Steel Dynamics, Inc. Q2 2008 Earnings Call Transcript

Tag : Steel 201

Steel Dynamics Inc. ( STLD )
Q2 FY08 Earnings Call
July 22, 2008, 10:00 AM ET
Executives
Theresa E. Wagler - VP and CFO
Mark D. Millet - EVP, President, and COO for Flat Rolled Steels andFerrous Resources
Richard Teets, Jr. - EVP, President, and COO for Steel Shapes andBuilding Products
Keith E. Busse - Chairman and CE
Analysts
Mark Parr - KeyBanc Capital Markets
Wayne Atwell - Pontis Capital Management
Eric Glover - Canaccord Adams
Evan Kurtz - Morgan Stanley
Timna Tanners - UBS
Robert Richard - Longbow Research
Brett Levy - Jefferies and Company
Charles Bradford - Soleil-Bradford Research
Aldo Mazzaferro - Goldman Sachs
Presentation
Operator
Good day, everyone. And welcome to today's Steel Dynamics SecondQuarter 2008 Earnings Call. Joining us today are Keith Busse,Chairman and Chief Executive Officer, Mark D. Millett, Presidentand Chief Operating Officer, Flat Rolled Steels and FerrousResources, Richard Teets Jr., President and Chief OperatingOfficer, Steel Shapes and Building Products, Theresa Lagler, ChiefFinancial Officer, Gary Heasley, Strategic Planning and BusinessDevelopment. And for opening remarks and introductions, I'd like toturn the conference over to Theresa Wagler. Please go ahead.
Theresa E. Wagler - Vice President and Chief Financial Officer
Thank you, Audrey. Good morning, everyone. Welcome to SteelDynamics Second Quarter Earnings Conference Call being held today,July 22, 2008. A replay of this call can be heard and downloaded asa podcast from our website at steeldynamics.com.
Today's management discussion includes forward-looking statements.We caution that actual results and events may differ materiallyfrom statements or projections that are made today. You may obtainadditional information concerning a variety of factors and risksthat could cause actual results to differ materially from today'sforward-looking statements by referring to the section on RiskFactors and our most recent Annual Reports on Form 10-K and 10-Q,as filed with the Securities and Exchange Commission, as well as inother reports we file from time to time with the Commission. Thesereports are publicly available on the Steel Dynamics website aswell as the SEC website at sec.gov.
After today's management discussion, we will open the call forquestions. Today's call will begin with remarks by our Chairman andChief Executive Officer, Keith Busse. Keith?
Keith E. Busse - Chairman and Chief Executive Officer
Thank you, Theresa. Good morning, ladies and Gentlemen. It's a nicesunshiney day here in Fort Wayne, Indiana and we had some nicesunshiney earnings to report to all of you. Although I would notewith a degree of levity that last week, when one of our favoritecompetitors had sunshine earnings to report, that the market hadkind of a rainy day. We should hope that won't happen two times ina row.
But with that being said, as you can see from our press release,our earnings were $1.05 per diluted share, up significantly overour revised forecast for the quarter. And I might tell you that ourperformance in June was extraordinarily strong in the Recycling andin the Steel segments of our business, giving us this nice pleasantsurprise, if you will. But earnings were up sequentially 48%,quarter-over-quarter from the $.72 that we reported in the firstquarter.
As you look at comparing our sales for the second quarter againsttraditional comparisons of the second quarter of the previous year,net sales had increased to 164% from 911 million to 2.4 billion andnet income increased 124% from 94 to 210 million. I think one ofthe more interesting things we noted was that the results for thefirst half of '08 were net sales of 4.3 billion and net income of353 million, nearly matching full year 2007 sales and incomeresults. The first half obviously benefited from the acquisitionsof The Techs which performed very well during the quarter,OmniSource and Recycle South.
We had excellent earnings from our Steel Operations. Second quarternet shipments were 1.5 million tons, and were, even without TheTechs, were up 10% over where they were in the second quarter of'07. A lot of that growth coming in the Flat Rolled segment, FlatRolled was a little weak throughout '07. I don't have to remind allof you of that. And it was up nicely this year throughout the year.
As with regard to steel scrap and scrap substitutes, we just hadexcellent results from the Omni organization compared with thefirst quarter. Second quarter ferrous shipments of 1.5 million tonswere up 8% and non-ferrous shipments of 254 million pounds were up6%.
OmniSource, as I said, reported higher than expected earnings inthe quarter. I would also like to report that the Recycle Southunit is functioning very well. Had they been a member for ourfamily for the entire quarter, we would have had rather strong,very positive results as well.
Some of that activity, as it's reported in other income, is in Page2 of our release under scrap and scrap substitute operations, wherewe note that $14 million, which was Omni's 25% ownership share, wasreported in other income, not in operating income. That willobviously change on a go-forward basis and will reflect 100% ofthose results. So the Recycle South earnings from 100% perspectivewere only in our platform for really just a couple weeks.
They're in there for almost three weeks but given the nature ofshipping in that industry where it's done on an FOB delivery basis,we had to really exclude on a one-time basis the results, you mightsay for the last week of the quarter, from our reported activity.So we continue to see very, very positive -- we believe we'llcontinue to see very positive results from our recycling operationson a go forward basis.
Iron Dynamics ran very, very well during the quarter, providing51,000 metric tons of pig iron, most of which was liquid I mightreport, and the progress is I'm sure Mark Millett will deliver toyou -- was very good at Mesabi Nugget as well. For those of you tokeep track of scrap also on the second page, we also noted scrapwas up approximately $144 in the quarter. Quarter-over-quarter forthose of you that track statistics against competitors, one mightask the question why were your results little higher than the otherfell as on a change basis or others in the industry, and that'sbecause a greater proportion of our melt mix is in Flat Rolledproducts where the differential between the obsolete grades whichused to be 20, 30, $40 a ton is now $300 a ton and there for, thatwe saw -- and that happened, that spread basically happened duringthe quarter which elevated our input costs into our furnaces atButler, Indiana. So, not to worry, our scrap costs are in very goodshape versus our competitors. I still think we have the verystrongest position as regard to the input cost to our furnacesthroughout the company.
