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Executives

Michael Siegal – CEO

David Wolfort – President and COO

Rick Marabito – CFO

Analysts

Martin Englert – Longbow Research

Richard Garchitorena – Credit Suisse

Sandeep SM – Goldman Sachs

Tim Hayes – Davenport & Company

Aldo Mazzaferro – Burke and Quick

Olympic Steel Inc., (ZEUS) Q4 2010 Earnings Call February 24, 2011 10:00 AM ET

Operator

Good day ladies and gentlemen, and welcome to the Olympic Steel Inc. fourth quarter results conference call. (Operator Instructions)

I’d now like to turn the conference over to your host Mr. Michael Siegal, Chief Executive Officer. Please go ahead.

Michael Siegal

Thank you. Good morning and welcome to our call. On the call with me this morning is David Wolfort, our President and Chief Operating Officer, and Rick Marabito, our Chief Financial Officer. I want to thank all of you for your participation and your interest in Olympic Steel.

Again, before we begin our discussion, I want to remind everyone that during this call we will provide forward-looking statements, that we do not undertake to update, or that may not reflect actual results, changes in assumptions or charges in other factors affecting such forward-looking statements, important assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements can be found in our filings with the Securities and Exchange Commission including our 2010 Annual Report on Form 10-K, which will be filed later today.

And so, earlier today, we reported our financial results for the fourth quarter and the yearend December 31st, 2010. Net sales for the full year ended December 31st 2010 increased by 53.8% 805 million compared 523.4 million for 2009. Our shipments in 2010 increased 34.3% to 969,000 from 721,000 tons in 2009. Net income for the full year 2010 was 2.1 million or $0.20 per diluted share compared a 2009 that was up $61.2 million or $5.62 per diluted share, which included the 81.1 million are lower of costs for market pretax charges to right down the value of inventory in the first half of 2009.

In addition, our 2010 results included a third quarter 2.1 million pretax bad debt charge of related to an abrupt and unannounced closure of a private equity own direct manufacturing customers. Net sales from fourth quarter of 2010 increased 55.4% to 215.2 million or 138.5 million for the fourth quarter of 2009. Our shipment in the fourth quarter of 2010 increased 31% to 254,000 from 194,000 in the fourth quarter of 2009. Fourth quarter 2010 net was totaled $1.6 million or $0.15 per diluted share compared to a net loss of 2.6 million or $0.24 per diluted share for last year’s fourth quarter.

2010 fourth quarter results included a non-favorable tax rate impacting earnings negatively by approximately $0.02 per share and Rick will discuss this further in his remarks.

We are pleased obviously to our return to profitability in 2010. Strategically growing our geographic footprint increasing our market share adding logistics capabilities and well positioning our yearend inventory position us to accelerate our market share penetration, and overall profitability in the improving North American Economy.

Our 2010 shipments increased by 34% over 2009, which is significantly greater than the total industry growth and steel shipments of 21% as reported in the Metal Service Center Institute’s Market Activity Report.

Throughout 2010, we continued to earn new business awards from large OEM customers seeking financially strong, quality oriented suppliers like Olympic Steel. Our continued commitment to capital investment in geography equipment and (inaudible) Olympic Steel when customers are choosing long-term supply relationships.

Our strong balance sheet along with our new 125 million five-year asset-based loan facility and the $200 million three-year self-registration statement filed with the SEC in 2010, provides us with access the funds for increase working capital leads in our capital investment programs.

We strategically invested in growth initiatives streams in 2010 including ordering a new temper mill and cut-to-length line to be located on the United States Steel Corporation, Gary Works site Indiana. We also invested in stainless steel and aluminum product lines, which experience growth and accretive to our results in 2010. In additional equipments and geographic expansion with our new location in Mount Sterling, Kentucky, which is currently being equipped and is expected to begin operating in March 2011 and our relocation to Moses Lake, Washington.

