Michael Siegal - Chairman and CEO David Wolfort - President and COO Rick Marabito - CFO Don McNeeley - President and COO of Chicago Tube and Iron Businesses.

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Sal Tharani - Goldman Sachs Edward Marshall - Sidoti and Company Luke Folta - Jeffries Phil Gibbs - Keybanc Capital Markets Aldo Mazzaferra - Macquarie Charles Bradford - Bradford Research.

Good morning, and welcome to the Olympic Steel Second Quarter and First Half 2014 Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today’s presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

Some statements made on today’s call will be predictive and are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results.

The Company does not undertake to update such statements, changes in assumptions or changes in other factors affecting such forward-looking statements.

Important assumptions, risks, uncertainties and other factors that could cause actual results to differ materially are set forth in the Company’s reports on Form 10-K and 10-Q and press releases filed with the Securities and Exchange Commission. Today’s live broadcast will be archived and available for replay on Olympic Steel’s Web site.

At this time, I’d like to introduce to you your host for the call today, Olympic Steel’s Chairman and Chief Executive Officer, Mr. Michael Siegal. Please go ahead, Mr. Siegal..

Thank you operator. Good morning and thank you for joining us, we will be discussing our second quarter and first half 2014 results.

David Wolfort, President and Chief Operating Officer; Rick Marabito, Chief Financial Officer; and Don McNeeley, President and Chief Operating Officer of Chicago Tube and Iron Businesses are with me on the call this morning. After our first quarter that was challenged by harsh weather and supply disruptions.

The second quarter was much better for Olympic Steel. Demand and pricing momentum that started in late first quarter continued through the second quarter and we’re pleased to report our highest quarterly sales level ever for Olympic Steel.

After a long string of price increases that didn’t hold in recent years the resilience in this year’s market has caught some by surprise. From our perspective market condition in 2014 feel much more like those of an expanding economy rather than the sputtering economy we have experienced in recent years.

We’re seeing strength and demand growth across a wide spectrum of our customer base led by industrial machinery and every equipment manufacturers. The only sectors that we do not see strength from are the military which is not surprising and the mining equipment sectors also not surprising.

Our customers are telling us that they are optimistic going into the second half of the year and steel producers just announced another price increase in late June. Both factors bodes well for Olympic Steel. Our growing specialty metals product line which includes stainless and aluminum materials had another good quarter.

We’re experiencing organic growth and market share gains in both products. Additionally, we benefited from higher prices during the quarter. Specifically on the aluminum side of specialty metals we’re seeing increased activity in the automotive sector.

Olympic Steel is already participating in this area and is supplying aluminum to Tier 2 and Tier 3 auto stampers. We believe the light waiting trend in the automotive industry has staying power and the relative proportion of aluminum content in vehicles will increase in future model designs.

Olympic also has a long history of supplying carbon steel in the auto sector which together with our aluminum product lines makes us a bit unique as a supply chain partner for our automotive customers.

The tubular and pipe product segment increased sales in second quarter and first half, this was done entirely on higher volumes, a recurring theme across our business units as pipe and tube prices were lower compared with last year’s first half. Price changes in these products typically lags fluctuations for flat products.

Therefore, we anticipate better sequential pricing and operating margins for this segment later in the year. One of our strategies for creating value has focused on organic growth and serving specific targeted metal users and their diverse markets.

In the aftermath of the recession, many of our traditional carbon steel customers were flashing their production. Many by more than 50%, in order to match free falling demand and for their own survival. At Olympic, the organic strategy allowed us to invest capital to number 1, tactically diversify our mix of products.

Number two, increase our value added services and equipment. Three, extend our geographic presence; and four, advance our investments in systems and technologies. As a result, today more than half of our sales mix consists of specialty metals, fabricated components and tubular and pipe products.

For the balance of our mix in the traditional and growing carbon flat steel product grew, this has positioned us in markets with opportunities of number one, to supply and grow with new customers; two, reduce our cyclicality; and three, offer diverse products to existing customers.

We continue to grow the carbon flat side of our business and increase our share of this market which is exactly what we need to do improve capacity utilization. Capital deployments that have been made to advance this transition are now behind us and we anticipate future cash flow will benefit from capital expenditures remaining below depreciation.

The immediate goal now is to further increase sales volume and drive down operating expenses. David will cover some of ongoing efforts designed to achieve those permanent cost savings in a moment.

We have heightened our corporate governance practices at the Board level by appointing existing board member Ralph Della Ratta to a newly created position of Lead Director. Mr.

