Nucor Corporation Q1 2010 Earnings Call Transcript

Apr.22.10 | About: Nucor Corporation (NUE)

Nucor Corporation (NUE)

Q1 2010 Earnings Call Transcript

April 22, 2010 2:00 pm ET

Executives

Dan DiMicco – Chairman, President and CEO

Jim Frias – CFO, Treasurer and EVP

John Ferriola – COO of Steelmaking Operations

Ham Lott – EVP

Keith Grass – EVP

Analysts

Kuni Chen – Bank of America/Merrill Lynch

Michael Gambardella – JP Morgan

Timna Tanners – UBS

Mark Parr – KeyBanc Capital Markets

Luke Folta – Longbow Research

Michael Willemse – CIBC

Sal Tharani – Goldman Sachs

Charles Bradford – Affiliated Research Group

Mark Liinamaa – Morgan Stanley

Operator

Good day everyone and welcome to the Nucor Corporation first quarter 2010 earnings call. As a reminder, today's call is being recorded. Later we will conduct a question-and-answer session and instructions will come at that time. Certain statements made in this conference call are forward-looking statements that involve risks and uncertainties. Although Nucor believes they are based on reasonable assumption, there can be no assurance that future events will not affect their accuracy.

Some of the important factors that may cause actual results to differ from predictions are listed in the, of course, SEC filings. The forward-looking statements made in this conference call speak only as of this date and Nucor does not assume obligation to update them. For opening remarks and introductions, I would like to turn the call over to Mr. Dan DiMicco, Chairman, President and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Dan DiMicco

Thank you, Lora. Good afternoon and thank you for joining us for Nucor's conference call. As always, we appreciate your interest in Nucor. Joining me for today's call are other members of the Nucor senior management team, Chief Financial Officer, Jim Frias, Chief Operating Officer for Steelmaking Operations, John Ferriola, and Executive Vice President, Keith Grass, Ladd Hall, Ham Lott, Mike Parish and Joe Stratman.

After reviewing our first quarter results and our work growing Nucor's long-term profitability, we will take your questions. First, most importantly, I want to thank everyone on our team at Nucor and at our Harris Steel and David J. Joseph operations for all of your hard work in dealing with historically bad markets that we have been in and getting the job done safely in the first quarter.

While somewhat improved economic and steel market conditions remain challenging and volatile and that's to say the least. You focus on safety, working safely, working together, is what drives Nucor's success through the cycles and builds attractive long-term value for our shareholders. Thank you again and keep up the good work and stay safe.

Our first quarter earnings of $0.10 per diluted share represents significant improvement from the loss of $0.60 per diluted share reported in last year's first quarter. These results were also better than guidance range from a loss of $0.05 per share to earnings of $0.05 per share.

Profit improvement gained momentum throughout the quarter finished by a solid performance in March. Excluding the effects of LIFO, operational results improved substantially in the first quarter of 2010 over the fourth quarter of 2009.

In our steel mill segment, the improvement in operating profits was approximately 50% but our sheet mills improving by about 80%. Our overall performance benefited from improving profits that our flat-rolled raw materials and coal finished bar businesses. And their raw material segment includes both David J. Joseph and Trinidad DRI operations.

As expected, the most challenging markets are those impacted by severely depressed non-residential construction activity. This impact was particularly happening in the fabricated construction products businesses such as metal buildings, joist, deck and rebar fabrication.

As we discussed on our last conference call and last month's guidance press release, first quarter 2010 earnings were also significantly impacted by LIFO inventory accounting, LIFO expense of 24 million for the just completed quarter compared to a LIFO credit of $117 million in last year's fourth quarter and a credit of $105 million in last year's first quarter.

This swing is largely due to recent increases in scrap and other raw material costs. Also as mentioned in our updated earnings guidance, this was an after tax impact from approximately $0.29 per share. Our team also continues to make investments to increase Nucor long-term earnings power.

First quarter results included more than $50 million startup costs for new facilities. This is up from pre-operating startup costs of $33 million in the year ago first quarter and $48 million in last year's fourth quarter. These costs for the most recent period were incurred at a Memphis, special bar quality mill, our Decatur galvanizing facility and our Arkansas CASTRIP plant.

We expect our focus on building for the long-term. We'll continue to reward our shareholders for the track of returns. Nucor has a long history of using economic downturns as opportunities for reaching new levels of growth. Earlier this month, we completed our previously announced plans to acquire 50% equity interest in NuMit LLC.

NuMit has a joint venture with Mitsui's wholly owned U.S. based subsidiary. Before NuMit with Mitsui to be in additional growth platform for investing in steel or steel related activities both in North America and globally. Consistent with our long established joint venture growth strategy, the NuMit partnership combines Mitsui's experience in Global steel markets with Nucor operational and technological expertise.

Together, we expect to be able to capitalize on opportunities for profitable growth that would not otherwise exist for either partner on a standalone basis. Mitsui has contributed NuMit's first investment all of the assets, operations and businesses of Steel Technologies Inc. We have received many questions about the valuation of our Steel Tech joint venture investment.

I would like to make clear that we are awaiting to disclose the value in our 10-Q filing at the request of our joint venture partner. We are very pleased with the value of this transaction as it reflects the reduced market value from steel related assets that occurred as a result of the severe recession.

Our investment reflects 2009 market values. Additionally, Steel Tech is a much larger business today than the company Mitsui acquired in 2007 for approximately $530 million. It is a larger company because our joint venture partner, Mitsui has done an excellent great job of growing and investing in this business.

