Steel Dynamics, Inc. (STLD) Q4 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the Steel Dynamics Fourth Quarter and Fiscal Year 2013 Financial Results Review Conference Call. [Operator Instructions] Please be advised that this call is being recorded today, January 28, 2014, and your participation implies consent to our recording this call. If you do not agree to these terms, simply disconnect. At this time, I would like to turn the conference over to Marlene Owen, Director, Investor Relations. Please go ahead.

Thank you, Rob. Good morning, everyone, and welcome to Steel Dynamics Fourth Quarter and Fiscal Year 2013 Financial Results Conference Call. As a reminder, today's call is being recorded and will be available on the company's website for replay later today. Leading today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and Theresa Wagler, Executive Vice President and Chief Financial Officer. We also have the company's operating platform leaders, including Dick Teets, President and Chief Operating Officer for our Steel Operations; Russ Rinn, President and Chief Operating Officer for our Metals Recycling Operations; and Chris Graham, Vice President, Steel Dynamics and President of our Fabrication Operations. Please be advised that certain comments made today may involve forward-looking statements that, by their nature, are predictive. These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Such statements, however, speak only as of this date, today, January 28, 2014, and involve risks and uncertainties related to our metals business or to general business and economic conditions which may cause actual results to turn out differently. More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics website and our form 10-K annual report under the captions Forward-looking Statements and Risk Factors or as applicable in subsequently filed form 10-Q filed with the Securities and Exchange Commission. For opening remarks, I'm pleased to turn the call over to Mark.

Super. Thanks, Marlene. Good morning, everyone, and happy new year. Hopefully everyone is all warmer than we are. We're suffering a little Arctic freeze today. But thanks for joining us on today's call. We value your time and look forward to sharing our view of the steel industry and some of the opportunities that lay ahead for SDI. But to begin, I'll turn the call over to Theresa for brief comments regarding our recent financial results.

Thank you, Mark. Good morning, everyone. Happy new year. For the full year of 2013, we reported net income of $189 million or $0.83 per diluted share. This compares to net income of $164 million or $0.73 per diluted share for the full year of 2012. Last year benefited from our 2012 and early 2013 refinancing activities and debt reduction. This resulted in decreased annual interest expense of $31 million. As a result, our pretax earnings improved 29% for 2013. However, metal margins remained a challenge in the year as average product pricing decreased to a greater extent than raw material prices. So despite record steel volumes, 2013 consolidated net sales of $7.4 billion and operating income of $387 million were very similar to full year results for 2012. For 2013, operating income from our steel operations, they improved slightly on record volumes. Excluding the impact of noncash unrealized hedging activities, our metals recycling operations also had very similar operating results. They recorded $68 million on an adjusted basis for 2013 compared to adjusted 2012 results of $69 million, only a $1 million difference. Our fabrication operations continue to provide positive signs of continued growth in the non-res construction market. 2013 shipments of 360,000 tons represent a 24% improvement over 2012. Operating income for 2013 was $7 million. This is more than 3x the results for 2012. Pretax income of 1 -- excuse me, pretax income of $827,000 for 2013 represents the first full year of profitability since the 2008 economic downturn. Changing to fourth quarter results. For 2013, we had net income of $55 million or $0.24 per diluted share. This was at the upper range of our earnings guidance of between $0.21 and $0.25. For comparison purposes, 2012 results did include certain items. They're related to refinancing efforts,…

Super. Thanks, Theresa. Well, I will begin with safety. It's the highest priority for me, the management team and hopefully each of our employees. And simply stated, yet not so easily achieved perhaps, is our goal is for all SDI employees to work each day accident-free, and we continue to make progress toward that goal. Roughly 91 of our 126 locations were accident-free during the fourth quarter. My personal thank you to each of our employees for their efforts to work safely each day. Our performance continues to be better than industry averages, and our performance continues to improve. But we can certainly do better. As I said, our goal is simple, 0 incidents. With continued focus, I look forward to more improvement in 2014. Directing our focus to the broader economy, things in the U.S. continue to improve, albeit not as quickly as we would like and not without caution as recent concerns about China's economy and global central bank's stimulus has certainly led to considerable volatility in the financial markets of late. It's interesting, the recent market correction seemingly is totally independent of what we see on our SDI radar screen. That being said, consumer confidence in the U.S. economy and labor market did show signs of improvement after news of the passage of the U.S. budget bill was released. Third quarter real GDP increased at a rate of 4.1%, meaningfully higher than the original estimate of 2.8%. Growth of about 3% is projected for the U.S. in 2014, with more strength in the second half of the year. However, the rate of growth needs to be stronger to support sustainable economic momentum. Positively, I believe there's more optimism regarding the non-service sector portion of GDP. It has the potential to grow at a higher rate, especially over…

[Operator Instructions] Our first question comes from Dave Katz of JPMorgan. David Adam Katz - JP Morgan Chase & Co, Research Division: I heard you say that CapEx for the year was going to be $125 million to $150 million with $30 million of that representing CapEx carryover, which puts you at about, if you exclude the carryover, at about $110 million for the year, which I think would be your lowest level since 2005. I know historically you guys have favored growth and was curious if you think that there's a chance that, that number would creep up during the year. If so, what's the possible growth opportunities you see out there are? And then if not, how that ties back to your longer-term net leverage target of returns because it would put you, I believe, substantially beneath that at the end of the year?

