs and maintenance costs, as a blast furnace outage was completed in the third quarter. Average realized euro-based prices for the majority of our products remained relatively unchanged in the fourth quarter. However, average – overall average realized prices in the fourth quarter declined as our hot-rolled shipments returned to more normal levels, as we have more products available with all of our blast furnaces back online.

I would now like to turn the call over to Dave Burritt to cover several important items.

David B. Burritt

Thank you, Dan, and turning to Slide number 7. As mentioned during the last earnings call, Mario has been very clear that we will earn the right to grow by initially focusing on five priorities to help drive the transformation at U.S. Steel to sustainable profitability. You’ll recall those five priorities were the following; one, macro business strategy; two, Carnegie Way value creation; three, business measurements to motivate a greater sense of urgency; four, investor communications; and five, reducing complexity and streamlining business processes. We completed the due diligence phase of our macro business strategy in the fourth quarter.

We are pleased with the identified benefits we intend to harvest and have launched projects across the core business processes using Lean Six Sigma methodologies. We are chartering Carnegie Way projects to add value, get leaner faster, right size and improve across our core business process capabilities, including commercial, supply chain, manufacturing, procurement, innovation and operational and functional support. We'll define and exploit our sustainable competitive advantage with relentless focus on economic profit, our customers, our cost structure and innovation.

We’ve said this before and I’ll say it again, we know everybody wants us to give them a Carnegie Way target of how much money we will make by when. We won't do that. We have big aspirations, but we'd rather be judged on the numbers we deliver than be distracted by spending a lot of time communicating our aspirations now and then reconciling targets later. We’ve been busy designing and developing new business measurements. You understand how economic profit works; return on capital must exceed weighted average cost of capital or WACC throughout the economic cycle.

We will be putting in place accountable profit center statements that focus each profit center leader on delivering profits above our weighted average cost of capital. We are cautiously optimistic that we will have better economic circumstance in 2014 and with incentives and a performance score card that motivates behavior to generate more cash. As we transform our business, we’ll be communicating with investors more about our strategic ambitions, not financial targets, but instead getting you comfortable with where we will dedicate our efforts and you can judge us on what we deliver.

The work that Dan does today will be enhanced even further to make sure our message is being heard and understood. You will recall that we reported $75 million in cost and margin improvements for 2014 on our third quarter earnings call in 2013. We are now pleased to report that we have completed additional projects that will provide sustainable cost improvements of a $100 million annually with $75 million being generated in 2014. Although, we are still in the early stages of our transformational process, our cost and margin improvements now total a $175 million annually with a $150 million being realized in 2014. Sometimes investors think that transformations require large investments. Of course, sometimes they do, but our focus is on process improvements first. Through process improvements and then strategic investments using Six Sigma methodologies we are examining all aspects of our business. Reducing complexity and streamlining our business processes does not require huge investments.

We are working harder and smarter on our core business processes to create more opportunity to go beyond cost reduction. We won’t be satisfied with just earning the right to grow. As we earn the right to grow, we are going to make struggling businesses profitable or admit we can’t and exit them. We will be ambitious and we will grow and grow profitably at the right pace, at the right time, better days are ahead.

Slide 8, the funded status of our pension and OPEB plans has improved significant as the economic recovery continues. Our total unfunded status as of the end of 2013 is $2.5 billion, a $2.4 billion improvement from the $4.9 billion at the end of 2012. That is the lowest level since the end of 2006. As you know, our pension and OPEB obligations are a significant part of our cost and capital structure. The unsustainably low interest rate environment and stock market impacts from the financial crisis had pushed our costs and unfunded status to unusually high level.

As a result of actions management has taken in the past, we are now benefitting from the combination of strong market, returns in 2013 and a slowly increasing interest rate environment. Our pension and OPEB costs continue to decrease. Our 2014 costs will be down over a $100 million from last year and down over $250 million per year from the recent high point in 2011. This is an important P&L and balance sheet improvement, but we know cash is the king.

On Slide 9, touching briefly on cash flow. Although 2013 turned out to be a much more difficult year than 2012 from both an income and cash flow perspective, we continued to generate cash and were disciplined in our approach to capital spending. Improving our cash flow will be an important factor in our ability to move forward with our transformation and we are currently focused on several projects that specifically address improvements to our cash flow, working capital, management and liquidity. All this work is part of the current Carnegie Way, transformation that aligns with world class business processes, we will benchmark what world class performance looks like, no matter the industry and become improvement experts especially as it relates to cash flow.

Before I turn it over to Mario, just a few brief comments on the economy. Economic trends give us cautious optimism about 2014. The Federal Reserve Board had begun tapering through QE3 slightly. The President and Congress seem able to keep the government running and the geopolitical environment appears no worse than 2013. After a recent pullback in the stock market recently, we see no reason why we can’t get back on the economic recovery path. In brief, we see 2014 as better for U.S. deal, much better than 2013.

Now, I’ll turn the call over to Mario to discuss the current state of the markets we serve, our outlook for the first quarter and several important initiatives from our ongoing Carnegie Way efforts. Mario?

Mario Longhi

Thank you, Dave. Good afternoon everyone and thank you for being here with us this late in a very long day. The North American segment begins the year in a better position from multiple perspectives compared with the onset of 2013.

First and foremost, overall market sentiment is not as pessimistic as it was a year ago. then, many customers and analysts speculated about spot market pricing deteriorating to the low $500 range for hot-rolled coil and end user demand for some of the stronger sectors was tempered this time a year ago. For example, the automotive build schedule was forecasted at only single-digit growth for the first year post-recession. The Yellow Goods sector was actually looking to recede in demand due to large global inventories.

Looking forward now, the industrial equipment market is set to improve the year-over-year and automotive growth after a very strong performance in 2013 is expected to increase again, in 2014. The service center industry is also better positioned than last year. In both Canada and the USA, the general service center customer base reported shipments in the second half of 2013 increased by more than 1 million tons, as compared to the second half of 2012.

Statistics recently published by the MSCI suggest better inventory and shipment position in North America than it was last January. Both shipments per day and months of inventory measurements in Canada and in the USA are in the strongest position than they have ever been at the beginning of the year in the last four years.

Even the construction industry appears to have joined the recovery, as 2013 put in place construction square footage was estimated to be up 28% versus two years ago. While there is a long way to go to achieve pre-recession norms, progress in 2013 was encouraging.