The strategic investments make this a more attractive business today than when we first considered to invest in 2007. We are excited to be teamed with a company like Mitsui that shares our vision for long-term profitable growth. These are the additional investments made by Mitsui during this period.

They contributed their 50% share of the – excuse me – of the six my tech sheet steel processing facilities. They bought out the 10% minority interest of their joint venture partner in Mexico. They added the MSI business, the provider of OEM, inventory and processing service businesses.

And Mitsui built two new sheet steel processing facilities, one in Mexico and one in Canada. As larger company with more facilities and broader line of businesses, Steel Tech operates with more than $115 million in additional working capital today when compared to 2007 when they were first acquired by Mitsui.

Transaction itself is expected to be accretive to earnings in NuMit's first year of operations and is not expected to result in any material goodwill. Steel technologies LLC today operates 23 sheet processing facilities with 14 in the United States, six in Mexico and three in Canada, provides high value added sheet steel processing, supply chain services to customers in the automotive, appliance, HVAC, lawn and garden, construction and other markets.

The automotive market represents 50% of total volume. And appliance market provides about 25% of total volume. Steel Technology is North America's largest provider of exposed automotive blanking. Overall strip is another important market with Steel Technology enjoy the leadership position.

Our fiscal year ended March 31st, 2010, Steel Technology's net sales were approximately $1.3 billion, with shipments of about $1.4 million direct process tons and another $650,000 total process tons. Steel technologies will continue to operate as an independent unit with the current management team maintaining responsibility for the performance of the business.

This management structure will allow Nucor to continue longstanding supply chain relationships with other sheet steel processing companies but at the same time allowing Steel Technologies to independently manage its supply needs. Our team has for the fourth decade experiencing a successfully managing vertical integration between steel mills and downstream businesses.

Consummating NuMit joint venture with Mitsui was a major strategic step forward for Nucor. All we expect to be a longer profitable partnership, one of the potential for significantly stand its reach in to steel making, raw materials and downstream businesses around the world.

We are particularly excited about the immediate growth opportunities that NuMit provides us in high value added sheet steel processing and in Mexico. Also, Nucor has previously announced project to build a Greenfield sheet processing facility in Monterrey, Mexico will be implemented by the joint venture. And all of NuMit’s assets greatly expand our sheet mill group’s ability to take care of our customers and grow profitably.

I will now ask our CFO, Jim Frias, to update you on our financial position and our qualitative guidance for the second quarter. Jim?

Jim Frias

Thanks, Dan and good afternoon, everyone. As Dan, mentioned one of the key to Nucor’s highly successful and sustainable business model is our long-term focus. Our long-term focus is an integral part of the Nucor culture. It is reflected in many ways including in our strong balance sheet and our conservative financial practices.

Here are some highlights of our financial strength at the close of the first quarter. Cash and short-term investments totaled $2 billion. Our $1.3 billion unsecured revolving credit facility is undrawn and does not mature until November of 2012 and we have no outstanding commercial paper.

Our debt totaled $3.1 billion for debt to capital ratio of 29% and the only long-term debt maturity over the next two years is a $6 million industrial revenue bond that matures this year. Further, 70% of our long-term debt matures in 2017 and beyond.

Nucor holds the highest credit ratings of any North American steelmaker, with a single A rating from both Standard & Poor’s and Moody’s. Our team remains committed to Nucor long-term tradition of being an effective steward of our shareholders’ valuable capital. That is why we practice discipline and patience in executing our multi-pronged growth strategy.

We view our recent acquisition of a 50% investment in the NuMit joint venture is an excellent example of that discipline. As Dan noted, Steel Technologies is a much bigger company today than when first acquired by Mitsui in 2007. This is reflected in the working capital balances that have increased by approximately 70% since that time.

Dan further noted that are making this investment at reduced 2009 market values. As another point of reference, our investment is priced very close to the book value of those assets, while public company steel processes typically trade for 1.6 to 1.7 times book value. Nucor’s first quarter capital expenditures were $54 million. Depreciation and amortization totaled $146 million for the quarter. For the year, we continue to project capital spending of approximately $400 million. The major projects for this year are the North Carolina plate mill heat treat facility and work to expand our very successful new iron DRI facility.

For the second quarter, we expect an improvement over our first quarter results. This is supported by the first quarter trend of stronger operating performance with each successive month. That was particularly true for our steel making operations, our raw material operations including both David Joseph Company and our new iron DRI plant in Trinidad and our cold finished bar businesses. Metal margins at our steel mills should benefit from recent price increases and the slower case of scrap cost advances.

We expect continued challenging conditions for our product sold in non-residential construction markets, particularly in our downstream construction products businesses. We will again follow our practice of providing quantitative guidance in the final month of the quarter.

In summary, we’ve been able sustain all of our operating capabilities, avoid layoffs and have continued to make investments in our facilities and earnings power through a very severe recessionary period. We remain well positioned to take advantage of opportunities and to deliver long-term and profitable growth for our shareholders.

Thank you for your interest in Nucor. Dan?

Dan DiMicco

Thank you, Jim. So I’ll now ask John Ferriola to report on our steelmaking and raw material businesses. John?

John Ferriola

Thanks, Dan. Good afternoon. I want to begin by thanking all of our team members at our Nucor Steel Mills and our David J. Joseph and New Iron raw material operations for your outstanding commitment to working safely and taking care of our customers.