Well, I think to your point, we are committed to growth, and we continue to evaluate organic opportunities as well as growth opportunities that will leverage our core strengths. And our focus, certainly, is on bringing in all of the quality margin, quality returns. As we assess those opportunities and if they are concluded to move forward, then yes, there's a possibility that the CapEx will creep up.

Dave, that number just includes items that are approved to date. And so as we go through the year, Mark and Dick and the team never are without project ideas, so we'll update that number as we can. David Adam Katz - JP Morgan Chase & Co, Research Division: Okay. And then just for clarification, given that it's where you're today historically when you look back on a rough basis, how does where you enter the year compare to where you exit?

Typically, you would see that we've spent more than what we project at the beginning of the year, but it's because of individual projects that, as I mentioned earlier, are approved as we proceed through the year.

The next question is from the line of Sal Tharani of Goldman Sachs.

I wanted to ask you 2 questions. First, on the non-res side, you had commented that joist was up 14%. Is that your sales? Or is that just the industry sales?

For the year, the domestic joist industry was up shipments-wise, 14%; bookings-wise, around 17%.

Okay. So where does this -- what area of non-res does the joist end up in?

What area does joist end up in for non-residential projects?

Well, in the first half of '13, there was a lot of big box. We're seeing the Amazon distributions, the Family Dollars, the big distribution centers. We've not seen as many of those in the second half of '13. The good news is that activity was sustained at levels that were near the first half of the year with the big boxes in it. So there's been the regular type work filling the void left by the big boxes, which we see as a sign of an improving -- a truly improving landscape.

I think Chris and the team have done a phenomenal job. During the year, they have increased market share. Obviously, we restarted over the last 18 months or so the 3 CMC facilities in Hope, Fallon and Juarez, and those folks are kicking in and fired up and passionate. But that gave us a geographic footprint to certainly garner some of those big box accounts, also warmer -- I think is warming up to us quite nicely.

Okay. Mark, I want to ask you about Mesabi Nugget also. I mean it's been -- last 2 years we've been talking about that the last year we said that it will be the last year of losses. We said the same thing in 2012. I was just wondering what is your commitment to this project if it continues to be that way? And is there any light at the end of the tunnel or anything else you could do strategically to -- before this project? I mean, maybe it is not worthwhile pursuing, have you ever thought about that?

Well, we -- Sal, we look at all our operations as to whether or not or whether the financial viability is, not just Mesabi Nugget. But I think as we've communicated previously, over 1 year or so, 1.5 years ago, we put a plan in place and the intent was to bring that facility to kind of a breakeven point anyway at the end of last year. We did not achieve that. We did achieve the plan to get to 30,000 or confirm its ability to get to a 30,000-ton per month production rate and to get plant availability up over the required 85%, 87%. So that was achieved. And the iron constraint recovery and Mining Resources have certainly been achieved, and they've achieved production cost under $50 a ton as planned. As we also said, the issue has been once we got to the higher operating rates, we have a high appliance generation, and that is offset and I mean, they reduce yield and that has offset that attractive iron constraint cost considerably. And we've been focused on 2 main issues. That was hampered a little bit in November, December. The weather up there has been absolutely brutal. It's been in the minus double digits for, I don't know, the longest time, so it slowed our activities down by 1 month or so. But the focus is on the fines reduction and also the replacement of our reductant coal by lower-cost carbon sources such as char. There's been an immense learning curve over the last 3 months. We've identified several advancements that could have a material impact. And as I said earlier, once complete, we should be by the end of the quarter and no later than that, we will assess the commercial viability of the project against future projections of raw material markets and assess our next steps. I'd say the intent, Sal, as I said in the past for Mesabi Nugget not to be a prolonged anchor or source of losses.

The next question is from the line of Michelle Applebaum of Michelle Applebaum Research.

I wanted to look out at the competitive terrain. Pricing has been doing much better the last 6 months, and The Wall Street Journal carried a fairly strongly opinionated article about a surge of imports coming in, in the early part of the year, and I was just curious to know your view on a, whether that's true; and b, are there fundamental changes now in the U.S. market with the closure of RG Steel that was getting a lot of headlines and the Thyssen sale and all that stuff? Can you comment on that?

I will, Michelle. But I think the second half of '13, sheet pricing certainly appreciated, and there was some supply disruptions and there certainly was raw material pricing support as scrap moved up in the last couple months of the year. But I think the underlying appreciation was driven by demand. It's a little difficult to determine current market direction, I would suggest. Some would say that it's turned slightly. But given the way the holidays fell, given the incredibly bad weather, I think the market's only just getting back to work, really. And it's hard to say whether or not there is a material change in direction. As I said earlier though, the overall sentiment certainly -- market sentiment certainly doesn't correlate with what we have on our radar screen.

What does that mean?

Well, I think it's...

You mean the negativity, right?

