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Nucor Corporation (NYSE:NUE)

Q1 FY08 Earnings Call

April 17, 2008, 2:00 PM ET

Executives

Daniel R. DiMicco - Chairman, President and CEO

Terry S. Lisenby - CFO, Treasurer and EVP

Hamilton Lott, Jr. - EVP

John J. Ferriola - COO of Steelmaking Operations

Keith B. Grass - EVP

D. Michael Parrish - EVP

Ladd R. Hall - EVP

R. Joseph. Stratman - EVP

Joseph A. Rutkowski - EVP

Analysts

Evan Kurtz - Morgan Stanley

Timna Tanners - UBS

Michelle Applebaum - Applebaum Research

Chris Olin - Cleveland Research

Mark Parr - KeyBanc Capital Markets

Bob Richard - Longbow Research

Wayne Cooperman - Cobalt Capital

John Hill - Citigroup

Aldo Mazzaferro - Goldman Sachs

Operator

Good day everyone and welcome to the Nucor Corporation's First Quarter 2008 Earnings Release Conference Call. As a reminder today's call is being recorded. Later, we'll conduct a question-and-answer session and instructions will be provided at that time. Certain statements made in this conference call are forward-looking statements that involve risks and uncertainties. Although Nucor believes that they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. Some of the important factors that may cause actual results to differ from our predictions are listed in Nucor's SEC filing. The forward-looking statements made in this conference call speak only as of this date, and Nucor does not assume any obligations to update them.

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

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thank you. Good afternoon and thank you for joining us for Nucor's conference call. We appreciate your interest once again in Nucor. Our team will review Nucor's first quarter of 2008 performance, and we will update you on our disciplined implementation of Nucor's growth strategy. First and most importantly, I'd like to say thank you, once again and job well done all 20,000 members of Nucor's team for delivering record first quarter earnings of $410 million. As always you are working safe, working smart, working hard and working together to take care of our customers. You have proven again that Nucor is most significant company advantage remains our employees, the right people working together as a team.

Thank you, and stay safe. I also want to extend a warm welcome to the newest additions to our Nucor family. In late February, the 1,700 employees of the David J. Joseph Company joined the Nucor team, has proven partners of Nucor for four decades. We are excited and proud to welcome you into Nucor. And earlier this month we complete the two acquisitions of crap processing companies as part of our strategy for David J. Joseph or DJJ to be Nucor's growth platform into the scrap business. Nucor and David Joseph are excited to welcome then more than 500 employees of the globe in metals industry now operating under the Advantage Metals name and also Metal Recycling Services to the Nucor family. Together with our new teammates, we are looking forward to a very bright future of profitable growth and the scrap business. And I emphasize the term profitable growth and the scrap business. Again, welcome to all of you.

Now here are some thoughts on our first quarter earnings report, and most importantly our exciting plans for continued growth of shareholder value. Nucor's record setting first quarter earnings were achieved in the period of dramatic escalation in the cost of raw materials, most notably scrap or not solely scrap. Our multi-scrap use of course increased by $66 per ton from December 2007 to March 2008. And first quarter of 2008 results included a lifelong inventory charge of $69 million pre-tax. At the same time, we're able to generate first quarter pre-tax profit of $101 per ton. That number was up from the fourth quarter of 2007 pre-tax profit of $98 per ton. The improvement was driven by strong volume and then improves similar margins spread and our steel mills. These results demonstrate the Nucor staying longstanding ability to successfully manage volatility in scrap markets.

Critical underpinnings to this success had been a healthy supply demand balance of North American steel markets and continue to affect the utilization of Nucor's raw material surcharges steel mills. The first quarter was also our fifth consecutive year of record breaking first quarter earnings. This highlights tremendous value of Nucor's position this North America's most diversified steel and steel products producer. With our pipeline diversity, Nucor's short-term performance is not tied to any worn steel market. Composition of sales tons for this year's first quarter was 34% sheets, 23% bars, 12% beams, 11% plate, and 20% dam string steel products.

Over the past five years relatively better conditions in some steel markets have presently affected more adverse conditions in another market. Our first quarter of 2008 earnings benefited from record results and our structural steel mills and approved profitability are the achievements. Also, a number of our other businesses generated very attractive profits during the quarter including bars, plate, rebar fabrication and cold-finished bars.

Now let's talk about our team's ongoing focus on building Nucor's long-term earnings power. We are certainly encouraged by our progress at this point. Here are some statistics that tell the story that our multi-plant growth strategic is working, and working extremely well. A quarter earnings in the past ten consecutive quarters have exceeded the prior record annual earnings reaching 2000, the last fiscal peak in the U.S. economy. Our current annual earnings record set in 2006 was nearly six times greater and the prior record level achieving 2000. And Nucor's return equity over the past four years averaged, our U.S. steel industry leading 35%. We are encouraged by this progress, but our teams not satisfied. And we are extremely exited about the growth opportunities we see in 2008 and beyond.

To develop this past quarter are particularly exciting. When the David J. Joseph Company became part of Nucor in last quarter, the best of the best in the scrap business joined the Nucor team. Through DJJ scrap processing assets broaden our raw material strategy to derive a partial hedge to our steel mills against scrap market volatility. And DJJ is much more than just a scrap processing company. David J. Joseph has a number of other very attractive profit centers which include brokerage services for scrap, ferro-alloys, pig iron and scrap substitutes, mill and industrial services and rail and logistic services. They offer sizable synergies to Nucor and allow us to optimize the profitability of our steel mills along with our scrap operations. And most importantly, David J. Joseph talented management team is already at work as globe platform for Nucor's scrap business.

As I previously mentioned, we completed earlier this month the acquisition of two scrap processing companies. The second key growth initiative launched in the first quarter of 2008 was assigning of our memorandum of understanding with the Duferco Group for a structural steel joint venture in Europe. The fifty-fifty joint venture will encompass Duferco's Duferdofin's subsidiary which is Italy's largest beam producer with 2007output exceeding 900,000 metric tons. With the completion of destruction later this year, at a new merchant bar mill. Duferdofin's total capacity at its 3 Italian mills will approach 2 million tons. In addition to cash Nucor will contribute as considerable technical and commercial expertise to the joint venture.

Nucor is North America's largest producer of beams as special sections. They expect to sign within the agreement within the next month. This joint venture will be Nucor's inaugural growth platform overseas. We've decided by this opportunity to partner with the beam market leader in Italy and Southern Europe. Most importantly, there is a strong cultural compatibility with our partners, and the beam business is one that we understand very well. One in which we have earned very attractive profits for two decades. Along with our partners, we are looking forward to a bright future of profitable growth in the European among products markets. For the Nucor's culture is focused are continuing improvement and profitable growth, attained as better position inhibit with what our shareholders with attractive returns under valuable capital investment in Nucor.

At this time I will like to ask our CFO Terry Lisenby to share with you his thoughts on our results and financial position. Terry?

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

Thanks Dan, and good afternoon to everyone. Nucor's first quarter 2008 earnings of $1.41 per diluted share were ahead of our guidance of $1.20 to $1.30. These better than expected earnings were achieved despite a life of inventory charge of $69 million, which was significantly higher than the estimated LIFO charge of $20 million to $25 million that was incorporated in our first quarter earnings guidance. As Dan discussed, Nucor's operating performance continues to benefit from our diversified product portfolio. Cash provided by operating activities for the first quarter was $667 million, up from $566 million for the year ago quarter. Cash totaled $734 million at the close of the first quarter and our debt-to-capital ratio was 32%.