Turning to Europe, the recovery in the euro zone manufacturing sector accelerated further at the end of 2013. The latest improvement in overall operating conditions was underpinned by solid and accelerated growth in the Netherlands, Germany, Ireland and Italy.

The strengthening upturn in the manufacturing sector is helping the euro zone recovery become more firmly established. Economic activity in Europe is expected to continue to grow modestly at the end of the year and over the first half of 2014 with a gradual shift in growth engines from external to domestic demand.

Lower inventory levels combined with an improving economy and stronger manufacturing sector are helping to stabilize prices. demand for steel is expected to improve in 2014, alongside the economic recovery, while the restocking that was missed in 2014 is expected to reappear.

Tubular market drivers during the final quarter of 2013 were mostly positive with continued strength in our oil direct drilling in Gulf of Mexico drilling, near multiyear highs. Crude oil prices fell from the previous quarter, in average about $98 of barrel, but still remain at profitable level for operators with oil acreage in their own portfolios.

The natural gas directed rig count fell 10 rigs, averaging 370 for the quarter, but throughout the quarter, remained above the year low of 349 experienced in last June. During the fourth quarter, natural gas in storage began to decline and natural gas prices increased during the quarter.

As expected, the Canadian rig count continued to increase and averaged 379 rigs, up 8% quarter-over-quarter, as the industry carried on efforts to ramp up for the winter drilling season. We expect the rig count to increase slightly in the first quarter as both oil and natural gas prices remain at profitable levels for most producers.

Natural gas prices will be determined in the short-term by the winter weather. As such, natural gas drilling is expected to gradually increase throughout the quarter, as producers focus on replenishing natural gas inventories that will continue to be drawn down over the winter season.

The overall forecast for 2014 drilling activity in North America, primarily in the U.S. is positive. furthermore, now that most major plays have been delineated, operators may focus more on drilling and completion activities compared to other spending categories such as seismic evaluation and associated preliminary exploration actions.

Drilling in the Gulf of Mexico is expected to remain strong as operators continue to develop their long-term prospects in the U.S. offshore waters. The pressures on OCTG spot market prices will continue as imports remain high. The U.S. Department of Commerce is expected to announce preliminary anti-dumping duties in February for the OCTG trade case. The level of these duties could affect import pressure heading into the second quarter.

Now turning to our outlook for the first quarter, we expect total reportable segment and other business income from operations to increase moderately compared to the fourth quarter. We expect first quarter results for our Flat-rolled segment to increase primarily due to higher average realized prices and shipments as well as reduced repairs and maintenance costs.

Average realized prices in shipments are expected to increase as a result of higher contract end spot market prices and improving end user demand after fourth quarter holiday downtime. Repairs and maintenance costs are projected to decrease as compared to fourth quarter due to the completion of the projects that Gary Works and Fairfield Works. We will also have reduced idled facility costs after the shutdown of the iron and steelmaking facilities at Hamilton Works. Raw material costs, primarily for purchased scrap, and energy costs are expected to increase.

We expect first quarter results for our European segment to be comparable to the fourth quarter as the benefits of increased average realized prices are offset by an increase in raw material costs, primarily for iron ore, and other operating costs. Average realized prices are expected to increase compared to the fourth quarter due to a more favorable product mix and an anticipated gradual recovery of the spot market while shipments are expected to remain comparable.

First quarter results for our Tubular segment are expected to decrease as the benefits of reduced operating costs and increased shipments are more than offset by a decrease in average realized prices and an increase in substrate costs. Average realized prices are projected to decrease primarily due to pricing pressures from continuing high import levels and increased domestic supply. Shipments are expected to increase as drilling activity begins to improve.

Now I would like to discuss some areas where we are making progress on transforming our business as we pursue sustainable profitability. At the end of last year, we completed the acquisition of the Sparrows Point number one caster, as the assets of the former RG Steel plant were liquidated. Engineering for the caster installation at our Granite City Works where this caster fits the current footprint very well is well underway. After obtaining final permit in project approvals the installation of this upgraded caster later this year ruling has our commercial opportunities as a substrate supplier to the Energy sector in 2015.

We are pleased to have received the necessary state permit and approvals to expand our Mintek Mine boundary by about 400 acres, extending the permitted life of our mining operations which are critical to our North American operations. This allows us to mine more of our existing reserves and positions us to continue to explore opportunities to generate value from one of our most significant assets and competitive strengths. We also remain focused on our customer needs and opportunities that we have to improve our competitive position.

There has been considerable discussion lately about lightweight solutions for the automobile industry, this issue is one that is not new to me and you need to remember that U.S. Steel has been involved into light weighting dialogue with our customers for some time. Of course, the CAFÉ standards have accelerated some of the activity within the automotive community, we are taking the threat and the initiative very seriously as we’ve seen what can happen to a product when you don’t get the job done.

We have a great deal of work underway with our automotive customers to address their concerns, offer them ideas on solutions we have to offer, and accelerating development of new technologies and grades to get the job done. We have invested a significant amount of effort into another solution, our continuous annealing line at our PRO-TEC Coating Company joint venture in Ohio. This facility offers our customers a solution with which they are very familiar steel.

We are getting a very positive reception to our new continuous anneal line, which began operating last year and we have been awarded parts in several 2015 platforms across a wide spectrum of manufacturers. They really feedback on our quality and most specifically the lightweight and flatness of the product has us eager to continue to develop even newer grades of higher reformable, advanced high strength steels to meet our customers demand to provide them additional light weighting options.

We are also working to improve our position in the energy tubular markets, our shipments of our proprietary semi-premium connection increased by nearly 70% in 2013, and we continue to introduce new semi-premium and premium connections into the market. Connections and oilfield technology servicers and support continue to provide significant opportunity to driver higher margins for our Tubular business and increase our exposure to premium markets. We are accelerating our efforts to increase our presence and have added additional staffs and resources. This increase focus should enable us to develop and go to market with more of our own connections and to capture the significant margin opportunities that are associated with these highly engineered products, and offer our customers the technical support and expertise they require to continue drilling in more complex and challenging conditions.

The last item that I would like to discuss is our operations in Fairfield, Alabama. We will be requesting the necessary permits to construct a technologically advanced electric arc furnace steel making facility at Fairfield Works to replace the existing blast furnace based steel-making facility. In conjunction with our extensive blast furnace based operation in North America, the flexibility for moving to an electric arc furnace based steel-making at Fairfield would improve the ability of our North American operations to adopt to global market conditions and would enhance our ability to continue to supply all our flat-rolled and tubular customers in a more efficient sustainable and cost effective matter.