Della Ratta, who is the managing director of the investment banking firm Western Reserve Partners has served Olympic Steel shareholders well as an independent director since 2004. He has experienced on each of the board’s governance committees and currently serves on the audit and compliance committees.

Previously, he also chaired the composition and nominating committees. Mr. Della Ratta has contributed valuable perspectives to the Board and we welcome him to this new role. Additionally, our Board of Directors declared a regular cash dividend of $0.02 per share payable on September 16, 2014 to the holders of record on September 2, 2014.

So now I would turn the call over to Rick for financial overview in the quarter..

Thank you Mike and good morning everyone. Flat products volumes was up sharply increasing by more than 17% in the second quarter to 330,000 tonnes and that compares with 281,000 tonnes last year. This is the highest volume quarter for our flat products since early 2008, which is obviously very encouraging.

For the first half of 2014, flat products volume was up 10% to 630,000 tonnes. The higher volume drove second quarter net sales to a quarterly record of $386 million that’s up 17% from $331 million last year. First half sales increased 10% reaching $733 million.

On a consolidated basis average selling prices were down slightly for both the quarter and the six month periods. There was a small 1% to 2% price increase on the flat product side. However, this was more than offset by lower average pricing on tubular and pipe products compared with last year.

As Michael mentioned our experience is that pipe and tube pricing lags lateral pricing by about two quarters, so we anticipate better pipes and tube pricing.

Gross margins were compressed by the lower average selling prices combined with a higher proportion of flat products and specialty metal sales which have lower average gross margin percentages compared with tubular and pipe products. Gross margin in the second quarter was 19.3% compared with 20.8% in the same quarter of 2013.

For the half gross margin was 19.9% compared with 21.1% last year. As we disclosed in the press release we had $400,000 of LIFO expense in the second quarter and first half of this year. Last year we recorded LIFO income of $375,000 in the second quarter and we had LIFO income last year of $2.3 million in the six months.

The net negative impact of these LIFO adjustments hurt our gross margin comparisons by approximately 20 basis points in the second quarter and approximately 40 basis points in the half. Operating expenses improved as a percentage of sales to 18.1% in the first half of this year compared with 18.8% last year.

This was due to the sales growth outpacing expense increases. Year-to-date volume and sales were, as I mentioned, both up 10% while expenses increased 6%.

Distribution, warehousing and occupancy expenses were the biggest drivers of the expense increase while general and administrative and depreciation costs were up between 2% and 3% and our selling expenses were flat. Operating income grew 18% to $7.1 million in the second quarter up from $6.0 million in the same quarter of last year.

For the half including the LIFO impact reported operating income was lower at $13.3 million compared with $15.6 million in the first half of 2013 but operating income increased before considering the LIFO adjustments.

Interest and other expenses on debt was $1.8 million in the second quarter and $3.5 million in the first half, this is $100,000 higher than last year for both comparable periods. The increase was due to higher debt balances to finance increased working capital needs.

Income taxes benefited this quarter from $200,000 discrete Mexican tax adjustment in the second quarter. This reduced our effective income tax rate for the quarter to 34.4% and to 36% for and the first half of 2014. We still anticipate that our second half effective tax rate was approximately 38%.

Net income increased to $3.5 million in the quarter or $0.32 per diluted share from $2.5 million or $0.23 per diluted share in the second quarter of 2013. For the first six months, we reported net income of $6.3 million or $0.57 per diluted share down from $7.7 million or $0.69 per diluted share last year.

The LIFO adjustments had a net negative impact on our year-over-year comparisons totaling $0.04 per share in the quarter and $0.15 per share in the first half, excluding the LIFO impacts net income was up in both the three and six months periods versus last year.

Now turning to the balance sheet, at the end of the quarter, we amended and extended our asset base credit facility which was due to mature in 2016. And we replaced that with a $365 million credit facility that increases our borrowing capacity by $30 million. The new credit facility extended the maturity date by three years to June 30 of 2019.

In addition, we lowered the pricing on our revolver by 25 basis points and the current agreement also has more favorable covenants and we removed real estate from the collateral base. So this puts us in excellent shape on the liquidity front. At quarter end, we had $126 million of availability and we have enhanced flexibility moving forward.

Accounts receivable day sales outstanding averaged 40 days in the first half of the year; this is in line with the 39.4 days in last year’s first half. Inventory increased to $311 million at the end of the quarter and that was due to adding approximately $27 million of inventory in the quarter.

