Steel Dynamics' CEO Discusses Q3 2011 Results - Earnings Call Transcript

Oct.18.11 | About: Steel Dynamics, (STLD)

Steel Dynamics (NASDAQ:STLD)

Q3 2011 Earnings Call

October 18, 2011 10:00 am ET

Executives

Keith E. Busse - Co-Founder, Executive Chairman, Chief Executive Officer, Chief Executive Officer of Iron Dynamics Inc, President of Iron Dynamics Inc and Director of Iron Dynamics Inc

Theresa E. Wagler - Chief Financial Officer and Executive Vice President

Richard P. Teets - Co-Founder, Executive Vice President for Steelmaking, Executive Director, President of Steel Operations and Chief Operating Officer of Steel Operations

Mark D. Millett - Co-Founder, President, Chief Operating Officer, Executive Vice President for Metals Recycling & Ferrous Resources, Executive Director, President of OmniSource Corporation, Chief Operating Officer of OmniSource Corporation and Director of Iron Dynamics

Gary Heasley - Executive Vice President of Business Development and President of New Millennium Building Systems

Fred Warner - Manager of Investor Relations

Russell Rinn -

Analysts

Brian Yu - Citigroup Inc, Research Division

David Katz - JP Morgan Chase & Co, Research Division

Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division

Justine Fisher - Goldman Sachs Group Inc., Research Division

Kuni M. Chen - CRT Capital Group LLC, Research Division

Michelle Applebaum - Michelle Applebaum Research

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Sal Tharani - Goldman Sachs Group Inc., Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

David Lipschitz - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Arun S. Viswanathan - Susquehanna Financial Group, LLLP, Research Division

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Operator

Good day, everyone, and welcome to today's Steel Dynamics Third Quarter 2011 Earnings Conference Call. Today's conference is being recorded. Joining us today are Keith Busse, Chairman and Chief Executive Officer; Richard Teets, Executive Vice President of Steel Dynamics, Inc. and President and Chief Operating Officer of Steel Operations; Mark Millett, President and Chief Operating Officer of Steel Dynamics; Gary Heasley, Executive Vice President of Steel Dynamics and President of New Millennium Building Systems; Theresa Wagler, Executive Vice President and Chief Financial Officer of Steel Dynamics; Fred Warner, Investors -- Investor Relations Manager.

For opening remarks and introductions, I would now like to turn the call over to Fred Warner. Please go ahead, sir.

Fred Warner

Thank you, and good morning. We'd also like to introduce Russell Rinn, who is Executive Vice President and President of OmniSource, who's with us here today.

Welcome to the Steel Dynamics Third Quarter 2011 Conference Call. The call is being webcast live, October 18, 2011, from Fort Wayne, Indiana. Later today, you'll be able to replay the call from our website or download the call to listen to a podcast.

During today's call, our management will be making some statements that are forward looking. All statements regarding anticipated future results or expectations are intended to be forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements, which by their nature are predictive and are not statements of historical facts, are often preceded by such words as believe, anticipate, estimate, expect or other conditional words. These statements are not intended as guarantees of future performance. We caution that actual future events and results may differ materially from such forward-looking statements or projections that may be made today. Some factors that could cause actual results to differ include general economic conditions; governmental, monetary and fiscal policy; industrial production levels; changes in market supply and demand for our products; foreign imports; conditions in the credit markets; price and availability of scrap and other raw materials; equipment performance or failures or litigation outcomes.

You may find additional information concerning a variety of factors and risks that could cause actual results to differ materially from today's forward-looking statements. Refer to sections entitled Forward-looking Statements and Risk Factors in our most recent annual report on Form 10-K and in our quarterly reports on Form 10-Q, as well as in other reports we file from time to time with the Securities and Exchange Commission. These reports are publicly available on the SEC website and on our website, www.steeldynamics.com.

We now open today's call with an introductory statement by SDI's Chairman and Chief Executive Officer, Keith Busse.

Keith E. Busse

Good morning, ladies and gentlemen. Thank you for joining us this morning. I think the first thing I'd like to do is have you -- have all of us congratulate Mark Millett on his new role, upcoming role, as the President and Chief Executive Officer, effective January 1, of Steel Dynamics. So, Mark, congratulations to you. I think the Board collectively, which includes Dick and I, have acted wisely in choosing you. You're going to do a great job in leading the company.

For those of you who have known me and talked to me over the years at great length about, "Gee, Keith, why are you retiring?" You probably heard me refer to my retirement on many, many occasions. A lot of people have asked, "When are you going to retire?" And I said, "In the near future," and never really defined the "near future." I really in my head have kind of decided 2010 was that time when I probably would have liked to have stepped out. But what got in the way of that was this gigantic recession that the nation has and continues to have on its hands affecting our economy and, certainly, it affected many, many companies throughout the country, some of which went bankrupt in the process. And I had a number of directors ask me to think about staying a little longer, provide my guiding hand during those troubled times, and I did. But I'm 68 years old, and as most of you know, we've had a succession-planning exercise underway for, I guess, probably darn near 1.5 years. And that exercise not only dealt with my future replacement but dealt with subject material for, let's say, generations to come. We looked at leadership roles and the capabilities of many of our young managers, and I think we identified future talent and capability in the company, which, given the right opportunities in time, will serve the company very, very well.

So actually, I'm looking forward to it. I, as many of you know, have invested in a lot of little businesses over the last few years because I've watched too many people retire and just kind of wilt away, their health goes to pot, what have you, but I intend to remain active, not only in Steel Dynamics, but I'm involved, as many of you know, with Tower Bank and creating a new home building company called 21st Century Homes and involved with a series of automotive dealerships wherein I'm a significant shareholder, owner, et cetera. And recently, I acquired a new business called Freedom Marks [ph]. So I'm going to be a busy guy. And Mark assures me that I'll be back to the corporate office more than I can probably imagine and helping the team with strategic planning, investor relations and things of that nature, financing activities, as we move forward. But my role is going to change to that of Board Chair. And Mark will lead the company in every facet. As most of you know, recently, Mark's position as President and Chief Operating Officer of OmniSource, that opening was recently filled by Russ Rinn, who's with us today. And Russ has done -- I think he's done a wonderful job in a very short period of time with his team. He's fit in very, very well from a cultural perspective and demonstrated that he's every bit of the capable leader we knew he was. Certainly, we got to know him through the SMA. And so I think the company has some great leadership in place with Russ and Dick Teets and Gary Heasley and Theresa supporting Mark, and it's going to be a fairly seamless transition, if you will. Certainly, we would be happy to answer any questions you might have when you get into the Q&A.

As to the outlook -- or as to the results for the third quarter, we earned $43 million, $0.19 per share on net sales of about $2 billion. As I have said earlier to many people, you're going to find some noise in this quarter, and we tried to quantify that noise for you and break it out. By example, the collapse of copper very late in the month of September could not have been contemplated when putting together our earnings forecast some 6 or 8 weeks ago or whenever it was. And so that -- we couldn't have known that at that time or 2 months ago. That came as kind of a shock and a surprise, and that has a bottom line after-tax value of about $0.02 a share.

We also had some noncash expenses of approximately $3.3 million, which had to do with the equipment impairment. And we also had financing fees associated with the prior revolving credit facility. That noise was worth about $0.01. And as you can see in the press release, we rewarded all of our employees of the company that are nonunion with a $1,000 cash bonus, well-deserved cash bonus in very difficult economic times, one of the finest steelmaking teams in the world today. And we were proud to be able to surprise them with that cash bonus, reward them. And I can tell you the response was unbelievable, overwhelming, the number of emails where people so thankful and so grateful they work for a company like Steel Dynamics.

Back to results, though. All of that added up, if you look at the noise, it's about $0.05 worth of noise. We thought we could've exceeded our $0.22 forecast but did not. Steel came in in the range of $0.18 to $0.22 with a $0.19 performance. On the whole, not bad in a market that was kind of slipping, if you would, especially in the flat-rolled end of our business.

If you annualize our net sales, I might point out that, that's going to -- on an annualized basis, get the company back near the $8 billion it was at during the 2008 timeframe, but yet sadly not back to the level of earnings it was enjoying, or could enjoy, to go beyond the 2008 level of earnings, but would point out that our earnings on approximate -- on approximation are going to be double that in 2011 that they were in 2010. So making progress on the bottom line with earnings being almost twice what they were in the prior year.

When you look at our steelmaking capacity, we used to always announce that it was about 7 million tons, which included about 1 million tons of capacity after-tax. I think with all the improvements that the team has put into place over the years, if you recalculated that, it will probably come out closer to 7.5 million tons, yet we still don't operate in a market that allows us to be at that level because this year we'll probably be at the close to 6 million tons shipping level. So steel being impacted by a very weak economy with a GDP that fluctuates in the 1.5 to 2.5 range, no consistency in terms of growth you got on the horizon. And that's what I think all of us are looking for: consistent GDP growth as we move forward.

We did put our project, as you know, Black Beauty is the name of it, on hold. And certainly, it's a project that is not canceled in any way, shape or form. The team is I think 100% behind that project, as is the Board. But the timing is just not right to exercise or launch that effort at this moment in time when the industry is running at 80% of its capability.

You also notice in the quarter that the average selling price dropped by about $50 a ton. The market did back up. And you'll notice also that our ferrous scrap cost actually increased $5. So one might say that we're in a margin squeeze. In our press release, if you look down to about the fifth paragraph where it talks about operating income for the company's steel operations, which was $139 million or $96 a ton, still not a bad operating profit and a pretty dismal comment, it's an increase of $51 million or $28 a ton compared to the third quarter of 2010. But I think the most important measurement always is comparing your result for the prior quarter, which would show you a $57 per ton decrease in operating income. So when you -- it's not a direct link, but you can look at that decrease in price up above at $50 and the increase in scrap costs and you get into, let's say, the general vicinity.

