Nucor Corporation (NUE) Q3 2017 Earnings Report, Transcript and Summary

Good day everyone and welcome to the Nucor Corporation Third Quarter 2017 Earnings Call. [Operator Instructions] Certain statements made during this conference will be forward-looking statements that involve risks and uncertainties. The words we expect, believe, anticipate, and variations of such words and similar expressions are intended to identify those forward-looking statements which are based on management's current expectations and information that is currently available. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about risks and uncertainties relating to these forward-looking statements may be found in Nucor's latest 10-K and subsequently filed 10-Qs which are available on the SEC's and Nucor's website. The forward-looking statements made in this conference call speak only as of this date and Nucor does not assume any obligation to update them, either as a result of new information, future events or otherwise. For opening remarks and introductions, I would like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer and President of Nucor Corporation. Please go ahead, sir.

Good afternoon. Thank you for joining us for our conference call. We appreciate your interest in Nucor. With me for today's call are the other members of Nucor's senior new management team, Chief Financial Officer, Jim Frias; Chief Digital Officer, Joe Stratman; and our other Executive Vice Presidents, Jim Darsey, Ladd Hall, Ray Napolitan, Leon Topalian, Dave Sumoski and Chad Utermark. The leadership team in Charlotte would like to thank all of our teammates throughout Nucor for their excellent work in the first nine months of 2017 to build a safer, stronger and more profitable Nucor. You are the reason our company's best years are still ahead of us. Thank you. We also want to extend a very warm welcome to the newest members of the Nucor family, the approximately 125 teammates who joined us in September with our acquisition of cold finished bar facilities in St. Louis Missouri and Monterrey Mexico. Nucor is proud and excited to have you on Board. Our Chief Financial Officer, Jim Frias will now review Nucor's third quarter performance and financial position. Following those comments, I will update you on the execution of our strategy for long-term profitable growth. Jim?

Thanks John. Nucor reported third quarter of 2017 earnings of $0.83 per diluted share. Nucor's third quarter performance represents a decrease compared to second quarter of 2017 earnings of $1 per diluted share and year ago third quarter earnings of $0.95 per diluted share. Our earnings for the first nine months of 2017 of $2.94 per diluted share compared to $1.99 per share for the first nine months of 2016. The first nine months of 2017 earnings actually exceed annual earnings achieved every year since 2008, a cyclical peak year. Nucor's disciplined strategy for profitable growth is working. During the steel industry's protracted downturn, we have invested aggressively to increase our capabilities for delivering value to our customers and profitable growth for our shareholders. We're achieving these improved results when large parts of our business including rebar, merchant bar, special bar quality steel, plate steel, structural steel, and DRI are operating well below peak performance. Our team is encouraged but not satisfied by the initial returns we have realized this year. Compared to second quarter 2017, our third quarter earnings decline were largely reflected lower capacity utilization rates and metal margins at our steel mills segment, as well as the impact of an unplanned outage at our Louisiana direct reduced iron ore DRI plant. The facility stopped production in late July, and resumed operations in early October. Third quarter earnings before income taxes and noncontrolling interests in the raw material segment declined approximately $56 million compared to the second quarter. The vast majority of this decline was driven by the unplanned outage at Nucor Steel Louisiana, the last of the majority of the third quarter. The profitability of our steel products segment improved in the third quarter from the second quarter. Our comment about our tax rate as it can be confusing due to the impact of profits from noncontrolling interests. Excluding profits belonging to our business partners, the effective tax rate was 29.3% for the third quarter and 32.1% for year-to-date 2017. Third quarter of 2017 results included a benefit totaling $0.04 per diluted share related to tax return true-ups and state tax credits. This benefit was incorporated in our guidance issued in mid-September. Nucor's financial position remains strong. With total debt outstanding of $4.4 billion our gross debt to capital ratio was 33% at the end of the third quarter. Cash and short-term investments totaled over $1.6 billion. Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving credit facility which remains undrawn. The facility does not mature until April 2021. For 2017 we estimate capital spending of approximately $500 million and depreciation and amortization of about $730 million. During the third quarter of 2017, Nucor repurchased 1,591,000 shares of its common stock at a cost of about $90 million or just under $57 per share. Nucor's capital allocation priorities are clear and they have been consistently practiced over many years. Our first priority is to invest for profitable long-term growth. Nucor's growth investment strategy is simple and flexible. We are leveraging our five drivers to profitable growth. Our second priority is to pay cash dividends consistent with our success in delivering long-term earnings growth. Nucor has increased its space dividend for 44 consecutive years. We believe that record is strong evidence of both the sustainability of our business and our disciplined approach to capital allocation. Our third priority is to opportunistically repurchase our stock when our cash position is strong and our shares are attractively priced. From 2004 to the just completed quarter, Nucor has cumulatively returned $8.3 billion to our shareholders via regular dividends, supplemental dividends and share repurchases. These returns to shareholders represent approximately 39% of Nucor's cash from operations generated over that period. We are confident that Nucor's significant competitive advantages, highly adaptable business model, and proven strategies will allow our team to continue to deliver profitable long-term growth and attractive returns to Nucor's shareholders. Approaching the end of 2017, we are encouraged by number of positive factors impacting our markets going into 2018. We see generally stable or improving conditions for our most important end markets including nonresidential construction, automotive, energy, heavy equipment and agriculture. Although illegally traded imports remain at unacceptable levels, we are encouraged by the cumulative benefits of the U.S. steel industry's successful trade cases. We expect fourth quarter earnings to be similar to slightly decreased from the third quarter exclusive of the previously mentioned tax benefit recognized in the third quarter. The raw materials segment's performance should improve significantly driven by more consistent DRI production. The steel products segment is likely to benefit from margin improvement. The steel mills segment will see some decline largely due to weakness in plate and typical seasonality. Thank you for your interest in our company. John?