Reflecting the additional working capital requirements related to increased accounts receivable in inventory from higher sales, total bad debt increased $5 million to $237 million in the quarter. Debt is up $38 million from the start of the year.

Although our inventory levels are up, our inventory turnover rate for the first half of 2014 was 4.4 turns and that is exactly the same as it was in last year’s first half. Shareholders’ equity increased $7 million to $306 million at June 30 up from $299 million at the end of the year. This equates to $27.87 on a per share basis.

And finally, as planned capital expenditures of $5.1 million were much lower in the first half of this year than our depreciation which was $10.9 million.

Capital expenditures will be higher on the second half of the year compared to the first six months with most of these investments being made at Winder, Georgia facility that is onboard newly awarded business from Cat’s new Excavator and Dozer operations in nearby Athens Georgia. I will now pass the call over to David for the operating review..

Thank you Rick and good morning again. On our April conference call we indicated that we felt pretty good about market conductions entering the second quarter. Steady manufacturing activity and the lean channel inventories were pushing out lead times at our suppliers, the mills.

In addition, pricing discipline exhibited by the mills coupled with unplanned supply side disruptions have further supported steel pricing this past quarter. However the backdrop of healthy underlying demand in a number of manufacturing sectors is the real story in 2014.

We’re currently seeing more market resilience particularly in the traditionally slower summer months than we have seen since prior to 2008. As Michael stated our strategy to grow our business from the ground up and focus on specific market sectors is paying dividends.

In recent years, we have recruited new customers and increased market share in a number of new markets. We have gone from minimal participation to almost 5% of the U.S. flat rolled stainless steel market in just the past five years.

We have added a complementary customer base with our entry into tubular and pipes segment in 2011 through our acquisition of Chicago Tube and Iron. We have also grown our market share in these products since the acquisition.

We have added new equipment and capabilities to advance our strategy of moving downstream into higher margin, steel processing and fabrication in both the flat products and pipe and tube segments of our businesses.

With the major capital investments in our rear view mirror, we intend to grow these new customers further establishing Olympic Steel as the North American metal service center of choice. As our traditional customers are now regaining their pre-recession stride, we’re welcoming their increased demand back with open arms.

We’re ready to help customers with a much broader selection of products and services while continuing to foster growth in an expanding economy. We have upgraded and enhanced our facilities and equipment to do more of what we have always done from the broader geography.

This enables our customers to benefit from just in time inventory management and reduce their working capital needs. By helping customers grow and prosper, we form mutually beneficial partnerships that in turn allow us to grow and prosper as well.

The combination of servicing new customers enlisted from ’09 and continuing and becoming an integral part of their supply chains, while at the same time retaining our legacy customers as their business for many have returned to pre-recession levels and is a genuine manifestation of the strategy put in place more than five years ago at the onset of this protracted recovery.

As discussed at the beginning of the call, steel prices have been buoyant all year due in part to strength in underlined demand. We’re hearing from a number of our customers that they are optimistic about the year’s second half which reinforces our belief that the economy is finally entering a period of sustainable growth.

Internally, we have been working to improve our operating expense ratios in conjunction with higher levels of in-house processing. On that front we advanced our operational excellence initiatives during the quarter.

Nominating recruits from various facilities and functional areas throughout the company are now in the midst of Six Sigma Black Belt training. We have standardized the formal training curriculum to foster consistency across the entire organization.

It is a nine-month program that includes identifying and implementing measureable and sustainable cost reductions.

These initial cost reduction projects are underway and include projects such as development of proprietary programs to track steel from source through production to determine how metallurgical characteristics can influence various processing and quality variables.

Other lean Six Sigma projects are designed to improve safety, identify where automation can enhance productivity and reduce scrap through improved dynamic nesting capabilities on our laser and plasma cutting equipments.

This is a long-term cultural initiative that has been led by John Howard our Director of Operational Excellence who joined Olympic Steel in the fourth quarter of last year.

Our mission is to create disciplines and to continue that process if you will throughout the company devoted to leading and teaching others to develop and employ these best practices. We’re in a very early innings of this effort and believe there is a great deal of potential to generate significant and permanent structural cost savings.

We look forward to communicating our progress in this area on future calls. Operator let’s open the call for questions..

We will now begin the question-and-answer session. (Operator Instructions). Our first question is from Mr. Sal Tharani of Goldman Sachs. Please go ahead sir..

Just wanted to ask a few questions on the industry.