We estimate that permitting for the project could be 9 to 12 months following the following of the applications and based on that timeline construction could begin in the third quarter of 2015, with project completion potentially in the mid 2017. The move to EAF based steel-making at Fairfield would improve our raw materials position for both iron ore and coke and would reduce our exposure to the merchant coal market. This improved raw materials position could provide more opportunities to benefit from our iron ore resources and could reduce the need to maintain our coke making infrastructure at its current level.

Additional benefits from existing transition could include reduced capital expanding and maintenance costs associated with maintaining blast furnace based operations reduced our exposure to transportation costs associated with getting raw materials to Fairfield and significantly improved environmental performance. We anticipate that when fully operational the new EAF based raw steel production capacity would be about $1.1 million net tons per year and would primarily supply a rounds caster to provide substrate for our seamless spike operations.

The business case for this project as we see it today is strong enough, which is why we’re filing for the permits now and we have started the basic engineering for the new facility. If the current business case is still valid when we have received all of the necessary permits, we will then seek the approval of our Board of Directors to proceed with the project and I will be prepared to move forward in the fastest possible manner.

That completes our prepared remarks and I will now turn it back over to Dan to start the Q&A session.

Dan Lesnak

Thank you, Mario. Justin, can you please queue the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question will come from the line of Sal Tharani. Please go ahead, sir.

Sal Tharani – Goldman Sachs & Co.

Thank you. Good afternoon.

Mario Longhi

How are you doing, Sal?

Sal Tharani – Goldman Sachs & Co.

Two questions. First, that $100 million additional cost saving David you mentioned, can you give us some color on where it's coming from. The previous $75 million you had given us some concrete areas where you're getting it. Where this is coming from mainly, what are the big components in there?

Dan Lesnak

Hey, Sal, it’s Dan. This $100 million, the first $75 was very specific noticeable public projects. This $100 million is more of across the board savings and probably gets into where we think there is some competitive advantage. We don’t want to give away by explaining to our competitor and it’s exactly how we’re doing this. It is primarily in the flat-rolled segment for your modeling purposes, but like I said, we think there are some competitive advantages to not really give an entire detail on that.

Sal Tharani – Goldman Sachs & Co.

Okay. The next question is on this EAF you mentioned, Mario, in the Fairfield. I just want to understand, is it a standalone project or does it depend on your DRI project and also what’s the CapEx you think and how would you think you will fund it over the next couple of years if you construct it.

Mario Longhi

The merits of this EAFs is on a standalone basis, Sal. Anything related to DRI would be a plus because the EAF we have full flexibility then. We can use scrap. We might be able to just bring DRI in. But it has all of its merits on its standalone condition. We don’t know exactly what the costs would be as we’re going through engineering, but it’s going to be one of the most efficient approaches that are available out there.

Sal Tharani – Goldman Sachs & Co.

Great, thank you. I’ll get back in the line.

Mario Longhi

Thanks Al.

Operator

The next question comes from the line of Meredith Bandy. Your line is open.

Meredith Bandy – BMO Capital Markets

Hey, good afternoon, I was just wondering if you could tell us a little bit more about your met coal contracts are those fine or what’s the status of those for 2014?

David B. Burritt

Sure Meredith. Yes, we do have our contracts for North American place for 2014, between the combination of some good negotiations requires some statistical improvements and some continued advancement on our ability to use some more prospective blends. We expected our coal cost in North America will be down $25 a ton this year. Are we still live, did we lose everybody?

Operator

No we are still on and our next question comes from the line of Luke Folta. Your line is open.

Luke Folta – Jefferies & Co.

Hi, good afternoon.

Mario Longhi

How are you doing Luke?

Dan Lesnak

Hi, Luke.

Luke Folta – Jefferies & Co.

Good, well. I guess, so no CapEx number on the EAF, could you give us some sense in terms of what you think the production cost savings could be just in terms of replacing the old Blast furnace there with EAF?

Mario Longhi

Not really, we have a couple of last options on how to go where at and I wont be able to give you more numbers as we move forward, some detailed engineering products controls are put in place.

Luke Folta – Jefferies & Co.

Okay, and then I guess the second one is just on the guidance, I mean we had – in the third quarter you guys beat pretty nicely, because the maintenance project wasn't there and it got pushed into 4Q. And in 4Q I mean you guide its a breakeven and you hit 87 million bucks in the Flat-Rolled segment and I guess I mean the divergence of that magnitude I guess one could may sort of think that perhaps that the guidance was somewhat sandbagged. I just want to understand kind of how you think about that and what were the divergence was and then how do we think about the first quarter 2014 guidance. Looking at it I mean it looks like prices are going to be up, shipments are going to be up, pension expenses down, met coal costs are down, you got this cost saving initiatives out there it seems like moderate improvement might be but understatement relative to if you start to pick those pieces together.

Mario Longhi

All right, I would hope you are right.

Dan Lesnak

Yes, that was – well I think a couple of things to – in the fourth quarter we did better commercially than we thought, some of prices came a little bit sooner which probably is why you are not going to see as bigger jump in 1Q, we picked up some of it early, you saw the maintenance difference, the outages went very well, we came in 50 million under there, but I mean another plant cost are we’ve said it before in our remarks operators did a very, very good job maybe not specifically Carnegie events, but I think the mindset of if you don’t need to spend it, don’t spend it, is probably getting more engrained. So the operating – the operating cost performance at the plants was really, really outstanding, it was a big contributor to that.

So I think – those would probably be the biggest things. When you get in the first quarter, I guess, the one thing we would caution is the price – the changing coal prices will have some phase-in period. We’ll have carryover tons. We’ll have some inventory work through. So be careful how soon you run that change in. That $25 is our average across the balance of the year. So you won’t see all $25 per ton right away the first quarter.

Mario Longhi

The other thing, Luke, I would offer on the operational side, we had a pretty challenging early start in the year with all these winter storms and the impact it’s had on some of our facilities and we’re still in the mode of catching back up. So we don’t know how much of that impact you will see.

Operator

And the next question comes from the line of Dave Katz. Your line is open.

Dave A. Katz – JPMorgan Securities LLC

Hi, I may have missed it, but I was hoping that you could provide your expectations for 2014 CapEx?

David B. Burritt

Sure, David. And actually, whenever I have some time on Slide 19, back in the appendix, I do give some of those – some of the guidance for some of the bigger items. Right now, we’re looking at about $650 million for 2014 on CapEx.