We also noted that the Steel Dynamics foundation was created duringthe quarter. Our Board had authorized this activity some time agoand that activity began in this quarter and we made a $15 millioncontribution to that foundation. That foundation will support localcommunities served by the company, not just of course in the FortWayne area. We also went out to talk about in our press release thefact that our results were going to be in the $1.05-$1.15 range inthe third quarter. All I can tell you about that is that I wouldsteer you towards the center of the road there, as I usually do. Itwould be certainly our best guess at this point in time. Weprobably are going to see a slight decline in Steel and scrapshipments during the quarter, even though the results in recyclingare going to be very, very strong during the quarter and a lot ofthat is due to mill outages that we have that others have andconsumer provider industrial outages in July and August.
As regard, recycling on a go forward basis, I suspect our scrapcost could be up another $100 a ton based on recent activity in therecycling community or in the purchase of ferrous goods, and -- butthen again, I would also tell you that I think the market right nowfor obsolete grades of scrap is going to decline. And they're athistoric highs and the spread as I noted between obsolete and primeis at record levels, but the flows are very, very good and absent,there's sort of a lull in activity on the export front, if youwill, and that's probably going to cause the obsolete grades wherethe flows are very, very good to decline somewhat. I think it'sanybody's guess as to how much, there are people saying sidewaysthere are -- I've heard some people venture a guess could be at$100 a ton, 50, 25, I don't really know. The market certainly willtell us that answer on a go forward basis but I would guess theobsolete grades are going to be off somewhat as we look at materialto be laid down during the August time frame.
Prop grades remain rather tight although I will note with theAmerican axle strike having ended and the outages in the automotivesector and other sectors over with for the Summer , I think we'llstart to see more flow in the prop grades and I can't pre-predictwhere prices are going to go, but I think they certainly areplateau at the level where they are at and could back up somewhat.I think if -- it should be noted if obsolete scrap backs up at all,it's really not going to impact margins as most of that is on asurcharge type basis. I would also tell you that it wouldn't affectmargins dramatically in recycling, as scale prices for OmniSourceand others would probably be adjusted to reflect any changes in themarket.
So I'm really not concerned about margin impacts at all of obsoletescrap. Obviously flat wears is not tied to the surcharge mechanismto any great degree, at least it's not in our house and therefore,if the prop grades were to regress somewhat, it might actuallyoffer an opportunity to see margins improve on a go forward basis.
As we look throughout the year, again, we see a really good thirdquarter, pretty darn good fourth quarter, although it's just waytoo early to have clarity relative to market conditions later inthe year, but I don't really see them changing. The import activityis muted and I don't know of anyone that sees an enormous change inthat area. The economy is perhaps steering on the edge of arecession and I can't pre-predict recovery, but with the lack ofexport activity especially from a Flat Rolled perspective even withthe weaker economy, I really don't see prices changing a heck of alot on a go-forward basis and they may actually go up. So it's tooearly to tell relative to the fourth quarter but all ofcollectively caused us to change our outlook, if you will, for thefull year, to a range of $3.80 to $3.90.
I think industry fundamentals are just -- are very, very strong andI know that so often commodities has impacted the steel community.I've never really regarded the products reproduced as a truecommodity and I think demand remains very, very strong in mostevery segment of our business.
In the Flat Rolled arena, our backlogs are not out all that far,but that's the way it's been all year long. It's kind of --inventories are low, with prices being high, I think servicecenters are not carrying huge amounts of inventory with pricesbeing high. Credit exposure is stressed and some people don't havethe credit to carry higher levels of inventories.
So I think there's a lot of comfort with ordering month in andmonth out or week in and week out and we see the flow of orderactivity is very good. I think we're going to see growth in steelmaking in the second half of the year, as our new steel mill atColumbia City comes online and Dick will speak to that a littlelater in time.
We're certainly experiencing greater output at Butler. Things are-- that mill is running very, very well these days, as is ColumbiaCity, and as is Roanoke, as is Engineered Bar Products. We havevery strong backlogs in shapes and Dick will speak to that issue injust a few minutes.
So I think the US steel industry is well positioned, certainly froma domestic perspective and is globally competitive. I thinkconditions are going to continue or persist. And I think SDI isexcellently positioned from a recycling perspective and from millactivity perspective to have not only a strong second half of theyear but a very strong '09, as I think the industry will.
From a Steel Operations perspective, as we look at Page 2 of ourearnings release, we did -- there's some things to note in there,that our operating income was $206 per ton. I believe that's anall-time company record showing that margins did truly expandduring the quarter. And would also note that the second quarter'saverage selling price was $1,011, fairly high by comparison to thefirst quarter of 08, and I think far -- perhaps a little strongerthan some of our competition.
But again, that's a tie directly to our scrap costs went up alittle more because the inputs to Butler are mainly promptindustrial material. Likewise, our selling prices for that verysame reason are likely to be a little higher. So very strong steelresults, expect them to continue. Very strong scrap results as youcan see and we expect those to continue.
The operating income for the segment was $86 million. We think thatwill grow sharply during Q3 and as I said earlier, Recycle Southwill -- they're doing just a great job down there. And thatactivity will continue. We did purchase the assets of Sturgis Ironand Metal during the quarter. And they have seven operations thatwill be reopened. And hopefully, we'll see some activity and somepositive results in Q3 from the reopening of those facilities. Thesteel fabricating margins were -- continue to be under some stress.
Although we're about finished with all of our repositioning of thatbusiness platform, and our new Lake City operation is runningextremely well as is Butler and we're sort of just getting underway at -- in the South at Florence and Salem. But we think secondquarter or third quarter results could actually improve somewhatover second quarter, even though the market for products of that[inaudible] nature are still fairly flat, reflecting the economicconditions that exist in the marketplace.