Have you seen any changes in the dynamics of service centers with metal, due to acquisition or rationing going public, or is this business as usual?.

Business as usual. Lot of competition that remains true..

Stainless steel, what are you seeing in there? I know you have gained quite a bit of market share. But, in general, there were some price increases announced, which stuck some of them I think the late ones having some difficulty. And also, in terms of supply Calvert is ramping up at Alto Campo. API is putting out a new 72 inch hot strip mill.

How do you see that panning out over the next six to eight months?.

We continue to acquire market share under the guidance of Andrew Greiff, who's our President of Specialty Metals, and Andy Markowitz, who is our Vice President of Sales and Marketing.

We’ve seen exponential rise in that business over the last five years, as I noted earlier from a minimal participant to now one that has 5% of the service center business in stainless steel. The suppliers that you nominated are both excellent suppliers of ours. We look forward to further participation with them.

Over the past five years one of our initiatives has been to refocus our Schaumburg facility. That is specialty metals, we’ve also brought on Latrobe, Pennsylvania, facility through an acquisition, and then we organically grew our Streetsboro facility.

So, we now have three facilities dedicated to specialty metals and we look to continue to aggregate more business..

And certainly the disruption in Russia is either going to help or not help the nickel pricing. But clearly on a global scale Sal, nickel remains in high demand and the supply looks like it is very disruptive..

And generally do you pass it through as soon as nickel increases, or it is usually the replacement cost when you pass it?.

We have a blend of all those market places. Certain customers allow us to manage the flexibility of nickel prices in many different ways. But we certainly are proficient and we understand the dynamics and the risk associated with that commodity..

And one more if I may, Michael, usually we talk about second half slowdown, summer slowdown. You had put in your press release and also mentioned seeing quite a good momentum going into the second half. Others have mentioned the same.

Do you think it might be a different seasonality this year that we get a very strong second half? Is that what it looks like talking to customers and looking at the market?.

Well, clearly Sal, I think that we have no further vision that maybe two or three months out.

So, a lot can happen globally for the fourth quarter but clearly we’re seeing pretty strong momentum from a demand standpoint into the third quarter the things are being written about imports clearly imports are up but it really isn’t effecting the transaction price all that much.

So, we’re seeing pretty strong demand as we indicated in our comments Sal, this was for the first time in a long time seems much more sustainable than what we’ve seen over the last five years..

Great, thank you very much..

Your next is from Mr. Edward Marshall of Sidoti and Company. Please go ahead sir..

Good morning, guys. So, I wanted to ask the market share question maybe a little bit differently, and thanks for the quantification.

Is it true that it's just in the stainless steel, or are you seeing it in the carbon flat area as well? And then also, is it a benefit of the investments that you've made over the past year, or is it just kind of a function of the industry and that you're building your capacity just to kind of meet in the investments, to match kind of the new demand that you're seeing or the higher demand that you're seeing?.

Okay, let’s try and get all those answer in. One, we’re seeing significant participation growth in our pipe and tube. Two, we’re seeing really accelerated growth in terms of our stainless and aluminum participation probably greater than pipe and tube and greater than carbon. And three, we’re seeing increased demand in the carbon as well.

So, all of our segments are working well from a demand standpoint; two, I would say that, part of it is the economy that is improving in all the sectors that we supply other than the two that we mentioned military which is off course the government cut back and mining which many people speak about.

We are not immune to that, everything else from a market segment we are seeing increased demand. And then three, to answer your question yes, so a lot of that has to do with the investments we’ve made and filling the capacity and then improving economy. If I left something, I apologize that..

No, that's okay. And then, I was looking at the -- so, based on kind of the commentary surrounding how it's continuing to go in June, and June being strongest and then July picking up, it doesn't sound like this was really a catch up from bad weather in Q1.

And based on your commentary, it sounds like to almost quote, that you said it seems like the first time that we've seen a sustainable economy. Is that right? I mean, you it's not a catch up. It's more of kind of real demand coming through and pulling through now. .

Yes, I mean ultimately there is still no misses a day of shipment or a week of shipments and falls behind. The customer demand doesn’t change and so the customer demand they catch up but quite frankly this demand is fairly robust as we’ve seen and as they tell us on a go forward basis. So, there is real demand growth..

And I guess and I look at the piping margin. It was pretty weak, and I think you've talked about it a little bit with the LIFO expenses and so forth. But, is there any pricing? I mean, I know the pricing decrement that you talked about.

But, is it anything to do with competition there and that price is kind of the competing factor right now, or is it just as simple as just being lagging behind what's going on in the flat side? \.