Operator

And the next question comes from the line of Curt Woodworth. Your line is open.

Curt Woodworth – Nomura Securities International, Inc.

Hi. Good afternoon, guys.

David B. Burritt

Hi, Curt.

Curt Woodworth – Nomura Securities International, Inc.

Just with regards to the expansion or potential expansion at Minntac by, I guess, expanding your territories, is the thought process there more to just extend the life of the mine or to potentially increase capacity, to potentially free up more third-party sales, either just pure pellet or DR?

David B. Burritt

It’s – you can consider all of the above. It’s going to provide more efficiencies, we have a lot more flexibility on what we can pull out of there and open the roads for a more solid backing to anything we want to do as far as mining is concerned.

Curt Woodworth – Nomura Securities International, Inc.

And what’s the timing around development of either increasing capacity there and also the shutdown at Fairfield, I think a lot of that is sourced from key tack. Does that alter kind of the mine plan or the outlook for that operation as well?

David B. Burritt

I mean, Curt, the one part is Fairfield, at the earliest you’re talking three years out. So that’s a pretty – that gives us pretty much a fair amount of lead time to figure that out. Like I said Minntac is not – this Minntac permit is not more about – as much about increased production, as it is about the efficiency and the ability to get at our existing reserves, maintain our cost profile there without having to make the mining more difficult. We’ve had some discussions on last calls about potentially some incremental improvements to the output of Minntac but these are really driven towards just giving us a better access to the material.

Curt Woodworth – Nomura Securities International, Inc.

Okay thanks.

Operator

And the next question comes from the line of David Gagliano. Your line is open sir.

David Gagliano – Barclays Capital, Inc.

Great, thanks. On the cost changes improvements in 2014 versus 2013, first of all, just on the coal, just to fill it in, can you remind us again, what the expectation is for total coal consumption in 2014?

Mario Longhi

When you factor everything in, we probably will be somewhere in the area of 9 million tons.

David Gagliano – Barclays Capital, Inc.

Okay, okay thanks. I think when you – if you add that up, the coal and the other $100 million of additional cost savings, I think it adds up to somewhere around $25 a ton of steel production roughly year-over-year decline. If it’s all that, is there any reason to expect that your costs by the end of the year on the steel side shouldn’t be at $700 a ton?

Mario Longhi

I guess it will depend on a lot of our inputs why energy, scrap, some of the other big pieces that we don’t control directly, other metals additives. I mean there could be – certainly iron ore and coal are pretty well defined for us, then coke, the bigger pieces, but there’s quite still a fair amount of variability that could come up in those other areas.

David Gagliano – Barclays Capital, Inc.

Okay. Holding all other factors constant, I guess what I’m getting at is there any other – are there offsets that we need to be thinking about here, other than obviously nat gas and scrap?

Mario Longhi

Not that we see in front of us right now.

David Gagliano – Barclays Capital, Inc.

Okay.

Mario Longhi

On maintenance side, we think maintenance costs will be down $25 million for the year, but it’s pretty hard to check much past another quarter or so on most of that.

David Gagliano – Barclays Capital, Inc.

Okay, perfect thanks.

Dan Lesnak

You are welcome.

Operator

And the next question comes from the line of Tony Rizzuto. Please go ahead sir.

Tony B. Rizzuto – Cowen Securities LLC

Thank you. good afternoon, gentlemen.

Mario Longhi

How are you doing, Tony?

Tony B. Rizzuto – Cowen Securities LLC

Good, Mario. Several questions, just a follow-up, you’ve got a lot of things going on here obviously. And it’s – it does seem as if the guidance is conservative. That’s fine and we’re happy to see that. We’re just talking a little bit longer-term and thinking about some of the longer-term issues and I think about typically, Mon Valley and Fairfield, you’re addressing some of the issues from a competitive standpoint, I think that have always been there. Mon Valley is another facility and I think about the hot strip mills at both of these facilities. How would you say they are situated right now and are you looking at the possibility that you might need to make some upgrades to those facilities over the medium term?

Mario Longhi

Yes, you’re right, Tony. We are actually doing a value stream mapping of all of those operations and there is certainly a few things that if we could put in there would make them more productive and efficient. But to a very large degree, if you look at the markets they serve and the products they make, and in interaction with our customers, they may be very interesting operations going into the future.

Tony B. Rizzuto – Cowen Securities LLC

But you intrigue me with that comment Mario, could you maybe expand upon that a little bit.

Mario Longhi

Not more than that right now Tony. It’s a very complex equation that we deal with here as we look into the overall streamlining of everything the evaluation of complexity that we have. How do we minimize that provide focus, that’s whole concept of value creation focused on coming out of each operations its pretty intense when you look at the fact that we have multi-tool of capabilities and where is it that we’re best applying them all. So that’s why I am little cautious and that’s why we go quarter-over-quarter clearing up the slate. And we keep reviewing to you what we find for sure.

Tony B. Rizzuto – Cowen Securities LLC

Okay. Just to follow up on the pension side for – in terms of cash contributions or required payments in 2014 and 2015, do you guys have any color on that you can provide to us right now?

Dan Lesnak

Yes, Tony. We're definitely in a position where we don't have mandatory contributions to the main plan as we haven't for a long time. Total cash out-the-door for pension OPEB, nondiscretionary, our current estimates has to be while $540 million.

Tony B. Rizzuto – Cowen Securities LLC

Or is that 14 Dan?

Dan Lesnak

That's for '14 yes. We wouldn't have really '15 numbers because the annual remeasurement at the end of the year really is a big factor in driving those numbers. So, but for '14, 540 is our best estimate right now.

Tony B. Rizzuto – Cowen Securities LLC

Okay and could you refresh my memory that I don’t have the financial statements in front of me, what was 2013?

Dan Lesnak

2013 we actually came into the year expecting that would be about 540 our actuals wound up at about 340. We actually had some opportunities in the fourth quarter to take advantages from the highly funded status of some of our benefits plans and utilize some of those funds. So we had that opportunity. We took it, but just without that we’re down by 10 million from where we thought we began last year.

Tony B. Rizzuto – Cowen Securities LLC

Okay. So 2014 that 540 number Dan, do you think we could get a nice surprise as we go through the year that you might not be making those kind of cash outlays?

Dan Lesnak

The ability we had in the fourth quarter to exercise some of that, we have a little bit of that left but not nearly as much as we had available to us this year.