Thanks Jim. Nucor's disciplined strategy for profitable growth is working. Jim noted that our first nine months of 2017 earnings represent Nucor's best performance for this period since the cyclical peak year of 2008. In fact, our year-to-date earnings of $948 million are more than double Nucor's average comparable period earnings of $411 million reported during the 2010 to 2016 time period. More than 25,000 men and women of Nucor team are delivering this profitable growth despite several ongoing headwinds. 2017 has seen a renewed search of illegally traded imports into the U.S. Through the first nine months of 2017, finished steel imports have increased an estimated 15% compared to the same period last year. The year-to-date market share for finished steel imports stands at approximately 27%. Nucor continues to believe significant work remains to be done to achieve free and fair trade for U.S. manufacturers. More specifically it is time for comprehensive and broad based remedies that address illegal foreign trade practices that have materially weakened our nation's economic volatility. We applaud the U.S. international trade commissions, unanimous and affirmative vote earlier this month on Whirlpool's Section 201 petition regarding serious injury from imported washing machines. Nucor and our customers embrace and thrive in a marketplace where winners are determined by real economic advantages earned by efficiency and innovation. Additionally, growth remains modest in our key end-use market nonresidential construction. Estimated 2017 nonresidential construction activity measured by square footage represents only 67% of the most recent cyclical peak level reached in 2007. Rebuilding America's infrastructure is an absolute prerequisite to the U.S. economy returning to a vibrant growth path that delivers rising standards of living for everyone. Nucor continues to urge bipartisan action on this critical issue. Action is years overdue on a meaningful infrastructure investment plan for our country. Economic and industry conditions remain challenging but the men and women on the Nucor team are doers. Our focus remains on what is under our control, execution of our disciplined strategy for long-term profitable growth. The strategy is simple and flexible. We are leveraging Nucor's five drivers to profitable growth. The five drivers are strengthen our position as a low-cost producer, achieve market leadership positions in every product line in our portfolio, move up the value chain by expanding our capabilities to produce higher quality, higher margin products, expand and leverage our downstream channels to market to increase our steel mill's base load volume for sustained results and achieve commercial excellence to complement our traditional operational strength. I will now update you on highlights of our team's recent progress implementing our strategy for profitable growth. During the third quarter, we announced two growth investments for our bar mill group. A micro mill project is being considered for five states in the Midwest and Southeast, Nebraska, Kansas, Missouri, South Carolina and Florida. We will also be expanding our existing merchant bar operations in either Illinois or Ohio. Nucor's bar mill's are a cornerstone of our company. Capitalizing on opposition is a market leader in a low-cost producer of merchant and rebar. They consistently generate attractive returns on capital and free cash flow. Both the micro mill project and the expansion of our merchant bar operations leverage our existing infrastructure and allow us to better serve our customers. These investments will combine the firepower of multiple drivers to profitable growth enhancing our position as a market leader and low-cost producer, expanding our capabilities to serve our downstream channels to market, and pursuing across the board commercial excellence. In September we completed our acquisition of two cold finished bar products facilities, one in Missouri and one in Mexico for a purchase price of approximately $60 million. The combined capacity of the plants is 200,000 tons which increases Nucor's total cold finished bar and wire facilities to more than 1.1 million tons annually. This acquisition advances our profitable growth strategy on a number of fronts. It expands Nucor's market leadership position in cold finished products. It grows our portfolio of value-added products. It creates synergies with our bar mills by providing an additional channel to market for Nucor's special bar quality or SBQ products. On a geographical perspective, we are increasing our footprint in the U.S. and gaining entry into the Mexican market. This positions Nucor cold finish to better serve North American automotive and industrial customers. In his remarks, Jim discussed the Louisiana's DRI plants negative impact on third quarter earnings. When in operation our Louisiana DRI facility has met and in many cases exceeded our expectations for quality and conversion costs. The challenge is been Louisiana's inability to achieve consistent uptime. Various equipment failures and other issues have resulted in a number of unplanned outages. In light of this unacceptable performance pattern, we are currently focused on developing a more holistic approach to achieving system-wide reliability at the plant. As we study potential design and engineering modifications at Louisiana, we will be drawing upon lessons learned from our Trinidad DRI plant. Trinidad is currently approaching world-class productivity levels to complement its long-standing world-class quality achievements. Nucor's DRI production capacity is a critical foundation supporting our strategy to move up the value chain and that strategy is working. I am pleased to report that are Decatur, Alabama sheet mill was notified this month that Nucor will be one of three recipients of the Honda Environmental Recognition Award at Honda's Sustainability Symposium on October 24. Nucor is receiving this recognition for supplying galvanneal, cold-rolled, high-strength steel as a replacement for this grade produced by integrated steel mills. Nucor's EAF production process emits roughly 70% less carbon dioxide and equivalent greenhouse gases to manufacture the equivalent amount of steel produced by integrated steel mills, yet has improved performance ability. Congratulations and thank you to our Decatur sheet mill teammates to get excellent work. Please keep it going. For a company such as Nucor with its unique position of strength and proven ability to execute its strategy for profitable growth, this is a time of great opportunity. That is why the Nucor team is both ready and eager to continue unleashing the pent-up earnings power that we have built into our company during the industry downturn. I am absolutely confident that Nucor's best years are still ahead of us. We appreciate your interest in Nucor, and would now be happy to answer your questions.