So that's really what I have to report this morning. I think it's avery good report. Mr. Millett is on vacation in Wyoming. But he ison the air and we're going to turn the call over to Mark and lethim give you an update on our Flat Rolled Steel making activities,Iron Dynamics, Mesabi Nugget, etcetera. Mark, are you there?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Yeah, I'm here. Good morning, everyone. Thank you, Keith. I justhave a few brief comments, I guess, to emphasize some of Keith'sthoughts. Certainly clear that the Flat Rolled division had anabsolutely outstanding quarter. Steel shipments were up 22% overthe second quarter of last year. Facilitated in part by a strongorder book, which in light of efficient scheduling, perhaps moresignificantly , and some design issues that related to a prior castand modifications are now fully resolved allowing the fill to millto fully exploit the new production capability.
Record production rates have clearly demonstrated our ability toachieve the expected 3 million ton annualized operating rate thatwe have previously advertised.
I think it should be emphasized this record operating performancewas achieved accident free. The Butler mill was also successful inattaining OSHA VPP status which is a partnership with OSHA toactually partner and have OSHA come into the facility. I believewe're the only steel mill, Steel making operation in Indiana toachieve this status and I think only one of three steel mills inthe country, so, the team has done an outstanding job from a safetyperspective.
As Keith mentioned The Techs continue to execute superbly throughthe quarter. They benefited from record operating rates and a verystrong order book, particularly in the next light gauge productline. The team has done a phenomenal job there.
From a market perspective, I think we remained confident that acombination of the strong global pricing environment, high globalsteel making costs, cost of the ocean freight and the weak dollarwill limit steel imports and continue to promote steel exports,thereby keeping the domestic market steel short. Our customerssteel procurement is kind of become somewhat hand them out as theircredit positions and desire to speculate have diminished given thehigh transactional values right there, but nonetheless order entryrates remain very firm and steady allowing us to maintain ourstrategy for a 30- 40 day backlog.
Iron Dynamics, again, superb quarter. The folks there have madesubstantial progress towards consistent operation and havecontrolled costs by substituting iron concentrate with mill scalefor iron concentrate. They produced as Keith suggested I thinkabout 51 thousand metric tons of liquid iron, which substantiallyreduced our dependence on imported pig iron. With imported pig ironnow delivering to NOLA for roughly $900 -- $920 a gross ton, and aproduct or production cost for the liquid iron at $400 to $450 aton, Iron Dynamics obviously made a significant contribution to ourquarter.
Finally, Mesabi Nugget as Keith mentioned, construction is underway, equipment procurement is proceeding well and we should be ableto maintain our start up target for Q3 of 2009. Keith?
Keith E. Busse - Chairman and Chief Executive Officer
Mark, thank you. Thank you for noting the excellent performance inIron Dynamics. I think that's the first time in history we've had asignificant return on asset dollars deployed that's a notableevent. Dick, I'd like to turn it over to you.
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
Thank you, Keith. Good morning, everyone. Again, I think the shapesmills would like to congratulate Butler on their accident freeperformance in the prior quarter and we strive to, I know Pittsborohas also done extremely well there and the rest of us areattempting gain the same performance.
At Columbia City, congratulations go out to the melting and castingdepartments as both of the quarter, both June as well as May wererecords and so it was about a record quarter so it was tremendousperformance over there. I think as Keith noted the most importantnews is that the second mill is ready to get started over atColumbia City, the medium section mill. We did have a mechanicalfailure on a component during cold commissioning, and we do haveboth the supplier as well as ourselves pursuing repairs and we havecontracted with the machine shops and heat treatment facilities andwe'll have those parts I believe by the end of this week and so weare looking to roll our first beams before the end of this month.So it's a much awaited activity.
And lastly, about Columbia City, I do get questions usually aboutthe backlog and I told Keith this morning that our backlog, Ilooked at to a versus a year ago and it's within a few thousandtons of the performance it was then, so there's no concern from astructural perspective.
Pittsboro, also congratulations go out to the rolling mill as theyhave set production records for both quarter's so far in 2008.There will be an outage in the rolling mill scheduled for Augustthis quarter to install the foundations from the two new millstands as well as begin construction in a critical path for thefurnace upgrade, but all components are in order, or delivered andwe're working towards that upgrade in capacity.
I do think it's noteworthy to mention that we recently set a recordin percentages of SVQ shipments to total shipments. I think thisreflects the confidence of our customers, the experience of ourteam to produce quality products and our willingness of bothcustomers and SDI to strike equitable partnerships in light of theunprecedented scrap and alloy Markets. As far as Roanoke gets, wewould handout our maintenance outage there in late April and earlyMay and installed the new Oxy-fuel burners in the EAF and did otherproduction enhancing and cost reducing equipment installations andwe are realizing improved melting production on a daily basis. It'sreally doing well.
We did achieve a finished Steel shipment record this quarter andcontinue to look to the third quarter for good bar as well asBillett shipments. As far as Steel of West Virginia is, theyperformed well in spite of cyclically weak transportation sector orthe truck/trail -- market remains in a trough but the Steel WestVirginia team has shifted its production to serve other Marketsproducing I-beam, Channels, wide flange beams and the RV market.
This performance has been really noteworthy that in spite of theproduct mix adjustments we've set great performances in the rollingmills include number one mill has been rolling at a record pace.And lastly, as Keith mentioned our New Millennium Building Systemscontinues to see a weak market due to the downturn in residentialconstruction. And while we've rationalized our production inresponse to that market, we have seen production records set at acouple of our facilities. So there is good things happening at ourmanufacturing and fabricating group. Keith?
Keith E. Busse - Chairman and Chief Executive Officer
Thanks, Dick. We've already reported on the scrap segment but --and I would tell you that for those of you who noted the fact, wehad departures on the part of certain members of the uppermanagement team at OmniSource. We have a very, very strong team atOmni. The -- some very fine young assets there that were doing allof the heavy lifting have stepped right up to the plate.
We've got our new org chart about worked out and there are going tobe promotional opportunities for people that have performed well.So we're very pleased with the results over there. They receivedexcellent guidance from their former management team. And I thinkthe new regime that will be responsible for results going forwardis just going to be brilliant. So we're excited about the future inrecycling.
We would also like to report that Recycle South has a very strongmanagement team. We've gotten to know them. We're really very happythey're part of our family and look forward to long and prosperousrelationship. That's really all I have to report there. I'd like tonow turn it over to Theresa Wagler for her comments.