Yes. If you look at the negativity and the volatility of Wall Street here the last week or 2, we certainly don't see it in our business and in our order book. And moving forward, we remain very, very, very optimistic. We had a solid fourth quarter, and we have a positive view going into '14 and '15. Just generally, and I'll let Dick and Russ comment on -- in detail on their areas, but just generally, steel consuming non-service center portion of the GDP should exceed that projected 3%. So there's going to be, I think, growth. And you've got companies with strong cash positions. That, with a low-interest-rate environment, should promote fixed asset investment. You have shale gas expansion; that should fuel widespread economic growth, I think, over the long haul. We have in this country a need for infrastructure replacement and build. And you have a little bit of re-shoring and manufacturing coming on. Unfortunately, that's overshadowed right now by uncertainty and the strengthening or the potential strength for growth of the global economies and will certainly be unhampered by the global supply demand balance. Supply, obviously, outstrips current demand. But again, looking at the markets in general, although we believe, as others do, that we'll remain strong, manufacturing is robust, seemingly growing. We feel that hot-rolled coil demand should strengthen with the energy market pipe and tube demand. It's contingent probably on a reasonable level of imports, but it's quite likely that hot-rolled coil will become tight in perhaps 2015. That will allow the supply and demand to coming back, at least come domestically in North America, and get back into balance with an associated potential for margin expansion. Residential construction should continue to grow this year with all the pent-up demand for houses and reduction…

Well, I think the only thing I can add to all that was the fact that Pittsboro is actually going back to full production. We've been on a reduced melting rate for quite a few months, but February will be our first month back to full 24/7 melt. We've been mostly on reduced melt Monday through Friday during the peak hours because the order book didn't support it. But we're expecting to continue that in February, and March is filling up. As you said, our backlog is our strongest it's been in over 2 years. And then the other thing you didn't touch on is Steel of West Virginia has a very steady and full book. And as much as Roanoke isn't seeing a great margin, they've been -- they had record shipments, and so their book remains full. The merchant bars and rebars are not the strongest sales pricing perspective, but it's a good volume. So we're thinking it's -- things have returned and they continue to, so I support everything you've been saying.

That sounds great. Always good to hear very candid views from you, guys.

Well, that's all you get from us, Michelle. And you also mentioned RG, I do believe that the domestic market has improved from a capacity standpoint. RG, depending on how you calculated the number of tons, you could say 8 million tons came into the market, but most of that hasn't really been in the market for the last couple of years, 3 years. But there's a good 3 million or 4 million tons or thereabouts.

And then I'll throw one more item in. Again, I'm very proud of the fact that just about every one of our divisions has brought new products on line. I can go down through and list them. But the one I'm very proud of is The Techs. We've developed the Galfan product and already year-to-date, we ran -- we haven't run 5,000 tons in January, but just about. And last year, we ran just -- just less than 6,000 tons of Galfan, and that was an expansion over 2,000 tons a year before. And so our sales efforts have been multiplying. And so we're very excited about the efforts that The Techs and the Flat Roll team have been putting into marketing that product and where we think that can take us. So there's things there that are real good at all of our divisions.

Our next question is from the line of Curt Woodworth of Nomura.

Despite some of the positive growth just seen in demand and the growth in the backlogs, you also commented that you saw deterioration in the metal spreads in the long product market. It seemed like beam pricing, especially, was difficult to get traction with last quarter. So I guess the question is, what is preventing the pricing from following the scrap move up on the long product side? And do you guys see spreads improving end of the first quarter?

Well, I think the opportunity for scrap move, and Russ can jump in, but the scrap market is likely to be sideways to down, more likely down, even though we've got some frigid weather that is probably hampering the flow of scrap. If you look at the export market, the Turkish currency valuation weakening. There's very, very little export interest right now, and that has seemingly pushed pricing up or down over the last year or 2. So with a decrease in scrap environment, we would anticipate a potential for margin expansion, yes. But, Russ?

Well, I think certainly, the pressure is downward on the scrap market here at least in the first quarter. I think it will take Turks probably the first quarter or so to get their balance figured out as what they're going to do. And that step, well, it certainly has a big impact. But I think you said it well, Mark. I think the pressure -- the obvious pressure downward may be mitigated somewhat by the weather conditions. They're [indiscernible] slow, but again, I think there's -- once the weather warms up, there's ample supply of scrap.

Okay. And the second question on working capital, usage was pretty big this year and part of it was trying to get ahead of I guess the scrap price increase this quarter. Do you guys feel like you can reverse part of that usage this year? And how much potentially do you think you could get out of the working cap?

Yes, the movement in the fourth quarter was fairly dramatic in inventory, and that was really specific to us trying to position ourselves for the first quarter. So that, given the fact that scrap pricing will be coming down, that's going to reverse itself pretty quickly in the first half of the year. So there is potential for working capital to bring back quite a bit of funding during the year, maybe in the tune of somewhere between $50 million and $75 million. But that all depends again on what the second half of the year looks like as well.

The next question comes from the line of Brett Levy of Jefferies.

Guys, can you talk about your order book in terms of like the beam and rail business, all the different parts of the sheet business, The Techs? I mean, talk about the order book. Is it getting stronger or weaker? A little bit of color just by product area.