[Operator Instructions] And our first question will come from Jorge Beristain of Deutsche Bank.

I just wanted to do a check on your situation with electrodes in the face of the reason 10 times spike, how much inventory do you have and when do you see the price effect kind of kicking in 2018?

Let me start by saying that we do not buy our electrodes on spot markets. We have long established contractual relationship with our suppliers and as a result we feel pretty good about our position. First, the most important thing we think a look at it as our availability, we make sure that we do have electrodes and we have right now we think our inventory will get us through the first quarter of next year, so we're feeling very confident about that and we have letters of intent from our suppliers to be able to supply us with electrodes for the rest of 2018. So for us supply is really not an issue and because of the contractual arrangements - all the hype that you’re reading about the spot price increases really doesn’t pertain to us and we have pricing through the first half of next year. And we expect to see increases in the second half of next year in pricing but again availability is really not an issue for us. We buy, we buy almost all of our electrodes domestically and well rather, let me rephrase that we buy none of them from China. And so we don’t see any issue with the Chinese issue of supply. The other thing that I would point out that gives me quite a little bit of advantage on this is our DRI usage. Through our DRI we’re able to accomplish what we call single charging and that reduces our power on times that our EAF - and reduces this is the energy consumption that we have as well as the electrode consumption by about 10% which is pretty significant. And a result of us not requiring us to swing the roof off as a result of using the DRI and the feeding of the DRI through the roof of a furnace. So all those reasons we feel pretty good about where we are both on availability and where we are on pricing and frankly our position on terms of consumption of electrodes as a result of our DRI usage.

If I could squeak in a second question, can you just comment there has been some competitors recently announcing price hikes do you believe the market is right for a hike right now in HRC?

We announced one last night and as I have said many times on this call we don't make twice in these announcements unless we believe that they’re appropriate and that the market is ready to accept them. So that's my answer to that question. We think it is appropriate and we think that it will stick.

And our next question will come from Seth Rosenfeld of Jefferies.