Tony B. Rizzuto – Cowen Securities LLC

Okay and one final question, I am sorry just if you can expand a little bit here what is your maintenance CapEX these days and what is slated towards growth out of that 650 number you gave us?

Dan Lesnak

I don’t have a good breakdown of we really don’t look at it from maintenance. We think about more of kind of sustainability and value creation and market penetration, but I haven’t seen a real detailed breakdown that I could really be confident to give you a right answer right now. So let me take a look in we could cycle back late on that maybe.

Tony B. Rizzuto – Cowen Securities LLC

I got it, thank you.

Mario Longhi

Thanks.

Operator

Your next question comes from the line of Evan Kurtz. Your line is open.

Evan L. Kurtz – Morgan Stanley & Co. LLC

Hi, good afternoon, everyone.

Mario Longhi

Hi, Evan

David B. Burritt

Hi, Evan

Evan L. Kurtz – Morgan Stanley & Co. LLC

Maybe just picking up with where Tony left off. Do you have any guidance for us is how should we think about the impact on earnings from maintenance in 2014 versus 2013?

David B. Burritt

Our best estimate right now, that maintenance will be down by $25 million year-over-year.

Evan L. Kurtz – Morgan Stanley & Co. LLC

Okay, great. And then maybe a similar question on contract pricing, I assume you had some Carlo contracts that probably got re-priced, significantly higher I would imagine with the spot pricing doing what it’s been doing. Can you kind of talk about like the layering in of contracts through the course of the year?

Mario Longhi

Yes, we have concluded some contracts and certainly they are coming in little bit of better in price and spot prices have also been going up, so I think overall you should consider they are going to be better this year?

Evan L. Kurtz – Morgan Stanley & Co. LLC

Right is it – when we see a big chunk of those come online right here at Jan 1 or is it something that we’ll see into the course of the year?

Mario Longhi

You will see it through the course of the year as we have in more contracts to negotiate going into the – and in the first quarter and to the second quarter?

Evan L. Kurtz – Morgan Stanley & Co. LLC

Okay, and maybe just one more on Tubular, you are looking for a margins exceed little bit in the first quarter, I guess your substrate costs are rising and you are not getting the same fall through on the sales prices for Tubular, remind me what’s that timing on that, I know there is some program sales that you do, how long are those fixed and when can you cut a normalized margins in that business?

Mario Longhi

I think going into the second quarter, we’ll have a better handle on that to give you something.

Operator

And our next question comes from the line of Timna Tanners. Your line is open.

Timna Tanners – Bank of America Merrill Lynch

Hey, good afternoon.

Mario Longhi

How are you doing Timna?

Timna Tanners – Bank of America Merrill Lynch

Good, I guess as a first question, I thought it would be fun to let you weigh in on the steel versus aluminum debate in terms of autos, you're a big manufacturer, or big supplier to that industry and just want to get your perspective given that F-150 to switch over to Marilyn

Mario Longhi

Yes, I mean like I said in my remarks it doesn’t surprise me as aluminum has been working hard at it for a quite bit of time, maybe we had a little bit of a slower start in a broader manner which we have certainly, we are tackling right now. I think steel has tremendous capabilities. We’re developing several new grades, working very closely with the customers. A lot of good revisions to design engineering and where is it that some of these new grades of steel that are coming out can fit. So I think E&M has I mean, aluminum moves quicker in a certain area, we move quicker in some other areas. As I mentioned, we have got some very interesting contracts. We’re continuing to lightweight and we’re broadening the capability for development quite significantly. So this is just a point in time in this battle.

Timna Tanners – Bank of America Merrill Lynch

Okay. Great. I wanted to ask and I don’t want to delve on there, but it’s a long way, but I am just curious about the closure costs. How do you think – when you make a decision, how do you think about the costs of exiting a blast furnace, we haven’t seen a lot of those lately, I wanted to get your perspective?

David B. Burritt

Totally manageable.

Dan Lesnak

I think there is certainly a big difficulty in shutting down eight piece of equipment like a furnace as opposed to shutting an entire plant. So I think, in Hamilton, that’s probably the most recent example started to get hard in there, you don’t get into the nearly the issues you get into when you shutdown an entire plant.

Operator

And our next question does come from the line of Michael Gambardella. Please go ahead, sir.

Michael F. Gambardella – JPMorgan Securities LLC

Hi, Mario. How are you?

Mario Longhi

How you’re doing, Mike. Good to hear you.

Michael F. Gambardella – JPMorgan Securities LLC

Very good. Hey, just a little question on Fairfield, what type of metallic feed do you need to make seamless pipe?

Mario Longhi

Certainly something that I can get from scrap that is available, readily available

Michael F. Gambardella – JPMorgan Securities LLC

So you can seamless OCTG…

Mario Longhi

Yes

Michael F. Gambardella – JPMorgan Securities LLC

…material with all scrap, no…

Mario Longhi

Yeah, we’ve casted quite a few different types of combinations and we’re quite comfortable that we can make what is necessary for good quality pipe.

Michael F. Gambardella – JPMorgan Securities LLC

With just scrap?

Mario Longhi

Yes.

Michael F. Gambardella – JPMorgan Securities LLC

Okay. That’s great. And just a – on the cost cutting side, did I hear you say at the early part of the call that you’re looking at a 150 million tons for this year – I’m sorry, $150 million this year?

Dan Lesnak

Yeah

David B. Burritt

That’s correct.

Michael F. Gambardella – JPMorgan Securities LLC

I mean, does that include the pension and the OPEB?

Mario Longhi

No.

Dan Lesnak

No, this would be just projects associated with our Carnegie transformation. So the $100 million correction, pension OPEB would be another piece, the lower coal cost would be another piece.

Michael F. Gambardella – JPMorgan Securities LLC

Okay. And can you identify any of the $150 million for us?

Dan Lesnak

Well, I think $50 million – the $50 of it was from the Hamilton – the rent out of the Hamilton assets. Then you know what we identified the 475. Now this next piece is areas that we think will be competitively sensitive of telling people exactly how we're doing, particularly our competitors.

Michael F. Gambardella – JPMorgan Securities LLC

Okay and a final question. What’s your sheet business operating at in terms of percent of capacity right now?

Mario Longhi

Roughly 80%.

Michael F. Gambardella – JPMorgan Securities LLC

Okay. All right. Thank you very much.

David B. Burritt

Very welcome, Mike.

Operator

And our next question comes from the line of Brian Yu. Please go ahead sir.