Theresa E. Wagler - Vice President and Chief Financial Officer
Thank you. Also in just a few minutes, I'll highlight someadditional financial assets for the quarter. Beginning with workingcapital, not a surprised to anyone, our working capital did growthis quarter. Accounts receivable increased $211 million excludingthe acquisition of Recycle South. I'm happy to report though thatwe still have, consistent with the first quarter, approximately 95%of those receivables are less than 60 days outstanding. We arewatching our customer's credit very closely, as most companies are,and we're very confident with where we see them today.
From an inventory perspective, we increased 227 million, excludingthe acquisition of Recycle South. We actually increased in valuebut our volumes in raw materials and in finished goods decreased.It was just the increase in the value of the inventoriesthemselves. We're still currently turning at most of our facilitiesinventories about once a month, which is very good.
So, from a capital expenditure standpoint, we spent $101 millionduring the quarter and $195 million for year-to-date. About 60% to65% of that has been spent on growth projects at our steeloperations. For the second half of 2008, we're expecting about 200million of additional capital expenditures.
That relates to the completion of our second rolling mill at thestructural and rail division. That includes about 90 million to bespent on the Mesabi Nugget project yet this year, approximately 45million on some projects at our scrap resource arena andapproximately $10 million at IDI.
From a depreciation and amortization standpoint, for the quarter,we had had 48 million. For the remainder of 2008, we expect to havebetween 50 and 55 million of depreciation and amortization aquarter. We also had an increase in goodwill and intangibles ofjust over 400 million in the quarter.
That's related specifically to our very preliminary estimates forRecycle South. That will be further refined during the quarter andwe'll be able to report more definitively on the third quarterearnings call and where the results end up.
From a tax rate perspective we have 38% effective tax rate in thequarter. That seems to be a good rate for the remainder of 2008 aswell. From a liquidity standpoint, after issuing approximately 500million of senior notes in April, which are due 2016, and we haveapproximately 201 million outstanding on a revolver, our leverageis currently just over two times or about 54% on a long -- net longterm capitalization ratio basis.
Gross interest expense for the quarter was 41 million, capital --capitalized interest was 5.5 million. I would model approximately40 million a quarter for the remainder of 2008 on a growth interestbasis. Our share data, we have 190 million shares outstanding atJune 30 and we have remaining converts of approximately 3.8 millionshares.
During the quarter, we had about 5 million shares issued throughthe turn-in of some of our converts. We also issued 3.9 million forthe acquisition of Recycle South. I would use 204 to 205 millionoutstanding shares on a diluted basis for estimates for Q3 and Q4.
On an export basis, we actually have approximately $122 million ofproduct in the quarter. That's about 5% of our total sales. About45-50% of that was actually in the scrap arena and that wasnon-ferrous export to Asia.
And finally, in conclusion, for some specifics related to our FlatRolled shipments. For Q2, we shipped 337,000 tons of hot rolled,43,000 tons of pickle and oil, 49,000 tons of cold rolled, 101,000tons of hot rolled galvanized, 78,0000 tons of cold rolledgalvanized, 72,000 tons of painted products and 26,000 tons ofGalvalume for a total of 706,000 tons. With that Keith I'll pass itback to you.
Keith E. Busse - Chairman and Chief Executive Officer
Thank you, Theresa. I don't really have anything to add. Audreyit's probably time to open this up to the Q&A component of theconference call.
Question and Answer
Operator
Thank you. [Operator Instructions]. And our first question willcome from Mark Parr with KeyBanc.
Mark Parr - KeyBanc Capital Markets
Oh, hi, hey, Keith?
Keith E. Busse - Chairman and Chief Executive Officer
Hi, Mark. Good morning.
Mark Parr - KeyBanc Capital Markets
How you doing?
Keith E. Busse - Chairman and Chief Executive Officer
I'm doing quite well, yourself?
Mark Parr - KeyBanc Capital Markets
Well, I'm hanging in there, but congratulations. It's a greatquarter, great results. I missed. Could you go over the scrapoutlook again as you're seeing it right now? I mean, we've got thisvery unusual diversion between prompt and industrial material andcan you talk a little bit about how you see those two comingbacking together or if you see them coming back together?
Keith E. Busse - Chairman and Chief Executive Officer
I think that obsolete grades almost traded in sympathy with themove in industrial grades last month. Flows were awfully strong.They still remain strong, in light of the fact that some of theexport buyers are sitting on the sidelines at these prices, I canunderstand that. We may have some overhang there and obsoleteprices may back up whether or not the prop grades which are stillvery tight back up in sympathy so to speak, or because the flowsincrease, so, I think that's greater likelihood in time that as wework our way through the summer outages and the American Axlestrike ending, even though we have a rather weak economy, flowsshould improve somewhat and maybe take a little pressure off ofthat.
I'm just, -- Mark, I don't know how we could have predicted $300spread, and therefore I can't really tell you to what degree it'sgoing to narrow, but I think it will narrow over the course oftime, but I don't have a crystal ball that big.
Mark Parr - KeyBanc Capital Markets
Okay, is it fair for us to think about the spread as something,especially because of your -- now what over what, 55% of your mixis Flat Rolled? I mean, you've got a lot of prop material, maybe alittle higher mix than some of your other competitor's in theelectrical furnace arena. And is that something that probably ishitting you to a greater extent or constraining your margins or isthat something that's actually been a positive because of surchargepass throughs? I am trying to understand how to think about that?
Keith E. Busse - Chairman and Chief Executive Officer
On obsolete, it is surchargeable, the margins don't change a lotwhether it's going up or down and Flat Rolled there is not quite totie to the surcharge arena which opens up opportunities or it canhit you over the head with a broom so to speak on the other side,but I really think that pricing is a reflection of marketconditions and the lack of imports and resource costs and alloycosts and energy costs and there is less connectivity there, if youwill.
Mark Parr - KeyBanc Capital Markets
Okay.