I think it’s just lagging behind quite frankly.

The CTI brand has a long, very long 100 years of history of profitability, they’ve manage their business well, they clearly know how to price to the market, they are a little bit different than some other parts of Olympic Steel where they are not really driven by volume and don’t have the same level of competition.

So, we just look at it as lagging we should see them improving back later on in the year toward more normal operating profit..

The next question is from Mr. Luke Folta of Jeffries, please go ahead sir..

Rick, can you give us the gross profit percentage breakdown for a flat versus tube that’s something --..

Yes..

Gross margins really not --..

Yes..

Although I want to say it is looking --..

-- Second here.

So, on the flat product segment, our gross profit was and I’ll give you, you want the quarters is that what you would like?.

Yes, 2Q..

Yes, so 2Q, 17.7% for flat product segment versus 19% last year. The price in tube the gross profit is 27.1% this second quarter versus 28.8% second quarter of last year. .

Okay, and then on the flat roll side of the business I understand that you are selling more specialty metals this year and that’s having a negative impact on the percentage margin and turning to dollar margins it’s good, but I guess there's just so much leverage in your model around if and when that flat rolled percentage margin starts to improve on a kind of per product basis.

So can you just talk about I guess what the factors are and what you’re seeing in that market in terms of like just carbon specifically and stainless, aluminum.

What’s it going to take to where we can finally start seeing some real margin expansion in those areas more towards what you have seen historically a good market like perhaps in the last up cycle?.

Very good question, I hope it happens soon.

David you want to comment on that one?.

I’ll take on that one. So a lot of questions rolled into one Luke, let me answer a couple for you.

One the stainless participation is up as we nominated that we managed those results and you are 100% right that the margins as a percent a little bit less but the dollars are significantly more as part of our strategy of balancing that with Chicago Tube and Iron.

So with Chicago Tube and Iron as Rick nominated their margins balancing out with some of the specialty metals which we don’t break out and then flat rolled. But specialty metals is strong our aluminum participation is growing and pricing is good there.

On the flat rolled side of the equation more stability, we noted a year ago that we were done with the recovery and that we were expanding economic environment where we would see the manifestation of our investments and indeed we’re doing that as we depicted here this morning.

In conjunction with that we see flat rolled pricing gaining strength; it has the cyclicality that we’re all used to. But we do see it gaining strength, the latest price announcement back on June 30 has traction, demand is better. Obviously more the sale of some of these steel mills and the consolidation of the industry is providing more discipline.

As we noted and as Michael noted we’re seeing very, very little impact from imports. And so we see pricing sustaining itself and we’ll see those margins continue to increase of course as we bring better efficiencies and economy to our business..

Luke its Rick. And I think the other factor tying to what David said in terms of the improving marketplace the spot market returning will also enhance that, and we’re just starting to see the front end of that, here in the second quarter we saw the spot markets just finally start to tick up a little bit.

So I think that’ll be another factor going forward..

So I guess is part of the margin that you’re seeing in the flat-rolled side of the business, I mean I know you guys have done a lot of expansions in them, you’re trying to obviously fill those additional facilities and it clearly seems like you’re having some success there with shipments up 17% year-on-year.

Would you say that in terms of your strategy you are more in still the facility mode until you can get some sort of sustained kind of margin -- normalized market share? And then perhaps at that point we can start thinking about maybe getting bit more aggressive in terms of pricing and try to expand your own margins?.

Luke we have a different prescription for each one of our initiatives. And in fact we’re not going to sacrifice margin and in this business at margins that we can’t sustain. But we do have different strategies.

So we’re bringing on a lot of value at our equipment as we’ve noted and as Michael said in his commentary, less than half of our business today is flat rolled and flat rolled continues to grow. So we’re growing all those dimensions of the business we’re looking to balance that but we’re not sacrificing that margin for growth..

Last question I have is, when you look at your percentage of flat rolled sales spot versus contract.

Can you give us a sense of what that is today and kind of what that was in the last up cycle?.

That’s a tough question to answer because our business is so different Luke. But I would say probably at this point in the market our spot is less than it was back in the hay days. Again that’s a reflection of mill lead time and service center inventory.

When we talk about the spot market, the spot market is essentially service centers and we’re happy to embrace those who have either less capital deployed in our inventories or maybe misjudged their inventory need and requirements but clearly in a period of sustained economic growth which we saw from 2002 to 2008, and the ending of the cycle we’re nowhere near close to sort of the spot market that we used to have but as we indicated we’re starting to see the beginning of that trend to correlate now.