Well, I don't know what kind of color you want. We have our strong -- I can -- I'll talk in strength or weak Butler has a -- has our Flat-rolled bookings out into -- hot-band is February, of course, cold-rolled and galvanized and paint is March is what we would expect. There's few holes that are being filled, but we're not crashing and burning by any strength because we see it improving. We see the strengthening as Mark was referring to occurring. A little bit of pricing pressure because of imports was referred to by Mark earlier, but it's stable. Beams, we have one of our biggest backlog in beams and we've had since 2007 or so. Rail, again, it's a developing market by us. You can see it's a continuation of our record shipments. It's -- without saying a number, it's -- it continues. And it's being influenced by our desire to start anxiously making shipments head-hardened product but, we haven't made a firm commitment. We've been getting orders that have open-ended opportunities to ship either the head-hardened or standard rail, whichever is available. We appreciate that flexibility that some of our customers have given us, but they are supporting us in that -- in our development attempts. I already referred to, as Mark did, Barry's backlog down in Pittsboro of being the best it's been in 22, 24 months, and developing our opportunity to run full. And again, the toughest one is Roanoke, again, record shipments. That's toughest only because of margin and most -- and a lot of it's because of unfairly traded Rebar products that are being challenged in the trade cases and so forth, and hopefully, we'll have a positive resolution there by the industry. But I don't know how you want it referred to, but that's strengthening all the way around, very positive, and The Techs have been challenged because of all of the galvanized products on the East Coast and so forth. But we're not standing still, and they're pursuing other markets. And I think everything is fine from that perspective.

All right. And then in terms of how that translates into pricing power? Or just generally, does it feel like all of the gains that you've picked up since June could hang on?

Well. I think the unknown is, obviously, the import. If you just forgot about the import scenario, again, on our radar screen, we're strong right across our universe. The one headwind for our industry, for us and our industry, is the import sort of spec so to speak. The global pricing on bands today exceeds the 150 that I've talked in the past about being kind of a hurdle that starts to attract import interest by our customers. And hence, we are probably going to see a little bit of a spike in imports coming up. Don't necessarily think it's going to be a wave or diluters that's going to dramatically impact our market. It's just creating a headwind for us.

And so the question really is, is it going to create a pricing route or a pricing adjustment or stability?

I think, generally, it's just going to set a ceiling or just compress our ability to increase and expand margins dramatically.

Our next question is from the line of Brian Yu of Citigroup.

My first question is at Mesabi, I know you guys have that Magnetation product that you're producing. If I recall correctly, there's about 1 million tons of capacity. Can you give us some insight in where that's running at? And if it's producing extra product, is it being sold to third parties? And say you do, and I'm not saying you will, but just scenario, you do shut down Mesabi, is there -- would you become a merchant supplier of iron ore concentrates?

The plant, you ask where is it running right now? I would tell you the minus 45 degrees, whatever they're seeing, slowing down just a heartbeat. So I can't, generally, say they're producing at 1 million tons right this second, but they have that ability without any doubt. And the cost structure is as we represented. There obviously is an opportunity to sell that concentrate out elsewhere. In fact, as you probably know, that asset is a joint venture with Larry Lehtinen's Magnetation. So they're taking about 20% of its volume and disposing it into third parties already. And given economics, you've got to consider world market, the constraint is, you got to consider freight. Obviously, there's ability, if it makes financial sense, to sell that to third parties.

But we currently aren't doing that.

But, yes. But we're consuming our own.

Okay. Got it. And then second one is, just on scrap, you've been anecdotally hearing about movements of scrap from the East Coast to the Midwest, and you've given differentials of, say, $80 to $90. Are you guys seeing that in your business? Is that something that you're doing?

No, I think certainly, we are seeing that, again, is that the scrap piles up on the coast, it is not being exported. It's going to find a home. And so we are seeing that move from the coast inland, some of it has come all the way into the Midwest, and in some cases, we have purchased some of that for our steel mills.

The next question is from the line of Luke Folta of Jefferies.

I guess, first question, did I hear you say that structural beam backlogs are as high as they've been since 2007? And just to clarify, are you talking Columbia City as a whole, including rail, or just the beams?

Well, the backlog I was referring to is a combination of both. If I separated them out, I'd still tell you that the -- well, that's a close one. Since I've been gone from the beam business over there, primarily since 2006, it probably is the same as about then, when we were running so well. But when you add the rail to it, and they have a little bit of an advantage, they have a second beam mill over there that we're adding products to and so forth. But it's similar, so I'd tell you that the beam business is the same, so it's coming back, substantially, because they have a wider product range. I'm not telling you that the construction world is the same as it was in 2006 and '07. Don't take that as a -- because we're doing more OEM business and attacking other product opportunities. But the volume coming out of that mill, they beat the total volume that we shipped over the year by a couple thousand tons. That included some rail of 200,000 tons granite, and their challenge for this year is the -- without the rail beat the tons of beams, and then, add rail to it. So that's exciting from a Columbia City perspective. So I don't know if I answered your question, but the backlog is in total tons is higher than it's been in years.