Nucor holds the highest debt ratings of any North American metals and mining company awarded by Standard & Poor's and Moody's. We view Nucor's strong balance sheet as an important competitive advantage in a consolidating and cyclical industry. Our financial strength is strong cash-flow generation enabled Nucor to take a long-term perspective in managing and growing our business. And our team is working hard to build upon Nucor's long-term record for being an affective steward of our shareholder's investment. Our focus on the careful allocation of capital is evidenced by our disciplined approach to organic growth projects, acquisitions, dividends and share repurchases. Our decision making process is very simple. We allocate capital to opportunities that offer the owners of Nucor, the highest return on their investment.

Capital expenditures for the first quarter of 2008 were $226 million, approximately two thirds of those outlays, were at our Greenfield projects. The Memphis SBQ bar mill, the Decatur sheet mills galvanizing facility, the Arkansas Castrip plant and the Utah building systems facility. Full year 2008 capital expenditures are expected to be approximately $800 million. Over $300 million of that amount is for the Greenfield projects. On February 29, we completed the acquisition of the David J. Joseph Company for approximately for $1.4 billion. This is Nucor's largest ever acquisition. We expect this acquisition to be accretive in 2008. Our team is extremely excited about the attractive long-term returns that DJJ will generate for our shareholders.

In February, Nucor's Board of Directors increased our based quarterly Dividend to $0.32 per share from $0.30 per share. In addition the Board approved payment of supplemental dividend of $0.20 per share, for a total dividend of $0.52 per share payable on May, the 9. Over the past year Nucor's quarterly based dividend has more than tripled, from $0.10 per share to $0.32 per share. This significant boost in our base dividend reflects Nucor's success in building long-term earnings power. And is evidenced of Nucor's belief that the business cycle for steel will see both higher highs and higher lows going forward. Our outlook for the second quarter's positive with earnings expected to be in the range of $1.55 to $1.60 per share. We expect continued strength in our bar, beam, plate and sheet business due to the solid global demand for steel.

Overall conditions in our downstream businesses should continue to be good, particularly for rebar fabrication, cold finished bars, steel grating and wire rod and mesh products. We also believe our upstream raw material businesses will be accretive in the second quarter. As always, Nucor will be both disciplined and opportunistic in seeking profitable growth for our shareholders. Our team has never been more excited about the opportunities ahead of us. Dan?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thank you Terry. Ham Lott will now update us on Nucor's vast stream steel products businesses. Ham?

Hamilton Lott, Jr. - Executive Vice President

Thank you Dan. Good afternoon to everyone. I want to congratulate our team at Nucor building systems Utah for their successful launch and production in the first quarter. They are off to a quick startup. March was Utah's first month of production. They produced 633 tons and 256 tons of that was produced in the last week of the month. As their backlog is strong additional production workers will be hired in May. Utah's annual capacity is approximately 30,000 tons. With our new Utah plant now running and last year's acquisition of the former Magnatrax metal building businesses, Nucor's buildings group has 5 branches, 11 plants, nationwide coverage and a total annual capacity of about 465,000 tons. We are looking forward to a bright future in pre-engineered buildings.

Vertical integration has been a highly successful strategy for Nucor for four decades. Our ability to build market leadership positions and downstream steel products is a critical factor driving Nucor's long-term profitability. These businesses have consistently generated attractive returns on capital through the economic cycles. Importantly, down streams steel products enhance Nucor's earning power and growth opportunities, without adding any steel making capacity that would disrupt North American steel industry's supply-demand balance. And they enhance steel mills' performance by providing them with a profitable base log of volume. As Nucor's steel product's annual capacity has more than doubled over the past year to 4 million tons, our team is looking forward to growing the already attract highly attractive returns generated by these businesses. Dan.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thank you Ham. I'd like to ask John Ferriola's team to update us on Nucor's steel making operations that are scrap, bar, beam, plate, and sheet business. John?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

Thanks Dan. Good afternoon and thank you for your interest in Nucor. First quarter of 2008, totaled steel shipments of over 5.9 million tons are a new quarterly shipment record for Nucor. They exceeded the previous record said in the second quarter of 2006 by 56,000 tons and were up 5% over the prior year quarter. These record steel mills shipments result from Nucor's competitive strengths and our favorable position relative to several import trends impacting the global steel Industry.

I will briefly review two of these. First, Nucor's steel mills are taking advantage of attractive excellent opportunities. We benefit from having a number of our mills located on major rivers and on both coasts. Also, our purchase of a 75% interest in August deal last year to the Harris Steel acquisition has proven exceptionally timely. Our Switzerland based steel trading company Novosteel is already proving invaluable to our international marketing activities. And of course our product diversity is also a major asset, enhancing our ability to earn profitable export business.

First quarter of 2008 exports exceeded 500,000 tons, with particularly robust exports from our sheet, bar and plate mills. We will continue to work to build profitable long-term relationships in export markets. However, we will not grow our export business at the expensive of our long-term domestic customers. Our second point reiterates the comments made earlier by my single largest customer Ham Lott and a steel products businesses. Nucor's vertical integration into downstream steel products enhances our steel mill's long-term performance. They do this by providing our steel making operations with a profitable base load of volume through the economic cycle. I will emphasis that this business must be continuously earned by our mills through quality, service, and competitive pricing, that is been the case for four decades at Nucor.

For the first quarter 2008, shipments from Nucor steel mills to inside customers was 748,000 tons. That number is up 74% from year ago quarters level of 431,000 tons. Nucor's steel mills look forward to a bright future of profitable growth in partnership with our valued customers as Nucor is expanding downstream businesses.

Finally, our vertical integration work upstream, on the raw material side merit some comments. The addition of the David J. Joseph Company to the Nucor team is an extremely positive development for our steel mills. One that will significantly enhance their long-term profitability. Recent unprecedented increases in the cost of scrap and other iron units highlight both the strategic importance of the DJJ acquisition and its timeliness.

I would now like to introduce to you, Nucor's newest Executive Vice President, DJ. Joseph's President, Keith Grass, Keith and his team at the David J. Joseph Company have been our valued partners in supporting Nucor's growth for many years. We are now extremely fortunate to have him as a member of our senior management team. Keith?

Keith B. Grass - Executive Vice President

Thank you, John. I speak on behalf of all my colleagues at the David J. Joseph Company. We are excited and proud to join the Nucor team. Our cultures share a common passion; profitable growth achieved by taking care of our customers. That has been proven by our highly successful partnership over the past 40 years. And looking ahead, we see even better days ahead of us as we work together as one team.

We see a number of opportunities to build attractive value for Nucor shareholders. Here are two major ones. First, DJJ will be a growth platform for Nucor in this scrap processing business. That work has already begun with this month acquisitions of the Galamba Metals Group and Metal Recycling Services.

And second, DJJ portfolio businesses will provide great potential for optimization of Nucor's existing operations. As you are aware, optimizations of the existing operations is Nucor's preferred growth strategy. These opportunities are wide ranging and include procurement of scrap and other steel making raw materials, logistics management, warehousing [ph] services, industrial scrap marketing channels, scrap blending expertise and the tremendous intellectual capital of our people working each day in the raw materials markets.

As Dan and other members of the Nucor team have noted on many occasions, DJJ is more than a scrap company. I look forward to reporting to you on our progress in coming quarters and years. John?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

Thank you Keith, Mike Parrish will now update us on Nucor's Bar Mill Group.