So our overall kind of committed -- what we call contractor committed business is probably a little bit higher as a percentage today than it was in the last uptick so far. But we welcome the increase of the spot market..

The next question is from Mr. Aldo Mazzaferra of Macquarie. Please go ahead sir. The next question is from Mr. Phil Gibbs of Keybanc Capital Markets, please go ahead sir..

Michael, do you feel, with the current and pending consolidation that -- do you feel like the mills are behaving differently out there in the marketplace, or is it sort of same-same? I'm wondering if there's sort of a palpable difference in psychology..

What you’ve got some consolidation, you don’t have TK in the marketplace today you are having the changing dynamic of Severstal to the potential new ownership so I think to certain degree you are seeing a potential of more discipline, certainly an owner in the South is not going to compete against his own goal in the North.

So having said that, there is probably a little bit more discipline today than it might have been in the last few years but clearly I think from just speaking at the integrated level a 17 million unit automotive market versus 15.6 or 16 certainly changes the dynamic of an integrated steel mills performance so they have particularly view automotive as a significant customer base.

So, I would tell you that it’s any different; it’s probably reflective of one consolidation and to the increase of demand particularly of automotive..

Okay. Terrific. And I just had a question on the oil and gas market.

How much do you participate there, and what are you seeing or expecting in the second half?.

Well, we participate nominally we are like to guide ourselves to shuffle to the gold miners we sell the steel to people who are making tanks and make the equipment like trucks and so forth but we are not participating directly in OCTG or any of the outlined pipe. .

Okay, just lastly on construction I know how do your products tend to touch that kind of touch that market, anything as we moved into the second half that gives you more confidence or less confidence that you signals or any changes that you are seeing from a geographic standpoint any stronger than the other just trying to get some sense of how you guys are viewing the construction markets right now?.

We see it through a lens of area lifts and construction equipment and a lot of that is refurbishing and repositioning of rental fleets and we see a dramatic increase as you know some of the rental companies couldn’t access capital as early as 6 and 7 in those fleets are fatigue and we see a dramatic amount of participation with our customers that do in fact supply some of those large rental companies across the country.

So, in that regard we see a significant boost in participation..

Also, on-shoring let’s not undersell the fact that there is a whole lot of restoring of manufacturing back in the United States, we’re going to participate in some of that based on geography but that’s a significant increase in demand that’s coming over the next, now and in the future..

Michael, how big of a percentage of your overall volume broadly is fabrication now versus call it more value add just versus the plain vanilla type business versus where it was maybe five or six years ago?.

Five to six years ago a bit of us and now we’re somewhere north of 20%..

We are about 22% right now is our mix for fabrication and as Michael said, 10 years ago that would have been single digits and five years ago it probably would have been in the low teams, low to medium teams..

Okay..

So, remember as we talk about what we’re telling fabrication it is more than the first stage operation. So targeting the servicing center is cutting the length and slitting.

We don’t call that fabrication and that’s just sort of the generic stuff as you take it to a second stage of punching, burning holes and bending, welding, machining that’s the value added component for us.

So, our flat roll side of the business including tempering cut the length and slitting as growing and the after fabrication is outpacing the growth that we’re seeing there..

You know we do a lot of fabrication too in the pipe and tube side. .

Yes. Yes, absolutely. And just the last one here, if I could, just strategically, the efficiency program that you've set forth the last several quarters here, when do you expect to see some, call it material progress, on that, and what types of things should we be looking for? Thanks. .

We hope it’s everyday but clearly in David’s initiative of the black belts that are being trend in house they all have cap stone projects that they are working on we expect that to be double digit plus immediate as they get implemented in the fourth quarter, you will see the full impact of that first round in fully impacted next year.

And clearly, we know that there is without putting a number on it, it’s fairly significant. It’s fairly significant in all the initiatives.

So, as we’ve grown and migrated our the different parts of our business on a synergistic basis clearly sometimes you are expected in the people you get hired before the full efficiency is there but with our commitment to quality performance for the customer, we’ll see pretty much significant decreases in the expense ratios as we go forward in the next year probably you will see it in reality too..

Your next question is Mr. Nathan Littlewood of Credit Suisse. Please go ahead sir..

This is actually Gail Pertergle [ph] in for Nathan. Most of my questions have been asked.

But can you give us a little bit more color on the product mix within the carbon flat rolled and how that may have changed over the last quarter or relative to last year?.