I have couple of questions on the plate market outlook please. In fact earlier on the call I think in the release as well and that play with a meaningful drag on Q3 to begin in Q4 earnings. But looking to the shipment and pricing data looks like your shipment perhaps grew over 20% year-over-year in Q3, I realized price is roughly stable quarter-over-quarter. So can you just help us understand a bit better what's driving the current margin drag and then with that in mind perhaps what we should expect into Q4. Obviously the spot market has indeed weakened so are you basically expecting a bit of catch up on margins in the fourth quarter? Thank you.

I’m going to let Leon who is responsible for our plate operations begin and then I’ll add anything maybe towards the end. Leon?

We have seen some metrics that are better than a year ago certainly, shipments are up year-over-year as you indicated. Our backlogs are little stronger and we do see some segments and reaches this mining military applications that are improving and continue to have strong demand. As we look to the fourth quarter we would anticipate probably the market stable going through the fourth quarter. However, as we saw in the first half of 2017, service centers really began to restock inventory levels. In the last quarter and moving forward we see that pretty stable and then putting a lot of pressure on pricing so that’s some - obviously the demand is having is at its best and so that it will put some contraction now pricing moving forward.

I might add just two quick points to that Leon, when I look at Q&T products, our Q&T lines are now full that’s an improvement of what we seen in the past but that’s good news. The trade cases are doubling but the amount dumped Q&T imports and frankly the return of the mining and energy business has contributed to demand side. My final comment would be on infrastructure and we feel very strongly that this country is in dire need of a very intensive infrastructure program. We have confidence that at some point in the near future we will see some action and we’re encouraging bipartisan action on this issue. I think there is one thing the hurricane and the damage caused by hurricanes have thought us is that we need to really upgrade our infrastructure throughout the United States. When that happens, we expect to see an improvement in the plate demand as a result of that infrastructure we built. So going into 2018 we see some positive things on the horizon.

Just one follow-up question and I guess a lot of what you walk through outside of the move on inventory the service and centers actually paint some more positive picture for plate on the demand side and particular. Can you give a sense and what's happening in terms of your margins whether or not will be a bit more dramatic like expecting a bit pullback into the fourth quarter. And then a separate question as well if I may, on the Louisiana DRI facility can you please walk us through a bit more detail what really has been the cause you believe of the recent maintenance issues, what other components you have and a more stable Q4. And as you mentioned earlier, you’re just in the process of taking more holistically towards the facility, when should we expect more complete update on what's happening looking forward?

Well I’ll ask Jim to address the first issue on margins.

I think when Leon was talking about service and restocking he was talking about the beginning part of the year not what we’re seeing currently. And so now that time is passed and so we're getting a bit of a boost in the first part of the year in the plate market because of that. Then as the year progress, scrap price has moved up and we were unable to move plate prices up with scrap prices. So we started to see a margin compression and that’s where we live now. We’re living in a margin-compressed world today and we think that will continue on to the fourth quarter. However, when we look at end market demand it hasn't changed from end it's probably improved just had that restocking that benefited us at the beginning of the year is over.

Since we pack on plate, I might just make an additional comment that when I look at the work we’re doing on grades at our Tuscaloosa facility, as well as our Hertford facility we are now qualified and in some cases in the process of being qualified to be able to supply most of the plates that goes into the large pipe and transmission lines and that's very exciting. One more point on this because I hear this all the time about the U.S. industry as a whole and that is that we’re not able to produce all of the products necessary to appease the tight market in the United States. While Nucor cannot supply all the grades, they’re all available within the U.S. market and there is no reason therefore to have any exceptions on the trade cases relative to pipe. So now while we move on to your final question was on Louisiana, okay and I’ll make some comments on that and Jim you can jump in if there is anything you’d like to add to it. One of the things as we said in the script while we’re looking to accomplish with the modifications that we have to our long-term process that we have been using what we call HYL the new process, we were looking to accomplish improvements in our quality and at the same time decrease the amount of issues of missions and therefore improve the environmental friendliness of the process. And in those two metrics, we’ve been very successful. We’ve been very pleased with the quality of the product that's come out of Louisiana and we’ve been very pleased with the reduction and emissions by using this technology. The challenge of course is mainly liability and we recognize that and we are now in the process of taking time to look at the entire - the engineering of the entire process, making the necessary adjustments as we referred to and taking a holistic approach to the entire process from beginning to end and making the changes that we believe are necessary to improve reliability. And as we go forward in that study we of course will be tapping in for the talent and the lessons that we learnt in our Trinidad facility which is frankly world known for its reliability, as well as quality but particularly its reliability. So that process we expect to take the next couple of months at the end of that period we’ll be able to give you a better explanation of the time that would be involved to make any repairs that we feel are required.