In addition to (inaudible), we also continue to explore growth via acquisition opportunities in 2011. These time the investments, which David will expand later in the call, will provide both tonnage and revenue growth and real value creation in recovering economic involvement in North America. Also today, we reported that Olympic Steel’s Board of Directors approved a regular quarterly cash dividend of $0.2 per share to be paid on March 15, 2011 to shareholders of record on March 1st, 2011.

And now I’d like to turn the call over to Rick to comment in detail on some of the financial results.

Rick Marabito

Thank you, Michael, and good morning everyone. Michael spent some time on our tonnage and sales growth, so I’ll start my comments related to gross margins.

As a percentage of net sales, gross margins totaled 17.9% in the fourth quarter of 2010 compared to 19.3% in the fourth quarter last year. For the full year of 2010, the gross margins totaled 19.2% compared to 4.1% last year. And again, as Michael just reminded us, last year’s gross margins included $81.1 million of the inventory lower cost to market adjustment that were recorded in the first half of 2009.

Internally, we measure our gross margin result on a per ton basis, and the margins per ton were $151 versus $138 for the fourth quarter of 2010 compared to 2009. For the full year of 2010, our gross margin per ton totaled to $160. Our gross margin trend in 2010 by quarter was as follows; $160 per ton in Q1, $172 in Q2, $156 in Q3, and then the $151 per ton in Q4.

The second half margin dropped off was primarily due to a very competitive of market price. That was impacted by down work pricing pressures in the third and fourth quarters. In 2010, a larger percentage of our sales were also made to the lower-margin automotive industry, and we also increased our sales of stainless steel, which carries a higher gross margin per ton but a lower gross margin percentage than our carbon products.

In terms of operative expenses, they increased by $30 million or 25% in 2010 as compared to 2009. The 25% increase in 2010 expenses primarily relates to variable costs associated with the 34% increase in our shipments and our return to profitability in 2010. In order to meet increased customer demand, our headcount, the use of temporary labor overtime and delivery costs to our customers have all increased. Additionally during 2010, we phased-in pay restorations for employees’ compensation that was originally reduced in 2009. And as we stated earlier, our selling expenses included the unexpected $2.1 million bad debt charge at the end of the third quarter.

In terms of capital spending in 2010, it totaled $17.8 million compared to depreciation expense of $13.3 million. We continued to strategically invest in our recovering market with the majority of our spending related to IT and communication systems, new fabrication equipment. The purchase of land and a facility at Mount Sterling, Kentucky, and the down payments for the new temper mill and cut-to-length line equipment that will be located on U.S. Steel Gary Works Facility.

During 2010, we also capitalized 3.8 million and expensed $1.4 million related to the IT system implementations. We’d expect our capital spending in 2011 to ramp up to approximately $35 to $40 million inclusive of payments and the temper mill and cut-to-length line, equipping our Kentucky facility and continuing our system role.

Our effective tax rate for 2010, as Michael talked about earlier, ended up at 43.9% and it’s above five percentage point higher than Olympics’ normal rate, this would be the effect of permanent non-deductible tax items applied to a low pretax income level and an ability of us to take certain tax reductions, like the manufacturing deduction, one third 2010 taxable income flip to a taxable loss in the fourth quarter. We would expect our 2011 tax rates to return to our normal range of 38% to 39%.

And then to conclude some other financial metrics and highlights, our inventory turnover for the year of 2010 was 4.6 times that slightly shy of our targeted turnover rate of five times per year. Our inventory would strategically and intentionally higher at year-end, and we would expect to be at five turns in the first half of 2011 as our shipments are accelerating.

Our 2010 accounts receivable, DSO ended at 42 days, that’s up above 4 days from 2009, that increase is due to some slow down in customer payments, as well as the impacted increasing sales has on the DSO calculation.

Our total debt was $55 million at year-end and availability under our new ABL credit facility was $68 million at year-end. The new bank agreement also lowered our interest cost and provided us with significantly more flexibility than our previous agreement.