I am extremely proud of the work you are doing. And I will again emphasize the importance of everyone staying focused on safety. Our hard work today is going to take big dividends for Nucor in the future. We want all of our teammates to be around to enjoy the benefits of their hard work.

As always, the focus of our steelmaking and raw material teams remains on safe, efficient, profitable growth. Here are some updates on our ongoing initiatives for profitable growth. In March, David J. Joseph team completed the acquisition of Ocala Recycling. This adds four scrap yards in North Central Florida with an annual production exceeding 100,000 tons to DJJ’s scrap processing platform.

Since DJJ joined the Nucor family in March of 2008, they have added about 1.1 million tons of scrap processing capacity and 27 locations through five acquisitions and two Greenfield yards. Congratulations and thanks to our DJJ team for another successful acquisition and integration.

Our Arizona wire rod and bar mill began production this week. This mill is a very attractive asset, with an excellent cost structure that expands our bar mill group’s geographical reach and product breadth. And this asset with about 500,000 of annual capacity was added on a very attractive price, approximately $50 million and that includes the startup costs. That’s a deal that’s hard to beat. Thank you Nucor Arizona team for a safe, fast and very economical startup.

The heat treat project at our Hertford County plate mill continues on time and on budget with an expected startup in the first quarter of next year. This growth initiative will support our existing plate business by enabling us to offer our existing customers an expanded product portfolio and it will also get us into new markets and applications, such as abrasion-resistant grains used in the mining industry at high-strength grains used mainly in agriculture and construction equipment.

Our Castrip technology continues to improve and grow. Our new facility Castrip Arkansas has continued its excellent startup. During the first quarter, they delivered their first prime order for Vulcraft. These coils were produced at Castrip Arkansas, cold-rolled and galvanized at our nearby Hickman, Arkansas sheet mills, processed at Vulcraft, South Carolina into sheeting and decking material and will be used on our Hertford County heat treat project.

Not only is this testimony to the excellent startup at Castrip, Arkansas, but it’s another great example of more Nucor in action. Also during the first quarter, Castrip, Arkansas delivered its first export order for Nucor trading. That prime material will be heading to the Middle East.

And while we are on the subject of Castrip, I am very proud to announce that in March we passed the 1 million ton milestone of Castrip production. What an accomplishment. A million tons produced by a process, which many said would not work and many others gave up on. Congratulations and thanks to both Castrip teams, all of our teammates who are supporting the Castrip efforts and our customers for their support while we are commercializing this technology.

Also, on the sheet side of our business, we are in the process of installing tension levelers at both Berkeley County and at Crawfordsville. This equipment will allow us to produce a higher quality product to sell into higher value markets. And our new galva line in Decatur continues to successfully produce higher value products for the automotive and appliance market and they are doing it at a much quicker pace than we anticipated.

These initiatives are evidence that Nucor continues to be committed to profitable growth and continuous improvement even during economically challenging times. We will do what we have always said we would do, come out of this downturn stronger and more profitable than we entered it.

Looking at current market conditions, overall demand has improved in recent months. However, it is definitely an uneven recovery. The flat-rolled business has seen the most improvement due to the stronger demand from our customers in the automotive and energy segments. The automotive upturn is also benefiting our mills that serve the SBQ in cold finish markets. However, extremely weak non-residential construction continues to depress demand for all products.

We are encouraged that service center inventories remained at relatively low levels. For March, month of supply for all products on a seasonally adjusted basis, with 2.2 months, that is down from 2.3 months in February and down from 3.3 months in March of last year. Whatever the direction the economy takes in the coming months, we will outperform in taking care of all of our customers, that includes our teammates, our shareholders and the people who buy and use our products.

Nucor’s steelmaking and raw material teams are in a position of strength that results from Nucor’s highly flexible production capability and that is extremely important in today’s market where customers want to keep minimal inventory and do not want to miss a single sales opportunity.

Another strength is our highly diversified product portfolio, which enables us to offer one-stop shopping to our customers and our most important strength, the Nucor team’s can do attitude and high energy level. These strengths are evidenced by our capacity utilization performance.

Nucor’s first quarter average steel mill capacity utilization across all product groups was 73% or five percentage points higher than the industry average rate of 68%. We achieved this above average utilization even with the weaker long product mills accounting for over 40% of our total steel shipments.

And Nucor’s strengths are further evidenced by our continued success in exports. First quarter 2010 exports were over 500,000 tons or more than doubled the year ago quarter’s export volume. Nucor is uniquely positioned among U.S. steel producers to capitalize on the stronger economic recoveries being experienced in other regions of the world.

Over 60% of our steel capacity is on or had access to Deepwater. In a still very unsettled economic environment, we will continue to capitalize on these unique strengths to earn a larger piece of today’s smaller steel market. I want to again thank all members of our Steel Mill, David J. Joseph and Nu-Iron teams for you hard and extremely productive work and pleased, as always, stay focused on priority number one, working safely.

Thank you. We appreciate your interest in our company. Dan?

Dan DiMicco

Thank you, John. And once again, congratulations to the entire Castrip group for their accomplishment. More to come. I will now ask Ham Lott to update us on Nucor’s fabricated construction products businesses. Ham?

Ham Lott

Thanks, Dan. Good afternoon. Demand for fabricated construction products remained extremely weak in the first quarter of 2010. Recent competitor announcements of facility closures and plans to exit businesses highlight the turmoil in the marketplace. Nucor has over four decades of experience in managing through down cycles in fabricated construction product markets. We view cyclical downturns as opportunities to grow stronger and build long-term earnings power.