D. Michael Parrish - Executive Vice President

Thanks, John and good afternoon. Congratulations and thank you to everyone on our Bar Mill Group team for delivering a strong earnings performance in the first quarter of 2008. While our results were off modestly from the record quarterly earnings achieved in the last year's first quarter, they represent the Bar Mill Group's second best first quarter earnings in our third best quarter ever

First quarter shipments were essentially flat with the year ago quarter's extremely strong shipments. Overall demand has been steady with energy, agriculture, heavy equipment and non-residential construction continuing to be the strongest markets. Pricing rose to record levels in the first quarter as our raw material surcharges have been effective in enabling us to pass through higher scrap cost and maintain our metal margin spreads.

Our Bar Mill team are doing an excellent job managing our business in today's challenging environment of dramatically higher raw material and scrap cost. Our Memphis, special bar quality or SBQ mill project is moving towards the start up of production in the second quarter. We expect to make the first heap in May and we begin casting in June.

Memphis will have an estimated annual capacity of 850,000 tons, complimenting our mills in South Carolina and Nebraska. Our Memphis mill positions Nucor to provide the most diverse highest quality and lowest cost SPQ offering in North America. We are very encouraged by the strong level of marketplace interest.

The second quarter outlook for the Bar Mill group is positive. Finished product shipments should be in line with the first quarter as we enter the peak construction season. Demand is also expected to remain strong in energy, agriculture and mining sectors. We also expect inputs to remain at low levels in the second quarter due to the weak dollar and strong overseas demand for bar products. And with a good balance between supply and demand, we're well positioned to address ongoing sharp increases in raw material cost.

Finally, I want to thank again all the members of Nucor's Bar Mill team for your strong focus on safety, continued improvement in quality and costs and taking care of our customers. By working together we will make 2008 another very profitable year for the Bar Mill Group. John?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

Thanks Mike. Ladd Hall will update us on Nucor's Sheet Mill Group.

Ladd R. Hall - Executive Vice President

Thanks, John. In the first quarter our Sheet Mill Group profitability improved over both the fourth quarter and the first quarter '07. Even more encouraging was that our profit improvement gained momentum during this year's first quarter. Overall [ph] results benefited from both strong volume growth and a slight expansion in metal margins spreads.

The key to this improved profitability has been a better supply demand down in our sheet markets. The better balanced market has led to a stronger order book for our sheet mills. We anticipate running full for second quarter of '08.

On the demand side, overall end user demand in U.S. continues to be soft, but stable. Demands also [ph] varied by segment. As you already heard the energy and heavy markets remained strong. Automotive and appliance market will likely be very weak over balance of 2008. By contrast, demand continues to be solid and the Sheet Metal Group continues to capitalize on attractive export opportunities.

Our export strategy continues to be focused on building long term relationships with good international customers. Supply side timing reflects a number of factors, most importantly imports are down from the destructive levels experienced in 2006. At the same time, service standards [ph] continue to manage their inventories by keeping them at reasonably low levels.

In the MSCI inventory data, released yesterday, LIFO inventories for March were reported three months on a seasonally adjusted basis, with absolute inventory levels down 19% year-over-year. Also several of our competitors continue to struggle with production equipment difficulties.

And a final and very important development is the unprecedented volatility seen this year and in the cost of iron ore, coke, scrap, energy and transportation.

Earlier this week, some of our competitors announced their first ever implementation of a raw material surcharge on all business that was under fixed price contractual arrangements. The rationalize was the same as ours was when we implemented Nucor raw material surcharges in 2004. These surcharges are absolutely critical and provide the steelmakers the financial resources required to buy the raw material, to produce the steel that is demanded by our customers.

We believe Nucor sheet mills are well positioned to supply customers during this time of unprecedented volatility in global steel markets. We expect the sheet markets to improve supply demand balance to support strong second quarter performance from Nucor sheet mills.

Even more, we remain very excited by our progress implementing our long term strategies, focus on taking care of our customers and our shareholders. Our team is succeeding by developing new value added products, producing outstanding quality, providing exceptional service and delivering products to our customers that they want at a competitive price.

In February, we announced plans to construct a sheet and coil plate processing center in Mexico to better serve the growing needs of our customers in the Mexican market. This facility is expected to have an annual capacity in excess of 500,000 tons. Value added capability will include pickling, slitting, cut-to-length and blanking. We expect to have our site selected by the end of this year with construction to begin at the satisfactory resolution of regulatory approval. This is an exciting growth opportunity in a market that is becoming increasing important to our sheet mills.

We are also looking forward to the fourth quarter startup of our Decatur, Alabama sheet mills new galvanizing facility. It will an annual capacity of 500,000 plus tons and the ability to galvanize 72 inch wide sheet. This will be Nucor's fourth galvanizing plant and will increase the Sheet Metal Groups total galvanizing annual capacity by one-third to over two million tons. Decatur's galvanizing facilities expands our value-added product offerings in a attractive growth regions who produce steel.

Our sheet mills are also well positioned to benefit from the automotive industries increasing demands for lighter gauge and higher strength steel. In fact, our Verco facility recently became the first domestic steel supplier to develop qualify and supply a unique grade of ultra high strength steel to several global automotive manufactures.

Market observers have estimated that as much as 40% of the steel used in the automobile will be advanced high strength steel or ultra high strength steel within the next five to ten years.

Finally our team at the Crawfordsville Castrip facility in Indiana continue to improve their productivity and quality. New production and shipment records were established in the first quarter. The Crawfordsville team has set an aggressive goal for full year 2008 volumes but one that looks very realistic based upon their impressive first quarter performance. They are also working and excited about new product applications and new market that they developed there.

Lucor's second Castrip facility located in Blytheville, Arkansas is also on schedule to begin production in the first quarter of 2009. Ladle process in this facility including back in the gap [ph] incapability will be commissioned this month. In addition to its use at Castrip at Arkansas, the back in the gaps will also enable Nucor Yamato to expand their product offering into include jumbo column sections. The Nucor Sheet Mill Group team is looking forward with excitement to very successful 2008 and beyond and we will continue to build long term value for our customers and for Nucor shareholders. John?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

Thanks, thanks Ladd. Joe Stratman will report to us on Nucor's structural and plate mills, Joe?

R. Joseph. Stratman - Executive Vice President

Thank you, John and good afternoon everyone. I want to start by saying thank you to our plate and structural teams at Hertford County, Tuscaloosa, Berkeley County and Nucor-Yamato. This team consists of approximately 1800 men and women working together everyday to take care of our customers. Through their efforts we were able to report very strong results for the first quarter of 2008.

Starting with the plate business both the Hertford County and Tuscaloosa mills achieved record quarterly production and record quarterly shipments in the first quarter. These productivity gains were achieved in robust market conditions and therefore led to very strong first quarter profits for the plate group. As part our ongoing focus on continued improvement Tuscaloosa is nearing completion of the Temper mill on its cut to length line. Commissioning is set for early May and the Temper mill is expected to be operating at full capacity by the end of the second quarter. We are very excited about the product improvements and growth opportunities that the Temper Mill will provide our Tuscaloosa team and our plate customers.

Entering the second quarter, global demand for plate remained strong. Particularly robust consuming sectors include marine, wind-tower, energy, construction equipment, rail car and bridge fabrication. Plate market conditions also continue to be favorably impacted by low service centre inventories and limited import offerings. With this strong global demand for plate, our mills are seeing increased export opportunities as well. Congratulations and thank you to our teams at Hertford County and Tuscaloosa for your success in getting 2008 off to an excellent start.