Our debt is anticipated to be higher at the end of the first quarter of 2011, as we fund increase working capital needs associated with higher sales levels and increase prices. Shareholders’ equity per share at year-end was $24.01 and during 2010 we paid dividends totaling $0.08 per share or $870,000 for the year.

Now I’ll turn the call over to David.

David Wolfort

Thank you, Rick, and good morning to all. I want to echo the team that Michael noted at the onset of this call and we are pleased with our shipping and sales strength and the market share gains achieved in 2010. We experienced stronger than normal customer demand in the fourth quarter and that shipping strength has continued into 2011.

Our timely and well planned investments in inventory provide us with the opportunity to continue growing our market share while improving our profitability as the market recovery continues.

Olympic’s inventory entering 2011 is well positioned, as we strategically bought heavier and advanced of the price increases, we are anticipating growing customer demand that we started to recognize in the tail end of 2010 and continuing through 2011 as Rick indicated.

We have a four compliment of inventory and we have experienced both volume and price increases for all products that we sell and we are indeed winning of the business and winning the price, as there is series of some 6 to 7 official mill price increases from November forward.

We believe our customer demand and market prices will continue to accelerate in the first half of 2011. In the January, MSCI middle activity report provides encouraging support, showing a rise in steel shipments combined with balance to inventories at only 2.4 months on hand.

Last year 2010 was a (inaudible) year for Olympic steel, as we continue to invest heavily in our future. Our strong balance sheet and access to capital provided us with the advantage of spending money in a down market on facilities and equipment were less expensive, personal or available ,and the rewards of these investments would be reaped just as the market returns to growth again which we are now witnessing.

Our investments were made in four different strategic growth streams, product line expansion, geographic expansion; additional equipment and value added processing capabilities for our customers and lastly investments in personal.

In terms of product line growth our efforts of past two years have been focused on stainless-steel and aluminum that we referred to internally as specialty metals. We have made a strategic acquisition and Integrity Stainless in February of 2010 as we have advised in previous quarters.

Upon the acquisition integrity with throughout the part which is, and continues to be a profitable niche stainless steel sales organization in Cleveland has had some exponential growth on this platform for our specialty metals business. Integrity was immediately accretive to our results and we have already made investments in processing equipment to allow integrity to enter the stainless steel platform market.

We also added aluminum as a new product category in midyear of 2009, while we do not provide separate sales and earnings disclosures for specialty metals, we do have a goal to grow the percentage in this area faster than our carbon business in the next few years resulting specialty metals becoming a greater share of the total consolidated sales in our, that constitutes of growth today.

So far we have been successful in growing in this business from 7.1% of our total company sales in 2009 to last year’s accomplishments growing it to 9.05%. For 2011 our employ ends including locating our specialty metal personal and offsets in a new location as well as utilizing existing equipment in existing Olympic locations to expand the processing, our out processing of specialty needs.

As per the second turn of our growth that being geographic expansion, we’ve been quite busy adding two new Olympic locations and we’re locating a third in 2010. First after a lengthy and targeted commercial effort In August of 2010 we announced the addition of a new Olympic facility in Mount Sterling, Kentucky, which is about 30 miles east of Lexington. We purchased 14 acres of land in an existing 100,000 square-foot building to perform plate burning, machining, forming and shot blasting, anchored by Blue Chip customers such as Link-Belt and Hoffman and several other T accounts in the area, we expect to be operational from this new facility by the end of first quarter of 2011 and we are on target.

The Mount Sterling site reinforces our strategy of being closer to where our customers assemble their products. We are thrilled to be serving marquee customers in the Commonwealth of Kentucky.