We achieved that by focusing all of our energy on taking care of our customers with product quality and service they expect, recent indications that we are earning market share gains in several businesses. I want to say thank you and keep up the good work to all our team members at Harris Steel, NUCONSTEEL, Nucor Buildings Group, Verco and Vulcraft. Dan?

Dan DiMicco

Thank you, Ham. At this time, we’ll now be happy to take your questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator instructions) Our first question comes from Kuni Chen with Bank of America/Merrill Lynch.

Kuni Chen – Bank of America/Merrill Lynch

Hey, good afternoon everybody.

Dan DiMicco

Good afternoon, Kuni.

Kuni Chen – Bank of America/Merrill Lynch

I guess just to start off on the steel products side of the equation I guess really two questions there. First, can you comment on the sequential decline in rebar fabrication volumes? It seems to run a little bit counter to what you would normally expect to see just from a seasonal standpoint. So if you could give us some color there and should we expect that to sequentially improve going forward, again, from a seasonality perspective? Then the second part of the question is just most general for that overall segment, with steel prices going up, can we expect to see some margin pressure, additional margin pressure going forward from here?

Dan DiMicco

Kuni, I think you are mistaken. Rebar fabrication is normally going to be the lowest in the first quarter and that’s almost entirely due to weather. And of course with the weather we had, I can’t say that I am all surprised to see the decline. In regard to your second question, we are seeing rising prices and we are seeing – both in our raw materials and we’re seeing indications in the marketplace that prices are rising for the finished products as well.

Kuni Chen – Bank of America/Merrill Lynch

And then just a follow-up on the flat rolled side. Can you just comment on order bookings because that remains pretty consistent as you look out into May and potentially June?

Ham Lott

The order bookings are very strong on our flat-rolled products, particularly in sheet, again, brought on by automotive, appliance and energy. OCTG, in particular, because of the recent ruling, has been very strong and our backlogs are very strong at this time. The order entry on plate is also doing well. You saw our utilization rates were high for plate. Pricing is a little bit weaker in that market, but it is improving as we move forward and we expect it to continue strong. Our backlog in plate is also very strong at this time, with both of our mill (inaudible).

Dan DiMicco

Kuni, this is Dan. Just to add to Ham’s comments, there is no doubt that raw material pricing is growing up throughout the chain for steel companies, also going up, obviously, because steel company and operations passing through costs to the downstream business units, both of our customers and internal customers and we’re going to have to do a good job of passing those costs along from our downstream operations to their customer base, because it’s – this thing is entirely being driven by raw materials of all types including coke, coke and coal, iron ore, scrap, alloys, you name it. So this process is not too different from where we were back in ‘03, ‘04 and we’re going to have to work to pass those prices along and we believe we’ll be successful in doing that in spite of the difficulties in the market because of the situation where the raw material price for everyone is going up.

Jim Frias

Next question, please.

Operator

Our next question comes from Michael Gambardella with JP Morgan. Please go ahead.

Michael Gambardella – JP Morgan

Yes. Good Afternoon. I have a question regarding the sheet business and just overall, I think in the past nine months your sheet shipments have doubled or more than doubled now to about 2 million tons in the quarter and the inventories, at least at the service center level really haven’t gone up and we’re hearing that end-market consumer inventories are kind of hand persist, not going really up. So when did we see the turnover, the transition from pure restocking of inventories to real demand?

Dan DiMicco

I am not sure we ever saw restocking of inventories, Michael. I think people took their inventories down and they’ve been managing very, very competitively. I think what we’ve seen is real demand and an apparent demand to get to the point where they are equal so that – but our customers are seeing as orders. They are ordering from us as opposed to a year-and-a-half ago and our customers were ordering from us based upon the difference between what they had in excess of inventory and what their customers demanded that they didn’t have.

If you remember back the conversations on our calls, a year-and-a-half ago, we made the comment that our customers are seeing business drop off to the tune of about 35%. So they were somewhere in the range of 65% to 75% of the normal utilization in order entry from their customers, but the mills were at 35% and that was due to that difference between apparent demand and real demand. What we’ve seen happen now is that the apparent demand has gotten to the point where it’s equal to the real demand and we’ve seen in some sectors an uptick in the real demand. Now, whether that uptick continues or flattens out, remains to be seen, but that’s really what has driven the uptick in business on a durable goods side. Plus, as John mentioned on the energy side, with the winning of the trade cases against the illegally dumped material from China and elsewhere, the energy sector has worked-off its inventory – excess inventories of all types, all country and what have you. And the increase in business due to the stoppage of that dumping and the working-off of those dumped inventories has translated through to increased business as well. John, would you like to add to that?

John Ferriola

I would just add to support what you said, Dan. Service centers are buying just what they need. They are keeping their inventories very light. Buyers remain cautious and we see this evident in a number of expedited orders that we receive on a weekly basis. And of course, our process lends itself to that type of a market to respond very quickly and meet those expedited orders, so it’s playing to our strength.

Michael Gambardella – JP Morgan

Okay. I just though in a couple of previous calls when the shipments were going up you kind were alluding to that it was more restocking than real demand?

Dan DiMicco

No, what we were saying was it was the apparent demand from our customers going up because they were done with the restocking, Michael and they were just now beginning to order more and more from the mills as opposed to take more and more out of their inventories. So it was actually a destocking situation. They’ve never restocked and we’ve never said restock.

Michael Gambardella – JP Morgan

Okay. One other question, just on the scrap side. Have you guys been importing scrap or are you now?