Turning to an update of our structural steel business, I want to also congratulate our teams at Nucor-Yamato and Berkeley Beam on setting new quarterly earnings records to the structural steel group in the first quarter of 2008. Thank you very much for a job well done.

Looking ahead, the beam market remains very strong in the second quarter. Particularly healthy demand is seen in the power, energy, health care, education and industrial sectors. Reduced imports are also contributing to a good balance between supply and demand. Backlogs on the heavier beam sections extend into the late third quarter. We continue to receive quotation request for export business but we have elected to devote our production capacity to serve local demand.

As we have mentioned before, our team at Nucor-Yamato is continuing to expand our product offerings from that mill. This spring we are introducing 44 inch deep wide flange structural shapes becoming the first mill in the western hemisphere to produce sections at this depth. Nucor-Yamato recently successfully completed its second trail rolling of these beams and the first production rolling is scheduled for the week of May 25.

In addition as Ladd Hall mentioned earlier, the commissioning of the Vacuum Degasser program at Castrip Arkinsaw is the next step towards production of the 14 inch Jumbo column sections at Nucor-Yamato. We are excited about the attractive growth opportunities these product expansions provide for us and our customers.

Finally, I want to remind all our team members to continue to work safely. We can never forget that safety is our number one job at Nucor. 2008 is off to a great start and we see a very bright future for the Plate and Structural group, John?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

Thanks, Joe. I will now turn it back over to Dan.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thanks John, thanks team. As you can see our team is focused on the future. One with our best years still ahead of us. At this time we will be delighted to take your questions.

Question And Answer

Operator

And ladies and gentlemen [Operator Instructions]. Also today, ladies and gentlemen, we ask that you please limit yourself to one question. We will have time hopefully later to answer any follow-up questions. Again, that's one question please. [Operator Instructions]. We will take our first question from Evan Kurtz with Morgan Stanley.

Evan Kurtz - Morgan Stanley

Hi, congrats on a strong quarter.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thank you.

Evan Kurtz - Morgan Stanley

I just wanted to ask you if you an pick one question here, Mike, I think you touched on it briefly, the SPQ market, you are bringing in on a head of 50,000 tons in Memphis in steel and Amex is kind of right behind your with another 250,000 tons. I was hoping you can maybe talk about which segment do you expect to absorb these new tons and are you concerned at it all with the slowing economy that it might be to SPQ for the market to handle at once.

D. Michael Parrish - Executive Vice President

Overall, first thing I would like to understand is that the 850,000 tons is really broken up, is about 400,000 tons to 500,000 tons that is going to be in finished and then the other 350,000 tons going to be in semi-finished. So we don't really have a particular market that we are focused on, we're going to focus on high quality and good service and go that way up.

Evan Kurtz - Morgan Stanley

Well, okay. Are you... and certainly you are targeting some customers that --- are you it's a part that needs to be qualified for some people and not others. Are you perusing any sort of qualification on the production at this point? Or when does that happen.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

We are working with customers on the automotive sector, also look at agriculture sector and any of the forging industries as well.

Evan Kurtz - Morgan Stanley

Okay great. Thanks.

Operator

We will take our next question from Timna Tanners with UBS.

Timna Tanners - UBS

Hi, and good afternoon.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Good afternoon, Timna.

Timna Tanners - UBS

Thank you, wanted to ask about the global scrap market. If you could comment, first of all on the conditions that your are seeing currently, there is an interesting article this morning about the Tian [ph] Mills not being able to run because of scrap shortages and of course first prices have risen globally, so I would like to hear your take on that and also if could you comment within that about your outlook and what kind of scrap forecast you have in that outlook. Thank you.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

First, I'll answer the... as far of your lined up questions in terms of scrap pricing going up internationally, at most places its increasing to the levels that we purchased our April scrap levels at, not aware at this point time if it's going up, higher than most levels. Well normally we actually go back into the market place again in May. As far as our scrap forecast go, we... John do you have any comments on that?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

Well, it's very difficult for us to predict scrap market, going forward. Our sense is that we might see... we see the two markets differently. In the prime scrap market, we see continued shortage as a result of the automotive, the continued automotive difficulties and just in general manufacturing leaving the United States. So we see continued pressure in the prime scrap area.

On the obsolete scrap, it's a little harder to call, with spring coming, traditionally you see those increasing. We had some particularly harsh weather in the mid-West, that has been inhibiting the flow of scrap... of obsolete scrap during the last several months. That is beginning to ease up. Last month there was some problem moving scrap on the river system because of the flooding situation that has been corrected. So we see some positive indicators.

On the other hand, demand for scrap worldwide is continuing and the dollars situation makes attractive to move some scrap offshore. So it's a blend there, but we expect on the prime side, continued pressure. We believe that we will see over the next several months, some easing on the obsolete scrap.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Timna, I would like to add to that, I am talking with Keith. Keith, you may want coming on your current flow activity at the yards.

Keith B. Grass - Executive Vice President

Certainly, and as a follow up to John comments, I think if you track the flow into our yards as you spring set in most part of the country start to increase flow of obsolete scrap into our facilities. So the most recent move up in scrap prices has been a stimulus to scrap collection system, and the seasonal practice as well should kick in at this point in time. So to John point, obsolete scrap is beginning to flow throughout the country as the weather breaks and collection system begin to get in gear.

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

If I may add one more point the... I mentioned the challenging area could be prime scrap and we have a program now that we are working together with David J. Joseph Company to go directly to some of our better value added customers and in the sheet arena and work with them to be able to recoup the scrap generated at those facilities. So that will help us be able to maintain this flow of prime scrap into our facilities. So we can supply our customers with sheet products.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Timna before I asked Joe Stratman to talk a little bit about what might be going on in Italy, we had a talk with our partners [indiscernible] about the operations over there. I would like to add a couple of general comments. Number one, as Keith has mentioned the flows are beginning to increase as we would expect they will in obsolete scrap, and there is... will be divergence between prime scrap generation and obsolete flows and accumulation, and over time historically there has been a pretty good spread between pricing between those two products. We would expect to see moderation going forward in scrap pricing, particular in the obsolete rates. Its an unknown right now, where the prime rates will go, we bring in a lot of pig iron and DLI [ph] at our operations, that would help to mitigate product issues there, most specifically with the pig iron that our needs are met through September, October and of course our DLI plant is... is running well and provide us with DLI for our operations. The thing to look at, we believe for what's taken place so far this year is the extreme winter weather, the extremes in flooding, the fall and winter weather which is still this at this very moment affecting operations on the Mississippi river.

That, together with a scrap export demand that may not be a whole lot different that it was this time last year, but still strong. The main impact and what's taken place here is the winter weather and how it's impacted the ability of the upstream scrap to be collected, processed and shipped to the mills and on the prime side, its being the American Axle strike in how its affected a lot of the manufacturing plans at GM and the amount of material they are processing and hence generating scrap from.

So these things will alleviate themselves and going forward we expect to see moderation in scrap pricing, were it goes and by it's [indiscernible]. In term of hot weather, it was up again, a month or two and then down or whether starts to moderate on the obsolete stuff scrap centre then the prime grades. Joe could you touch a little bit on the first part of the question, that I--

R. Joseph. Stratman - Executive Vice President

Yeah, absolutely. As Dan said, we are in regular communications with our future partners in Italy, updating us some business conditions and mill operations. Most recently, as recently as of this morning actually and the operations over there are running very well. Their backlogs are strong. Their inventories are strong, and they are running at full capacity. So any inference in that article that came out this morning should not be... should not be consider to have deferred if included in it.