Keith E. Busse - Chairman and Chief Executive Officer
I think that the good news is as I noted, if you look at ouraverage selling values, they were very high, which again is drivenby the very thing you talked about, 55% of it is -- of our Steelmaking mix is Flat Rolled. So it has a little bit of a negativequarter-over-quarter change impact on scrap, but an awfullypositive quarter-over-quarter impact on margins. So I think themarket is going to remain fairly firm going forward and as I said,if prop scrap were to decline, it's a margin improvementopportunity actually.
Mark Parr - KeyBanc Capital Markets
And that's because there is not so much direct connectivity in theglobal environment is very important determinant of pricing. Isthat the way to look at it?
Keith E. Busse - Chairman and Chief Executive Officer
Yeah, I think it probably is a way to look at it. I think the otherthing that I would like to note is that we're now a year or so awayfrom Mesabi Nugget and we will have certainly a greaterpreponderance of our inputs going into our furnaces in the FlatRolled side that are virgin materials as opposed to where we aretoday. So with the effective cost structure of Nugget, I mean,Nugget is going to make a lot of money simply said, but at the sametime, the input costs I think at Butler could well improve. Wewouldn't be quite as dependent on the wild swings of the industrialgoods marketplace from a recycling perspective.
Then again, I'd tell you Mark, the margins don't change a lot fromrecycling perspective on industrial goods. They tend to remain inthe same arena no matter what the shipping level is, but I think --so if the index goes down, they buy cheaper and obviously allowsthem to sell cheaper and to the client community. And we're aclient, so I hope that helped clarify all of it.
Mark Parr - KeyBanc Capital Markets
No, that's good. Do you have an update on the concentrate supplyfor Mesabi and is there anything new as far as the permittingprocess for the mining side of that operation?
Keith E. Busse - Chairman and Chief Executive Officer
I think Mark is still on the air. We'll let him comment on that.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Yeah, Mark.
Mark Parr - KeyBanc Capital Markets
Hi, Mark.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Good morning. Mark, the State of Minnesota has appointed a very,very, very good project engineer to the monitoring process for themine. So we're very confident that the permits should be receivedprobably December of next year, allowing the start of the mineprobably end of 2010, early 2011.
Mark Parr - Keybanc Capital Markets
Okay.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
So that's -- and again, given the normal caveats that, it's anenvironmental permit and there could be public opinion come intothat. But we're very, very confident. The State of Minnesota isbehind the project. The mine is a Greenfield site -- Greenfieldfacility. So we're confident in that. Concentrate for the interimperiod between Q3 of next year to end of 2010, we're negotiatingthat with several parties as we speak.
Mark Parr - Keybanc Capital Markets
Okay, terrific. Thanks for the update and congratulations on thegreat results.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Super, thanks.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Thanks Mark.
Operator
And next we'll hear from Wayne Atwell with Pontis CapitalManagement.
Wayne Atwell - Pontis Capital Management
Thank you, and congratulations on a great quarter.
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
Thanks, Wayne, been a while since we've talked.
Wayne Atwell - Pontis Capital Management
Yeah, it's been awhile. A couple of quick questions. Myunderstanding is Russia and Kazakhstan, or maybe it's Russia andone of the other former Soviet Union countries are limiting exportsof scrap. Is that right? Is anybody else limiting scrap exports andis that impacting the market at all?
Keith E. Busse - Chairman and Chief Executive Officer
I think it's mostly, what we refer to as the old Soviet Block andmainly Russia.
Wayne Atwell - Pontis Capital Management
I think it's the Ukraine possibly, but is -- anyone else theremight.
Keith E. Busse - Chairman and Chief Executive Officer
Well, I think it's both, Russia proper and the Ukraine. I thinkthey are -- I don't want to say they're hoarding scrap. I thinkthey see a brighter future for electric art furnace steel makingand they are now -- they're blocking free market activity on thatcommodity at this point in time, which is one of the things I thinkthe new -- there's a new group that's been formed that's a littleincensed by all that kind of activity and lobbying for change inthat regard. They aren't lobbying to constrict scrap exports out ofthis country, but rather to operate on a level playing fieldglobally.
Wayne Atwell - Pontis Capital Management
And if we could look at exports of your product, I assume youdidn't export very much and could you explain how much exported, insort of the tone of the market and why you are or not exporting?
Keith E. Busse - Chairman and Chief Executive Officer
The -- on the recycling side, Recycle South does export somematerial. They have a port at Wilmington. And I really don't knowthe exact activity level in that regard, but our recycling exportsare not huge. The export activity on the steel making side is -- wejust don't do a lot from our Flat Rolled facility in Butler. As youknow, we're kind of landlocked. I think there are certainlyopportunities for other steel makers out there to export whichhelps the domestic cause, if you will, in light of a weakenedeconomy. The -- but from an STQ perspective, we are exporting.
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
Both ours and global, Keith.
Keith E. Busse - Chairman and Chief Executive Officer
Go ahead, Dick.
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
Just because, they both ours [inaudible] and as we export to andmostly to Europe, and Scandinavia and so we do a bit of ourbusiness, single digit percentage wise but it continues to grow.And I know that Columbia City is looking at opportunities as wellas Salem, West Virginia currently.
Wayne Atwell - Pontis Capital Management
Great. Thank you.
Keith E. Busse - Chairman and Chief Executive Officer
Okay, Wayne. Thank you.
Operator
And we'll hear from Eric Glover with Canaccord Adams.
Eric Glover - Canaccord Adams
Good morning.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Good morning.
Eric Glover - Canaccord Adams
You had mentioned that obsolete scrap prices might decline in thenear term. I'm just wondering whether you think this is typicalnormal seasonality, at this point?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Well, obviously, as you come off of a -- specially in the northernhemisphere, if you will, of this country, you come off of a strongwinter. The flows do start to pick up throughout the spring. And atthese kind of prices, it's still gaining momentum. So there's a lotof activity out there. Very, very strong market for obsoletegrades.
I don't have to tell anyone that. So the flows are very, very goodbut if the export opportunities -- if the traders or brokers aresitting on the sideline or buyers are sitting on the sideline andhaving a temporary hiatus, it could strain that market a littlebit, in terms what do we -- take back and stack it all up in theyard. So I would expect to see softening in the obsolete grades forAugust delivery.