I get it. That helps. And then just secondly, with the reduced CapEx guidance and the potential for working capital to be a source of cash this year, it looks like you're setting up to have a pretty decent free cash flow year for '14. And I just wanted to kind of dig in more on your opportunities for growth. Can you first talk about growth? The tradeoff between growth and share buybacks, is that something you even consider at this point? And also, can you give us some sense of what the major areas of growth that you're looking into? Is it mostly on the steel side, upstream? Anything you can say, that would be helpful.

Well, I agree that we will -- we continue to sustain a very robust strong cash flow even in these tough times. I think from the standpoint of where do we deploy that cash, stock repurchase is not -- is something that we frequently assess as we do all of the different avenues of disposal of cash, but it's not preferential for us. We feel we can deliver much greater value by deploying those -- that cash elsewhere today. As you saw last year, we raised our dividend 10%. We don't intend to be a dividend stock, necessarily. We're still a growth company, so we would like to see a sort of a positive profile of our dividend going forward. You have also seen, as Theresa mentioned earlier, we refinanced here over the last 18 months. And if you look at our balance sheet, all the changes there too since 2011, we've had a positive impact of about $45 million of interest and stretched out on maturities, so we're looking very, very good there. We have brought our net debt down to -- to under our target, under 3x. I think we ended up the year at 2.6x. So we're following our sort of advertisement there. We continue to look at organic opportunities, and we've identified a few, but are not in a position, nor do we want to discuss them. We tend not to want to speculate, Luke. You're going to know -- when we decide to do something, then you'll know. But there are some smaller, incremental organic opportunities for us, certainly on the steel side. We're looking for growth opportunities outside of that, as we have always done in the past, with a focus on leveraging our core strengths. If you look at our different platforms, scrap,…

If I could add just one more quick one on SBQ. Can you give us some sense of just a time line of how you expect that new capacity to ramp-up and give us some sense of where you are in terms of customer qualifications and things like that?

Dick, do you want to...

At the SBQ facility, perhaps as we've been going along, we've been identifying the customers that will be -- come -- taking us along with them. We've been cultivating that business, and so we're very comfortable with the expansion into the smaller borrower arena with our existing customers, with new customers and the products that will be required to start filling that out. So we're prepared, we're comfortable with the expansion, even in light of other expansions going on in the marketplace. So we're excited.

Yes. I'll just add, Dick and Barry [ph] and the team there have done a phenomenal job, I do believe, over the last 3, 4 years, building customer confidence. The focus is toward the higher end range of the quality range of SBQ, not just typical 1 inch, 10-18 bar, but in the highly alloy, highly customized grades. And given the quality they've achieved, and given as importantly, I think, just the timeliness of on-time delivery, I think, we are getting sort of a preferential sort of market exposure there.

And I think there were -- it has to be -- remain on the radar screen is that we're not new to the small bar business. We've always had the capability of making small bars. We just elected not to. We have a small bar mill there, but it wasn't real desirable because the amount of reduction we had to take and the amount of effort that slowed us down, and there was a -- it was a better economic decision from a bottom line perspective to pursue larger bars. So it's not like we're entering into an arena that we haven't gone to or danced in the dance. So we have been there to the tune of over 125,000 tons a year, and so when we're talking of going to 325,000 tons, it's an expansion, not a new one for us.

Our next question is from the line of Tim Tanners of Bank of America.

Just wanted to -- a lot of questions have been answered, and I appreciate all the details. I guess I just wanted to ask you if you can help us understand how you may have changed the discussions there or characterize the discussions you had with flat-rolled buyers starting this year relative to how you've done it in the past, if you made any changes, or how those dialogues have changed.

I guess, I don't know where you're leading us, Timna. But I don't believe there's been any material change.

[indiscernible]

We never -- a part of our industry ventured into sort of CRU minus type contract arrangements. That's something that we never did. We based some of our contracts on CRU as the indication of where the market is, but not on a discount basis of any great nature. But I think we're business as usual.

Do you want to amplify your question a little, Timna?

Yes, of course, sorry. I was just asking because so many buyers have told us that mills changed their attitude at the start of the year and I didn't know if you were in the same category with the CRU discount changes, to rebates, to being a little bit more stringent about how you price your contracts or just -- or how you price steel, in general. So just wondering how you might have changed into the new year.

Again, we're not monstrously big on contracts and so forth. We are -- it's an evolving business, and we have to react as our competitors do. But we're not -- we haven't changed our philosophy, and we haven't changed the way we take our product to market. And so we might be one of the ones who have changed the least is, I guess, the way I'd analyze our changes if there were really anything of significance.

Okay, super. And the only other question I had was, we're getting a lot of investors starting to question this non-res recovery, and it seems like it still should be there and we have faith, but it seems like quarter-after-quarter, we say it's coming, and quarter-after-quarter there hasn't been that much evidence. So can you characterize without repeating, sorry, a lot of what you said, can you characterize any reason why it's different and why this -- you have really have more conviction and it's happening now versus over the last several quarters?