I would also like to point out that fare [ph] shipments would -- are probably going to annualize at somewhere close, probably a little short, but somewhere close to about 6 million tons. So volume -- and their capability, like steel's capability, is now well beyond 7 million tons, maybe even approaching 8 million tons, nowhere near their potential, but gaining on it, if you will, during difficult times.

I think we talked a lot about in the press release our flat-rolled earnings being the driver for a weaker quarter and certainly it was with average flat-roll prices being down $95 a ton in the third quarter.

Orders -- order entry has been spotty. It -- we've said consistent. It sort of is and isn't. We seem to go 2 or 3 weeks short of our capability. We have sales of 2 or 3 weeks long of our capability and averaging out, but our backlogs, I would point out, are still short. We -- from the perspective of backlogs, flat-rolled is -- we really only have I think 2 or 3 weeks in front of us right now.

When you look at merchant shapes, we're in a lot better shape in small bars and in great shape in SBQ bars having a backlog that goes out into the second quarter yet of 2012. And still West Virginia's operating rate remains very, very high. They're doing a really good job down there with that little specialty steel products division.

Also, I'd like to point out that this is the first time in a long time that our structural capacity got up to 50% -- or I should say Structural and Rail combined. Not much joy in Mudville, in that we have a capability of a 1.8 million tons and are operating closer to the 900,000-ton mark, but it is an improvement. Also, we noted that rail shipments were 31,000 tons, which annualizes to about 125,000 tons.

So the -- when you look at the fabrication division, you should note that the third quarter operating losses came down to 250,000 tons or narrowed to that level from -- as compared to 500,000 tons in the third quarter of -- dollars, I mean. I'm sorry, dollars -- compared to $500,000 in the third quarter of 2010 and $1.6 million loss in 2011.

I've already talked a little bit about the collapse of the copper market, which had -- which did give us somewhat of an impact on our recycling earnings. I'm not going to really go through Mesabi Nugget in great detail because I asked Mark to prepare a more lengthy, if you will, explanation of where we are and where we're going to be shortly. He'll give you a total overview of Mesabi Nugget combined with the mining activity. So we're going to save that for Mark.

I -- you'll also note that we redid our revolver in this quarter and expanded it to $1.1 billion facility and subject to certain conditions, we have the opportunity to actually upsize that. So we have a new revolver in place at more attractive pricing than the old revolver, and the company continues to -- and I might say our balance sheet -- let me just say our balance sheet is in absolutely terrific shape. When you look at debt to equity, it's 50-50, 50% equity, 50% long-term debt. But it's in as good a shape as it's been in for a long time. An interesting exercise, a lot of people look at converts, convertibles, notes as equity. If you took the converts and added it to equity, subtracted it from long-term debt and subtracted cash from the remaining debt, we're in a position of about 39% debt and 61% equity. And it's an interesting little exercise to go through, the relevant point being the balance sheet is really very, very strong. I should suspect we'll be near $500 million of cash on our balance sheet by the end of the year. We're already in that general vicinity, but might not quite reach that level, but somewhere in that neighborhood anyway. And I think we ended the third quarter at $456 million. It should be a little bit greater than that, but maybe a little bit short of $500 million. Should have good earnings next year.

Are looking at the matter, which we care to deal with, the outstanding revolver that comes due in 2012. We certainly have a lot of options open to the company, and we're exploring all of them at this point in time. But, obviously, we're in pretty good shape from a cash and liquidity perspective at this point in time.

Looking ahead to the fourth quarter and into next year, I would tell you that we said we're going to provide more definitive guidance as we always do as the quarter goes along, and we will, but I suspect that the quarter is going to not be a lot different than this quarter. It's not going to be marginally different one way or another or materially different in my humble opinion at this point in time. So we'll give you updates on that as we travel throughout the quarter.

I think pricing, as is relative to this cycle, is probably nearing another bottom. It backed up a little. I don't see anything on the horizon that tells me that it's going to significantly move forward in the near term, at least as we examine flat-rolled. The other products will kind of transition with the cost of resources. Flat-rolled operates a little bit more independently, but I think the flat-rolled earnings are probably going to be in the same ballpark, maybe a little bit more than they were in the third quarter, generally speaking. So, have more to say about that as we go forward.

Unless we really solve some of the political crises that I think are keeping the nation from moving forward in a positive way, and I think the nation can move forward and provide a better economic climate that exists today, but until we get the politics out of the way, I would guess that 2012 is going to be a fairly lackluster year. We're probably going to have some progress made during that year, but it's not going to be substantial, it's not going to get us back to '08 earnings, although I suspect our volume will be as good as it is this year and hopefully a little bit better.

With that, I will conclude my remarks now and turn it over to Mr. Millet.

Mark D. Millett

Thank you, Keith. Good morning, everybody. Keith touched on the -- gave us a synopsis on the general steel markets. I'd just like to add a little color to the recycling world, and it's somewhat surprising that the ferrous scrap markets remained truly surprisingly stable as compared to other commodities through the quarter. That being said, general scrap market eased in October, as you know. Absolute scraps came down $10, $15 a ton, while the tighter supply of industrial scraps supporting the prime grades, and they only came up around about $5 per ton.

Steel mill inventories remain very tight, and purchases are being made against anticipated production schedules. Export market is soft. Offers are being made around $20 a ton, below domestic pricing today. The strengthening of the dollar against the euro has made European scrap much more attractive to Turkey and Asia, and thus, the principal export markets are staying on the sidelines, at least for the time being.

This will pressure domestic scrap prices going forward, but the upcoming winter we believe will constrict absolute flow. Excess shredded capacity is keeping the price of shredded piece stock high, and both dealers and yards will start accumulating inventory in the months ahead in anticipation of the market -- or up market earlier next year. So in balance, it is likely that scrap pricing will not see any dramatic move, unless there is an appreciable change in steel mill utilization.

Turning to Iron Dynamics. The team continued to perform well, shipped 61,000 metric tons of liquid pig iron and HBI through the quarter and provided an operating income of about $10.1 million. The plant has been operating at an impressive 90% availability, with only 4% of lost time being unscheduled. Truly a remarkable feat when you consider that the process is kind of a self-consuming musical [ph]. Planned annual shutdown is scheduled to start this week to realign the submerged arc furnace refractory after over 2 full years of service. And for those that have been with us, following us for many years, it's a far cry from the lightning light of 2 months that we experienced in the early days of this pioneering. Shutdown is expected to take 3 weeks, and we'll allow a total shipment of liquid pig iron and HBI to about 50,000 metric tons for the quarter.

Combination of reduced volume, margin compression associated with higher input costs, mill scale has ticked up from about $50 per ton input price to $60 per ton. And also "higher than typical" repair and maintenance costs will reduce the financial contribution to approximately $2 million, $3 million a quarter.

As Keith suggested, given there have been many questions of late concerning Mesabi Nugget, we wanted to share a little more color than in the past, tell you where we are and where we hope to be in the future. Q3 production from Mesabi Nugget totaled 33,400 metric tons, somewhat lower than the 38,500 tons that we produced in Q2. The lower volume resulted from a planned 3-week shutdown taken in September to repair furnace refractory and to install redundant equipment systems for improved operational availability.

It appears the substantial amount of work completed by the team from the shutdown has had a very positive effect on plant availability thus far. Since starting up, on October 7, some 10, 11 days ago, plant availability has been 91%, with the operation running at 35 metric tons per hour in Mesabi Nugget. Last week, they recorded a weekly production of 6,350 metric tons of shippable product, effectively a 27,500 metric ton monthly rate or 70% of intended capacity.

But the evidence that an input rate, a defined input rate of 90 metric tons of dry bores an hour against a planned capacity of 120 metric tons per hour. And just yesterday, we inched that up to 100 tons per hour, so we will, over the next few weeks, increase that toward our planned capacity.

Obviously, one week does not make a year and much work has yet to be done to gain consistency, but again, it's given us a high level of confidence.

The average nugget transfer price to SDI for Q3 was $506 per metric ton based on pig iron market pricing less the mill discount. That resulted in a net pre-tax loss of $13 million for the quarter or $8 million after tax, somewhat similar to Q2.

Current financial expectations for Q4 suggest a similar financial result as Q3, the benefit of anticipated increase to 68,000 metric tons of shipments where we believe will largely be offset by a margin squeeze from higher iron concentrate input costs and an assumed $15 reduction in transfer costs associated with the softening pig iron market.

Obviously, securing our own capital and supply of attractively priced iron concentrate is critical. Progress is being made on this mine permit. The permit receipt is still not expected before the end of 2012 or perhaps early in 2013.

We have, however, as we have shown in the press, consummated a partnership agreement with Magnetation to form a company called Mining Resources that will build a facility to recover iron concentrate from tailings basins on the range. Process developed by Magnetation has been operating successfully and has been supplying Mesabi Nugget for some time. Partnership is 80% SDI, 20% Magnetation. Permitting and engineering work on the $50 million facility has been initiated and certainly some timely receipts of permits should commence operation in Q3 2012, about a year from now, still under a year from now.

The plant will be designed to produce 1 million metric tons per year, our share being 800,000 tons, being sufficient to meet the full needs of Mesabi Nugget at full utilization. Recovery of iron concentrate from tailings is defined as scram mining and allows for a simpler environmental permitting process. The permit is currently open for public comment that ends this Friday, and I hope to start construction by late November.