Dan DiMicco

We will do that as the market dictates pricing and availability. Keith, do you want to comment to that?

Keith Grass

Yes. Throughout the first quarter we were active in importing certain grades of scrap, starting probably the end of the fourth quarter into the beginning of the first quarter and we do that, as you alluded to, Dan, on and off based on market dynamics both here and abroad.

Michael Gambardella – JP Morgan

How much scrap did you bring in, in the first quarter?

Dan DiMicco

As much as we need. But it’s not trivial, it’s negligible.

John Ferriola

I would say during the first quarter we averaged between 6 to 10 cargos and the only reason I give you that range depends on when they would shift and when they arise, but that’s the base at where we’ve been.

Michael Gambardella – JP Morgan

Is that something that’s a sustainable thing?

John Ferriola

It has been on for years depending on what we’ve needed to offset what our shortfalls have been here domestically or where the pricing arbitrage make the most sense.

Dan DiMicco

I would say that the thing that drives that is the market conditions.

John Ferriola

Right. We look at pricing, we look at availability, we look at what our needs are, we take a look at what we think is going to happen in the future and make our decisions based upon that.

Keith Grass

That’s a pretty regular activity for us on and off.

Dan DiMicco

I would reemphasize what Keith just said as well that this has been going on for years. This is nothing new. When I was at Nucor-Yamato 10 years ago, we were billing it there, bringing scrapping from offshore.

Keith Grass

As John talked about in the script, having 60% of our steel mills on deepwater gives us an advantage exporting, it gives us an advantage importing scrap as well.

Michael Gambardella – JP Morgan

Thank you.

Jim Frias

Next question. Thank you, Michael.

Operator

Our next question comes from Timna Tanners with UBS. Please go ahead.

Timna Tanners – UBS

I just wanted to ask a little bit more about the scrap price because the price relative to what we were seeing on the spot market looked really favorable and if you could talk a little bit more about your strategy there, I don’t mind with that about – on the update on the pig iron project please?

Dan DiMicco

Keep in mind that there is a difference between purchase scrap pricing and used. The scrap that we are using, of course, during an upward movement of scrap, stuff we’re using is significantly lower priced than the stuff that’s coming in that you are seeing in the spot market. And with the moves that we’ve seen sometimes inside $70 ton, it’s not too far from the ground reality to be able to see why there might be a $50 a ton differential between spot and usage. That’s pretty much what we saw. John, do you have anything to add?

John Ferriola

I would just add to that, depending on the particular operations, we have different levels of scrap on the ground. On our bar mills have been looking at probably a couple of weeks, whereas on the sheet mills it’s much further out. So Dan, your point is well made that it’s a function of when the scrap is being brought in and when the scrap is being consumed.

Jim Frias

And also, Timna, we have a steady stream of low-cost material coming in from our Trinidad DRI operations which goes specifically to our sheet mills and one of our plate mills.

Timna Tanners – UBS

And sorry about – the Louisiana status of the project there, please?

Dan DiMicco

We are waiting for the last few weeks of the public commentary to be over with. And hopefully, we’ll be proceeding with the permit and then we will be announcing our plans for the 4,000 acres that we bought in Louisiana at that time. We continue to monitor the carbon debate in Washington, which has a significant cost impact on steelmaking operations of primary and raw types whether they would be pig iron or whether they would be just making liquid iron at facilities which are integrated and even though DRI plants are 50% less in terms of CO2 production, it does impact the economics of those as well. So we’re watching that. We’re watching the economic conditions. But we really can’t do anything in terms of moving forward until we have the permit in hand.

Timna Tanners – UBS

And then just one follow-up if I could. On the public sector side, we’re starting to see some signs of life and some return from stimulus and I was just wondering if you are seeing any of that yet or what you might expect there what exposure you might have?

Dan DiMicco

When you say the public sector what do you mean?

Timna Tanners – UBS

I mean the stimulus spending on highway spending from the government on public construction?

Dan DiMicco

Yeah. Well, I’d tell you what; we haven’t seen much of anything flow through to non-residential construction. And if you take a look at the commentary about people in our local papers around the country about the number of bottles and what have you that are out there not being fixed, I don’t think there has been much – any stimulus dollars making or even creating jobs in the non-residential construction sector. Now, we’ve said all along, Timna, that the second half of 2010, if we were going to see a measurable impact it wouldn’t until the second half of 2010 which we have yet to get to, but it’s a good question and you should continue to ask as we go through the year. It’s extremely frustrating with all of the jobs that have been lost and continued poor jobs claims numbers.

And the commitment to focus on jobs out of Washington is a top priority to see that we are not focusing on jobs and not creating them. It is very frustrating and it’s going to have extremely negative impact on the rate of recovery and job creation overall and we got 25 million jobs to create over the next three to seven years and we are just not doing it, or if anything, we are making things a little more difficult for private sector business in general. So we’ve got a long way to go before spending those dollars of any kind or programs have an impact, number one. And number two, if you recall, we’ve talked about this before. Of the $800 billion first stimulus package only $60 billion was in conventional infrastructure …

Timna Tanners – UBS

Right.

Dan DiMicco

…and job creation. And we are thinking that it just hasn’t showed up yet, because of lots of time it takes and also, because of the lack of revenues that the state has to match the federal funding that would come along. So we’re basically nowhere and it’s been, I don’t know, a year plus since that got passed.

Timna Tanners – UBS

Okay. Thank you.

Jim Frias

Thank you. Next question.