Well, I think despite our -- I can't talk for our competitors, but we -- albeit off a low base and albeit gradual, we're continuing to see increased beam orders and we're continuing to see greater market share and greater volumes in joist. So I -- Timna, I don't see there being any hockey stick here where it's just going to take off, but we're just committed to our -- sustain our view that we're making, at least SDI, incremental progress in that arena. And I guess one -- I guess this is not very scientific, but as I travel around the country, I really do see more cranes in the air. There are more buildings going up, which correlates to what we see in our order book, I guess.

Mark, I would add that the fact remains that from a low of 400,000 tons of joist sold in the country just 3 or 4 years ago, '14 looks like it's going to be over 800,000 tons. So I think one can argue about the hockey stick shape. But so far, we continue to see that type of slow, steady improvement.

Our next question comes from the line of Michael Gambardella with JPMorgan. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: My question on the sheet market. I think you guy, and the mini mills account for about 1/3 of the supply of sheet, and import's somewhere around 15% or so. So you and imports are about 1/2 of the supply of the sheet market in the U.S. And just mentioning what you mentioned earlier that you expect scrap prices to fall going into the early part of the year now, that means your costs are coming down, and you also mentioned that import's kind of thinking that they would be about $150 premium over U.S. prices, and now they're a little over $200 premium over U.S. prices, at least in China anyway. I would think you have the ability to take some share on the sheet side, particularly the hot-rolled side, given you have some capabilities that are left out there unused. I'm kind of surprised that your order book is only going out of weeks. You said February, we're almost in February. Isn't this a great opportunity for you guys, given your variable cost structure, to get some -- take some share right now?

Well, I think, Mike, the team up there has done a remarkable job in this challenging environment, pretty well, keeping the mill full. The -- our sort of lead times, or whatever, typically are not much more than 4 weeks anyway, particularly in hot-band. We, obviously, finished product through painted tend to stretch out maybe 6 weeks or so. But we intentionally keep a short order book to capitalize on any market inflection. So I don't believe -- Dick, jump in. I don't think we're concerned about hot-band being 2, 3 weeks out right now.

Yes, I apologize, if I -- by saying February, recognizing it's the 28th of the month or so. I wasn't thinking of it in that manner. I was thinking it's the end of -- we're sold basically through the end of February, and I wasn't trying to imply the first or second week. No, we're solid. We're very comfortable where we are, believing that we've sold at good prices. We're okay. We will run full, and that's where we like to be. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: So you have no capability to pick up share on the sheet side on the -- in the marketplace at this point?

Well, we're booked. I mean, we run full. Last year, we had very few days where we ran just a single caster. That's our indication that we had capacity left on the table. And if we had 10 days in a year, that -- then we look at how we can minimize those days, when we talk internally. Did we sell enough to New Millennium? Did we sell enough to The Techs? And the answer should be is, probably, no, in both of cases. Should we -- now that we have a leveling line -- that's what actually justified our leveling line because we felt we can make a higher quality product and take it to the market where we have customers who buy other products from us but were not buying as much light gauge from us because we were not delivering what they can perceive as high enough quality on the first 100 feet of our very light gauge products, and now we're leveling into the tune of 15,000 tons, 30,000 tons a month type of thing. And so we're excited about that, hopefully, filling up those few days of a single caster operation. So SDI, Butler, the Hot Mill is full. Now it's a matter of maximizing, as we always try to do. The value added is to benefit the bottom line and how can we always move product through there on a monthly basis to figure out can we get any more revenues from painted, Galvalume painted, cold-rolled painted, just pure cold galv, whatever the mix can be, based on gauge and ultimately resulting tonnage.

I think, Mike, obviously, if you look over a little bit of time, Butler has picked up quite reasonably because that mill, not so long ago, was only 2.4 million tons. The team out there has gone from 2.4 million tons to actually shipping, physically shipping over 2.9 million tons last year in what is still a challenging market. So we have been getting a little bit more of the pie, I think. And To Dick's point, our focus is margin. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: What do you -- what's your expectation for the fall in scrap through the quarter?

I think... Michael F. Gambardella - JP Morgan Chase & Co, Research Division: I mean, given the pressures you said about the export market shrinking up with -- especially with Turkey.

Smiling at each other, Mike.

He won't tell me.

Yes. Again, I think I've said it in the past and Russ has said it in the past, the crystal ball on the dimensional move is -- or the extent of the move is incredibly cloudy up till February -- I mean, January 31, how the end of the month. I think, again, we feel that it's there. Given the drift down in iron ore, if you look at that, it can come off a reasonable amount. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: I mean, do you think scrap will come off more than the price of hot-rolled?

I think it has that ability. It -- again, as we said earlier, we feel that domestic demand in the -- our sheet business remains strong. The headwind is import and how that will affect us. And I don't think anyone at this table is smart enough to figure out what the eventual outcome will be there. And whether it falls -- the pricing falls more than the scrap or not, I don't think so, personally. I think demand there, at least, again, I go back to our radar screen, is pretty positive right now. So there's going to be some support. Michael F. Gambardella - JP Morgan Chase & Co, Research Division: Last question on the non-res side. On the infrastructure part of the demand, can you talk about anything you're seeing on the permit side in terms of spending on infrastructure?

I can't say that I have, personally. Chris, is there?