Keith E. Busse

Mark, there have been a -- I want to jump in here. There've been a number of individuals that have said, "What's the difference between what you're doing at Magnetation and what AK is doing?" And they've asked us, are we subordinate to the AK-Magnetation joint venture, are they subordinate to ours, are they independent? Can you speak to that, and provide some clarity to that, please?

Mark D. Millett

Certainly. The -- our mining resources effort is a partnership directly with Magnetation, Inc. The AK partnership is with -- is a separate entity called Magnetation LLC. That's a little bit -- they're totally separate. We have -- we anticipate that Larry would have further future relationships up on the range to expand this capability. So we, in our agreement, have defined a line, which runs north and south through Hibbing, and we have all the reserves east, or have the capability of accessing all the reserves east of that north-south line of Magnetation. AK and others have the west. So we feel that we have sufficient reserves easily for 15 to 20 years of operation of tailings plus [indiscernible] our other sources. Reserves are intact, and we're separate, again, no relationship between AK and our own project. But nonetheless, the Magnetation mining resources will effectively bridge the company's own concentrated requirements till such time as our own mining operation is in production. Rather, given that mining resources will start up later in the year of 2012 and will provide only a limited amount of material during the year, Mesabi Nugget will rely mostly on its current lower-priced inventory and continued supply of market-price concentrate.

Going forward, in the future, we will be commenting on the financial performance of the Minnesota operations on a combined basis, since the impact of SDI for these 3 projects, namely, Mesabi Nugget, Mesabi Mining and Mining Resources, are all intrinsically linked. Now assuming the Mesabi Nugget plant operates at 75% capacity next year, produce about 382,000 metric tons of shipments at an average transfer price of about $526 per metric ton, our expectations for 2012 were pre-tax $30 million loss on a combined basis as compared to the expected $50 million loss in 2011. This should yield a cash loss of approximately $15 million in 2012 as compared to approximately $35 million for 2011.

To just paint a picture looking forward, Mesabi Nugget operating at its designed production capacity of 500,000 metric tons, and our recent past experiences, we're still confident that we can achieve that in time, but that 500,000 metric tons with a captive concentrate costs of $50 per ton and iron -- pig iron market yielding a transfer price of $560 a ton -- per metric ton, we believe the combined Minnesota operations could be expected to yield a collective pretax net income of $40 million to $50 million a year. So hopefully, that kind of gives a lot of color of where we are and where we're going.

Keith E. Busse

That's a good job, Mark. You provided I think the right color, not only now, but into the foreseeable future. Thank you.

Mark D. Millett

So with that, I think we'll pass it on to Mr. Teets.

Richard P. Teets

Thank you, Mark. Good morning, everyone. I'd like to share a few additional comments to what has been already stated either in the press release or comments from Keith and Mark.

In the steel operations, the Flat Roll division is experiencing solid demand for value-added products at both Butler and Jeffersonville. The weaker backlog that Keith referred to earlier is that of hot bands. I'm proud of the efforts of the engineering, maintenance and production personnel, along with the equipment suppliers and contractors, who stepped up big time to repair the finishing oven at our Jeffersonville paint line. On August 30, the paint line experienced solvent blast and caused considerable damage to both the oven and the ductwork and controls. No one was injured in the event. After a thorough investigation into the cause, the line was modified and reconfigured to operate on one curing oven to resume operations at a reduced rate beginning on October 1.

Concurrent with a single-oven operation, we're continuing to rebuild the finishing oven, and this work was completed this past Saturday, a full 2 weeks before the original anticipated completion. We're back up to full production and apologize to any of our customers, who may have been impacted by this event.

The total production in the third quarter was negatively impacted by 2 separate hot metal crane maintenance requirements. Because we needed to remove parts of the metal shop roof to allow for crane access to aid in the repairs, we had to curtail operations because our air permit won't allow for the potential fugitive emissions release. Each outage was coordinated to minimize production impact. No additional maintenance or outages were scheduled for either the Butler or Jeffersonville facilities during the fourth quarter.

In Pittsboro, The Techs have experienced a softening in their combined backlogs. As a result, the 3 teams will take their one-week annual maintenance outages in October and November. We will also take advantage of the production time available to run trials on alternative coatings to determine production capabilities to support expanded market developments.

At the Structural and Rail team -- division, the team also continues to develop nonparallel flange markets. In September, nearly 25% of the total shipments were rail, flume [ph], channels or in lead. Supporting these efforts is an expansion of the rail finishing facilities, which should be commissioned in November to remove a bottleneck limiting the production of short-rail lengths. We expect to ship approximately 120,000 tons of rail in 2011. And with this expansion, we plan to shoot for 180,000 tons in 2012.

In Pittsboro, the plant continues to exceed prior records, both the rolling mill and shipping departments at quarterly records. Congratulations to the total Pittsboro team. The SBQ backlog remains in good health well into the second quarter of 2012, as Keith mentioned. Projected needs from our customers indicate a modest growth in 2012 over 2011 levels. Maintenance outages will occur in both the melt shop and the rolling departments to perform routine maintenance, as well as to complete capital projects during this quarter.

The Roanoke Bar Division utilized 92% of the rated capacities in the third quarter. Our shipments for September were the best since July of 2008 in spite of continued weakness in many of their markets. At Steel of West Virginia, the core transportation market continued to be strong. Shipments have improved sharply over 2010, and our forecast to continue that trend, although slightly at a lower level, in 2012. To support these markets, this month, the team will be commissioning an additional truck trailer cross member robotic welding line. The plant will also be taking their annual 10-day maintenance outage in November. They're doing a great job in Huntington.

And finally, the steel operations is involved in the implementation of a company-wide computerized safety program that will allow -- or that will complement the efforts of all the divisions to strive for the 0 loss time accidents we seek. That's it from the steel operations.

Keith E. Busse

Thanks, Dick. Russ?

Russell Rinn

Thanks, Dick. Thank, Keith. Thanks, Mark. Good morning, everyone. OmniSource we -- our third quarter was something like the opening line of A Tale of 2 Cities. It was the best of times, worst of times, where on one hand we had ferrous volumes that were much better or lower ferrous volumes but much better ferrous margins versus our second quarter. And on the other hand, we had higher ferrous shipments -- nonferrous shipments but lower nonferrous margins versus second quarter. The end result was third quarter operating income of $11 million for OmniSource versus operating income of $18 million in our second quarter.

On the ferrous side, our team worked very hard to ship just under 1.5 million gross tons for the month -- or for the quarter, which is about 70,000 less than we shipped in the second quarter. 44% of that tonnage was shipped internally to our SDI mills. On the nonferrous side, our team pushed out 270 million pounds of nonferrous products out the door this quarter versus 255 million pounds in the second quarter.

On the margin side, very proud of the team in the ferrous side during -- despite lower shipping levels of about 5%, our ferrous operations were able to maintain an even operating profit level quarter-to-quarter, as the team kept their operating expenses at a relatively flat level while the selling prices, as noted earlier, in step slightly on ferrous materials.

On the nonferrous side, the big story here is all in the pricing arena, where in the third quarter copper prices dropped by 26%, nickel prices dropped by 25%, and aluminum prices fell by 14%. The vast majority of those drops all occurred in the final 2 weeks of September at the close of our quarter. And the resulting mark-to-market impact on our fixed forward contract -- purchase contracts, which do extend into 2012 resulted in noncash unrealized losses of $6 million in the final month of the quarter.

On the operating side, teams continue to make very steady strides, very steady -- and good progress, on our shredding operations in particular, where we are upgrading our equipment, adding capacity, sorting capacity at most of the locations to increase our efficiencies, expand our product offerings and increase our downstream recoveries. Also, our retail expansion continues with excellent results.

On the copper side, in conjunction with the copper side, we are making excellent progress on the construction of our SDI and LaFarga copper rod mill project. It remains on schedule, and we expect to begin production at the new facility in late spring or early summer of 2012.

Overall, market conditions remain relatively uncertain for both ferrous and nonferrous operations, much like the global economy on which they so carefully depend. Ferrous levels remain decent with inventory levels at both our locations and at our customers' locations remain at generally low levels. Nonferrous levels have slowed, somewhat -- slowed somewhat as the market searches for a bottom on pricing. The export markets, as was noted earlier, remain somewhat active, although less so than the current time due to the currency situation, but I do believe they will wind up at record levels for the year.

Finally, we're entering into the winter, where flows generally get constricted due to whether, so we are doing all we can to make sure we maintain the flows to our customers and keep their -- keep them running as we have in the past. And that's it, Mark.

Keith E. Busse

Thank you, Russ. Gary?

Gary Heasley

Thanks, Keith. A couple of points on the market as a whole, not only is it the construction market obviously, has been challenging for a long time, but the Architectural Billings Index turned positive again in August after 4 consecutive months, and negative territory had been positive prior to that, so it's been volatile and it's good to see it back in positive territory.

Disruptive spending overall squeezed out a 0.9% improvement in August year-over-year, while nonresidential construction spending was up 0.1% overall. But the private nonresidential is up 7%, reflecting a shift that we've been seeing in recent months toward privately funded projects instead of the earlier concentration in public funded projects. While further non -- overall, nonresidential construction activity remains elusive, demand for joists continued to be up 15% year-over-year through August 31, and deck shipments were up 15% through June. So some good growth in the joist and deck demand.