Next, in November of 2010 we announced a new location in Gary, Indiana to house a $20 million investment and a new temper mill cut-to-length line our third temper mill cut-to-length line. We are grateful to US Steel for allowing us the opportunity to locate on their Gary Worksite once operational in 2012, this facility will add approximately 150,000 new tons of high quality tempered sheet capacity for Olympic Steel and significantly reduce our inbound and outbound fray cost while better servicing customers within this geography from our existing two temper mills, Cleveland, Ohio and Bettendorf Iowa.

Our Cleveland and Iowa temper mills were added in 1994 and 1996 respectively and we are significant drivers in the Olympic Steels, grow to greater than 1.3 million tons and $1 billion in sales. Our agreements with temper mill and cut-to-length line manufacturers also provide us with an option to purchase a second like kind piece of equipment at favorable terms consistent with the original purchase order that we offer. We believe our temper mill investments will be the driver of the Olympic Steel’s next big growth expert.

Let me continue. In early of 2010, we also completed to move to Moses Lake Washington to serve our customers in that region of the country. This marked our first physical location in the Western United States. In 2011, we plan to continue adding geographic locations. We are finalized our selection of locations in both Mexico, (inaudible) and Kansas City to better serve our customers in those geographies. We will also study the benefits of the additional temper mill option for the Southeastern United States.

Our third growth stream comes from new processing and value-added equipment investments. In addition to the value-added equipment placed in Kentucky and the new temper mill we made a major upgrade to our Cleveland temper mill replacing a 15 year old Rocking Sheer with a new Butek rotary sheer which began operating in January. We took off three weeks of production in December to install this new rotary shear and we’ve added fabrication equipment in Minneapolis Plate and Dover, Ohio facilities. For cost savings and improved customer service, we increased our own truck fleet in 2010, elevating it from 17 to 27 tractor trailers and right now we are at 39 and by the end of first half we’ll be at 42 in terms of our own truck fleet.

Lastly, let me continue to remark on our continued investment in people. During the economic downturn we blocked the trend and did not reduce our sales force but instead hired and expanded our commercial team, this strategy take dividends with market share growth during the economic downturn. We also restored compensation and benefits for all employees that we’ve reduced during the 2009 recession.

We are confident in our revenue growth and profitability opportunities as we enter 2011. We believe that our timely and well planned investments in people, facilities equipment and new products in inventory in 2010, provide a strong foundation for significant growth and value for our shareholders, our customers and the employees of Olympic Steel.

This concludes our formal comments and we will now open the call to your questions. Thank you.

Question -and-Answer Session

Operator

(Operator Instructions). Our first question comes from Martin Englert of Longbow Research. Please go ahead.

Martin Englert – Longbow Research

Good morning. In the press release you had mentioned about the favorable inventory position, you gave a little bit color earlier and it sounded like, mainly that was a pretty buy for the products ahead of these of price increases. My question is, is the market currently, I guess tighter that this could give you some kind of advantage holding the actual inventory in the first half?

Michael Siegal

Well, I don’t that its advantage, but we buy inventory to sell inventory. And well, we have certain disciplines in terms of inventory turn-over, we obviously decided to go long on that, anticipation of the recovering economy and some significant and pricing increases which obviously are (inaudible) and others. So I don’t know it give us an advantage but certainly we are capable of servicing our customers’ growing demands and we are in a pretty good shape for the growth that we anticipate.

Martin Englert – Longbow Research

Okay, excellent, one quick follow-up on that. Any particular area that you focus more, was that the white gauge or in the specialty or it’s across the board?

Michael Siegal

Across the board I guess. Yes, everywhere.

Martin Englert – Longbow Research

Okay, excellent. Thank you.

Operator

Our next question comes from Mark Parr of KeyBanc Capital Market. Please go ahead.