Yes Jim, let me add one other thing and that is that the plant did start its operations up early October. It’s running near full capacity again. We’re doing these things proactively not because we have a problem today its running well and we don't see any reason why it shouldn’t continue to run well. However, when you had the track record we've had, you’d be forced to put your head in the sand it’s not possible to be in other problems we’re trying to be proactive looking at every possible issue that the other things we could do that make the plan even more reliable.

That’s a good point Jim because I should have pointed out we might go through this process in segue and reengineering it taking a hard look at from a holistic engineering perspective and come to the conclusion that the improvements that we have made to the process to-date both in the process gas heater and in the furnace itself have rectified the issues. I mentioned several times on this call and I’ll repeat it, the technology itself doesn’t seem to be the issue, it's the equipment that has enabled the technology to result in less emissions in particular that’s been a major change that has given us the most heartburn with the facilities. So we’ve taken a hard look at that we want to find a solution that allows us to continue the improved environmental aspects of producing DRI while still having the improved reliability.

And our next question will come from Timna Tanners of Bank of America.

So want to ask you a question I asked earlier but I’m just asking with how much the U.S. market is kind of lag the global market and I know the recent price hike maybe addresses that. Is there any structural reason you can think of why the U.S. market will respond to higher global prices or do you think that this has just been something may be related to this time of the year or any other explanation you have would be great?

Yes, I definitely do not feel that there is any structural change that is resulting in this. I think it’s more or less a question of lagging and leading cycle. We go through this from time to time where the one or the other one will make a major move in this case we see global pricing move up and at the same time - frankly because of the import service that is occurred in the United States that has had a very negative impact on the demand here in the United States and our ability is to meet that demand. Although demand has improved but the improvement in demand is being up till by being legally traded products. So when we see that again actually coming to an end we see pricing frankly we think its bottomed out we made our price announcements and as you point out $40 move on off bar, we believe the market will support that will reduce the gap. So really Timna I think it’s more of just a case of the lead, lag on what is normally a cyclical pricing environment that compounded a little bit by the impact of illegally traded imports on us – we shifting the demand, the supply in the United States that had a negative impact on pricing and now as I said we believe that is bottomed. There is a little bit seasonality to it. It also I think Timna if you look back over the past several years you’ll see the same kind of thing happening at the end of September or early October things are going to slow down a little but you’ll see an impact on pricing and that occurs more here in the states than on the global marketplace. So that also might have played a role there.

And then kind of a big question just in this whole topic of capital allocation how you think about using cash. Clearly you need to buyback done that for a while so I was just hoping you could comment a little bit more about how you think about buyback in your tool kit and then talking about a new micro mill do we really need more rebar if you could explain that a little bit more. And then how you’re looking at other M&A and options in a little more detail would be great?

Let’s start with the first question. I’ll ask Jim to address the buyback issue.

We have done a lot of returning of cash to shareholders over the years and we've used base dividends supplemental dividends and share repurchases. We also look at what we have in our pipeline in terms of free cash flows as we forecast the future and imminent M&A transactions. We always have things in the pipeline we look at what's imminent and about to happen. And so we were encouraged by both the fact that we felt like the stock price was a little undervalued. We had a lot of liquidity and so we will always opportunistic to look at that and we that our dividends this year as we gone deeper in the year our payout ratio is going to be above 40% as we talked in the past that’s something that we think about in terms of what we make sure we’re paying at least that much in dividends. And so that was kind of the way we looked at it is. It was a good opportunity to use some of our extra cash with the stock price where it was.

And now we have second question had to do with rebar in our investment in new rebar mills relative to the marketplace, and I’m going to ask Dave to tackle that one.

Timna, Nucor we are committed to the rebar business and maintaining our low cost position in the market. We believe that micro mill is a viable technology and it will allow us to better utilize our regional approach in growth markets where we have scrap available. We’re confident that we will see some increased investment in infrastructure as well.