New Millennium's backlogs are up 62% for joist and up 18% deck year-over-year, and that's on both the demand growth and better market penetration. Shipments were up 38%, and sales increased 54% year-over-year, so there has been some strong momentum as this business grows and we continue to reinvest in it. Now in the recent weeks we've seen quota activity slow a bit. However, we expect to see the fourth quarter demand levels at or above the levels we saw in the fourth quarter of '10.

In September, we commenced operations at our joint production facilities in Hope, Arkansas and Fallon, Nevada. The Arkansas-Nevada facilities were shuttered by a previous owner in mid-2010. We acquired them in October of '10. The plants have been reconfigured and modernized and will be significantly more efficient than they were prior to the acquisition. We are ramping these plants up with limited staffing to match market demand and grow our capacity by adding personnel when the backlogs of those plants support additional production. As a note, our operation in Juarez, Mexico, which was also acquired in October of '10, has been operating since November.

So overall, we expect to see demand continue to expand although at relatively slow paces, and we think that it will remain volatile. New Millennium now has 6 plants operating across the country and is positioned to take advantage of growth no matter which region it's in and to serve customers who do business nationwide. So it's a completely new position for New Millennium with 6 plants coast to coast. Keith?

Keith E. Busse

Thanks, Gary. Theresa?

Theresa E. Wagler

Thank you, Keith.

Keith E. Busse

Your comments about our balance sheet.

Theresa E. Wagler

In third quarter, our sales decreased $36 million. Our gross margin percentage decreased from 13% to 10% when compared to the second quarter of '11. This compression was the result of a 10% reduction in sequential quarter gross margin percentage of our flat-rolled operation, which was partially offset by further improved results at our long products division.

Other operating costs were generally consistent quarter-over-quarter. However, we would note, as Keith said earlier, that the third quarter included a little over $3 million in noncash charges, predominantly related to equipment impairment and a little less than $6 million related to our employee appreciation award. Excluding those items, our operating cost actually, as a percentage of sales, improved slightly.

Gross interest expense for the quarter was unchanged at $45.2 million, and our capitalized interest was $467,000. Our effective tax rate during the third quarter with controlling interest was 41% compared to 35.8% in the second quarter. The second quarter rate was uniquely low due to a reduction in our deferred tax rate. The third quarter rate was impacted by an increase in our annual effective rate, which caused a bit of a catch-up in the third quarter. Our expectations for the fourth quarter rate would be 39%.

Sales outstanding were basically unchanged in the quarter. At September 30, we had outstanding common stock of 218.7 million shares. Currently, our diluted share estimate for the fourth quarter of '11 is 236 million shares.

Cash flows from operations provided $222 million of funds during the quarter, an increase of $56 million over second quarter results. Operations have supported cash flows of $392 million during the year, more than double our year-to-date results for 2010.

Working capital reductions have provided cash flow to operations during the second and third quarter of '11 versus the draw because of the pickup in operations in the fourth quarter of '10 and the first quarter of '11.

During the third quarter, our capital expenditures totaled $38 million. Depreciation remained consistent at $44 million. Our current outlook regarding capital expenditures for the fourth quarter is in the range of $50 million to $55 million. And of that, $20 million is earmarked for our joint ventures both in the copper plant and the iron initiative in Minnesota. We'll provide 2012 capital investment forecast during our fourth quarter conference call.

We're very pleased with the execution of our new senior secured revolving credit facility, which closed in September. We had outstanding support from the banking community. And as a group, we were able to structure a facility that is larger, includes improved economics for the company and has more flexible terms and covenant.

Our facility increased from $924 million plus $100 million accordion to $1.1 billion plus a $400 million accordion. That's basically an increase of availability of $476 million. The new facility matures September 2016, is secured by receivables and inventory and is subject to the same quarterly borrowing base.

Pricing is linked to a much more favorable grid. At launch, we are at LIBOR plus 150 basis points, with an undrawn fee of 35 basis points. This is in comparison to our previous deal, which was priced at LIBOR plus 300 basis points with an undrawn fee of 50 basis points. Overall, this was an immediate 165-basis-point improvement. The new pricing grid has a minimum of LIBOR -- excuse me, a maximum of LIBOR plus 200 and a minimum of LIBOR plus 100.

We also achieved greater flexibility with our investment and restricted payment terms as well. The financial covenants are more flexible. We now have a net debt leverage covenant of 5x trailing EBITDA versus a total debt covenant in the previous agreement. The interest coverage has remained unchanged, and a liquidity requirement was added to address our $700 million senior notes maturing in November of 2012. The covenant requires us to have an additional $150 million plus the amount outstanding on the 2012 senior notes as available liquidity. For instance, at September 30, this would have been $150 million plus the $700 million or an $850 million requirement. In actuality, our liquidity at September 30 was at a record level. It was $1.5 billion, which includes cash deposits of $457 million. This is a $355 million quarter-over-quarter increase in company liquidity. We remain well within compliance of our financial covenants. Our ratio of total debt to trailing EBITDA improved from 2.9x -- excuse me, improved to 2.9x at the end of the quarter and our net debt EBITDA leverage 2.4x. Interest coverage is up 4.6x.

Regarding the 2012 senior notes maturity, we're in a somewhat enviable position of having numerous options. Having just successfully accessed the provider [ph] lending market with the ability to upsize a fairly aggressively priced deal, we believe we have opportunity for additional funds within this market in addition to our belief that we have access to capital market. We're constantly monitoring the market environment, and we'll take advantage as appropriate.

Lastly, for those of you who like to track our Flat Roll division shipment, during the third quarter, our shipments of hot rolled were 300,000 tons; our shipments of pickled and oiled were 100,000 tons; cold-rolled, 32,000 tons; hot-rolled galvanized, 102,000 tons; cold-rolled galvanized, 58,000 tons; painted products 83,000 tons; and finally, Galvalume of 26,000 tons. Keith?

Keith E. Busse

Thank you, Theresa. Dick, just to note again, congratulations to you and your team relative to getting that pig line up and running in 6 weeks. That's an amazing feat for something that was estimated to take us 3 months. So kudos to the team. It's that kind of spirit, that's the reason why we had the cash bonus we have. Our people continue to find ways to be more productive and find ways to cut costs on a continuing basis. We're tremendously proud of everyone that works for this corporation, and thus, the reason for the reward.

Catherine, I think it's time for the Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Kuni Chen with CRT Capital.

Kuni M. Chen - CRT Capital Group LLC, Research Division

I guess, just first off on my questions here. I mean if we look back to last year at November this time, there's a big surge in raw material prices and, certainly, we saw a pickup in order entry and then followed by higher steel pricing. Obviously, this year macroenvironment is one thing, and we're certainly on shaky ground right now. But when you look at OmniSource and The Techs and what's going on in flat-rolleds primarily, what do you see as the key differences this year versus last year? And do you think we could go through a similar surge as we head into 2012?

Keith E. Busse

I think demand has largely unchanged. We seem to be -- I mean, it's a little brighter than perhaps what it was a year ago, but not materially better. We seem to be locked into a cycle of strength late in the year, strength early in the year, followed by late second quarter weaknesses, which tend to drag you through the doldrums in the summer with activity usually picking up in the October time frame, November time frame, December time frame. And I don't see that that's going to change. I talked to a number of individuals the other day that told me they believe that they're going to be back to the market here buying. They thought that the bottoms were dying at hand, their inventories were low. With regard to raw materials, it's -- the bucks has remained stable, up a couple bucks, down a couple bucks kind of thing. I think there's -- I've heard some chatter out there that, possibility that -- I'm not trying to promote it, but conversations I've had that we could be down $20 in November. We may even be down nothing. I don't know. That's kind of -- hard to predict that market, where it's going today. But I think it's not going to surge in any material effect, in any material way, shape or form. Thus, any price momentum that we have could be realized on the bottom line, but I don't see the catalyst at this moment for that pricing momentum. Mark, comments for you?

Mark D. Millett

No, I see the same way. I think there seems to be just a general malaise out there, a fear on everyone's part from spending anything from a CapEx standpoint or from any sort of inventory build. Probably, it's just going to be so-so for the next 2 or 3 months.

Kuni M. Chen - CRT Capital Group LLC, Research Division

Right. Okay. And then just one quick follow-up, if I may. You've been getting this question the past couple of quarters, but if you could just update us on what some of the new flat-rolled entrants have been up to, are they being disruptive in the markets? If you could just give us some color around that, please.

Keith E. Busse

Dick, we're going to let you dive in on that one.

Richard P. Teets

Well, I would just say that they are, I think, executing their plans, as been publicly stated, and the market has been absorbing it. There's been a slow steady increase in the demand, which is absorbing much of that capacity. I don't see anything very disruptive, and everyone is dealing with it, so not much more I can say.

Keith E. Busse

[indiscernible] the same way. I think what slight improvement in demand we've had has played a major role in absorbing some of that new capacity. Every now and then, you hear about some wild export deal and a wild number, but generally speaking, I think pricing is, as I said, backed up but kind of hit a new bottom. It's kind of steady right now. But I don't know what the catalyst is going to be to drive it forward is the problem.

Operator

And we will continue on to Shneur Gershuni with UBS.

Shneur Z. Gershuni - UBS Investment Bank, Research Division

I guess my first question is kind of a bit of a follow-up to Kuni's question. You started first saying that we've kind of hit a bottom in pricing. It seems to be a little bit stable. And then Mark's outlook with respect to scrap was kind of stable as well too. Do we -- do you think that we're relinking scrap to kind of hot-rolled fundamentals right now? Or is it just unique that both of them are kind of the same in your outlook on a go-forward basis or at least for the next quarter?