Operator

Our next question comes from Mark Parr with KeyBanc Capital Markets.

Mark Parr – KeyBanc Capital Markets

Hey, thanks very much. Hey, Dan, how are you.

Dan DiMicco

Good.

Mark Parr – KeyBanc Capital Markets

You really sound good. Glad to see that. I wanted to ask…

Dan DiMicco

You don’t sound too good.

Mark Parr – KeyBanc Capital Markets

I have been talking a lot.

Dan DiMicco

You have to listen more.

Mark Parr – KeyBanc Capital Markets

Well, I always like listening to you guys, so that’s a nice break in the action. Trust me.

Dan DiMicco

That was a joke, Mark.

Mark Parr – KeyBanc Capital Markets

Dan, could you talk about metal spread trends as the first quarter progressed and how you see metal spreads moving through the second quarter?

Dan DiMicco

In general, we’re behind, but we’re working very hard to pass along the increased raw material costs. We’re going to have to do a better job at that going forward and we think we will. There has been a lot of price increases across many of our products, multiple price increases and we’re seeing the benefit of that. But in reality, we’re still behind the rapid rise in raw material costs. So we expect that to improve dramatically as we go through the second quarter. But I’ll let John give you more flavor on that.

John Ferriola

The only thing I would add is that we have some anticipation that we might see scrap pricing stabilize a little bit with the break in the winter weather. It’s been a particularly harsh winter and that greatly reduced the flow of scrap. With spring coming, we hope to see the increased flows and we anticipate that bringing a stabilizing effect on scrap pricing. And as Dan mentioned, we have several product price increases already out there. So if scrap stabilizes and when we collect price increases, we should see some increase in margins.

Mark Parr – KeyBanc Capital Markets

So is it fair to say that in your qualitative commentary for the second quarter you would expect some improvement in the metal spread situation relative to the first quarter?

Jim Frias

Yes. And more so obviously in the products outside of non-residential construction. You’re going to see some there.

Mark Parr – KeyBanc Capital Markets

Okay. Terrific. Thanks very much.

Jim Frias

Thank you, Mark.

Operator

Our next question comes from Luke Folta with Longbow Research. Please go ahead sir.

Luke Folta – Longbow Research

Hi. Good afternoon, everybody.

Dan DiMicco

Good afternoon, Luke.

Luke Folta – Longbow Research

My first question was, I was hoping that you could give us some feel for what the contribution was maybe from the sheet and plate side of the business versus the long product side. And I know you guys don’t typically break that out, but I’m just trying to get a – trying to help me quantify what the potential ramp, when it comes, could be as far on the long product side.

Dan DiMicco

Luke, in my opening remarks I made some comments and I’ll just repeat them. We said that in our steel mill segments the improvement in operating profits was approximately 50% over the fourth quarter of 2009 with our sheet mills improving by about 80%. And that’s about as close to an assessment that we’re going to give out on relative profitability of the two segments. But you can take a look at what our total product mix is, that information is out there, you can ascertain how much of it is sheet, how much of it is non-sheet and you can get an idea from those ratios I just gave you how much of that improvement was in the sheet side of things relative to the overall number and where the other ones are. So a little bit of math, little bit of homework and you can work that out, but that’s pretty much the information that we’re providing at this time.

Luke Folta – Longbow Research

And secondly, if we do get some pause or maybe even some pullback in scrap prices here in May and potentially over the summer, do you think it makes more sense to try to go for metal spread expansion at that point and try to extend margins or do you think you might use that advantage to your – or use that lower cost to your advantage and maybe go for more market share?

Dan DiMicco

We will respond based upon what the market tells us we need to do. If the market says we can expand margins, we’ll expand them. If the market tells us that we can’t, we’ll use it to be competitive. And the market I’m referring to is both the domestic and the international market because of the level of imports that we see every year and also because of what we’re doing in the way of exports. Obviously, our drivers would be we’ve got ground to make up on the scrap costs and other raw material costs even if scrap plateaus and if it goes down some, that will help and we’d like to be able to make up that ground. But the market is going to tell us what we can do and not do and our folks would be happy to read that market on a daily basis.

Luke Folta – Longbow Research

Thanks a lot.

Operator

Our next question comes from Michael Willemse with CIBC. Please go ahead.

Michael Willemse – CIBC

Thanks.

Dan DiMicco

Hi, Michael.

Michael Willemse – CIBC

Just following up on the comments on the exports, 500,000 tons in the first quarter, is that a good run rate for the rest of the year or do think that will keep going higher?

John Ferriola

We’ve set our goal for this year to export 15% of our product. If you look at that number, that’s just about 11%. So we still have some ground to make up. And remember, we are continuously improving and building our international sales team and our trading company. You might recall last call we mentioned that we have opened up an office in Dubai. It takes some time to get into the market, to get name known in the market. So, that’s going very, very well. So we expect that to continue to improve as the year goes forward.

Michael Willemse – CIBC

What would be the best export markets right now?

Dan DiMicco

Clearly in terms of geographical area, South America and Columbia is very good for us, Central America, the Caribbean. We’ve definitely that’s outside of NAFTA. Within NAFTA, Mexico across is very strong for us. If you think about the location of our facilities in the Southeast, logistically we can reach Mexico, South America, Central America very well and so those have been the areas that we are focusing on. Of course and again within NAFTA going in the other direction, you have Canada and we traditionally have put a lot of product and continue to grow our business in Canada, both through the Harris organization and with our bar products and billet sales into Canada.