Dave maybe just trying to add two points to that. One is and you kind of touched upon it, we’re looking to place these markets, so we’re turning to micro mills looking to place them in markets where Nucor has a large scrap supply, as well as we know that there is a good demand that’s being under served in that particular region. So we will look at this being able to give us a good return basically based upon largest and the impact that will have by a low logistics cost and getting scrap to the mill and then from the mill to our customers. And the other point that I would - we mentioned this in the script that I want to emphasize it again. When you look at rebar and merchant bar in general, long products in general I mean that’s not a real cornerstone for our company. In fact I would like to say that it built our company and when I look at the rebar strategy and the expansion of it, one of the five drivers of profitable growth is to improve and increase our downstream of channel to the market and we’ve got a great channel to the market through Harris. So we feel that although you might feel that there is excess or if not need for additional rebar in the United States, we’re confident that based on the location that we’re putting them, the geographical locations that that was going to select and our channel to the market through Harris, these are going to be very good investments with good returns to Nucor.

There is a big logistics play and we always approach these markets regionally and we feel that this technology that's proven will allow us to expand on that on that regional approach and focusing where we have scrap available to us and where there are markets already existing.

And can I ask you to repeat the third part of the question I know it has something to do with mergers and acquisitions.

Yes there is a one question. So I was just asking about capital allocation broadly and then if you had any more comments about how you're thinking about M&A options or priorities?

I can answer that one without even getting help from Jim. How are we looking at growth opportunities and our capital investments going forward, I will tell you what, we have got a full pipeline of opportunities, there is a lot of things that are taking place in the world today, I will show you and most of them, there is a lot of things happening both in the global marketplace and in the United States, a lot of changes, some companies are more challenge than others and that provides opportunities, we want to continue to invest in our downstream businesses to improve our channel, we were looking at additional upstream opportunities to invest in. So I mean we are in a great cash position, this is again one of those cases we’re having a strong, a very strong balance sheet, it gives us opportunities to continue to build upon five drivers of profitable growth and we’ve got a lot of opportunities out there. Now one thing that I would tell you that we will look at every area that we invest and that is value added investments, investments that are going to improve the value added we think that is the higher we move up the value chain, the higher the margin and the more sustainable the business. So the investments that you see as may going forward will all up be in the area of improving our value proposition by providing higher value products to value appreciative customers willing to pay for that higher value and what we will be focusing on.

And the next question will come from Curtis Woodworth of Credit Suisse.

So I’m going to drill down into the rebar market as well, it has been some are perplexing from my perspective this year and that metal spreads seemingly continue to trend lower, you have the Turkish terror, it seems like all the excess inventory in the calls has been absorbed and that is pretty close, I think Turkey is selling at 525, 530 metrics which as I think about what the price is on a landed basis in the U.S. around like 555, 560. Can you comment on how you see this market sort of evolving into next year and then I know you've been in Washington. It seems like from sitting [indiscernible] John with respect to 232, do you think that from your discussions recently you said this is asset 232 is still going to happen and do you see rebar playing into that? Thank you.

Let me start and you can add on. Basically your question is if I’m hearing it correctly is look there is a lot of things that’s evenly changing in the marketplace but still the margins on rebar and pricing continues to drip down. But I think you have to consider is what happened at the beginning part of the year is surge of inflows that came into this. Still a month where we saw a 30% of the market share is slightly higher and 30% of market share going to inflows on rebar. So there is a little bit of a lag in the effects, so we are still seeing some of the negative consequences or the negative impacts, the adverse impact of that surge of imports that was totally out of control beginning of the year and yes with one trade cases, I find that we didn’t get the kind of remedies that we felt we are justifying given the surge and we’re going back in Washington as you noted, we’re going to continue to fight and we’re going to continue to win cases and continuing to appeal on that, we don't get the right outcomes. So I mean it’s really the story of the rebar in the United States this year is all about we summed up in single word and that is or two words illegally traded imports against that, illegally trade imports and the need to stop them and get the same, get the situation on the control. And I’m confident again that given the actions that we’re taking in Washington we will see those positive results. Dave, do you want to add anything to this?

Just demand is decent, I mean you really hit it. You illegally traded in ports or the thing that really hit us at the beginning to hear those record levels of imports. We’re working away through that import level is down about 21% now, since we have got the - now we’re starting to see rebar coming from other areas besides Turkey. But it’s down we feel with demand is decent and we look forward.