Keith E. Busse

I don't think scrap has really been all that linked to flat-rolled. Flat-rolled backed up sharply, as you can see, and scrap didn't back up at all. So there was -- wasn't a lot of linkage there. There still certainly is linkage in the Bar Product side of our world, a very direct linkage, but the movement sometimes have been so small that the producers have not chosen to even modify the current price that exists in the market one direction or the other. But I would tell you, certainly, they're still linked on that side of the street. On the flat-rolled side of the street, like I said, prices went down sharply, and resource cost did not follow it. Prices have rebounded somewhat, and resource costs have remained fairly steady. So I don't know that there is -- is it linked to some degree? Of course. Because that signals the level of real demand that's out there in time. And when real demand triggers, price of resources are going down or when real demand surges -- materially surges, price of resources will go up. So there is that kind of linkage, but given the movements we've seen recently, I would tell you rather unlinked.

Shneur Z. Gershuni - UBS Investment Bank, Research Division

So just thinking for a minute, it's unlinked, but the fact that you're sort of thinking them in the same direction for the next quarter so, it's nothing to do with the relinking. They remain on different fundamental tracks basically.

Keith E. Busse

I don't think they're going anywhere. I'd like to tell you price is going to go up $50, $60 a ton. But like I said, I'm not sure what the catalyst is going to be for that at this point in time. Obviously, unemployment coming down, GDP growth going to 3% and remaining steady would certainly be that kind of a catalyst. You're cleaning up some of their problems, us untying the political knot that exists out there, the games that are played. We have a lot of -- we've had a lot of dialogue over time about currency. And the linkage of the dollar to the yuan and the manipulation that's existed there. And I think, we always end up, how things gets [ph] in the way, we want to tie legislation to some other piece of irrelevant legislation, but the Senate was willing to act. And I know a lot of freshmen House members, who would like to act too. But we've got some leadership in the House that's I think blocking movement in that regard, and I think it's pure politics. Because when you look at the reality of the situation, a movement on currency taking a stand against China in a meaningful way I think would materially drive in time, wouldn't be immediate, but in time, would materially drive GDP growth in this country and jobs in this country. But we're playing politics with them right now. So we've got some roadblocks out there politically that's kind of frozen the economy. I mean, it's surprising to me that it is growing to the extent that it is given the kind of stalemate that exists on the hill.

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Okay. And one follow-up question, if I may, with respect to the operations. It was said earlier in the call that if you exclude the onetime and lumpy items that the operations would have exceeded kind of your pre-guide. I was wondering if you can give us a little bit of color with respect to cost in particular excluding scrap and the onetime employee bonus? Are there any other moving items on the cost curve that we should be aware of outside of the labor bonus?

Theresa E. Wagler

No. Besides the items that we mentioned that were unique in the quarter, that's all.

Keith E. Busse

Yes. And my thoughts that the quarter is going to be a look-alike are certainly very premature, but it's not going to materially change one direction or another. That's just an opinion at this point in time rather than a studied fact. We've looked at it, modeled it early on. But when you have backlogs that only go out 2 or 3 weeks, you really have a very limited opportunity to give a conclusive opinion in that regard.

Operator

We'll take our next question from Michelle Applebaum with SMI.

Michelle Applebaum - Michelle Applebaum Research

Keith, what was the original -- remember the original investment when you started the company?

Keith E. Busse

The original investment of equity into the company?

Michelle Applebaum - Michelle Applebaum Research

The total investment, the total financing.

Keith E. Busse

Oh, the 3 of us? $71,000.

Michelle Applebaum - Michelle Applebaum Research

Yes. I mean, the total investment including the -- I'm sorry?

Keith E. Busse

I think it was $71,000 or something like that. $91,000...

Michelle Applebaum - Michelle Applebaum Research

No, I meant -- I mean, the total capitalization once you guys got started when you brought everyone in.

Keith E. Busse

The capitalization was about $100 million. $90 million -- there was 4 partners at $20 million and with me at $10 million. I think it was about $90 million, somewhere in that area.

Michelle Applebaum - Michelle Applebaum Research

Okay. And how long from when you broke ground to when you became profitable?

Keith E. Busse

Well, broke ground. We broke ground and started running the mill in about 14 months, which I think was a new world record for a capital project of that magnitude. And from January of 1996, when we started producing, we believe we became profitable sometime in mid-June, if you can figure it out on a detailed basis. We're definitely profitable in July. We lost money in May and lost a lot less. So somewhere in June of 1996 we turned to profit.

Michelle Applebaum - Michelle Applebaum Research

Anyway, it's an amazing story, and I've been there almost from the beginning, so it's been exciting, and watching you guys and the legacy that you bring to the company. And what you've accomplished here from a cornfield to 7 million tons is just -- given the value destruction that I've witnessed in 30 years in this industry, which you guys have accomplished here, don't ever lose sight of that. It's amazing, and it's also made my job so much more fun, so thank you for all the years.

Keith E. Busse

I think we've been a fairly transparent group in terms of providing information to you and others. We're not guarded about things as some are, but we've got a great team. I'll tell you the succession planning exercise yielded a lot of knowledge about the future capable leadership of the company that's below my level, Mark's level and Dick's level. It was a good exercise. And certainly, I believe this is going to be a seamless transition. Dick and Mark and I have -- we're original partners on this. And Dick, as you know, is staying. He's not going anywhere, a little bit younger than I am, and I actually am looking forward to my involvement with the company but with fewer hours. A lot of people probably retire and have real regrets about retiring, but I don't see it as retiring. This is my family. These are my partners, and I will never view it as that, and happy to continue to provide consulting services and board services to the company. So it's been a great adventure in life, and I have nothing but high regard for the new structure that we put in place. Company's in incredibly capable hands.

Michelle Applebaum - Michelle Applebaum Research

It's so unusual to see visionaries, people build companies the way you guys did, and at the same time for you to be able to transition. It's really the ultimate win-lose, winning at your end game here, the way you're transitioning here. So anyway, I want to ask you a more difficult question now that I've said nice things. So in your third quarter guide, which was on the 12th of September -- Nate [ph] actually pointed out to me, I had missed this, that you had a little qualified blurb in there. You said the company believes there's more economic clarity developed through the remainder of the year. Demand could be expected to increase along with pricing margins, which have already started to move, with the potential to positively impact fourth quarter results given the low levels of existing inventory throughout the supply chain. So that was only -- that was September 12.

Keith E. Busse

That was only 5 weeks ago, you're right.

Michelle Applebaum - Michelle Applebaum Research

I know. I know. And it's -- obviously, it's reflective of the environment that 5 weeks later you can't say that anymore.

Keith E. Busse

Well, you're right. It was a...

Michelle Applebaum - Michelle Applebaum Research

Could you push that out a little bit or...

Keith E. Busse

Yes. The backlogs are so darn short and a material component of our business that it is tough to forecast. But at that point in time, we had 3 bid weeks of order entry where the price was moving up. And after 3 big weeks of order entry, guess what, we had 3 small weeks of order entry, and everybody was out there discounting again and prices were moving south. So the momentum we all felt disappeared almost overnight, which is a frustrating environment to be in, but that's nonetheless it's the real world in which we live, and we react to it and move forward. One thing this company is capable of doing is turning on a dime, reacting very quickly to both positive and negative forces that influence us. And -- but you have -- the world changed in a short period of time again. I will give you that.

Michelle Applebaum - Michelle Applebaum Research

Okay. Yes. Well -- okay. Do you think...

Keith E. Busse

A lot of that were Europe-related. I mean, there were all kinds of things going on in the markets. The markets were collapsing, and everybody took a look at their investment portfolio at the end of September, although they might have had a smiley face in July or August, all of a sudden, they had a gigantic frown. People walked in my office and said, "Jeez, I had $120,000 there, and now I've only got $78,000." I mean, total -- it depends on what you've invested in, of course. But I mean, it got ugly there for a while.

Operator

And we'll take our next question from Brett Levy with Jefferies & Company.

Brett Levy

What makes you feel secure that hot-rolled prices don't drop another $100 a ton in the near term? There's been some sort of banning about a slowing in China. What sort of gives you an anchor to the downside on hot-rolled?

Keith E. Busse

Well, I can't tell you with any great certainty, Brett, given what we -- the discussion we just had with Michelle on how fastly the world changed that it won't. But I would be willing to bet a lot of money that if we have that kind of material collapse, the resources are going to follow it this time, and I don't think margins are going to be -- they'll be impacted, of course, but I don't think dramatically impacted.

Brett Levy

And then one for Theresa, and then I'll pass the baton. You guys have got a phenomenal new revolver, quite a bit of cash. Right now, you're sort of running a negative spread between your cash and your 12% maturity. Would you guys consider using some of that cash to buy back bonds in the open market?

Theresa E. Wagler

We're constantly looking at the market and making that evaluation versus where we're at with cash versus what optionality there is regarding that kind of one-off repurchases. So I think we're open to all different ideas.

Operator

And we'll take our next question from David Katz with JPMorgan.

David Katz - JP Morgan Chase & Co, Research Division

I was just wanting to come back to the black beauty project. You guys indicated that it's now on hold given that the industry is running at around 80% capacity. But the industry has been running at roughly the same capacity over the last year, and before that it was lower. Is there anything in particular that caused you to change the plans with regard to it?