Timna Tanners - UBS

I've one word follow up question. And I'll scale it like the top 10 concerns that you might have for your business in the near term, where the scrap plays, like to one through... like if 10 was the most concerned and one was at least concerned.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

A thing that helps to mitigate that from being at the most concerned standpoint is the fact that we have a very effective surcharge mechanism that allows us to move the scrap increases to our customers and while which our customers have been able to utilized to move increases down to their customers and... but certainly it would rank up there as one of the top two or three concerns that we have going forward is the volatility that is going on the scrap markets and where it goes.

Because many positive opportunities to that is a ... are negative. Depending upon how the flows go and we believe that it will go a positive way to help moderate scrap supply demand and balance as may existed because of the winter weather issues.

So on scale of 1 to 10, I forget which one you said was if one is the most concerned or at least concerned and 10 is the most concerned, I put it right at the top end of that range exactly where kind of immaterial.

Timna Tanners - UBS

Thank you.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Next question please.

Operator: Again, ladies and gentlemen we ask that you please limit yourself to one question. We will go next Michelle Applebaum, Applebaum Research.

Michelle Applebaum - Applebaum Research

Hi.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Michele.

Michelle Applebaum - Applebaum Research

I have a couple of calls; I guess I have one question. Well, how about that, I have an accounting question.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

One question with three parts, I get it, yeah.

Michelle Applebaum - Applebaum Research

Okay, can you please explain your accounting? Or can I ask the questions in the appropriate way.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Okay, we are ready. what would you like specifically in writing.

Michelle Applebaum - Applebaum Research

Terry, please can you tell me about the purchase accounting in the first quarter and how that would impact the second quarter?

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

Well, most of the purchasing accounting, if you are talking about for DJJ, I guess.

Michelle Applebaum - Applebaum Research

Well, I am talking about for any acquisitions because you have more than DJJ.

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

Well, we don't have time here to go into purchase accounting in detail, but basically they are right up inventories.

Michelle Applebaum - Applebaum Research

I am sorry, what's the financial impact?

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

You are asking specifically, how the financial impact might be different in the second quarter, versus the first quarter or the first quarter acquisitions.

Michelle Applebaum - Applebaum Research

Okay, you have purchase accounting in the first quarter that completely offset DJJ, next quarter you are saying that it will be accretive. But there is a financial impact, like $0.01 a share, $0.02 a share?

Unidentified Company Representative

Now we don't disclose it, and it's not material.

Michelle Applebaum - Applebaum Research

What's your materiality tests on EPS, per... on a quarterly basis?

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

It's not that simple, Michele, it's some what subjective. But it's not material. It's insignificant Mitchell as far as impact on earnings in the first quarter relative to the second quarter and as far as I know, most of that purchase accounting adjustment will be handled... has been handled in the first quarter.

Michelle Applebaum - Applebaum Research

Most of it has been?

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

Yeah, you have ongoing. If you want to refer to purchase accounting as being part of the amortization and depreciation that occurs --

Michelle Applebaum - Applebaum Research

No, I don't want to because that's ongoing for 22 years.

Unidentified Company Representative

Yes, or longer in some cases.

Michelle Applebaum - Applebaum Research

Right. So I only want to deal with the inventory write up.

Unidentified Company Representative

Yes, not material.

Michelle Applebaum - Applebaum Research

Okay, and it won't be material next quarter?

Unidentified Company Representative

It's basically all gone.

Michelle Applebaum - Applebaum Research

Okay. And then it's not significant either?

Unidentified Company Representative

True

Michelle Applebaum - Applebaum Research

Okay. Then with regard to start up expense, you have a almost million ton a year facility starting up on May something. Wondering what kind of impact that would have on the second quarter.

Unidentified Company Representative

Probably won't be much different than the first and total pre-operating and start-up costs. I don't think there is going to be much change quarter-over-quarter.

Michelle Applebaum - Applebaum Research

And how much was it in the first?

Unidentified Company Representative

A little over $22 million.

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

And that compared to about $11 million first quarter or --

Unidentified Company Representative

Last quarter --

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

First quarter of 2007.

Michelle Applebaum - Applebaum Research

Wellokie-dokie. Thank you.

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

Welcome.

Operator

We'll take our next question from Chris Olin with Cleveland Research.

Chris Olin - Cleveland Research

Good afternoon.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Good afternoon Chris.

Chris Olin - Cleveland Research

I hear what you are saying on the strong beam demand, and I guess implies the non-residential order trends. I am just wondering how concerned are you that we are getting to the point where you could see some cancellations of these major projects call it, into your third quarter or what your confidence in the visibility beyond the next couple of months?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

In general, what we said on the last conference call was we felt comfortable looking out six months. And we spoke of first six months of this year being a very positive environment for our products, including beams and non-resident construction. We would definitely extend that out through third quarter into fourth quarter. Joe, do you have any specific comments on that, on the beam side?

Joseph A. Rutkowski - Executive Vice President

Yes. Most of our visibility there or a lot of our visibility there comes from interaction with our customers and their bidding activity. And the information that we have been receiving very recently is that there have not been cancellation of projects, that project flow is still relatively strong. So as Dan said, looking out six months, we are still very comfortable that the market is strong as far as we can see.

Chris Olin - Cleveland Research

You guys... potentially delays, you are not seeing that, which has been talked about I guess?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Not really. I mean there have been projects cancelled, no doubt about it, but a lot of those are projects that were on drawing boards, were speculative projects. Here in Charlotte, I know of at least one condo project that has now been put off, but it never got started. So there was never any order pattern established, never got to the point of getting even close to where they would order steel. So the projects that have been... are in progress, the projects that have gotten the go ahead and the financing and everything, all that stuff, which is you are looking at to make 6, 9 plus months on those in terms of how it affects order entry and backlog and steel production. Those are not being impacted. It's stuff that may be might have started to impact us 18 months down the road that we have seen cancelled. And so far there have been a few of those, but there is a lot of time between now and then for those things that we were instituting.

Unidentified Company Representative

And I would also add, you really need to look past just the non-residential construction and look into what sectors. Some of the sectors that are very strong are really not being affected by a recession, the power sector, the energy sector and so on. So it's not always only the commercial buildings.

Chris Olin - Cleveland Research

Thank you.

Operator

And we will take our next question from Mark Parr with KeyBanc Capital Markets.

Mark Parr - KeyBanc Capital Markets

Hey, thanks a lot. Hey, good afternoon.

Unidentified Company Representative

Good afternoon Mark.

Mark Parr - KeyBanc Capital Markets

I have more of a strategic question. Dan, you have got a footprint in Canada with Harris and you've got a footprint in Italy and you've got a footprint in Mexico. I guess maybe footprint is kind of a big word, maybe you've got a toll in the water. I am just wondering with some of the exploratory things you are doing on the international front, looking out two to three years, I mean where would you see the greatest growth opportunities for Nucor outside the U.S.?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Well, you expand Italy to... meaning the EU, and where you can get to from Italy, like the Middle East and Northern Africa, we were... and take a look at Mexico. In Mexico, this would be a very good start for us in Mexico. We expect to have several partnerships formed in Mexico going forward as we do in Europe and in the EU to service the growing and strong infrastructural needs of the Eastern European market and the Middle East. So those two areas here would be the areas we won't expect to see our greatest international growth opportunities over the next three to five years. And as you said in Canada, we have a very strong footprint and gas [ph] fabrication, cold finished bar businesses that Harris conducts in Canada. So...