Mark Parr – KeyBanc Capital Market

Hey good morning. And congratulations on all the growth initiatives and the positioning. Certainly you’ve got tremendous opportunities on folding for you and I think it’s terrific. One thing I’m curious, and Dave, I don’t know, you may want to comment on this or Michael, you may want to comment, but refer to everybody and (inaudible) talk about how great the first of 2011 is going to be? And yeah, that’s terrific, but I’m wondering, what is it, is going to help you to feel comfortable about the second half or the third quarter? How soon will you, you think you might have some feel for what the third quarter or the fourth quarter might look like?

David Wolfort

Well, a couple of things Mark, its David here. First of all, we have growth as I remarked in both our specialty metals, so stainless and aluminum are increasing and they continue to increase and we continue to make investments in all aspects geographically, equipment wise, people wise, so we have some great strength and that has grown almost exponentially I would say as I remarked we’re up to 9.5% through 2010. Next our value added business has grown dramatically too, we added Mount Sterling, I remarked that we’ve finished our site selection in Kansas City, also at Monterrey Mexico, we are putting the finishing touches on those leases, those are value added facilities and the continuity of that business is very sustainable.

These are long-term agreements we have with Blue Chip customers, highly engineered decreed product manufactures in North America and so, we think there is a great amount of stability there. The third one of that, which is our service center business which is the original business, obviously we have a temper mill, our third temper mill coming on, it will be operational by this time next year we’re in Gary Indiana as we talked about, we wouldn’t make this investment in next 150,000 tons, if we didn’t have that committed to, and so we are pretty much, are expanding up while we’re going on value added. As we push further west, we talk about Moses Lake and so forth, so what we do is we see a tremendous sustainability with our large OEM customers.

Our spot business continues to get smaller, it’s about the third of the proposition today and if you remember and you’re being with us for a long-time Mark, following us, that was greater than 50% at one point in time, so we continue to narrow the flexibility on that spot side of the equation and we have more durability and more consistency. We’ve remarked in past quarters and I’ll punctuate this year, we marked the past quarters at the large OEMs, what we see is the flight to quality and it’s the flight to the quality of the balance sheet. So, our strength of balance sheet here, it is driving this Blue Chip customers to us and we see great continuity in their business, not only in 2011 but we also see growth in 2012 and growth in 2013.

Michael Siegal

I want to answer the other part of your question Mark. When you see what’s going to happen in the third and the fourth quarter, is not yet. This global factor that we are going on in the Middle East is impacting, every (inaudible) construction markets and abilities now (inaudible) now that impact the scrap market. So what we can tell you is is that when mills get busy, everybody gets busy at the same time. And when steel mills get busy then usually runs into production problems at the mills. I mean, so we would anticipate in the normal cycle that as the mills get busier is what we are seeing with an increased operating rates, you will see continued production problems which will (inaudible) on gate, I think supply constraints for the back half of the year.

Martin Englert – Longbow Research

Okay. I heard Rick talk about the inventory turns in the first half being higher than the back half of 2010. Is that a reflection of just stronger demand unfolding or have, is that a reflection of the fact achieved you are not buying as aggressively here with the spot prices (inaudible) 50?

David Wolfort

There are a couple of things Mark, it’s David here and I’m looking a comment on the financial piece of that. Number one, our Cleveland temper mill was down three weeks as we put in that’s rotary sheer. That’s back up; it’s running at a 100%. We are very happy with the Butek rotary sheer. We’re getting great productivity offer that. So, we have an increased participation out of this particular facility in this region. From a more generic standpoint, we just we got up to a very quick start in 2011 much more demand and then we anticipated strong demand. The inventory level that we restored is back as much in line with our normalized inventory rates as our customer signal that’s they were much busier than they anticipated and we are able to buy into that. We’re maintaining that level because we’re seeing consistency in that business and restoration of the marketplace along with the business is that new businesses that we recruited.

Michael Siegal

Right. And then, I think Mark it’s just (inaudible) as we commented the fourth quarter while it was very strong in terms of a normal expected fourth quarter. As you know volumes are lower in fourth quarter, we did buy more inventory in the fourth quarter and as we look out in the first half based upon our run rates on sales and where inventory is going to be -I think will be right back in and around our five inventory turns. So, it’s positioned well.