Keith E. Busse

We would, collectively, I think I can speak for the Board, like to see an economic climate in which GDP is at 2.5%, 3%, 3.5%, and there's consistent growth. Even though I think the team did a phenomenal job, and they did -- the Board was, I would tell you, pretty impressed with the project. And probably if we were to ask them to pull the trigger at that moment in time, they might have. But when they asked me directly, Keith, would you do it at this moment in time even though I was one of the proponents of that growth project, the answer was a "not." Now there's 2 schools of thought there. By the time we get the mill built, hopefully, we'll be at a better economic climate and, therefore, it would've made sense to pull the trigger. And maybe we should have went forward with it. I think clearly the team did its job from a market perspective bringing a broad -- or allowing the company to participate in a broader array of the flat-rolled arena. Clearly, the CapEx that we articulated, the Board believed would have been realized. The bottom line was as good of any investment we were looking at currently. And I think there was good support for it, but at that moment in time, the industry is backing up slightly. Capacity was shrinking again. It wasn't growing. We'd like to see a sign where capacity is moving up steadily along with GDP, and with that some confidence that we're going to have an extended, if you will, period of good economic conditions, that one that could be forecast I guess. And so the answer is we're not in that big of a hurry. We're not completely done with engineering. We're not completely done with site selection subjects. So I can't tell you whether we'll pull the trigger in 3 months, 6 months, 9 months, but I think the project, I would just tell you, is very much alive, awaiting better economic circumstances to introduce it in.

David Katz - JP Morgan Chase & Co, Research Division

Well, in the interim, with the economic environment as it is and given your previous comments that you feel that the capital markets are open to you and you quite like the 50% debt-to-cap ratio that you have right now, that would indicate that perhaps the debt, which comes due next year would just be refinanced. What is the use for the cash on the balance sheet? Is it just stock it away for a rainy day? Is it to raise the dividend? What do you guys see yourselves doing?

Theresa E. Wagler

First of all, I wouldn't read anything into the fact that we commented on the accessibility to the markets. They're there, but that doesn't necessarily mean that there would be a 100% refinanced in the notes, so I wouldn't make that assumption or presumption. And secondly, Keith will have his own opinion but we will -- we are a growth company. We intend to grow fairly aggressively when the time is right. So to have the availability of that, that we can react quickly to opportunities as they come for us, I think it's very important. Keith, do you agree?

Keith E. Busse

Yes, I do. I think, as I said earlier, to do black beauty over the course of a couple of years, I think it can finance itself out of cash and earnings essentially and not even impact the revolver 2 or 3 years from now, which would mean debt would remain unchanged, which would mean you'd have to refinance the $700 million in some form. With that project currently on hold, that could be a timing issue there, where we -- who knows, we might -- we have a wide range of options, as Theresa said, anywhere from the capital markets and the bond market specifically to Term A type loans, which we can repay to accumulate enough cash between now and then to retire and retire some debt. I don't think we have a specific strategy necessarily to bring the debt down sharply, but the consequences of where we're at, where the economy is at, may well yield an opportunity to retire some of that debt, if not all of it, and improve the balance sheet. So we're just continually looking at our options. We have not reached a firm conclusion as to which trail to travel down.

Operator

We'll take our next question from Justine Fisher with Goldman Sachs.

Justine Fisher - Goldman Sachs Group Inc., Research Division

I have a question on the market environment. Over the last couple of years when we've seen periods of price decline, we've seen some people, some participants in the market start fighting for share. And there have been some comments made by some large mills maybe that they would continue to fight for share or to maintain their share at least in this current environment. Does it feel like there is a fight for market share going on in the flat-rolled market right now?

Keith E. Busse

I would tell you there's not a huge fight going on right now. There's some discounting domestically. Probably more importantly, there's been some domestic offers abroad at cheaper pricing but not for delivery into this market. But obviously, there's been some "protect my market share" pricing going on or it wouldn't have drifted backwards $20, $30, $40. So yes, people are, to some degree, protecting their share. But I would say it's not been an overly aggressive environment at this point in time. And you always hear about a deal here, a deal there. That's not the preponderance of the market. But that's always what's put on your plate. That's always what they want you to be, is that one exceptional deal out there, and it's 1 out of 10,000.

Justine Fisher - Goldman Sachs Group Inc., Research Division

Okay. And then just another question on the credit environment. Again, people are comparing now to a couple of years ago and saying is it going to be as bad, worse or better? And one of the things that stands out to us is the credit environment for your customers that was existent during the previous financial -- or during the financial crisis. I mean, people had a lot of trouble getting trade credit and you saw service centers with weakening purchasing power. Is that happening now? Are you seeing trade credit decline amongst any of your customers?

Keith E. Busse

Go ahead, Theresa?

Theresa E. Wagler

I'm not aware that we're seeing any. We've had conversations. Our receivables are in very good shape and, actually, I'm aware of at least 2 different individuals on both sides of the fence, one in metals recycling and one on the steel side, that are moderate size, that were able to get very favorable deals from their banks. So I don't think it's in the same situation as it was in 2008. The banks have so much liquidity. They'd like to find a reason to be able to lend to some folks.

Keith E. Busse

I think that's true, but the Feds at the same time are writing herd on the banks to a greater degree today so that we don't have more failures than they did back in '06, '07 and '08. So the Feds are looking at banking activities and making sure that the lending policies are properly secured.

Justine Fisher - Goldman Sachs Group Inc., Research Division

Okay. And then just one last clarification question for Theresa. Just on the liquidity covenant, first of all, does the minimum liquidity include the $400 million accordion? And then when the 7 3/8% come out, irrespective of how much of those refinanced, et cetera, does that mean that the minimum liquidity covenant is then just $160 million because those notes are gone?

Theresa E. Wagler

The $400 million of the accordion is not included in the liquidity calculation, and the liquidity covenant goes away as we refinance or repay the 2012 note.

Operator

And we will continue on to Timna Tanners with Bank of America Merrill Lynch.

Timna Tanners - BofA Merrill Lynch, Research Division

I wanted to -- I'll just ask real quick on the SBQ project that you've talked about in the past, is that something that you're going ahead with the additional capacity of, say, 200,000 tons or so and using extra Columbia City melts?

Richard P. Teets

Timna, the Pittsboro operations has submitted a preliminary plan to expand their rolling capabilities down there to more further complement their casting capabilities. It's being worked on at the plant level. And in time, we will bring it to the board for consideration. It has not been approved as of this date.

Timna Tanners - BofA Merrill Lynch, Research Division

Okay, great. And then the follow-up I had was just to say, do you have further incremental projects that we could anticipate in 2012 beyond the changes you talked about in Mesabi Nugget?

Richard P. Teets

From a steel operations, I'll just answer that every plant, we've challenged them on a go-forward basis, how do you position yourself for the next 5 to 10 years. And each one has either process or product development opportunities, some requiring capital expansions and others requiring slight modifications. But we do have a plan, and we're working to finalize that plan, and it's always being reviewed.

Timna Tanners - BofA Merrill Lynch, Research Division

So nothing in the copper project or anything else that we might have missed to think about into 2012 just notionally?

Theresa E. Wagler

Timna, what we do is we evaluate all of our projects globally and we look at the internal return and then we evaluate which ones to move forward with, and we weren't prepared to -- I've chosen those projects we're able to talk to everyone about them. We think there will be some exciting things for 2012. I just don't believe that we're prepared to talk about that.

Keith E. Busse

We're in the process of weaving through them right now as we prepare our final budget plan for the board for next year.

Timna Tanners - BofA Merrill Lynch, Research Division

Okay. Sorry, if I wasn't clear. What I was trying to figure out is if there's anything in progress, not necessarily new projects. But in progress that might start to come through for 2012, that might be a step change from this year to next that you can control. Things that you can control besides the market that might be improving in 2012.

Richard P. Teets

Well, we again for 2012, I mentioned earlier one that I think is exciting is involved the making of the rail production over at Columbia City. When we designed the facility and included the rail welding line, we expected to make a predominant amount of product that was 240- and ultimately 320-foot long and welding it together for shipment. And yet realizing now that, really, no one buys 240-foot lengths unless they're welded, and that's the amount of orders we get are for 80 footers or 39 footers. So therefore, we only had one saw, one gag press, one drill in line and that was all we required to feed the weld lines but to really meet the ongoing day-to-day orders that we get from class ones, regionals and short lines, they are looking for maintenance materials, which are the shorter length, and we only have one saw. It -- you just throttle back your production unbelievably when you go from just 2 end cuts, 4 cuts or 7 cuts and the like, when you're trying to make those shorter lengths. That should be commissioned again in November. And then we'll start seeing the benefits from that project immediately. That's just one example.

Operator

And we will now go to Arun Viswanathan.

Arun S. Viswanathan - Susquehanna Financial Group, LLLP, Research Division

I guess I wanted to ask a question just about your system. So I understand the commentary that pricing has potentially reached the bottom. What does that imply? I guess, maybe you can just help me understand your system a little bit more. Are you mostly expecting your prices in the fourth quarter to remain fairly stable? Have you seen most of the downdraft that we saw in 3Q in industry prices come through your system?

Keith E. Busse

I think from a bar products perspective, the pricing has got to be fairly stable for almost an entire product field. When it comes to Flat Rolled, prices are going to be down slightly perhaps, but resource costs are down slightly as well. And slightly, I think, is the right answer.

Arun S. Viswanathan - Susquehanna Financial Group, LLLP, Research Division

So sequentially, you shouldn't see a price downfall that you saw in third quarter. And if you see a -- finally scrap coming down, that will also mitigate the sequential drop in margin per ton, I guess?