Mark Parr - KeyBanc Capital Markets

Dan, do you have any sense... again, I hate to ask another question, but as terms of the order of magnitude, I mean how big could international be as a part of your business in three or four years?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Well, let's put it this way. We are looking at billions of dollars of investment, not hundreds of millions of dollars of investment.

Mark Parr - KeyBanc Capital Markets

Okay. Thank you very much and congratulations on the great results.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thank you.

Operator

We'll go next to John Flanagan [ph] with Fundamental Equity.

Unidentified Analyst

Dan, Schnitzer Steel said in their recent phone call that they expected their sequential scrap realizations to be up like $75 per ton on a base of something like 350. Is that the kind of thing you may be facing?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

In terms of our purchase price?

Unidentified Analyst

Yes sir.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

I don't know. Keith --

Keith B. Grass - Executive Vice President

I would say the Schnitzer organization is a coastal organization and more export oriented. And if you look at pricing over the past probably 3 to 6 months, the export markets tend to have been higher priced than the domestic markets. So to try and draw a comparative between the Nucor organization domestic and the export markets is probably a little more difficult to do.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Interesting question, but I am not sure I know how to answer it [indiscernible].

Unidentified Analyst

Dan, what is... can you say what the current scrap capacity is for Nucor with these two additions?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

We are bouncing around 5 million tons now.

Unidentified Analyst

Boy, that's amazing.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

And growing.

Unidentified Analyst

Thanks a lot.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thank you.

Operator

And we will go next to Bob Richard, Longbow Research.

Bob Richard - Longbow Research

Good afternoon. Thanks for taking our call.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Good afternoon. Thanks for being on it.

Bob Richard - Longbow Research

Yes, sir. The sequential decline in your steel products sales price 13.61 to 13.23, I presume that's more mix than anything else. Is that correct?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

That's correct.

Bob Richard - Longbow Research

And that other column, so what does that encompass? The volumes there were up so significantly.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Scrap, isn't it? Building and the other --

Bob Richard - Longbow Research

So that would be... the scrap would be tied up in that column, right?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Scrap would be in that column, building systems would be in that column, wire, fasteners, grating. What am I missing guys?

Unidentified Company Representative

Mesh.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Mesh.

Bob Richard - Longbow Research

Okay, thanks very much and best of luck.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thank you.

Operator

We'll go next to Alex Reckwitz [ph] with Nevskey [ph].

Unidentified Analyst

Hi, good afternoon.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Good afternoon.

Unidentified Analyst

I actually had the same question as the previous one about the other column. But I guess the other question I had which I was going to skip is...

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Go ahead.

Unidentified Analyst

Okay, that's nice. Can you talk about the actual additional sales in terms of dollar terms in EBITDA that one month's consolidation of DJJ brought to your financials?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

No, it's... we will not break that out, but thanks for asking.

Unidentified Analyst

Okay, thank you.

Operator

We'll go next to Wayne Cooperman with Cobalt Capital.

Wayne Cooperman - Cobalt Capital

Thanks. Just I was curious on the scrap market, just wondering what you guys thoughts were and what's driving it right now and you have any view.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

As I mentioned to an earlier question, our beliefs are based upon a very, very strong understanding of the market out there to our... to David J. Joseph and to our mills interaction is that what you've seen happen in the first quarter on scrap pricing is we saw a similar thing happen in first quarter last year. And winter weather does have an impact, you couple that with continuing strong export demand. You couple that with a strike at American Axle that's impacted 11 or 12 General Motors plants, and you couple that with a downturn in the automotive business in general, you start to see less prime scrap being generated. The flows of obsolete scrap, the processing of it, shredding of it. And the like have been interrupted by the winter weather and the subsequent flooding on rivers system. Some cases shortage of logistical equipment to move it around. All of that has contributed to what we have seen happen in the first quarter on scrap prices.

Wayne Cooperman - Cobalt Capital

Do you think they will come back down in the rest of the year?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

We believe we will see moderation and healthy moderation throughout the course of the year with scrap at these levels, the obsoleteness as Keith alluded to earlier. The flows are increasing and they should... wherever there is scrap out there, people are going to find it. They will probably be looking again at the manhole covers and whatever else they can get their hands on. It's not an enormous scratch [ph] dream. And a lot depends on what happens with the automotive sector settling, one strike and not having other strikes as to where the prime market might go and prime availability of scrap for manufacturers.

Wayne Cooperman - Cobalt Capital

Thank you.

Operator

We'll go to John Hill with Citi.

John Hill - Citigroup

Yes, thanks for your stamina in this very detailed presentation and Q&A session.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

No problem, John.

John Hill - Citigroup

Just a quick question. I mean by one reading of the pricing and cost tables, it looked like the scrap costs are coming through quite a bit faster than pricing, although there is a different interpretation if we just look at the steel mills. Do you think that's true? And when do you think that we should start to see some of these very high market-based pricing flow through the model?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Well first off, we should be looking at the steel mills when you are looking at some prices. If you want to see a correlation between and the impact of that correlation between scrap pricing and steel pricing. And as far as it's... this has been an issue, we have talked about before, the timing issues of... when you purchase the scrap, when it's processed, when it gets to the river, by rail car or what have you in your yards, and you start using it. You are using old stuff, you are using new stuff. At the same time, you raise your steel prices. These things kind of mix together and you end up getting what you get. John, do you have any comment you would like to make?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

Just in addition to that, the mix of our products itself impacts what type of scrap you use. So that has an impact on it... and selling price. So there is a multitude of variables that go into that.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

But I mean maybe the best way we can answer your question is we tell you that we are at this point in time, we are very comfortable with the price increases that we have put in place and the scrap increases that we received. And how well that will work out, and hence [ph] we are guiding to a much stronger second quarter than first quarter.

John Hill - Citigroup

Do you think it's possible in this regard to, over the course of the year, to regain the type of EBIT per ton numbers we were looking at it in mid '06 which were up sort of up in the 140, 150 range?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Obviously, those were very strong numbers. And I would say anything is possible depending upon where the raw material issues go over the next six to nine months.

John Hill - Citigroup

Very good. And last one to just squeeze in there. Any sign of the infamous customer double ordering in anticipation of raw materials-driven hikes such as we saw exactly one year ago today and then discovered about in the second quarter '07 call?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

We have got about 5 people shaking their heads no.

John Hill - Citigroup

Great.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

And the one thing that you need to keep in mind on steel pricing, it certainly has been driven by raw material prices. But the fact that they are sticking in a marketplace is an indication of the balance globally between supply and demand both domestically here in the States and around the world with our ability to export it to those markets. So if you were to ask me do I see that we have an ability to keep pricing higher, a greater opportunity to keep pricing higher going forward based upon market dynamics versus whether scrap will moderate, I would say a bet on the side of pricing for steel products staying at very good levels.

John Hill - Citigroup

Great perspective. Thank you.

Operator

We'll take our next question from Joseph Wieman [ph] with Joseph C. Weiman & Company.

Unidentified Analyst

Hello Dan [ph].

Unidentified Company Representative

Hi Joe.

Unidentified Analyst

Hi, how are you?

Unidentified Company Representative

Good. How are you doing?

Unidentified Analyst

Thank you. Better. I have a question about LIFO. Now that you have relative to your steel production a much... I guess a much improved... much increased scrap inventory. And in addition to that, you also have to work with much higher prices for your pellets under still... and of course pig iron. Are you now going to be sort of stuck with a permanent step up in LIFO charges?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Terry, you want to take a shot at that?