I guess on the brighter side we look forward going into the end of the fourth quarter, end of the year and into next year because of the decrease in imports now it’s going to take a while for that surge to work its way through the system no doubt about that. But we will continue to see and we believe we will continue to see imports will lower and that excess demand has been holding steady and possibly maybe improving a little bit again if we see that infrastructure build and other things that are happening, some of the results frankly said it was the devastation from the hurricanes that might though result in a little bit more demand on rebars like we build parts of areas devastated. So all said we think it will pick up a little bit and we love to continue to keep the imports down, you asked a question about 232, so I think so I can take just a minute of your time and I will share with you my thought, you summed it up well. I said this many time, I’m getting a little concerned about the length of time and taking for this to be implemented and I’m concerned about the surge of illegally traded imports that are coming in as a result of the delays. With that said, I’m still confident that President Trump will fulfill his commitments to our industry and that we will see 232 hopefully early part of next year absolutely may be there will be a nice Christmas gift to the industry and we will see at the end of this year. But certainly needed and it has been, we have a commitment to get it and I think as you look at some of the things that are happening even outside of our industry, for example with the Whirlpool 201, which is a different action of course but still points to severity of the imports and the type of holistic remedies that can be offered by Washington and we’re counting on getting one from the steel industry.

And we'll take our next question from Novid Rassouli, Cowen and Company.

Just to stay on imports for another minute. So are you guys surprise to see imports I guess as high they are given the import arm is pretty much non-existent now and when do you expect imports to return back to a more normalized level as a percentage of the U.S. market?

We're not surprised at all at this surge not at all, and the reason is that we see all of the countries and companies that are looking to beat because they know they’ll be some form of trade relief. They’re looking to get every product, every time in that they get in before we either go to the 232 or we continue to win these trade cases that we’re winning. Whether we get 232 or not, we're going to continue to prosecute trade cases with the same vigor that we have over the last 12 to 18 months. And I’m confident we’re going to continue to see the types of wins that we’re seeing. And apparently saw these countries that are breaking our lots because there is only everything that can to get their product in here before that goes into effect. So I’m not surprised to see this surge, I think it’s a direct result of commitment that was made by President early in the year a belief that he was going to go into a Fed sometime in the June time period as was indicated. And with every month that passes that doesn’t go into affect always say it’s continued so to get their product and before something goes into effect. Now the one thing that we’ve been talking of lately in Washington and certainly I have been sharing with the administration is our belief that this should be vocal about the about the fact that these - any results of 232 should be applied eventual actively to the time period when the President made his first commitment back in the early part of the spring of this year. We think that frankly is the right thing to do, but also we believe that if he were – or the administration were to make that kind of commitment it, would put an immediate end to the search and therefore we would not see the damage occurring to the industry who love the administration and took the time it needed to complete the study of the 232. So that’s something I want to mention because that’s something we’ve been pushing very hard in Washington I don't know if we’ll get it but we’re pushing it very hard with the administration.

And John that will be some essentially like critical circumstance on the AD/CVD duty side I think those are the rules for critical circumstance?

It would be exactly the rules for critical.

I probably should have said easier about just saying we want the same rules applied to 232 that do exist for critical circumstances. And I got to tell you this is critical circumstances, I mean you even the G-20 has come out and they called the crisis in steel today a crisis, okay that needs immediate action that’s the G-20. And the OECD that’s made a very similar comment and I’ll just point out this is that the United States are suffering through this surge and results follow the capacity in China. It’s Europe and Europe is quietly quickly taking action then we are then moving much quicker on to get relief for their steel industry, as well as other regions. India just recently a few months ago put tariffs on all of the Chinese products that come into the country so it’s a global problem other regions are reacting much quicker than the United States sadly which means that we remain the market that they can get in to while our government is dealing more slowly with the issues that other government have dealt with more quickly.

If you don’t mind one quick follow-up, so switching to pricing we've been seeing HRC prices weakening recently, I would assume that you said your primarily due to this high-level imports can you just walk us through kind of fundamental drivers and what you're seeing from your seat as to why maybe why the market will accept and enable the recent price hikes to stick? Thanks John.

I’m assuming you’re talking about price hikes on sheet products and…

Yes correct.