Michael Willemse – CIBC

And one more question, the pre-operating and startup costs of $50 million in the first quarter, how should we look at that going forward? Are we going to start to see that decline next quarter?

Dan DiMicco

It will decline slightly is our expectation, not a lot. We’re thinking to be in the $40 million to $45 million range right now.

Michael Willemse – CIBC

And when should we see that really start to fall off?

Dan DiMicco

It should be falling off in the third quarter throughout the rest of the year, but we will see.

Michael Willemse – CIBC

Okay. Thank you very much.

Dan DiMicco

Keep in mind, we are talking about the Memphis SBQ facility, the Castrip operation at Arkansas and the galvanizing facility in Decatur and ramp-ups on those things are going very well, but it just takes time to penetrate market, to build up customer base and build up production capabilities and proficiency. Teams are doing good job and are on track, but we are not there yet.

Jim Frias

Next question, please.

Operator

Our next question comes from Sal Tharani. Please go ahead.

Sal Tharani – Goldman Sachs

Good afternoon, guys.

John Ferriola

Hi, Sal.

Sal Tharani – Goldman Sachs

John, is there any downtime expected in the second quarter in any of these mills you have?

John Ferriola

We’ll have some downtime, but it will not be major in our bar and long products with the operating utilization rates of what they are at, we do a lot of the maintenance during the normal operating periods when we have the time. On our sheet mills and in our plate businesses we are not expecting any major shutdowns on our plate business and we’ve already had a few both on the plate and sheet side, so we are not expecting any major shutdowns in the second quarter.

Sal Tharani – Goldman Sachs

Right. And Dan…

John Ferriola

Yeah, particularly versus first quarter. We had a couple of weeks of shutdown in the first quarter.

Sal Tharani – Goldman Sachs

And Dan, the discussion about final and apparent demand has been going on for a long time and you have commented many times. And I remember in March in the SBB conference you had made a comment that it will take another quarter or so before we realize if apparent and final demand has matched because apparent demand was higher than the final demand at that time. Looks like today you’re saying that it appears that they matched and now people are just finding what they needed. Is that correct to think of the way you position yourself?

Dan DiMicco

In general, I would say that today we see that higher order entry is tied to real demand now. Not so much from differences between apparent and real demand, although the service centers and customer base have been keeping their inventories particularly lean and at some point in time there may be some additional buying as we go through the second quarter, get reinforcement and things are getting better as opposed to plateauing or going down slightly. Remember, there is modest stimulus in some segments of the economy that have allowed things to look a lot better than they had.

They need that cash for clunkers both in the automotive sector and in the appliance sector. Something I read just yesterday that was very disturbing was in the appliance sector the cash for clunkers or the energy efficiency trade-ins have been strong for about three plus months when all of a sudden they started to drop off dramatically in terms of what the appliance makers are getting in the way of orders. So, we have to watch and see if that is a short-term slowdown or if that’s typical of what we saw in the automotive side after the cash for clunkers disappeared.

The other thing to be cautious on the automotive side is that we’ve had a strong first quarter and that is because the automotive guys have been rebuilding their inventory, also because of the incentives that have been in place so they are throwing orders in the future. And so, there is some staying power questions with respect to the automotive side as to whether or not the first quarter build rate will carry through the rest of the year or not. We’re just going to have to watch it as we go and see how demand is in the real market. But more than in the past, we do believe that order entry is tied to real demand now as opposed to being impacted by artificial inventory destocking or restocking.

Sal Tharani – Goldman Sachs

Okay. Great. Thank you very much.

Operator

Our next question comes from Charles Bradford with Affiliated Research Group. Please go ahead, sir.

Charles Bradford – Affiliated Research Group

Good afternoon. Could you…

Dan DiMicco

Good afternoon, Charles.

Charles Bradford – Affiliated Research Group

Hi. Could you address the issue of the strong Loonie and what impact that’s had on Harris and also your ability to export?

Dan DiMicco

Loonie? Didn’t that go into extinct to something?

Charles Bradford – Affiliated Research Group

That’s what the Canadian still call their money.

Dan DiMicco

I don’t personally have a comment on that. I don’t know if any of the team does.

Jim Frias

I don’t think that’s really hard a severe impact on the business relationship, cross border business for Nucor.

Dan DiMicco

It really has been pretty strong, has it not?

Charles Bradford – Affiliated Research Group

I would suspect it would help your exports. The question is – somewhat does it hurt the Harris business?

Jim Frias

In Canada and again I don’t know if Ham wants to speak to this a little bit more or not, but in Canada most of their business is being done in Canada. And our export business to Canada certainly has benefited from the strength of the Canadian dollar. But in terms of where Harris stands, I think the big driving force behind the rebar fabrication business has just been the lack of business and the fact that backlog has disappeared throughout the chain and it’s going to take time to build them back up again. Ham?

Ham Lott

Yeah. We don’t export either from the United States or from Canada to the other country on fabricated rebar. Where the bar is fabricated is where it’s sold, it doesn’t come across the ore.

Charles Bradford – Affiliated Research Group

And could you also give us some ideas of what you are thinking about all the capacity that’s being reopened, looks like about 9 million tons of flat-rolled and whether that might not be too much for the market?

Dan DiMicco

Not that I have ever spoken in a factual straight forward manner on questions like that. So, I don’t think I’ll change now. Our opinion on this is that, listen, if true demand is really increasing by that much, we’re fine. We have serious concerns that capacity being brought back will get ahead of the demand in the marketplace because the economy really isn’t growing. They are not creating jobs. We’re not seeing a lot of commercial construction and non-residential construction.