No, I mean, we don't even hear anything from any real estates. I mean, guard -- we look down as far as in the pecking orders like guardrails and so forth, and there's really no strength in markets that respond to that. So it's business as usual, but nothing -- there's no big bills or anything that show support there yet.

I'd like to think [ph] that legislators will understand that the place is falling apart but... Michael F. Gambardella - JP Morgan Chase & Co, Research Division: You just need a big bridge to fall, I guess.

Well, let's hope not.

Our next question is from the line of Nick Jones of Royal Bank of Canada.

I had a question for you on Roanoke Bar. I was hoping you would talk about the price announcement earlier in January on the 14th, 17th? What did you see that instigated the price increase? And then what brought on the announcement on the 17th?

Well, needless to say that it's a market that is very transparent, and everyone is doing their best in trying to garner the maximum amount of revenue that they can. And so sometimes prices get announced. And if there's not 100% agreement as to where the market will move to or the timing of when that market move works, there sometimes has to be a realignment and an adjustment. And so, therefore, we went out with a price increase of $30 and on a date. And then ultimately, we didn't believe that, that price would be sustained or supported universally, and then lowered our price by $10 to a price that -- of $20 net, I mean, ultimately a $20 increase from where it had been by reducing it by $10 and felt that, that's where the market is and that's where we're selling at. So -- and that's where I think the rest of the market also moved to. So it's really a transparency in the market, and not much more can be said about it.

Did you see customer -- immediate customer feedback? Or what were the tea leaves that you guys were looking at?

Well, it's always -- when I say transparency, there's a customer reaction, there is order intake, there's a feedback, there's in many cases, in that kind of business, you carry inventory in those markets and whether your inventory is being depleted at the -- at a rate that is expected or shipments slow or speed up is an indication of acceptance or anticipation of moves. And so there's a whole lot of different tea leaves that the sales team and the management team have to be apparent taking advice from. And they did, and they determined that the adjustment was warranted and we're, I think, satisfied with it today.

Our next question is from the line of Andrew Lane with Morningstar.

Just one quick one from me here. Do you believe that order flow for ferrous scrap has already been impacted by increased domestic DRI production? And do you anticipate a meaningful impact on scrap flows from DRI produced in the United States going forward?

I think there's been some speculation on the impact of DRI. I think it will come. We'll see some of that, and it'll ramp up as our production comes up. I think the primary impact is likely to be on the pig iron and some the other high-value substitutes much more than the obsolete scrap. Primes will certainly see some -- have some impact with it, but, again, I think, there's still a significant number of imported iron units, whether that's imported iron ore, converted, or whether that's pig iron or whether that's just regular scrap that's imported. It's also going to be impacted some. While there is going to be an impact and likely some downward pressure particularly on primes, again, markets are what they're going to be. And from a scrap perspective, from our perspective, we're going to buy, we're going to sell in whatever the market is and do what we need to do to expand our margins as well.

Your next question is from the line of John Tumazos with John Tumazos Very Independent Research.

In calculating or maintaining your goodwill intangibles and fixed asset carrying values for scrap recycling and virgin iron, do you include as part of the return lower-cost and more stable raw steel operations with ready ingredient availabilities? And what specific level of profitability do you make long-term estimates of for scrap in the virgin iron in maintaining your carrying values?

John, as you probably are aware, that's a very complex series of calculations that take place to be able to support both our goodwill and our intangible asset value. And our measurement dates for those, for all of our operations, are October 1. So we went through that process, and at the end of the year, we have supported and we believe that our asset values are appropriately stated as represented on the balance sheet. And there's a lot of different assumptions that take place in those modelings, and we used future discounted cash flows to do that. We do expect and we've modeled in to have improvement in the metals recycling area for those projections, and we believe that those are sustainable based on some cost initiatives that are taking place in Mills Recycling. I think you would've seen that some of that took place in December. We did shutter one trying [ph] location. That's just an example. The mission of the ASR plans are other examples that increase profitability for the Mills Recycling arena. We also expect to see -- these are long-term projections. And so if you look at the next 3 to 5 years, we're expecting considerable increase in steel consumption both domestically and globally, and that's based on a lot of things that Mark has already spoken about. It's with that increased steel consumption you're going to have increased consumption on the Mills Recycling side as well. And we're uniquely positioned with Mills Recycling because we utilize anywhere between 40% and 45% of what our Mills Recycling operations produce in our own steel operations. So as our steel operations grow, we're also consuming more there, and that solid base load has a considerable impact on the profitability of our operations and the predictability versus some of our competitors. So we're very comfortable, and I know I haven't gone into specifics, but we wouldn't want to go into specifics related to that. Hopefully that answered your question.

Do you exclusively look at the returns from the Recycling and the iron making? Or do you include the smoother and more consistent operations of your steelmaking as part of the cash flow benefit of having the raw materials integration?

No. When you look at goodwill and intangibles, you're required to look at the cash flow generation platform that it's assigned to. So when we look at Metals Recycling and the goodwill and the intangible assets that are associated with that, we look only at the cash flow related to Metals Recycling. There is a competent of the Metals Recycling that benefits the steel and we do include that benefit, but it's incremental to the analysis itself.

Our next question is from line of Philip Gibbs with KeyBanc Capital Markets.