Brian Hsien Yu – Citigroup Global Markets Inc.

Great, thanks, and good afternoon, gentlemen. And Mario, my question is if you put me in the camp of those that are still trying to reconcile your guidance, in 4Q, you guys obviously did very well, hot-rolled band prices were better than what I and I think many other expected. Maybe it would help us with, when you're saying the first quarter guidance, what's the band of hot-rolled coal prices that you're basing that on and then we can overlay the cost savings that you're expecting on top of that number?

David B. Burritt

Brian, I actually haven't seen the numbers put together that way, the band costs. So I really can't help you with that right now. I'd have to do some research for you.

Brian Hsien Yu – Citigroup Global Markets Inc.

Okay and then maybe I can try to look at it another way. So with these cost savings that you are anticipating and if we take a holding all else equal type of environment, would you be comfortable with us basically saying, like if things don’t change much, profitability in the upstream or at the Flat-rolled segments should be at least $250 million better, $100 million from OPEB and pension, another $150 million from the Project Carnegie savings?

David B. Burritt

Over the course of the entire year?

Brian Hsien Yu – Citigroup Global Markets Inc.

Yes, that’s right.

David B. Burritt

And actually the – pretty much the pension OPEB savings would fall on that line of the below the segments.

Brian Hsien Yu – Citigroup Global Markets Inc.

Okay.

Dan Lesnak

Yes, so – but out of the $150 million run rate savings we’re are talking about for 2014, probably 90% to 95%of that would be in Flat-rolled.

Brian Hsien Yu – Citigroup Global Markets Inc.

Got it. All right.

Operator

And our next question comes from the line of Aldo Mazzaferro. Please go ahead.

Aldo Mazzaferro – Macquarie Capital Inc.

Yes, hi. Thanks. Good afternoon.

Mario Longhi

How you’re doing, Aldo?

Aldo Mazzaferro – Macquarie Capital Inc.

I’m fine. On the – on Dan, the savings you just mentioned the $150 million run rate, wasn’t some of that already in the fourth quarter though with the Hamilton shutdown and the Gary coke ovens and things you initiated the last time or no?

Mario Longhi

Not from the cost side, because the Hamilton – the write down at the Hamilton asset came at 12/31, and the big impact is a change in depreciation. So now there would have been very, very little from that in the fourth quarter, it really all starts this year.

Aldo Mazzaferro – Macquarie Capital Inc.

Okay. And okay, Mario, can I ask a question on Fairfield? After you put an EAF in their, do you still intend to make and sell flat-rolled sheets?

Mario Longhi

We have plenty of flexibility coming from the rest of our system although to be able to support our customers.

Operator

And our next question comes from the line of John Tumazos. Please go ahead sir.

John C. Tumazos – John Tumazos Very Independent Research LLC

Good afternoon. Congratulations on all your contributions to the corporation. With the potential withdrawal of the flat-rolled at Fairfield and the reduced molten output at Hamilton, which other facilities in the corporation would pick up those tons, presumably you don’t want to produce less for the benefit of competitors but enjoy the productivity gain in-house?

Mario Longhi

John, that would just depend on the order book in which customers want it from where, but certainly, if you look at our utilization, we’re not talking about dramatic change in capability and we certainly haven’t run anywhere near 100% for a long, long time.

John C. Tumazos – John Tumazos Very Independent Research LLC

Would Granite City pick up the flat-rolled volume from Fairfield, if you go the electric furnace route?

Mario Longhi

I would really – I’d say, it would really depend on which customers need which product and the most efficient way we could get it to them. So we have some ability just about everywhere throughout our system.

John C. Tumazos – John Tumazos Very Independent Research LLC

Which mills you are making more with the Fairfield melt shop phase-out? Is that going to Gary and Great Lakes?

Mario Longhi

I would say that we’re talking about three years out, it’s probably way too soon to even figure out exactly what the pattern will be.

John C. Tumazos – John Tumazos Very Independent Research LLC

Thank you.

Operator

And our next question comes from the line of Andrew Lane. Your line is open sir.

Andrew Lane – Morningstar Research

Hi, Dave good afternoon.

David B. Burritt

Hi, Andrew.

Andrew Lane – Morningstar Research

Could you shed some light on the factors that played into decision to proceed with an EAF build at the Fairfield location specifically? Is it a function of regional demand for specific product types that you’ll be able to produce thereby use of an EAF? Are you just addressing the least efficient furnaces first or what are the other considerations played into that decision?

David B. Burritt

It starts with the marketplace for sure. and then we keep translating that inside of the system and because there are so many other things that are being looked at, you can’t just look at this one in isolation, but it starts from the marketplace.

Andrew Lane – Morningstar Research

Okay.

Mario Longhi

And Andrew also, that is one of our furnaces that has been running on its longest campaign. so it’s been running a long time, it’s going to come with efficient life at some point in the future.

Andrew Lane – Morningstar Research

Okay, understood. so that makes it a prime candidate. and then additionally, given that you’re replacing it appears to be 2.1 million metric tons per year of blast furnace production with 1.1 million metric tons per year of electric arc furnace at Fairfield. Do you anticipate that company wide production capacity will decline materially if you pursue additional blast furnace replacements or will EAS be added on an incremental basis as well?

Mario Longhi

No. You should consider that we are not going to give up capacity at all; it’s a conversion to a more flexible environment that gives a little more efficiency to the system.

Andrew Lane – Morningstar Research

Okay, thank you very much.

Mario Longhi

You’re welcome.

Operator

And the next question comes from the line of Charles Bradford. Please go ahead sir.

Chuck A. Bradford – Bradford Research, Inc.

Good afternoon.

Mario Longhi

How are you doing, Charles?

Chuck A. Bradford – Bradford Research, Inc.

Yes. A couple of things, you had a $16 million equity loss in the quarter, was that United Spiral?

Dan Lesnak

That was.

Mario Longhi

Yes.

Chuck A. Bradford – Bradford Research, Inc.

Okay. And then a couple of years ago, you’ve built a brick heading plant at Gary. And there were talks you were going to build a second one of the first one work, but we haven’t heard anything about it. What’s happening there?

Dan Lesnak

Well I mean the first molecule are provided to Gary, we continue to refine the process, we want to make sure we get that running exactly the way we want it and at its levels they should. So we’re being deliberate about it, because frankly, we’re satisfied, we are on a co-position right now. We’re not sure. Once we get that running exactly as we want it, we’ll take a second look at the next module, but that will really be driven by our co-position, do we need to cope or not, we don’t really play in the investing co-teams infrastructure to be long that’s coat that we’ve don’t think would be good return term project.