Mark Parr – KeyBanc Capital Markets

Okay. David, Just one last question if I could, do you think—could you give us any thought on where are you think the volume for a 11’ overall might come in versus 10’? I know you have a lot of growth initiatives so, and I am trying to give essence of your how much growth so you’re gonna give from growth initiatives, new products, new value add capabilities and how much do you think that the base business could grow in terms of at least for proportions there? And, if you wanted try to put a range as far as , how much you think your business could grow overall than 11’ that, which you probably won’t, but I mean if you would I certainly be interested in your opinion there?

David Wolfort

Allright, I was about full, Mark you did that.

Mark Parr – KeyBanc Capital Markets

I mean you got growths on the new initiatives. It regard.

David Wolfort

If you back to December and look at what the Steel consumptions was forecast to grow some more between 8% to 10% and are now predicated on some GDP growth numbering some extrapolation of something. Obviously we significantly grew far greater in the tonnage than the market did in 2010, I would tell you, we were continued to probably anticipate growth in excess of the MSCI by at least 30% to 50%. I mean so, when we look at sort of the forecast in December of 8% to 10% steel consumption, now we would like to double that whether we do or whether we don’t, I would tell you that we can anticipate some significant growth over the initial forecast.

Mark Parr – KeyBanc Capital Markets

Okay. That’s helpful. And, it really is striking to see have the cyclical momentum has unfolded here, the recovery momentum is unfolding and it is amazing what’s unfolded here in last 90 days. So, here congratulations on that put in yourself on a position to be able to take avail yourself of that for your shareholders, that’s terrific. Thank you.

David Wolfort

Thank you Mark.

Operator

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

Richard Garchitorena – Credit Suisse

Thank you, and good morning guys. First question, I believe Rick mentioned the earlier that margins were impacted by higher mix of water volumes. Can you just remind us how much of revenues orders makeup at this point.

David Wolfort

Sure Richard. In 2010, it was about 12.3% and typically we’re under 10%. So, we’ve been on as low as 8% of sales, so those were the numbers last year.

Richard Garchitorena – Credit Suisse

Great. And, I guess you assume that would come down given the recovery that we are seeing across the board, is that the idea?

David Wolfort

Yeah. As other industries pickup that percentage should drop a little bit.

Richard Garchitorena – Credit Suisse

Great, okay. And then, my next question, you mentioned also that the spot business is basically of our third year business right now, large OEMs obviously making the bulk of the contract. Are those contracts for volume only or there is an index based pricing leads of that?

David Wolfort

Well Richard, this is David. There is a variety of mechanisms and there is unique as the customers are. So, the OEMs, the large OEMs that we are participating with which you are all familiar with the names that I won’t go through them. They’re all Blue Chip accounts and they all have varying protocol on how they want to do business, and we’re able to offer and deal with all of them and they do have components of volume needless to say and they do have complementary of some indexing and variations of that indexing.

Rick Marabito

The comment I would make Richard, is we do not go naked, however. In any and all cases where we have a contract, we’ll have some backed up supply on a comparable basis.

Richard Garchitorena – Credit Suisse

Okay. Great, makes sense. One another question, on the higher SG&A and warehouse expenses in Q4, obviously related to higher volume is requiring additional dorks, do you expect those levels to remain sort of flatter or are they going to increase in the ’11?

David Wolfort

Well, I think, in 11 obviously some of the things as we grow the top line, some of the variable expenses will grow, maybe not commensurately certainly, but they will certainly grow. But, I do think Richard what you saw as we went through ’10 is we sort of had big waves of expense come back, right. So we had restoration of the pay and benefits, we had overtime coming back. All good things as the business return. So, I think as you look at ’10 versus ’11 or ’11 will not see as begin increase in expenses even in the variable expenses, as you saw from ’09 to ’10.