Keith E. Busse

I'm not expecting to see prices materially fall in the fourth quarter. They will, I believe on average, in steel, fall somewhat over the third quarter certainly, but I think scrap has moved a little bit in favor as have virgin resources, which Mark commented on earlier. The price in barrel will be down as well slightly. Therefore, there should not be a huge impact or any impact in margin.

Arun S. Viswanathan - Susquehanna Financial Group, LLLP, Research Division

Right. Okay, great. And then the other question I had was I guess on the inventory side. The service centers released the inventories on a seasonally adjusted basis were pretty much flat again in September. So I'm just curious with demand, where it's at potentially on the sluggish side, where do you think all the inventories are? Are you guys seeing more inventory buildup at the mills? And what's going on really with the inventory side?

Keith E. Busse

We can't see what other mills are doing. Our inventories at the mills are down. Our finished goods are up a little, but our scrap is down considerably over where it was. I can't comment on the other fellow. But reminder that service center inventories, if they tell you they've got too much supply, one month of that is obsolete and slow moving. Therefore, the supply on hand really is not very long, and they tend to buy at spotty patterns. And as that becomes compromised, they buy a little more and as they build it beyond 1 month to 1.5, they buy a little less. There's almost seems to be a pattern of buying out there. And we'll see whether or not that cycle is broken when we get into later October and November, where I think order entry will be a little stronger than it's been in the last 3 weeks.

Arun S. Viswanathan - Susquehanna Financial Group, LLLP, Research Division

Why would you characterize or why do you expect order entry to pick up as the year goes on here?

Keith E. Busse

I just -- the excitement and certain parties voiced about, "Boy, our business is good right now," and "that business is coming your way" kind of comments.

Arun S. Viswanathan - Susquehanna Financial Group, LLLP, Research Division

Okay. Last question is basically, I'm just surprised, just echoing Brett's comments from earlier. What gives you the confidence that pricing has found a bottom? I mean rods have really come off in the last couple of weeks and they seem to be headed to the down side and capacity, obviously, is way underutilized in the U.S. Is there a portion of idled capacity that we just don't see? Or are why are you more confident that we've potentially reached the near-term bottom?

Keith E. Busse

These are just conversations we have with our field sales force. They're all just made because it fell down $20, $30. But then they -- that's where they currently are. They're getting orders again. It's a confidence that they don't have to discount any further to get the orders. That could change next week. I mean, we have been in a rather fragile environment.

Operator

We will continue on to Sal Tharani with Goldman Sachs.

Sal Tharani - Goldman Sachs Group Inc., Research Division

Russ, I wanted to ask you how things are in the scrap world in the fourth quarter. Keith mentioned several times that resource prices might be slightly lower. On the other hand, the sudden drop in nonferrous is behind. I mean, we haven't seen further drop, it's more of a stable after the drop. Are you expecting an improvement quarter-over-quarter? Or are you seeing more of a flattish quarter or down quarter?

Russell Rinn

I think it's going to be pretty much of a flattish quarter. I think you got -- again, as Keith talked about earlier, it's still quite a volatile environment out there. A month ago, there were scrap rumors with the prices going up $20 a ton in October, and all of a sudden they turned around and when we finished the market, it's down $10. You heard Keith talk about some of the talks of it being down $20 in November, but until we get there, until people start actually buying and start fulfilling their needs, we're just not going to be sure. So traditionally...

Keith E. Busse

Could be flat.

Russell Rinn

Yes, It could be flat. Traditionally, as we get to the winter months, particularly December, January, February, you see scrap prices start moving up simply reflective of the flows that becomes tighter over the winter months. But again, I think if you look at it on the whole, I'm anticipating it will be relatively similar at the end of the month as we were -- or at the end of the quarter as we were in the third quarter. On the nonferrous in particular, I think the economic conditions and the woes of Europe and the woes and the devaluation of the Thailand currency and those things all rippled through those markets. And look, let's face it, in the -- particularly in the copper markets, there's a lot of financial money in there, not necessarily manufacturing-type money that moves those things. So again, as the financial markets suffers some throes, those markets are going to feel them as well.

Sal Tharani - Goldman Sachs Group Inc., Research Division

What's your inventory ton on nonferrous versus ferrous? Do you have an idea?

Russell Rinn

Ferrous is pretty much -- we're turning everything we've got in about a month's time. Nonferrous is a little bit extended out, simply because it takes a little longer time to process. So that's probably a 2-month, maybe 6 weeks to 2-months term time. But again, it's relatively quick vis-à-vis the way the scrap industry used to be, which was buy, hold and move. It's the supply chain, the supply lines, both our -- the folks that are supplying our scrap yards and our supply to our customers are very, very thin.

Keith E. Busse

You heard Mark comment -- interesting where we are today. You heard Mark comment earlier on transfer price of nugget material at $506 in a bundle, bushel markets in that same range. I want to tell you I hope we could produce all the damn nuggets we can produce, because if I'm a buyer, I'm buying nuggets, not buying scrap. Because they're sitting around on top of one another, there's much better value in the nugget.

Sal Tharani - Goldman Sachs Group Inc., Research Division

Okay, great. Another question on comments made. I think, Gary, you made a comment that you've seen some improvement in the private construction activity. And also I see that Columbia City ran at a much better rate on -- utilization rate. Are you seeing this continued momentum, positive momentum in the non-res construction side?

Gary Heasley

We have access to real data on, of course, on joist and deck demand and those are up 15% and 16% year-over-year, respectively, and that's year-to-date. It's been a consistent relatively strong growth. Overall, the nonresidential construction was only up 0.9% -- I'm sorry, overall construction was up 0.9%. But the private non-res was up 7%. That's August of '11 to August '10. That's a pretty reasonable improvement. But all of this is mixed together in a shifting of focus on publicly-funded projects and privately-funded projects. We think that what we're seeing in these last couple of weeks, we've seen a slowdown in quota activity. We don't think that really is going to be much going forward. We think we'll see, maybe we won't grow in the fourth quarter 15% for demand, maybe it will be 10%. So we think we will see year-over-year growth. So I think it's going to continue to be volatile and spotty, but we are seeing interest from retailers in building distribution centers and new stores. They really haven't been very active for the last couple of years. And we're seeing other -- we're seeing manufacturing interest we haven't seen in a couple of years. So it's small growth but it's improvement and we'll take it.

Richard P. Teets

Sal, I have to add this. Don't relate the improved shipments in Columbia City to an improving construction in the non-res market. Again, I made mention that 25% of their shipments in September and smaller but still stronger in the balance of the third quarter were nonparallel flange products. So it's not recovering. That shouldn't be a sign of recovery.

Operator

We'll take our next question from Brian Yu with Citi.

Brian Yu - Citigroup Inc, Research Division

On the steel market, I know there's been a lot of discussions about flat rolled. But as I look at the market metrics out there, you've got metal margins in commodity hot roll at 200, long products are at $300 and even more. So there's very different margin-type pictures. A couple of things related to that. First, can you remind me what your power coil conversion costs are? And you guys are some of the lowest-cost producers. Just to give us a sense of how low things could go. And then secondly, from a profitability standpoint, Flat Roll was a little bit -- 50% of your shipments this quarter. Would you have a number in terms of profit contribution on steel mill side, long versus flat?

Keith E. Busse

We don't disclose that number, so we don't have anything really to arm you with there. Relative to the margin differences, there are true cost differences that exist. Especially when you're running at 50% of capacity, there is a huge difference in the cost structure of the 2 and it requires that kind of a margin just in long products, especially beams to keep your head above water. But in other merchant-type products, it yields a nice return. You asked about flat rolled. We've talked about that many, many times. What we talked about is the fact that the conversion costs x yield because we've always said gross is net. You introduce it at a gross ton and you end up with a net. The conversion between a gross ton and a net ton happens to be the same number as the yield losses in the flat rolled mill. So that is baked into a statement. When you go look at material costs and you, say, I'm buying something at $500 per bundles and $450 per shred, one of your averages is $480, that gross input number is the net cost yield into the mill. To that, we've always added a conversion cost, which I think is probably today in the $130, somewhere in that area, $135. Dick, you have?

Richard P. Teets

No, I'm acknowledging, right, somewhere in that range.

Keith E. Busse

Somewhere in that range.

Brian Yu - Citigroup Inc, Research Division

Okay. Second question, on a different topic. You mentioned that with Mining Resources, once it's up and running, that will be able to feed your Mesabi Nugget plant in whole, at the same time you're still trying to permit the open pit. Is it fair to assume that if and when, hopefully when, you get the open pit permit in hand and you begin construction, that it seems like you're going to be long concentrated in that, and that's when you would consider building a second nugget facility?

Mark D. Millett

Either building a second nugget facility or selling concentrate into the open market.

Brian Yu - Citigroup Inc, Research Division

Okay. So you would be open to merchant position in concentrates?

Keith E. Busse

Yes. I think the other thing relative to building a second facility, which would be a desirable thing to do, is make sure that the forecast that Mark ran through with everybody when he gave you more color on where we are and where we're getting to and the time it was we're going to make $40 million, $50 million, we have to begin to realize that on a consistent basis to make that decision.

Operator

We'll continue on to Mark Parr with KeyBanc.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

I had a couple of questions. One thing I thought and maybe this was a misconception on my part, that a lot of the nonferrous activity at Omni because it's just the commodity exposure, there was some hedging operations or activity. Is that something that -- have I missed that? I mean, do you hedge copper or aluminum at all or any of the nonferrous exposure you have?

Russell Rinn

Mark, we do hedge copper in particular and some of those contracts extend out into the new year of 2012. So yes, that activity is ongoing for us.