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

I don't think so, Joe. I think it's just going to depend on what pricing does.

Unidentified Analyst

The volume of U.S. scrap inventory courtesy of your... of the purchases of the scrap company has no inference on this?

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

Well DJJ is not on LIFO. And remember, their inventory turns pretty quickly. So I am not sure even if there were, there would be a huge impact on LIFO for DJJ because the inventory turns rapidly. Remember, a lot of their business is brokerage.

Unidentified Analyst

Okay.

Terry S. Lisenby - Chief Financial Officer, Treasurer and Executive Vice President

So no, I don't think there is any permanent impact. I mean as inventories go up in value, the LIFO dollar amount will likely continue to increase, the absolute reserve. But that's been a trend as long as I have been here.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

I guess if we think that we are never going to see $100 a ton scrap again, and we are not going to see $340 steel pricing again, I guess you can say that there is going to be a permanent LIFO account established. So I hope that helps answer your question, Joe.

Unidentified Analyst

It is. I mean is that... what does this [ph] do to your raw materials policy, what is the status of the Australian high amounts [ph] and do that eventually also create another bounce in prices of the iron ore that you have to buy from Rio Tinto?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Well all I can tell you is that if this CEO has his way, we would be building one already in the United States. But I have been convinced we should continue to go forward with our measured development and technology and work through some of the operating issues to a greater extent. And Joe Rutkowski can give you a better update on where that is at. But in answer to your question, yes, it will have an impact, but I am not sure exactly what it would be in relation to a question you are asking.

Joseph A. Rutkowski - Executive Vice President

Well just in respect to the technology, Joe, and the status, all new technologies are extremely challenging. And I guess a couple of points. Fundamentally, the technology works. The metallurgy that is tried and was predicted shows up in the vessel, it does produce what it's expected to produce. It consumes what it's expected to consume. The chemistries are what they are expected to be.

The real issues are two: One is consistency and the second one is sustainability. And what I mean by that is in consistency, can we run or periods of time and at particular rates and especially high rates. And from sustainability, can we run for long periods of time. And we have a number issues that keep us from doing either one of those. The two biggest are the iron ore pre-heater, which is a mechanical device which has given us a number of issues on both consistency and sustainability. And the second one is in the vessel itself on the refractory's life. And whether or not that's a mechanical issue or a thermodynamic mechanical issue or a fluid dynamic chemical issue, we are not quite sure yet because you can't see in that vessel when it's operating. But we are just having a lot of issues with refractory failures where... and things along those lines. So you don't know what you don't know until you start... until you run. And so every time we get up and running, we learn more. But it's just another challenging new technology and it's still got a ways to go.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Thanks Joe.

Unidentified Analyst

Yes.

Operator

We will go next to Aldo Mazzaferro with Goldman Sachs.

Aldo Mazzaferro - Goldman Sachs

Hi, thanks Dan.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Hello Aldo.

Aldo Mazzaferro - Goldman Sachs

Hi. On the DJJ strategy that you are following, I think... I was wonder over the last...over the next couple of years, how integrated do you want to make the correction and processing side of Joseph relative to its 20 million tons? I think you mentioned you had 5 million today, or is that including other raw materials too?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

That's 5 million, approximately 5 million tons of scarp processing capacity and actual production. And as far as do you ask me how big do we want to get?

Aldo Mazzaferro - Goldman Sachs

Yes. Out of 20 million of sold to-date handle, would you like to ultimately see 18 million be coated and process by them?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

What we said last time on this is that our strategy is to become a market leader in this business just as we are and have the strategy for all the other products that we are in and choose to be in. And I would say that philosophy would be we'll carry through here as well, and I won't go into the details of the exact strategy that we do have. So far the sale being significantly hard in where we are today, or exactly where it ends up. We don't have the targeted on that just yet. Do you want to add for that?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

If I just allow more volume build out, I'd say that if you look at Joseph Company portfolio, it's really two different types of businesses. I think the 20 million tons you were alluding to is really primarily are brokerage and trading type activities where we procure materials for the Nucor Organization and others. And the second component of that is really the scrap processing business. So, I think those two components make up DJJ and when you are talking about the work integration I think you'll see continued building up of our service side of business with the brokerage of the services procurement, logistics and obviously on the other side of the business the continued as I mentioned earlier, continued growth of the scrap processing platform. We're make sense, wanted to make sense at the time of the expenses is probably the best to way to describe that.

Aldo Mazzaferro - Goldman Sachs

Yes, I see. So, the 5 million is an addition to the 20 million brokerage?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

There is probably little blending there, I mean if you look at our production capacity, it's closing in on 5 million tons, okay if you look at that. If you look at our brokerage volumes, I think we have put out during the year the publication; it was in the range 20 million tons. Now I thought to give a breakdown between the two and how much it goes further by I have an issue with Mr. DiMicco right here. So, I think I'll just stop right about there.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

ObviouslyI have those, some of those process tons come to Nucor, but there wouldn't be.

Aldo Mazzaferro - Goldman Sachs

Okay. I guess, I was just wondering if David Joseph allows you to have lower supplies at the mills, I wonder if you could tell us maybe if you have a strategy to may keep you weeks of supply on hand of scrap lower now given that you kind of owned the supply chain?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Well, I mean if you are blind that they would care the inventories as supposed to the mills it's kind of 6.5 dozen of the other. If you are implying something also, I'll let Mr. Ferriola take a shot at that.

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

The comment that I would make is that we are working together to better manage the inventories and the flow of scrap material to the Joseph yards and our yards in combination.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

So, it will have an impact on the level of inventories that we actually have on the ground, the better we get it back, that's where some of the synergies come back.

Aldo Mazzaferro - Goldman Sachs

I was hoping if you can tell us if you are thinking your supplies are too high or too low at the mills right now?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Well, let's see if the price of scraps going down, hard or too high and the scrap prices are going up to too low.

Aldo Mazzaferro - Goldman Sachs

Thanks Dan.

Operator

We will take our next question. It's a follow-up from Evan Kurtz with Morgan Stanley.

Evan Kurtz - Morgan Stanley

Hi, great thanks for giving me another chance. Just a question on your realizations, you're at 660 a ton for sheet this quarter. And if you go back, your generally I think what maybe sounds like exception until now, above the cruise spot price for hot-rolled coil to make sense given that you are selling a more higher value products and just later to our see. I am just trying to get a hand on the timing here, why does this happened quarter. I guess it's mostly timing and would you expect that they normalize as the second quarter going forward?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

In terms are you asking that the increase of

Evan Kurtz - Morgan Stanley

The timing of the increase is the way they are coming in. It seems like they were actually lagging the cruise spot index at this point and that's something that don't really happen before.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Are you looking at price, the average for the quarter?

Evan Kurtz - Morgan Stanley

Right.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

So at the end of the quarter seen our spot is basically spot. So if you are looking at the spot numbers, it's not an average for the quarter.

Evan Kurtz - Morgan Stanley

I am looking at an average, an average number through the quarter.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

I am not sure having that second question. Try it again.

Evan Kurtz - Morgan Stanley

Well I guess it's a matter of timing, you have sales that you applied surcharge to the generally patterns of month after.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

That's correct.