Richard Garchitorena – Credit Suisse

Great, okay. And my last question is just looking at the objectives for 2011 specifically on the geographic locations, you mentioned Monterey Southeast. Is that really to potential Greenfield sites or you also contemplating existing facilities that are there?

David Wolfort

Yeah. In the sites that we are looking at in Mexico and Kansas as we indicated those our existing facilities so they are not real Greenfield although we’ll complement with some downstream-value added equipment. In the case of the temper mill, fourth tempers mill an option on the current one we have that would be at Greenfield site.

Richard Garchitorena – Credit Suisse

Great, thanks guys.

Operator

Our next question comes from Sandeep SM of Goldman Sachs. Please go ahead.

Sandeep SM – Goldman Sachs

Hi guys, good morning.

David Wolfort

Good morning, thanks Sandeep.

Sandeep SM – Goldman Sachs

And a quick question for you, like of the mill prices that had been announced so far, what percentage of the prices are like you’re managing to realize in the market, like are you getting the full list prices or is it some percentage of (inaudible).

David Wolfort

Sandeep, of the mill price increases are you referring to?

Sandeep SM – Goldman Sachs

Yeah, I mean, so if you look at the list prices they are current at around $900, but somewhat we are hearing from (inaudible) deals are getting done much lower price than that as well. So, could you give us some comments on that?

David Wolfort

From our prospective, they are depending on (inaudible) following 6 to 7 official price increases. I can tell you that through the 6 price increase, which takes hot roll up to generic 840, rate 50 depending on who you’re following that has been totally absorbed in the market price and I’d tell you that the seventh one that was initially authored by AK Steel, I think on February 6, followed by a first unofficial and an official announcement by new core of something less than that. Those are pretty firm in the market place. So our job is on the spot market to collect all of those replacement costs and in effect we are doing so.

Sandeep SM – Goldman Sachs

Okay. And second question is like, you said that, okay one-third of your business is Parts, so what would be proper to say that you didn’t get a lot of benefit of any of the price increase in December and most of the benefit will come in the first quarter.

David Wolfort

I think a lot of the index obviously Sandeep as you understand as the average price moves up that depending on index mechanism people are using that benefit will be realized in first quarter and in second quarter.

Sandeep SM – Goldman Sachs

Okay. And on the other hand, like when I look at the past like when HRC price moved up by over $100 quarter-on-quarter, your operating profit has gone up maybe say more than $50 per tons, you said that you’d look at time on a per ton basis, so operating profit per ton has gone by more than $60, but then the volumes are significantly higher. So, can you give us some guidance on how to look at it? Okay, this time (inaudible) pricing is significantly higher, but your next spot exposure and you’ve lower volume, so you thought of cancel it or….

David Wolfort

There is no question (inaudible) contracts, you usually to some degree fixing as flat on margin. That’s going to trial for some degree, the current price and sometimes the current price going up and sometimes the current price going down. But clearly, what we are seeing in a double benefit in terms of an increasing price on the CIU, we are seeing much more increase in volumes and then our customers anticipated. So that gives you a certain degree of elongation and opportunity as well Sandeep.

Sandeep SM – Goldman Sachs

Okay, thanks a lot guys.

Operator

(Operator Instructions). Our next question comes from Tim Hayes of Davenport & Company. Please go ahead.

Tim Hayes – Davenport & Company

Good morning. My question is, sort of follow-up on the expense side in the Q4, when we look at selling expenses in relation to EBITDA and then also Admin and General Expenses in relation to EBITDA, the same would be on the high side in Q3 and Q4. I’m assuming some of that is just sort of coming back from the cost that we made in ’09. I’m trying to get a feel for will that relationship for those line items, those expenses related to EBITDA go back to, sort of historical norms, in the historical gain before the financial pricing, so we had to make those deep cuts.