We watch demand curve very carefully here and we believe that we’ve seen it bottom out. A couple of things that are coming into effect here we see the imports on HRC been drifting down while demand remains constant to drifting up a little bit. So at the end of the day it's always about supply and demand and then we see the market picking up or entry over the last two weeks we’ve seen increased significantly. We feel good about the demand level going into the fourth quarter and particularly into 2008. One area that I would mention in particular is in the oil and gas, that whole market as the energy market has improved much more quickly than we expected to and that’s a particularly strong dynamic for Nucor as to our acquisition of Gallatin we serve that market very heavily. So with oil and gas picking up a little bit imports are down a little bit although automotive has kind of slowdown a little bit, we expect that to slightly pickup again as a result of some of the sadness associated with the hurricanes coming both in Florida and in Texas. We do estimates of anywhere from 700, 1000, to 1 million vehicles that are going to need to be replaced. The one last point that I would make is we didn’t touch upon it too much but in relation to the automotive market picking up Nucor participation in that market and the grades that we continue to develop and offer to that market I feel confident it’s going to help our sheet business. And final point would be that when you look at the MSCDI inventories to sheet products, they have been drifting down in a fairly low level now which we again believe bodes well for fourth quarter and first quarter next year.

And we’ll take our next question from Phil Gibbs, KeyBanc Capital Markets.

I just have a clarification on the micro mill investments, you mentioned Illinois and Ohio is targeted regions for expansion. Are we talking about both…?

We talked about those two states as areas where we look to invest to expand our merchant products. We talked about other states five or six other states that we're looking at for the rebar though Ohio and Illinois we’re looking at as potential areas to invest, to expand on merchant product offerings.

So we would be looking at new capacity than in both merchants and rebar if I’m hearing you correctly.

You're definitely correct.

And would you expect us to display other capacity within your system or is this a thought whereby you want to grow production?

We want to grow production, now having said as we have a complete plan that place those tip, that takes into account all of our facilities there’ll be some rearranging of markets, they’ll be some plants where we shipped product as a result of this new capacity and rebar. We’ve taken a holistic view of this. We've done a study of all of our merchant and our rebar decisions and how we led our markets and I don’t want to get too many details out here and I am going to. But yes, this is really a function of more fully utilizing our melt in each of our areas and better matching the product offerings in each region to the markets in that region. And as we shift things around, we’ll be taking - we mentioned the word logistics several times here today because we kind of done a study and taken a hard look at how do we match our product offerings to the market that the - from a geographical perspective in which they are located and how can we rearrange that offering optimize on this or minimize on logistical costs. And at the end of the day we said this how many times, Nucor continues to be the low-cost producer in merchant and rebar and frankly in all of products and we continue to drive that cost lower and lower at the end of the day specially in the world with excess capacity, the low cost producer is going to be the winner and here the Nucor believe and continues improve of the continuously look for ways to drive that cost even lower. This is an example of it. The team has a got a great data. The long product group has done a great job at making a detailed market study and now we’re going to be implementing the changes that result in that study.

And most of the micro mill investments we've seen have been around I want to say between 300 and 400,000 tons, should that be what we’re thinking about right…

Yes in that neighbor, we’re not going to give out any specifics at this point but yes in that neighborhood, it would be fair to make that comment.

And if I could ask a second here just maybe it’s a good segue in both merchant bar and beam but a few weeks ago Nucor had severely cut list prices into the fourth quarter I was just thinking about what the rationale was behind that from a timing standpoint. And should we think there is going to be a little bit of pressure on pricing in fourth quarter? Thanks.

I can answer it very simply. The rationale behind it was the fact that our book prices have been targeted by our competitors who offer discounts off of our book price and our book price was becoming not relevant to the market. And so we got it and make it more relevant to the market and as a result of it becoming a little bit less relevant to the market, we lost the market share in the third quarter. And that’s greatly upset me okay, and I could tell you the instructions to the team going forward is that we were going to launch discount off our market price - our full price, excuse me. But I watch discounting offer our book price much more closely and react any discounting off our book price much more quickly as we move forward. So that we always have a relevant book price so that pertains to beams, merchant and rebar. Did that answer your question?

Yes, you confirm my suspicion I thought you were unhappy with something and I was right okay.

Okay, while your suspicion was correct.

And ladies and gentlemen, this concludes the question-and-answer session. I would like to turn the call back over to Mr. Ferriola for closing remarks.

Thank you. Let me close by as I usually do by saying thank you. Saying thank you to our shareholder, we appreciate your confidence and your support. Thank you to our customers. We appreciate the opportunity to earn your business every day and we will continue to work hard to earn this business every day. And I also want to say thanks to my Nucor teammates for creating value for our customers, generating attractive returns for our shareholders, and building a stronger future for all of us and our families. And most importantly, thank you all for doing it safely. Thank for your interest in our company. Have a great day.

And ladies and gentlemen, this does conclude today’s conference. We thank you for your participation. You may not disconnect.