Chuck A. Bradford – Bradford Research, Inc.

Understood, it’s just there’s a lot of questions about how well that unit is actually operated.

David B. Burritt

When we started at OP-TECH it certainly had its challenges both from an equipment perspective as well as process control perspective, a lot of engineering has been put in place and I think there is a pretty good light at the end of this tunnel. We really are in control of everything else to go to the next module if we ever feel that it’s going to be needed.

Chuck A. Bradford – Bradford Research, Inc.

Well, thank you very much.

David B. Burritt

You’re welcome.

Operator

And our next question comes from the line of Phil Gibbs. Please go ahead sir.

Philip N. Gibbs – KeyBanc Capital Markets, Inc.

Hey, gentlemen. Congratulations on the progress.

David B. Burritt

Thank you.

Philip N. Gibbs – KeyBanc Capital Markets, Inc.

Mario I really that was ingenuitive that you move the Sparrows Point caster, I believe you said in the Gary. Can you elaborate on that a bit more and is that factored into any of your cost reduction targets for this year?

Mario Longhi

Yes, Phil. Actually, it’s going to Granite City. There is a pretty nice match with the current footprint that we have, it will enlarge the capability to supply quite a bit of the energy markets that you know are going to be needing some of that the product that we are going to be able to make there.

Philip N. Gibbs – KeyBanc Capital Markets, Inc.

Okay, and as far as ultra high-strength steel there is clearly a need for that in lot of the next generation automobiles. Can you help us as far as ultra high-strength maybe as a percentage in your mix and maybe what you envision over the next few years?

Mario Longhi

Yes, a lot of that goes into the body and weight parts, the unexposed parts and there is a lot of development and again it’s a combination of just being able to replace a heavier steel with a more efficient steel and also be able to participate in the new designs that create opportunities for different combinations of what exists and what is coming out, so its really a lot of different alternatives that are being looked at and really steel is a big deal for the automakers and its pretty promising what it what we see coming out of our labs today?

Philip N. Gibbs – KeyBanc Capital Markets, Inc.

Can I just sneak one more and if I could I appreciate it, the 150 million of cost saves that you identified through your efficiency actions, that any of that sneak into 2013 or is all that really on the table for blending in the operations in 2014.

Mario Longhi

No that’s all 2014, Phil.

Operator

And our next question comes from the line of Sam Dubinsky. Please go ahead sir.

Sam Dubinsky – Wells Fargo Securities LLC

Hey, guys thanks for taking my question. I am Sam Dubinsky.

Mario Longhi

How are you doing Sam?

Sam Dubinsky – Wells Fargo Securities LLC

Hey, guys how are you?

Mario Longhi

Good.

Sam Dubinsky – Wells Fargo Securities LLC

Could you give us some more color on market dynamics in Europe, correct me if I’m wrong, but I could assure that the first half, at least Q1 you typically see some sort of inventory restock, and it doesn’t seem like that happen this year. Could you maybe just describe what’s going on in the European business?

Mario Longhi

It’s starting slow Phil, but I believe that it’s going to pick up going into the second quarter.

Sam Dubinsky – Wells Fargo Securities LLC

Okay, and then in terms of domestic sheet pricing, obviously its been a phenomenal market for the past few months, how do you see sheet pricing playing out in the first half of 2014, given some of the concerns over imports and you also have some of the raw materials such as iron ore and met coal and scarps starting to soften a bit. How do you think that sort of flows through in terms of market pricing in the next few months?

Mario Longhi

Well, I think the imports are probably the biggest driver that can impact prices going forward Sam. I think the other things are not yet showing any signs of impacting significantly, but import is good.

Sam Dubinsky – Wells Fargo Securities LLC

Okay. And lastly, what's the update on the OCTG case and I would have thought we would start seeing imports moderate. When there is a decision is that the moment the imports moderate or is there sort of a long review process that gives foreign competitors a little bit more time to keep on dumping in the market?

Mario Longhi

Well, once the determination is firm and concluded you got to remember that it reverts back to the moment of determination. So at that moment, I think, you begin to see some tapering of imports.

Dan Lesnak

Yes and that’s…

Sam Dubinsky – Wells Fargo Securities LLC

So what is the timeframe exactly?

Dan Lesnak

The next decision coming from DOC is mid-February and that’s when they will establish preliminary duties. That's when customs will start collecting duties.

Sam Dubinsky – Wells Fargo Securities LLC

Okay.

Dan Lesnak

One of the things we have seen is there was some acceleration of imports and we did in fact file critical circumstances claims that they'll also rule on. Those are designed to keep people from trying to flood the market before that determination date. We’ll see how that plays out. If they would find in favor of that, that would actually make all the duties retroactive 90 days.

Sam Dubinsky – Wells Fargo Securities LLC

Yes.

Dan Lesnak

But that’s a decision that will come a little bit later.

Sam Dubinsky – Wells Fargo Securities LLC

Okay, great. Thank you very much.

Mario Longhi

You’re welcome Sam.

Operator

And again, we have a question here from Sal Tharani.

Sal Tharani – Goldman Sachs & Co.

Thank you. Just a couple of things; first, housekeeping, what kind of tax rate should we assume for the first quarter? You've been giving a very low tax rate for the last couple of quarters, I was just wondering if you have any number for that?

David B. Burritt

I’d say that we would tend to give you guidance when we see something unusual. So I think you can read the [indiscernible] guidance is things are fairly normal.

Sal Tharani – Goldman Sachs & Co.

Okay. And second thing, Mario, I just wanted to understand on the working capital side, I don’t know if you think there is opportunity there, there are some press reports that you have extended, some payments on some of the vendors and one of your neighbors, Alcoa, has done a very good job, that you actually were at Alcoa in the past, have done a good job in last couple of years, extracting a significant amount of cash out of the working capital and I’m just wondering if there is anything you are doing on that front to get some cash out of them and shore the balance sheet on the working capital side?

Mario Longhi

Yes, you’re right, Sal. There are opportunities in that regard and we’ll certainly look at it.

Sal Tharani – Goldman Sachs & Co.

Right, is there any color you can give or are you sort of working on it?

Mario Longhi

Too soon to tell, but it’s – we are looking at it.

Operator

And our next question comes from the line of Meredith Bandy. You are live.