Rick Marabito

Yeah Tim, it’s Rick. I would say; on the last part of your question, yes, we are seeing our expenses get back to those, I call normal levels of prerecession. In terms of your questions about the second half, I mean remember in the end of March, we had a $2.1 million bad-debt expense and selling expense. And the back half for the year had the full fact of the compensation increases so those were faced in partly at the end of first quarter and the remainder at the end of second quarter, so when you go first half to second half, that’s the part of the increase there.

Tim Hayes – Davenport & Company

Okay, thank you.

Operator

Our next question comes from Aldo Mazzaferro of Burke and Quick.

Aldo Mazzaferro – Burke and Quick

Hi Michael, David and Rick. Thanks for taking my call. I just had two questions on the supply side of the market. I’m trying to gauge the potential for excess supply. I’m wondering, are you seeing anything on the import front that would suggest that these prices that have been announced by the domestic mills are having the effect of attracting those greater amount of imports at this point?

David Wolfort

Aldo, David not really. There have been some offerings, but those offerings are all at current new domestic pricing and they are shallow, no significant terms being offer applies to us.

Aldo Mazzaferro – Burke and Quick

Great. And how far on the domestic side, are you seeing any of the domestic mills wanting to ramp up their volume very much, or you seeing more volume out of the mill, that you can buy over or things like that?

David Wolfort

No, quite opposite, we are seeing more constraints although as we go forward we would have anticipated some additional tonnage as the spring fall comes in to play. But we are seeing constrained production in the value, especially in the value added items, they are punched way out into deep into second quarter, if not into the tail and the second quarter, obviously coded then automotive grades are way out there, if you can even assess them. And then high-cost of hot roll production, there has not been anybody who is offering any significant tonnage, additional tonnage. So we see narrow offerings, discipline market place, shallow inventories, and as we rolled into 2011, we thought the market was, we saw pricing was much stronger than was being exhibited. We thought demand was much stronger and we thought inventories were lower. All three of those catalysts proved to be, we proved to be accurate on all three of those and we continue to see strength of pricing, strength of demand and lower inventories, and then to your question lower offerings.

Aldo Mazzaferro – Burke and Quick

Thanks. One final question David, I know how you’re adding value to the product mix overtime here, and it’s interesting to know that the percent of sales of the operating expenses dropped in 2010 versus ’09, even though you probably, I would guess probably have more people per ton and things like that. I wonder if you could tell us on what your head-count was say at the end of 2010 versus 2009, and is that a correct reading of my part, is that the percentage of sales of those offerings were down, despite your mix, and I’m just wondering whether that’s the trend, 18.5% of sales is not a bad offering in your show there.

David Wolfort

Aldo, I don’t have the numbers in front of me, but our head-count probably did go up 50 to 100 people, I think we’re already round a 1,100 at year-end, so those people are starting to face in end of ’09 beginning of ’10 and then throughout ’10 obviously we’ve got some growth initiatives and projects, where we need to hire some people for some of the new facilities. And then in terms of your statistic, I don’t want to say, because I don’t have the numbers in front me, so I’m not sure about that but we can certainly get back to you on that.

Aldo Mazzaferro – Burke and Quick

Okay. Well, thanks and congratulations (inaudible) it’s much more than the steel price (inaudible) these days I guess. Alright, talk to you later. Thank you.

David Wolfort

Thank you.

Operator

I’m showing no further questions at this time and I’d like to turn the call over to Michael Siegal for any closing remarks.

Michael Siegal

Thank you operator. As a reminder, it is our policy not to provide forward-looking earnings estimates for the upcoming quarter or year and not to endorse any analyst sales or earnings estimates. We anticipate releasing our first quarter 2011 earnings on or around May 6 2011. And this concludes our call and we thank everybody for your interest in Olympic Steel. Thank you.

Operator

Ladies and gentlemen that does conclude today’s conference. You may now disconnect and have a wonderful day.

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