As I said earlier, I don't have a Crystal ball that can tell you towhat degree. It could be anywhere from very little to a little bitmore. But I don't think it's going to be a major transition inpricing but I don't think it's going to be up and up and up, if youunderstand.
Eric Glover - Canaccord Adams
Sure. So if we look toward the end of the year, when supply ofscrap might start getting tighter because of weather, do you thinkthat obsolete could see another leg up at that point? Or do youthink that the prices have pretty much peaked for now?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Well, I don't have a Crystal ball that goes out to the first of theyear. We all know that wintertime activity is somewhat constricted.And you might see obsolete make some gains during the wintermonths. I think during the summer months here and early fall, withgood weather and the pricing being where it's at, you're going tosee very good flow.
Eric Glover - Canaccord Adams
Okay, thank you very much.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Uh-huh.
Operator
We'll move on to Evan Kurtz with Morgan Stanley.
Evan Kurtz - Morgan Stanley
Hi, good morning, gentlemen, a great quarter.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Thank you.
Evan Kurtz - Morgan Stanley
Just going back a couple of quarters, you had mentioned that youhad high inventories of pig iron and if you actually got some goodperformance out of Iron Dynamics you might be able to make it allthe way to the start up of Mesabi Nugget without having to purchaseany significant amounts of pig iron. Just wondering if you can giveus an update on where you stand with pig iron inventories and ifyou still think you can possibly make it all the way to 3Q '09?
Keith E. Busse - Chairman and Chief Executive Officer
We believe for the most part we can make it. We're going to have tobuy a little pig iron and the markets recently have come off $30 -$40 I believe from their recent highs at NOLA. There may be abuying opportunity, but we are not going to need to buy a lot ofpig.
Evan Kurtz - Morgan Stanley
Good to hear. And just one other question. In your press releaseyou talked in your outlook about expecting a strong global Steeldemand picture next year. I was wondering if you could just kind oftalk about that a little bit, maybe give some rationale behind youroutlook?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Well, I think one of our Directors is a former Executive on theEuropean continent, and indicates to us that our businessconditions are fairly strong over there yet, while I think, wethink they're rather robust in Asia and given selling opportunitiesbeing by comparison better than sales exports to the U.S. I thinkyou're going to see a limited amount of import activity continuehere in the states and I think that's probably welcome news, giventhe economic conditions that prevail in the country with demandbeing off somewhat, but awfully strong match at this point in time.
We still even with the announced expansions out there probably areonly going to as I said earlier produce 107 million tons orthereabouts of material this year for shipment and a fair chunk ofthat is going to go offshore with excellent export opportunitiesfor domestic producers and when you net that off the 107, pick afigure, and then add back the import activity that's still outthere today, I think you come up with a picture that supply may bea bit short as the demand -- as weak as demand is, so I think themarket conditions are going to be strong on a go forward basis forFlat Rolled products which is the main imported component of stealsthat are imported into this country. And I think as you heard Dickreport, we have very strong backlogs in shapes.
We have a strong backlog at Roanoke, we have a strong backlog inSBQ bars and a strong backlog remains in wide flange beams. So Idon't think that's going to be threatened by import activity anytime soon. So I think we're going to really see some pretty strongresults on a go forward basis. Obviously if imports were to surgedramatically, if the dollar strengthened dramatically and importssurged dramatically because of overseas market conditions or betteropportunities, then that could change the picture somewhat. But Ijust don't see that, right now I don't see the dollar strengtheningother than perhaps trading opportunities in the near term. I thinkgiving us a pretty positive outlook for North America.
Evan Kurtz - Morgan Stanley
Thank you.
Operator
And now we'll hear from Timna Tanners with UBS.
Timna Tanners - UBS
Hi, good morning.
Keith E. Busse - Chairman and Chief Executive Officer
Hi, good morning, Timna.
Timna Tanners - UBS
Just a couple of questions. One is I just wanted to ask you whatyou're seeing on the September price increase, apparently announcedby some people between $40 and $60 a ton, how successful is that?Is that you think solid demand or just tight supply conditions, andis that to fill some holes in the order book we're seeing nearterm?
Keith E. Busse - Chairman and Chief Executive Officer
I'll let Mark answer that. I think we're not out to September yet.We're most of the way through August, and Mark you want to addressthat question?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Yeah, well, to your point, Keith, our strategy, Timna, for probablythe last year and a half is to keep a very, very tight hold on ourbacklogs. So, we're currently just filling out August currently. Sowe would anticipate going out in September at an up value. Whatthat will be right the second, we shall see.
Timna Tanners - UBS
Are you hearing major holes in order books or are you seeing decentdemand continuing or activity?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
As I suggested earlier, we're seeing just steady, consistent orderrates. The credit position's of our customers is certainly underpressure given the transactional values. No one at these valueswant to speculate on a position. So literally, the tandem thatpeople have shift, literally converting an order because they aregetting an order before they are placing the order with us.
Timna Tanners - UBS
Sure.
Keith E. Busse - Chairman and Chief Executive Officer
I think the thing is consistent activity. We make 50,000 - 55,000tons a week, whatever and we have order entry at that level and itjust continues to flow and go forward.
Timna Tanners - UBS
Okay. You have a great chart on your website showing shipments bymarket in 2006. But I was wondering how much of that might beservice centers versus some of the OEMs and direct end marketdemand?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
On the sheet side of our business, probably 85% of our Butleroutput goes into service center or distributors and at The Techsare probably more like 60% to OEMs, 40% service centers.
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
And only in the shapes, probably 85% of our Butler output goes intoservice center distributors and The Techs are probably more like60% to OEMs, 40% to service centers.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
And only in the shapes divisions, out of those only Pittsburgh hasa higher OEM rate than that because both the Structural mill aswell as Roanoke are highly dependent upon the service centermarket, Steel of West Virginia also has a OEM position, but mostlyservice center in the volumes.