Sheet versus plate?.

Yes. And I guess I know you have talked about stainless has increased, and I guess I am just trying to understand like how much from -- within the flat rolled in general stainless versus sheet and stuff like that.

Broadly all fractions of our business are growing. So our plate business is growing and we see a strong demand for the plate to -- lead time at the plate mills, pricing is up and so we continue to grow that business. And our flat-rolled business continues to grow.

It’s not directly proportional but they’re both ultimate growth mode along with all factors of our business. It’s a hard breakout; I mean it really is a very difficult breakout to do that the way you’re asking.

So again, we can give you a sort of later on, probably next year we probably going to have to segment because of the growth, the significant growth of our stainless and aluminum, we’ll probably be able to give more clarity next year on that, because it is becoming material in terms of our results.

The other factor I would also tell you which is sort of the thing that we don’t promote is the fact that in Chicago Tube and Iron about 17% 18% of their mix is also in the stainless and aluminum side. So we don’t break that up in specialty metals but a significant part of the mix of Chicago Tube and Iron is also the stainless and aluminum markets.

So I would just say as David said, plate market has been strong, with heavy industrial, which is part of our market. So we’re seeing probably a little bit more growth there than we’re on the sort of the flat rolled carbon business. But all segments are growing..

And as our industry, service center industry measures itself within our trade organizations, service centers institute and it’s activity report we see growth across the board and our product lines..

And then, just shifting gears a little bit, I guess I thought it was pretty interesting that you commented several times that imports haven't really been affecting you where we have seen them affecting some of your competitors.

So, is this maybe due to your geographical footprint versus others? I mean, I know that there's import issues in some of the stainless products and such, so I'm not thinking that it's really carbon versus stainless.

Can you give more color there?.

Well imports are always a part of our supply mix. And so when we say we don’t see it affecting us dramatically is that proportionately we’re pretty much the same. And we avail ourselves of imported product at strategic locations where it makes sense, where the logistics makes sense, which is a big driver of why we would buy the imported product.

And proportionately we’re about the same. And we monitor that, we’re a significantly concentrated domestic supply or American supply..

And the other side is if you look at the data David indicated from the Metal Service Center Institute, inventories on a net basis maybe up a little bit. You can say that’s partly import but the fact of the matter is the days shipment inventories are actually down.

So you would say that the imports are necessary just to maintain an even level to meet the demand. We’re not seeing an imbalance in the inventories even with this influx of inventory. So in essence this is needed supply to just feed the market that’s growing pretty strong.

That’s right, so we’re not seeing it; it’s just not impacting the market because it’s being fed into increased demand..

Can you guys just refresh my memory? How much product do you sell that's typically something that's imported versus sourced domestically?.

We would be somewhere around 10% or less, but somewhere around 10. We wouldn’t be any more than 10% in total perspective..

And that is….

Across the board, it’ll be very hard for us to break that out. There is some specialty metals involved in that, there is some specialty pipe and tube and there is again specialty flat rolled that we bring in and a lot of that product is just not made in North America..

Look we have the ability to buy more imports if we choose to both from Mexico as well as Canada as well as other parts unknown.

But I would just say from the standpoint of good inventory management and working capital turnover it behooves us to make sure that we maintain a strong domestic supply but clearly we have access to any of the import numbers and tonnage if we still choose to do that but a David indicated just from a management standpoint it doesn’t really kind of get anywhere much greater than 10%..

(Operator Instructions). The next question is from Mr. Aldo Mazzaferra of Macquarie. Please go ahead sir..

I just wanted to ask you a broad question about capacity utilization if you can think about your company in terms of like what kind of a utilization rate you had in the quarter compared to a year ago and I’m wondering what the investments you are making in Winder, Georgia, might do to your overall capacity in the company just really broad terms if you can think about it that way..

And really broad terms will take more business from anybody who wants to give it to us..

I would say that, when you look at our value added, we’re at very high capacity utilization although. We have lots of capacity in slitting and we have some capacity on the temper mills. And so, again as we want to bring in business we obviously want to meet that commitment to the things that we have the greatest opportunity to fill the capacity.

So, temper mill across our three locations will take more business, will take it on both direct business will take it on its whole business.

Slitting, I can tell you that is a marketplace perhaps very narrow in terms of its returns but we’ll take more business there value added from our standpoint very very full other than what we’ve got reserved for a things like what you indicated which is Winder, things that we are hearing from Caterpillar is very accelerating, they’re start up and so while we anticipated pretty strong demand from January, we might get it in the fourth quarter.