Evan Kurtz - Morgan Stanley

You see where the scrap prices go, so that will cause to do on that, but then at the same time, we have lead time issues on your shipments. So you are usually selling at prices you are not going to realize for a couple of months, and there is some back and forth on that. And back-up for you either ahead or behind on the on kind of the cruise spot price. And it seems at this point, we follow a little bit farther behind, I just wanted to maybe get some clarity on the timing of surcharges or when we see certain announcements in the market, when are they actually hitting your books? Does that make any sense?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

We are up, as you correctly identified, when we institute the surcharge it's for the month following the month of you purchase the scrap end, okay. So the sales pricing will go up and it start one month afterwards, its two months afterwards. So that's what you need to look at out. Contract business goes up in merely the first of the following month, the surcharges will go up but on spot we usually have a month beyond that. So I'll say we are looking at January scrap prices go up on our buying January. Contract pricing will go up February 1, but we already booked on spot and so we will booked for February on spots, we will see to start increase go through effect until March. Okay, so that help may help you understand why you are not seeing to go up as fast. And there are a host of other things like the mix, what products going out, how is the plant? Is it more towards the pipe guys or more towards the value-added guys, construction markets and that makes full change from month-to-month and throughout the year.

Evan Kurtz - Morgan Stanley

Yes I guess on getting at this the rise in scrap was sharp this quarter compared to some of the other quarters or the surcharge was up sharply. So it actually is three ships fall behind the spot index. And then we see we have April scrap versus other 100.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Quite adventurous frankly so I'm not going to continue to get down the road and trying to answer your question because I don't know whether I agree with you. What spot index that you are talking about we don't have the information in front of us. So I don't know the spot index more single spot index out there that you were referring to, but in general there is a lag between the time which scrap prices go up and no scrap price surcharge is going to place and we start to ship product to assign the pricing levels. Of course, at the time we've got inventories of lower price scrap in our operations, so the issue is really the margins and how they are behaving and those margins during the course of the quarter actually expand itself.

Evan Kurtz - Morgan Stanley

Okay. I move onto something else, just one other question on new iron. Now with scrap going up as much as much of its going up, I am sure at this point your cost had new iron are significantly wagging those of certainly high qualities scraps deal. Now, since the scraps surcharges based on market scrap prices. Does this mean that we should seek a higher degree of margin expansion that we have, the four you had new iron as scrap prices climb?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Keep in mind, in generally answer to that would be yes, okay? And generally answers to all other things being equal. We have new iron in there. Today it didn't have it. Two years ago, the answer to your question is yes. Now you got it given to the relative amount of how it affects the margins based upon it being 12.8 million tons or 2 million tons of derive in overall product mix.

Evan Kurtz - Morgan Stanley

Right.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

John?

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

And of course, the cost of the material coming out of turn debt is also rising as the final price has increased also.

Evan Kurtz - Morgan Stanley

Right, right, but certainly less than scrap for that particular application. What are you currently running at the 2 million ton run rate? I know that you mentioned on the call that you were potentially going to ramp Trinidad, to possibly 2.4 million tons. Where we do stand now and kind of what's the timing on that?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Yes. We will make this for your last question.

Evan Kurtz - Morgan Stanley

Okay.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

And that is all our work is in process and exactly when it goes in the place and I don't think by anyone can comment on that, but it's kind of ongoing continual prudent the program adding some more equipment there and handling equipment stores, equipment and drivers or whatever. So, that's an ongoing process. It's true; it will be in place a year from now probably. Half long between down here and that's be able to forecast that to at this point in time. And yes, we are currently running at the capacity right at the facility.

Evan Kurtz - Morgan Stanley

Okay, great. Thank you so much.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

You're welcome.

Operator

We have a follow-up question. This is our final question by the way, from Michelle Applebaum with Applebaum Research.

Michelle Applebaum - Applebaum Research

Okay.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Welcome again, Michelle.

Michelle Applebaum - Applebaum Research

Bizarreinversed correlation between the amount of time, a questioner gets in the quality of the question?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Alright. I'm not going to comment on that.

Michelle Applebaum - Applebaum Research

Yes, don't. Matt [ph] you hinted at the scrap volatility being a positive opportunity as well as the negative and you threw that out there. So, I wanted to catch it since you threw it. What did you mean by that?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Well, it's actually pretty straightforward. If you believe that you have an opportunity to have your pricing for your finished products stay more stable than the pricing for scrap and that pricing for scrap should moderate based upon what causes scrap prices figure out as we talked about here, and you should see an environment where such pricing is stable and scrap pricing is moderating and market is going to expand.

Michelle Applebaum - Applebaum Research

Got it.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

And what just for the record is no bad question. I might give a lousy answer but we'll take a lot questions.

Michelle Applebaum - Applebaum Research

okay. The next question I have is you also opened the door on Mexico, you said you might form partnerships there?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Yes, as we've said all long our international approaches is to form partnerships.

Michelle Applebaum - Applebaum Research

What kind of

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Mexico would be included in that.

Michelle Applebaum - Applebaum Research

What kind of partner?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Who we are going to partner with and what kind of partnerships, we are not going to give into. You'll know about it when that happen.

Michelle Applebaum - Applebaum Research

Might there be mill a around?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Michelleit wouldn't be appropriate for me to give you what our strategy is in Mexico. I don't know what we've already announced but as far as Mexico goes, a lot of our customers are there. The business is growing there. The Mexican market is growing, and we see Mexico is being long-term low cost manufacturer and its right next door. So we don't limit ourselves for exactly what opportunities we might take advantage over there.

Michelle Applebaum - Applebaum Research

Can I ask a follow-up on exports?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

This is the third part of the last question.

Michelle Applebaum - Applebaum Research

I only about one the first time.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

This is it.

Michelle Applebaum - Applebaum Research

Okay. On the export sales, you've come out and say you are kind of committed to this business. So should we still expect to see the 10% you were talking about, beginning of the year, and does that impact margins?

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Well let's see, that's two part of the last, third part of the question. But in general, we are committed to be in the import market, because our export market, because we believe that structurally the dollar is going to be remain in at a lucrative levels than the excess of the strong levels that we saw during the 90s. And we believe that U.S. manufacturers given a level of playing field will fear in overseas, which we believe we are a lot further low in getting than we have been in the past. We will be able to peak internationally for business overseas, but just put it in terms at least a decade, it's about six month of that there is been one or two year back. The reasons why the dollars weak and releases why the world's growing that was much more fundamentally long-term than that.

As far as what our margins are, we are not going to give to what our margins are. When other being effective except we would be sum the product but offshore for we were making very good profit on it to paddle with our domestic profitability. And we said we have been committed to that business, but we are not going to be committed to that the expense of our domestic customers in terms of them being able to get steel from us. Pricing is another matter. Pricing is going to be what the market dictates just like it is for raw materials we buy. John do you have any comments.

John J. Ferriola - Chief Operating Officer of Steelmaking Operations

Well, other than we'll continue to focus on the value-added our long-term relationships on the export business which we feel is always the strong margin business.

Daniel R. DiMicco - Chairman, President and Chief Executive Officer

Okay. Well, thank you all for your questions. Thank you all for your interest in Nucor. Our team has put together another record quarter. We are not done by a long shot. The opportunities are ahead of us is significant, exciting and many. We will execute on a lot of those, some we won't. But at the end of the day Nucor's best years are certainly in front of us, and there at one year after another offers increasing opportunities for new records and new growth to our company and growth to our shareholders capital. Thank you all very much.

Operator

This just concludes today's conference call. We appreciate your participation. You may disconnect at this time.

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Source: Nucor Corp. Q1 2008 Earnings Call Transcript
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