Timna Tanners - UBS
Okay, great. And then the final question is, certainly in yourrelease, you talked about the outlook and further expansion ingrowth and you've had had a good track record there. But wonderingif you could give us a little bit more detail on the hint here thatyou have of continued growth that's contemplated going forward, ifyou can give us an idea of what kind of things you're looking atwhether it be scrap or whether it be more capacity, Greenfieldacquisitions, kind of where your head is right now?
Keith E. Busse - Chairman and Chief Executive Officer
We are looking at other recycling opportunities. We're going to seegrowth in steel making from the capital expenditures that have beendeployed and/or announced for some time. We are currently in theearly engineering stages at looking at a new Flat Rolledopportunity.
Timna Tanners - UBS
Great. Thank you very much.
Operator
And now we'll hear from Bob Richard with Longbow Research.
Robert Richard - Longbow Research
Good morning, and thanks for taking our call.
Keith E. Busse - Chairman and Chief Executive Officer
Good morning.
Robert Richard - Longbow Research
Keith, how come your scrap output is pretty much going to trade?Can you remind us on what the mix is of your scrap sales to tradeare? Is it maybe a break down between prime and non-prime orobsolete scrap?
Keith E. Busse - Chairman and Chief Executive Officer
Well I don't have that figure, but I will say this. The consumptionwhich was in the 40% area, internal consumption of recycledmaterials will probably drop back into the 30s and with the impactof Recycle South could go even south of that. So we won't -- wealways thought we would be in the 25 to 33 or 35% arena. I thinkthe reason our percentage of consumption in-house was up thisquarter is reflective of the tight market for prompt resourceswhich given the opportunities in the Flat Rolled market caused usto take a little greater percentage of the industrial output thatthe Omni organization generates each and every month. But I seethat -- I see that percentage of internally consumed scrap goingdown slightly as we move forward quarter-to-quarter.
Robert Richard - Longbow Research
And what you sell right now to trades are -- is that roughly halfprime, half obsolete or?
Keith E. Busse - Chairman and Chief Executive Officer
I don't know the answer to that, Bob. That's not a question I'vebeen asked and I'll be better prepared next time. But I would guessit's probably just as you said. Probably about half and half. But Idon't have a firm grip on that.
Robert Richard - Longbow Research
Okay, appreciate that and one follow-up. Your comment, Keith, onJune being outstanding. Was that driven more by mill performance ormarket base?
Keith E. Busse - Chairman and Chief Executive Officer
It was both. The mill performance, the operating activity at Butlerwas very, very strong in the month of June. Good market -- goodcommercial activity, but strong output as well, and higher thancontemplated shipments and the recycling divisions just continuedat a very, very strong pace. One of the strongest they've had inquite a while. So we're pleased by the results of June.
Robert Richard - Longbow Research
Okay, thanks for that color and great quarter.
Keith E. Busse - Chairman and Chief Executive Officer
Thank you.
Operator
And now we'll hear from Brett Levy with Jeffries & Company.
Brett Levy - Jefferies and Company
Hi, guys. You said you're in the engineering phases. I know thatyou talked about once you got Iron Dynamics and Mesabi Nugget upand running. You were potentially considering going to the WestCoast. Is that something still very much in the mix for you guys?
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
I'd probably think more East of the Mississippi River, than Iwould, west of it at this point in time yet.
Brett Levy - Jefferies and Company
And considering in the sheet market?
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
Yes.
Brett Levy - Jefferies and Company
Got it. Given the tightness in the beam market now and foreseeablein the plate market as well. Any thoughts in either of those zipcodes?
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
We have not looked at plate opportunities. Not to say we won't.It's been discussed but we haven't seriously looked at it. We couldlook at that market segment in time. We are growing our capacity atPittsburgh and SBQ bars. And we're about ready to have perhapsanother million tons of wide flange capability coming online. Soeven though the market is tight, we're going to be in the throws ofstart up of new activity there. It won't be all that impact full in'08 because the ramp up curve will be a typical ramp up curve.
Brett Levy - Jefferies and Company
Got it. And then in terms of additional future investmentsobviously we've heard about new core's plan continue to ramp up pigiron capacity. Is that something that you guys would consider aswell?
Keith E. Busse - Chairman and Chief Executive Officer
Well I think if Nugget works out, as well as we believe it will,from the pilot facility activity. We would see an immediateexpansion of number of batteries up on the iron range, given themarket climate, the demand for low residual resources. I'd tell youif the number one battery works as well as expected, I wouldn'texpect just one more battery, I would expect perhaps two and threemore batteries to be launched, putting us I think in a very, veryfavorable position versus our competition in the virgin iron arenaif you will.
Brett Levy - Jefferies and Company
Thanks very much, guys, great quarter.
Keith E. Busse - Chairman and Chief Executive Officer
We'll now hear from Charles Bradford with Bradford Research.
Charles Bradford - Soleil-Bradford Research
Good morning.
Keith E. Busse - Chairman and Chief Executive Officer
Hi, Chuck.
Charles Bradford - Soleil-Bradford Research
Hi. I'd like to talk a bit about the Mesabi Nugget. Because youhad, or somebody in your shop had talked about, maybe having costof product of about 250, I'm assuming that was at the plant and I'dreally like to get a little bit better information as to the costdelivered to Butler per ton of the product and whether you have anupdated capital cost.
Keith E. Busse - Chairman and Chief Executive Officer
Well, I'll let Mark answer that question. I think obvious -- it'sobvious that production costs, given the market per concentrate andwhat not and cost of natural gas, might have moved forward just alittle bit, or higher, but not significantly. Mark?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Yeah. Good morning, Chuck. I think the -- given the natural gas andmore importantly coal, that 250 number is probably drifted up to300, or thereabouts. And that assumes the use of our ownconcentrate coming out of our mine. Capital costs still remains in-- the total project cost is about $235 million. That maybeimpacted a little bit by construction cost but I don't see at thismoment in time anyway, that being too far off the line.
Charles Bradford - Soleil-Bradford Research
How bad does the need to buy concentrate affect your coststructure?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
On a fully loaded basis, we'll probably be producing or supplyingconcentrate to Mesabi Nugget in the order of about $45. The actualoperating cost of the concentrate will be roughly $22. So obviouslyif you would have to purchase concentrate in the open market,there's a appreciateable difference there.