So, we are very while we manage capacity today certainly we’re reserving that for what we expect to be able to perform for the customer. So, again we’ve a good welcome out for anybody wants to do business with us..

Right, so Mike, did you say in the stainless business that it’s a demand driven price recovery that you are seeing or is it there is a lot of it just with the nickel content going up is that is why I heard your comments on how you really think there is a demand driven recovery and I have to say with the inventory that always there are and the imports is higher they have been you wonder where it’s going.

It has to be, being consumed out I would think.

So, I’m wondering if stainless is seeing the same thing or is that more of a cost push price?.

No, I mean you don’t get 5% of the market from well-presented if you don’t have a demand. So, yes nickel pricing helps to surcharge helps in terms of - margin profitability it has nothing to do with your volume.

So, it clearly helps but the second part of the business is we’re gardening market share because of the services - we bring to the market but if you ask specifically about markets I would tell you that’s just a trailer and food service are very strong markets for us.

Lot of fast food places opening out across this country as working families don’t cook meals at home anymore and are taking the kids out to basically fast food locations whether it’s Panera or whatever main meal like but the fast food industry is growing and we service kitchens..

David here, don’t - specifically asked about stainless steel our aluminum participation has increased dramatically with automotive and so as Michael indicated that early in the call but just to echo the commentary, our stainless steel business we’re just aggregating more business and remember we’ve repurpose the facility brought on a new facility in Streetsboro and acquired a facility in Latrobe, Pennsylvania.

So you are really having a drive factor there in terms of how we are participating in specialty metals. And Michael just add a little bit of color on picking up additional business, a lot of those businesses is driven by logistics and we want to make sure that we are close to our customers and we’re not absorbing extraordinary distribution expenses.

So, our expansion in Winder, our expansion in Gary gets us closer to a customer base and allows us to keep our distribution cost in check even though that is increasing..

Yes and just one last point on the utilization I would tell you we have a need Aldo for more stainless process in equipment. So, we hold our capacity on our ability to process stainless in-house..

Great, and say Rick, can I follow up a little bit on the volume numbers you get I heard phase 3 in the 30,000 tons was the flat our dealer breakdown between towering and direct on that and do you have tube viewer volume number?.

We don’t give tube volumes just because obviously it’s hallow and so that’s just something we’ve never done but I can give you the breakout if you would like on the quarter. So, direct on to a 302,000 totaling to 28 that’s how you get to 330. Last second quarter direct was 263 call it and totaling was 18 and that’s how you get to 281,000..

Clearly the stainless assuming the tubing sales are up..

Yes, I mean internally we obviously measure market share through volume. So, as Michael said, on the pipes and tubes that there volume was up about 9% year-over-year..

Great, and Rick, in LIFO, do you expect your -- I know you took the charge in the second quarter, you expect that charge in the third and fourth as well?.

Yes, I mean basically the way LIFO works as you project what you think your LIFO is going to be for the year and you book it pro rata.

So using that methodology we booked $400,000 in the first half, so we’d expect something similar in the second half, that’s our comments about the lag on pricing and why we think pipe and tube pricing has the opportunity to move up..

The next question is from Mr. Charles Bradford of Bradford Research. Please go ahead sir..

Hi. I'm sure you've probably followed all the pipe and tube mills that have been announced under construction or have recently entered the market. I know they're oil country typically, and that's not your product.

But, between them adding new capacity, between the dumping cases, are you seeing any traditional oil country producers switching to try to get into the more specialty or structural pipe that you would normally be involved with?.

The answer to that is no. I mean it would go, it has gone the other direction and continues to go in that direction which is more of a bend towards OCTG when they have made those changes; we’ve not seen a change back to traditional structural or mechanical..

And could you talk a bit about the plate market? I mean, most of us follow the hot rolled coil market pretty closely and some of the other products.

But, what's happening in plate pricing these days?.

Chuck plate pricing has steadily moved up, demand has increased, league times have gone out. There has been a pretty good absorption of heat treated product and our specialty plate business which would be heat treated products has continued to grow. So we just see increased demand from our customer base.

Our fabrication sales have increased and we continue to grow that market. And so, we just see healthy demand out there for plate..

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Siegal for any closing remarks. .

Thanks. We’re exhausted today but we appreciate all the interest in Olympic Steel and we look forward to sharing our progress with our third quarter results which will be released in early November. Thank you all, we really appreciate good questions and answers..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..