Theresa, I had a question on this pickup in noncash equity compensation. Is that going to be a sustainable pickup in SG&A going forward? Or is that more of a onetime accrual in the fourth quarter?

Great question, Phil. That's going to be ongoing. So 2 years ago, we switched from our ISO plan to restricted stock. And the restricted stock has a 2-year vesting period. This is the first year where we've had 2 grants outstanding at the same time. So now we'll be at a sustainable level of about $5 million per quarter. That's very similar to what it used to be with the ISO plan as well. We just had a hiatus for about 1 year where we didn't have 2 levels of planned outstanding at the same time.

Okay, and another, my follow-up is related to Mesabi. Mark, I know you talked briefly about this earlier on the call, but what do you actually need to see here to give you confidence on the viability? And then also, can you remind us just how much you've invested in Mesabi year-to-date over the last few years?

Again, our focus and the need, I guess, is to get that yield improvement at the high production rates and to replace the principal reductant, the coal reductant that we use -- utilize today with a lower priced carbon source. And as I mentioned, we -- from what we've learned in November, December, we have determined that there's a couple things that is very, very prudent to test and try right now, and the learning curve of the team up there has been immense. I still have faith in them, but it's all predicated on being successful achieving those 2 things.

Our next question is from the line of Aldo Mazzaferro with Macquarie Group.

I just had a couple of quick follow-ups, if possible. On the Mesabi, we were just discussing the 2 things that you wanted to see. Can you tell us what type of yield problem you're having? Is it moisture? Is it low metallization or some other thing? I mean, what is it about the yield that goes away when the production rate picks up?

We generate excess fines in the process. So the actual quality, solid, big nuggets, you might say, coming out of the process relative to raw materials going in is just not yielding where we were at the lower rates.

Right. So do you think that's a mechanical issue or a chemical issue?

If you've got 3 days, I'll be more into -- more than willing to get into the detail. But it's a process issue.

All right. So one other follow-up on the scrap business, Russ, can you say of the scrap that's migrating from the East Coast or West Coast into the Midwest, probably mostly East Coast, is that stuff already shredded or is that pre-shred?

I think it's a combination of both. But what gets bought on the coast normally is shredded because that's primarily predominant export. So there's a -- the vast majority of it is going to be shredded material.

Right. So that won't really help the imbalance then, I guess. If -- I was thinking if you got more un-shredded material heading into the Midwest, it might take some of the buying pressure off that material in the pre-shred and -- so this isn't probably going to help your margins at all?

On the negative side, more than the upside.

Our next question is from Dave Gagliano, Barclays.

I just have a very, very basic question tied to the broader demand topic. Given the positive views on demand, what do you expect the year-over-year growth rates will be in your total volumes in 2014 versus 2013?

Off the top of my head, I'm not sure I've got...

We tend not to project out for a year.

It's not -- yes, I'd prefer not to give a number out.

How about a comfort level and a range? Should we be thinking about sort of a 5% to 10% year-over-year growth rate or a 10% to 15% year-over-year growth rate? Which of those would you be more comfortable with?

I don't even know that we could answer because, let's say, at Butler, if you're talking about growth rate of a shipment, we...

We can't get any bigger.

We can't any bigger. Roanoke, I mean, if you're somehow figuring out how to break another record, we're always striving for that. Pittsboro did not ship at -- I mean, Pittsboro had production opportunities and, therefore, of course, shipment opportunities but not going back towards what we used to do. Columbia City shipped at a record and, therefore, things are always in a growth mode there. We have some capacity capabilities and as we've talked about, we have excess steel capacity within the company, and that's always on our radar screen in which to maximize. But it's really dependent upon a whole lot of things at each different product level and plant perspective.

Right. And just assuming things stay the same given the expansion and our product capabilities and diversifications, one would expect that if things stayed the same that our shipments would improve from 2013 to 2014, setting new records.

As a platform.

As a platform, correct.

Right. Okay. Maybe I can just follow up on that last point that you made. Is it -- can you -- is it possible to frame sort of the max capacity that you could get to in '14 versus '13 on a sort of a year-over-year increase basis?

Well, our capacity has grown. We have one -- we had in -- ending 2013, we had a capacity of 6.4 million tons, and that includes 1 million tons of processing capacity at The Techs. As so as you then add to that 325,000 tons of capability at our engineered special bar quality, now you're looking at closer to a 7.7 million ton of capacity. So there's still a lot of room to grow from a steel perspective as long as markets are supportive of that. And the growth -- the biggest growth would come through SBQ and through Structural.

Okay, and 7.7 million of which 1 million is at The Techs, right? Is that what I -- is that what you just said?

Correct.

Thank you. That concludes our question-and-answer session. I'd like to turn the call back over to Mr. Millet for any final and closing remarks.

Well thanks, Rob. And just for those still on the call, I would just like to thank you for your faith and support in us. And hopefully, that will remain going forward. I think we've got a great future ahead of us here at SDI. And more -- most importantly, thank you to our customers that might be listening. Thank you for your support and to our employees as well. And as I said earlier, guys, be safe out there each and every day. Thank you, all.

Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation, and have a great day.