Meredith Bandy – BMO Capital Markets

Hi. Thank you. Similar to Sal’s last question actually. On the tax rate, are there any NOLs that we should be aware of? You said you've come off an unfortunate string of losses?

Dan Lesnak

I’m going to have to look at – I’m going to have to check into that one for you, Mario. Why don’t you give me a call later and let me see what I find out for you.

Meredith Bandy – BMO Capital Markets

I’ll do that, thank you.

Mario Longhi

And also we wish recent disclosure in our 10-K will come at the end of February.

Operator

And the next question comes from the line of Evan Kurtz. Please go ahead.

Evan L. Kurtz – Morgan Stanley & Co. LLC

Hi, thanks for the follow-up. Yes just a question on United Spiral, just kind of reading some news articles that perhaps you maybe looking to monetize that asset. is there anything you could comment on at this point and I think you can just kind of give us an overview of what they’re doing there and what’s kind of the magnitude of the losses these days.

Mario Longhi

At this point, we’re looking at what the situation is, but now we made no decision. so we quite don’t have ending more at right now.

Evan L. Kurtz – Morgan Stanley & Co. LLC

Okay. and maybe, just kind of relaying some investor feedback, one of the big pushbacks I’m getting is that, of the cost out there, a lot of the folks are kind of saying that well, this isn’t real, this is more just a function of rising prices that’s why we’re seeing better results. I just wanted to give you guys a chance to maybe comment on that and kind of share your views of what’s kind of – get to the core of the cost program.

Mario Longhi

Well, we doesn’t gave you $150 million that’s coming out of the costs.

Evan L. Kurtz – Morgan Stanley & Co. LLC

And that is the cost side of the business. That’s not commercial, that’s truly the cost side of the business.

Operator

And our next question comes from the line of Aldo Mazzaferro. Please go ahead sir.

Aldo Mazzaferro – Macquarie Capital, Inc.

Yes. Mario, I was wondering if you could possibly give us a little bit more detail on the fourth quarter costs, I mean from your guidance, it looks like you beat your guidance by something like $80 million, and I think we identified about $15 million or so of lower maintenance than expected. and I’m wondering if you just could help us filling the gap there where the additional $70 million or so may have come from?

Mario Longhi

Yes. The other pieces, we called out some of them in the release, okay plant costs, other and plant costs, our people did a very good job. we had some a little bit favorable trend in some raw materials costs, and I mean you’re comparing to our guidance, not the actuals. Commercially, pricing came in a little bit better than we thought. so we had some pricing benefits. so outage improvement, plant costs lower, little bit raw materials helping us, some commercial effects in our favor. those are really the pieces that make up that number.

Aldo Mazzaferro – Macquarie Capital, Inc.

Okay. can I ask one more, one follow-up on the Fairfield plant, I was wondering if you do go just to Tubulars and you’re running EAF as opposed to coke ovens and blast furnaces and BOFs, the headcount would obviously feel be a lot different. I’m wondering are you expecting to move headcount between plants, so what is the strategy on the headcount?

Dave B. Burritt

It is too far out, but you are going to remember we have a natural attrition that it’s natural to the company, so I wouldn’t dwell on that being any issue going into the future nor our people should be concerned with it, because its just natural stuff that could eventually happen, there wouldn’t be any need for a drastic move there.

Operator

And our next question comes from the line of Tony Rizzuto. Your line is open.

Tony B. Rizzuto – Cowen Securities LLC

Thanks, thanks for the follow-up question too. I know that capital avoidance is a big part of project Carnegie and I was wondering if you can remind me of what the capital cost would look like for a major blast furnace reline at Fairfield as well as Hot Strip Mill upgrade.

Dave B. Burritt

Well a full reline with everything being addressed that you could be talking north of $100 million.

Tony B. Rizzuto – Cowen Securities LLC

My understanding is Hot Strip Mill upgrade could be in the range of maybe $0.50 billion is that in my off pace on that Mario?

Mario Longhi

No if you are going to put a full brand new mill that that’s what it would be.

Tony B. Rizzuto – Cowen Securities LLC

All right. So what we are hearing here is that there is a possibility as you are looking at the flow path’s year that we may know longer see the flat-rolled production at Fairfield in the future?

Mario Longhi

Yes. It’s too soon to tell Tony, we got so much capability and flexibility as we look into the alternatives, but that’s a conclusion that is not validated yet.

Operator

And it looks like our last question comes from the line of Matt Murphy. Your line is open.

Matt Murphy – UBS Securities Canada, Inc.

Yes, Mario just wanted to pick your brain a little bit more on your 2014 outlook, last conference call you commented an expectation that we see more kind of six month mini cycles rather than longer sustained cycles. I sense you are sounding a little more positive on this call, have you changed your view on sort of near-term market dynamics?

Mario Longhi

I still think that that can be the case Matt, for sure I see a very gradual move on this one with many cycles in between, so I don’t see us getting back to peaks like we’ve seen back in the past and with the exception of the extremely high level of over capacity in the world and still pending situation with imports those things can flow to a quite dramatically creating the mini cycles I refer to.

Matt Murphy – UBS Securities Canada, Inc.

Got you. Thanks.

Mario Longhi

Okay. Thanks, Dan. And thanks for the questions, everyone. Especially I want to thank our employees who are working so hard for U.S. Steel to transform the way in which we work. As I have said before to all of you, transformation can be difficult and stressful, but ultimately very rewarding and we truly appreciate our employee’s commitments to our success in the future. Our outstanding safety performance is a real example of what our people can achieve and that same focus and cooperation is a foundation that we can build on and we can earn our right to grow. But before I turn it back to Dan, I want to let you know that because of Dan’s added responsibilities, he is being advanced to General Manager of Investor Relations. He has quickly become a trusted partner for Dave and me and I know he will continue to earn our trust by providing honest and forthright insights about U.S. Steel and the steel industry.

So with that…

Dan Lesnak

Thank you, Mario and thank you Dave. I really appreciate being part of the transformation here. For everybody on the call and thank you for joining us. We certainly appreciate your interest in U.S. Steel and we look forward to speaking with you again in April. Thank you.

Operator

Ladies and gentlemen, that does conclude the conference for today. We do thank you for your participation and for using AT&T. And today’s conference will be available for replay after 6:30 PM today through February 11. You may access the replay at any time by dialing 320-365-3844 and using today’s access code of 315417. Again, those numbers are calling 320-365-3844 and using today’s access code of 315417. You may now disconnect.

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