Charles Bradford - Soleil-Bradford Research
And the freight cost to Butler?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
We're negotiating that right now, Chuck. We would envisionsomewhere between -- well I don't want to give you the cost reallybecause we're negotiating it. But let's just say it's between $30to $35 a ton.
Charles Bradford - Soleil-Bradford Research
Of course with pig iron, even down only maybe $30, you're stillnorth of 900 delivered to Butler.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Well, currently, transaction prices, NOLA, let's just say they'rein the 900 region. Freight currently from NOLA to Butler is $45, soyou're right.
Charles Bradford - Soleil-Bradford Research
But you compare costs of delivery even if it's 350, I mean thisthing is going to be making back at capital costs in less than ayear. Would that be a fair statement?
Keith E. Busse - Chairman and Chief Executive Officer
At these levels that would be a fair statement.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Suffice it to say we're pretty excited about it.
Charles Bradford - Soleil-Bradford Research
By comparing this technology to glass furnace technology, how muchof them advantage do you think you have especially if the glassfurnace guy has to bring in pellets at over 150 a ton?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
That is something I haven't studied since we put the initialproduct performance together about a year and a half ago. I thinkit all depends on where that integrated mill is getting its Coke,whether they're self-sufficient or whatever, but I do believeMesabi Nugget should be $50 to $100 better off.
Charles Bradford - Soleil-Bradford Research
That's what I was trying to get. Well thank you very much.
Keith E. Busse - Chairman and Chief Executive Officer
Thank you, Chuck.
Operator
Before we move on, [Operator Instructions]. And now we'll hear fromAldo Mazzaferro with Goldman Sachs.
Aldo Mazzaferro - Goldman Sachs
Hi, Keith, how are you?
Keith E. Busse - Chairman and Chief Executive Officer
I'm fine Aldo, yourself?
Aldo Mazzaferro - Goldman Sachs
I am fine. Following along with Chuck's question, I know the MesabiNugget looks extremely exciting and a question along the same linesregarding Iron Dynamics. I am wondering the 51,000 tons that youdelivered to the Butler shop during the quarter, is that anywhereclose to the capacity of Iron Dynamics or what would you rate thecapacity to be of Iron Dynamics?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Aldo, we would hope to get a consistent 20,000 metric tons ofliquid pig iron over to the furnace at Butler, at that moment intime, we're probably peeking at.
Aldo Mazzaferro - Goldman Sachs
That's monthly, right?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
That's monthly, yeah. 20,000 a month.
Aldo Mazzaferro - Goldman Sachs
And then Mark, I you look at the -- I mean, you did really twothings in the quarter. You got the --
Keith E. Busse - Chairman and Chief Executive Officer
Aldo, you should note that that's liquid. I mean if you were toproduce bricks, it would be more than that. We used to produce alot of HBI, and very little liquid, but the liquid is desirable.And 20,000 tons of liquid is probably as Mark said getting close tocapacity. At one point in time we had hoped to do 25 but we haven'tgotten there yet.
Aldo Mazzaferro - Goldman Sachs
Right, but it's the liquid that really boosts the output from thefurnace, right? From the Butler furnace?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Correct.
Aldo Mazzaferro - Goldman Sachs
And I am wondering, if you were to break down what you did, you hadthe Caster modification which I am sure helped the throughput andnow assuming you can get the 20,000 liquid from IDI, what do youthink the output of Butler could be if you assume excluding theoutage you are talking about coming up, I mean, if you had a fullrun rate and a full quarter with full Iron Dynamics, what do youthink you could do in Butler?
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Well, we certainly can do the 3 million ton annualized rate.
Richard Teets, Jr. - Executive Vice President, President, and ChiefOperating Officer for Steel Shapes and Building Products
Hey Aldo, you got to remember, this is Teets . But you haveremember that Butler is completely coupled together between theCaster and the hot mill and so just if they had an opportunity toeven do better in the melt shop area, you still have yourconstraints based on size going through all the way to the rollingmill whereas the shapes Mills all have a disconnect there.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
Our product portfolio out as you know, we try and focus on thevalue add.
Aldo Mazzaferro - Goldman Sachs
Right.
Mark D. Millet - Executive Vice President, President, and ChiefOperating Officer for Flat Rolled Steels and Ferrous Resources
And on the hot end side we want to get into the high strength, lowalloy very light gauge products and as such, as Dick said, therolling mill itself is probably going to peg out in the 3.1 millionton range.
Keith E. Busse - Chairman and Chief Executive Officer
I mean, just roughly, Aldo, if it's 60,000 tons a week or will bein that arena times 50 weeks, I mean it's a pretty good way to justthink about it.
Aldo Mazzaferro - Goldman Sachs
Right. Well, thanks, Keith. Tremendous quarter. Really tremendous.Thanks.
Keith E. Busse - Chairman and Chief Executive Officer
Thank you.
Operator
And with that, that does conclude today's question and answersession. At this time I would like to turn the conference over backto the presenters for any additional or closing remarks.
Keith E. Busse - Chairman and Chief Executive Officer
Audrey, thank you. We don't have any additional remarks. We'llcontinue to work diligently on behalf of the shareholder, and wantto thank all of our employees for just an incredible quarter.Excellent performance. What a great team we have. 600 membersstrong now and hard to believe that we've grown that big that fast.But there are more growth opportunities ahead of us and lookforward to sharing news on them in the future, thank you.
Operator
That does conclude today's conference call. Thank you for yourparticipation. Have a wonderful day
Copyright policy: All transcripts on this site are copyright Seeking Alpha. However,we view them as an important resource for bloggers and journalists,and are excited to contribute to the democratization of financialinformation on the Internet. (Until now investors have had to paythousands of dollars in subscription fees for transcripts.) So ourreproduction policy is as follows: You may quote up to 400 words of any transcript on the conditionthat you attribute the transcript to Seeking Alpha and either linkto the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THEAPPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OROTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE ANACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, ORINACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIOPRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANYRESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASEDUPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANYTRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'SAUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGSBEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.