Keith E. Busse

This was a mark-to-market issue, I think more than anything like that.

Theresa E. Wagler

We were protected on the physical inventory side, which is what we had almost 100% res I believe. So that was protected. It was on copper. That was protected. It was the forward purchase contracts on which we mark-to-market. That's where the unrealized loss came into play.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Okay. And now, is that something -- and again, I'm not an expert on hedging contracts, but is that something you potentially could see a reversal of in the fourth quarter based on the losses that you took? Or what would need to happen?

Mark D. Millett

On the forward sales, when you liquidate those positions, Mark, they do return to you.

Russell Rinn

They reverse themselves.

Mark D. Millett

So they will liquidate this year. And as Russ said earlier, it takes into 2012, early 2012 too.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Okay, all right. I just wanted to make sure I had that thought process correct. Another question I had, Dick, relates to lead times. I think you made a good point about the fact that the lead time differentials are different between hot rolled and then the coated and the more value-added products. Could you give us a little color on how lead times have changed for a cold rolled and galved and painted product, say, today versus 2 months ago or something like that?

Richard P. Teets

What I would tell you on those value-added products, they really haven't changed that much. We've been very steady and very fortunate with a strong position throughout the Flat Rolled division. And so therefore, there's been very little adjustments to those lead times on our value-added processes. Again, where we have seen that fluctuation has been the hot side, on the hot band and that's what's very much reacting to these fickle order-entry rate weeks that Keith was referring to, where you have some real strong weeks and then all of a sudden things go soft and go south for a little while. And that's just the backlog of demand, which affects your efficiency because you don't have near as many products to choose from to get efficient streams through the caster but we're doing ours best to react to them and it is what it is.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Okay. I appreciate that color. So I mean that would indicate, paint a little different picture on just if you're strictly looking at hot bands, which a lot of that has to do with whether the service centers are in or out of the market in any given week.

Richard P. Teets

Yes, that's right.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

One last question if I could and this relates to the nuggets project. That they -- I guess the difficulties of really getting that fully commissioned and operating properly have been kind of ongoing relative to where your comments were earlier in the year. And maybe Mark or Russ, it would be helpful just to kind of remind us of what some of the issues are that you're encountering and just to reassure us again that you feel like you're really on the right track as far as getting this facility to a point where it can begin to generate positive bottom line results next year.

Mark D. Millett

I think, Mark, as we discussed in the past, the principal issues today have been actual mechanical. Just keeping the plant in operation, operating sort of day and night, every hour of the day. Early on, it was conveying systems. We tore those down, put a second set in. They demonstrate the availability that we require, and so we've now gone back through and put redundant systems in virtually all the conveying systems. The discharge system between the rotary hearth and the cooler, again, these are water-cooled components. And just that they're wearing -- excessively leaking. So it's a valve to cool and plan [ph] issues and also refractory, and the rotary hearth. We've been going through a learning curve. Just as I suggested, aerodynamics. Early on its career, we were going through refractory linings every 2 months. Dave, the team have done a phenomenal job bringing the availability of that facility up and this last lining has served us well for over 2 years. So these are the more pioneering efforts or issues related to the pioneering efforts. From a process standpoint, I would suggest that the -- probably, the single remaining item other than just tweaking and optimizing yield is controlling the, what we call, the hotbed and making sure that we can consistently lay down a single layer of pellets, produce nugget without any scale build-ups and those sorts of things. And again, however the issues we have with the rotary hearth furnace aerodynamics, we had similar issues there. And with time, with tweaking fluxes and temperatures and hotbed materials that will be overcome, I do believe. But we've got to get the plant running on a very consistent basis, and then those sorts of mechanical tweaks and process tweaks can be made.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Okay. Thanks for the update there. I don't mean to beat a dead horse but I mean, it sure will be great when that facility is making money on a consistent basis.

Mark D. Millett

It's not a dead horse.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

All right, I'll withdraw that.

Theresa E. Wagler

Mark, I also want to comment, earlier in the year when we were talking about breakeven scenarios, the assumptions for both the transfer price and for concentrate were much different than they are in today's environment. Concentrate costs are much higher than we anticipated, and the pricing for the transfer of the product is also lower. So there's a natural cost compression there as well.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

Okay. I think that's a really good point, Theresa. If you adjust the underlying cost of production, your conversion costs, for those changes in concentrate and transfer prices. I mean, has there -- have you really experienced much change in the underlying cost relative to where you thought you would be?

Mark D. Millett

The actual conversion cost compared to where we were back when we approved the project in -- when did we approve the project?

Russell Rinn

Several weeks ago. [indiscernible] 9.

Mark D. Millett

We're probably about $20 a ton more than we thought we were going to be. So there's no appreciable difference. The principal drivers of the financial performance have been concentrate cost, coal and the transfer price.

Keith E. Busse

Times would have helped. I think more than anything, Mark, those are real things. But we had a solid stock of material. It might have been higher and the price might be a little lower. But had we got the tons out that we had anticipated for one 4-week stretch, we might have got there. But we focused on continually improving the process, so that we're not stopping all the time to fix something. And I think now we're facing a point where the concentrate costs going forward are going to make a material difference and we do need the volume.

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

But it's an interesting nuance, you can look at the bottom line number and it really doesn't look all that encouraging. But if you think about the fact that you're pioneering a new process, and the underlying cost of that process actually unfolding pretty close to what you thought upfront, and you were looking at changing economic scenarios and perhaps some volume issues that are really the bigger driver than anything having to do with the robustness of the process or the -- or what it is that you're really working on accomplishing. I think that's a good point to make.

Operator

And David Lipschitz with CLSA.

David Lipschitz - Credit Agricole Securities (USA) Inc., Research Division

Question for you. Last year, you talked about there's a certain price point where you wouldn't sell under. Is there a price point this year based on where scrap is? I know you said where conversion costs are, but where you were to say, you know what, we'll pull out of the market?

Keith E. Busse

Well, we still have a fair-sized profit per ton in there, so we're a long way away from that. But I don't think we're in danger of having to make a decision like that because I think resource costs would follow it. So I don't see us not being active in the market. But obviously, you could paint a scenario where resource costs stay where they are and the market drops $150. I imagine we'd probably have to think about that pretty hard and probably more focused on value-added than we would be on chasing hot bands around.

Richard P. Teets

Let me just to add do that, Keith, that there are decisions every month we make at each of the divisions relative to orders that we turn away, and many of them I'll just say are, let's say, export opportunities. Then we look at a number each and every day that theoretically could increase our productivity, or our production levels, and yet we turn it away because of the price point that's there. So we look at it on every product in every division on an ongoing basis and make decisions relative to that, our inputs, our conversion costs and the like.

Mark D. Millett

Yes. I think there are 2 things that benefited us from the past, where we've never really been presented with a situation that we just flat out get out of the market. One is the diversification of our portfolio mix as Dick said earlier. We're into painted, into galvanized. We don't have to chase the hot band market then into the gutter. And number two, our efficiency and being the lowest cost producer, we've got a lot more flexibility than perhaps our peers in the marketplace and still maintain a margin.

David Lipschitz - Credit Agricole Securities (USA) Inc., Research Division

So then my follow-up to that is, we've seen utilization rates pretty much stay relatively flat over their recent term and demand has been, I would say, stable, up and down a little bit. Do we need -- and with the new capacity that's coming online, do we need to see capacity cuts in order to prices to get to move higher especially in this low slow-growth environment it looks like we're going to be in for a little bit?

Keith E. Busse

I don't know if we have the answer to that at all. We'll stay away from that question.

Operator

We will take our final question from Tony Rizzuto with Dahlman Rose.

Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division

Listen, as you guys look into 2012, what kind of level of shipments or consumption growth do you see for the market? If you could maybe break it out into kind of demand for long products versus flats?

Keith E. Busse

Boy, that's an interesting question. I think the only real and meaningful improvement is probably going to be at the structure division, we're freeing up our activities in rail by a yield of few more tons next year. Hopefully, the construction markets will come back a little bit and help us there. But we're running pretty much at capacity down at -- in fact, we're exceeding the original design capacity of Pittsboro by a wide margin, and we've done just about all without pouring capital into the place that we can do. So don't see a change there or it's still West Virginia, maybe a little, a few more tons possibly through Roanoke but not meaningful. Maybe some more tons, hopefully, 100,000 tons or 200,000 more at structural but that's a stretch, free of mechanical failures and this and that. We had a few this year at Butler, we might be able to run at a little higher operating rate there. So probably not huge differences for us.

Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division

Could you maybe give it a shot from an industry perspective too?

Keith E. Busse

Well, I don't know that I could do that. I mean, I think the dollar is going to remain weak. There are going to be opportunities abroad, especially if we can settle the economic platforms or -- in Europe, but that's a more subtle condition. There might be some opportunities. Depends on what China is going to do with growth. There might be some export opportunities. But I think domestically, demand might be up 2%, 3% or 4% next year but probably not a lot greater than that.

Catherine, thank you for shepherding us during the call. I think it's time to wrap it up, and let me just say thank you to all of you. It's been a joy to work with you over the years. And to hopefully provide meaningful input to the questions asked, I'll be around in the future. I'm not going to go away. But let me say thank you to the 6,000 wonderful men and women, who make it possible every day in this company. It's a wonderful company, and it's on solid, solid ground at this point in time, and it's a great time to contemplate, enjoying my -- some more freedom in my private life. So again, thank you, everyone. Bye now.

Operator

Thank you, ladies and gentlemen. That does conclude today's conference. Thank you for your participation, and have a great afternoon.

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