And so, it’s a concern and it should be a concern for everybody and anybody that says it’s not an issue is kidding themselves and trying to kid you. So, if 9 million more tons is coming back in plus if we start to see a pickup in imports that’s certainly going to have an impact in the marketplace unless demand increases commensurate with that. We have some concerns about that. As you know, there is going to be another mill starting up sometime this summer in Alabama, (inaudible) in Germany and that’s just more capacity coming in at a time when people really aren’t running across the board at 100% utilization by any means, even on flat-rolled and there is so much more domestic capacity that can be brought back. So, if it all comes back and the straight skinny is if demand doesn’t go up with that, it’s going to have an impact. Right now, the odds are we’ll have an impact.

Charles Bradford – Affiliated Research Group

Thank you.

Operator

Our next question comes from Mark Liinamaa with Morgan Stanley. Please go ahead, sir.

Dan DiMicco

Hi, Mark.

Mark Liinamaa – Morgan Stanley

Could you comment at all on what the impact of Trinidad was on the first quarter and provide any commentary you could on the state of the pig iron market as you see it now? Thanks.

Dan DiMicco

John, you want to address that?

John Ferriola

Well, pig iron pricing has been increasing steadily. It has increased quickly over the last year. It’s probably in the neighborhood today of about $500 a ton, somewhere in that ballpark. So with that, of course, Trinidad operation becomes more valuable to us. The Trinidad operation has been running well, recently running at full capacity and continuing to push the envelope as Dan mentioned in his comments. One of the areas that we’re going to be expanding our operations is in Trinidad to improve and to increase the output of Trinidad. So it’s had a very positive impact on us through the first quarter.

Mark Liinamaa – Morgan Stanley

And was there an outage cost in the first quarter that – just thinking about sequentially what the effect on earnings could be?

John Ferriola

So an outage cost?

Mark Liinamaa – Morgan Stanley

Yes. So is there anything flowing through the P&L on that end?

John Ferriola

Affected from DRI in Trinidad?

Mark Liinamaa – Morgan Stanley

Yes.

John Ferriola

Yeah, absolutely.

Mark Liinamaa – Morgan Stanley

And could you put a number on it at all?

John Ferriola

No, no.

Mark Liinamaa – Morgan Stanley

Okay. Fair enough. Okay. That's all I have.

Operator

And our next question comes from Luke Folta with Longbow Research.

Luke Folta – Longbow Research

Hi guys. I just had a follow-up on Trinidad. I mean, is there anything that would stop you guys from maybe doubling the capacity over there or making a more dramatic expansion? I mean would you be able to keep the same favorable natural gas pricing that you have in the operations currently if you would make a meaningful expansion there?

Dan DiMicco

We are going to make a meaningful expansion but meaningful doesn’t mean doubling and I think we’re looking at – about a 10% increase in production there with what we’re doing now. But, yes, we are exploring that opportunity and that opportunity does exist under certain conditions and we have explored that and we’ll continue to explore doing that in Trinidad and elsewhere.

Luke Folta – Longbow Research

Okay. Then you said earlier about regarding the Mexican mill and I’ve heard you talk about that in the past and I’m not sure if your comments were more immediate in nature, but can you give us a feel of what the scale of a project like this might be and maybe some sense of timing?

Dan DiMicco

You said Mexican, you meant Louisiana project?

Luke Folta – Longbow Research

I think you had mentioned that…

Dan DiMicco

That’s a Mexican processing. Steel processing as opposed to steel mill?

Luke Folta – Longbow Research

I thought you had – we’ve talked in the past I though you’ve said something about there being a potential for a sheet mill down the road there and I thought that…

Dan DiMicco

I mean, yeah, we’ve talked about that in a very long-term sense, but we’ve not said anything about building a sheet mill down there today or in the near future, although we won’t rule that out. But no, what we’ve been doing in talking about in Mexico is the benefits coming to us by having joined the Mitsui joint venture at NuMit and the fix steel processing operations in Mexico that are part of the joint venture now and in fact it will be building a modern state-of-the-art steel processing facility in Monroe, that will be significantly larger than anything down there today. And that will include, as I recall, some processing further down like…

John Ferriola

Franking [ph] and then also pickling. That’s the big advantage we are going to be having when we put our processing center in Mexico. In addition to having a great market for pickling there it will allow us to bring our products into Mexico more easily and distribute it better from Mexico from pickling. So it’s additional processing further downstream processing that will support the current steel processing in Monroe and other areas of Mexico and the pickling facility.

Dan DiMicco

We haven’t really talked publicly about putting a mill there. So I am not sure where you are getting that from, but it may be a confusion between the steel processing and pickling facilities and the concept of a steel mill or what have you, finishing facility is attached to. This is strictly a processing venture at this time.

Operator

This concludes today’s question-and-answer session. At this time, Mr. DiMicco, I’ll turn the conference back over to you for any additional or closing remarks, sir.

Dan DiMicco

Thank you, Lora. I’d like to thank everybody who participated in the call both of Nucor and in the investment community. I appreciate your questions, appreciate your interest. I’d like to thank all of our Nucor teammates, shareholders and customers for your support of Nucor and helping us to continue to improve our operations and our profitability in these challenging times. And our best years are still in front of us, both for our shareholders and for our teammates. Thank you.

Operator

This concludes today’s conference. Thank you for your participation. You may now disconnect.

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