John Ferriola - Chairman, CEO and President James Frias - CFO, EVP and Treasurer.

Curtis Woodworth - Credit Suisse AG Jorge Beristain - Deutsche Bank AG Seth Rosenfeld - Jefferies LLC Timna Tanners - Bank of America Merrill Lynch Philip Gibbs - KeyBanc Capital Markets Novid Rassouli - Cowen and Company Alessandro Abate - Berenberg, Research Division.

Welcome to the Nucor Corporation First Quarter of 2017 Earnings Call. As a reminder, today's call is being recorded. [Operator Instructions]. Certain statements made during this conference will be forward-looking statements that involve risks and uncertainties.

The words we expect, believe, anticipate and variations of such words and similar expressions are intended to identify those forward-looking statements which are based on management's current expectations and information that is currently available.

Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy.

More information about risks and uncertainties relating to these forward-looking statements may be found in Nucor's latest 10-K and subsequently filed 10-Qs which are available on the SEC's and Nucor's website. The forward-looking statements made in this conference call speak only as of this date.

Nucor does not assume any obligation to update them, either as a result of new information, future events or otherwise. For opening remarks and introductions, I would like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer and President of Nucor Corporation. Please go ahead, sir..

Good afternoon. Thank you for joining us for our conference call. We appreciate your interest in Nucor.

With me for today's call are the other members of Nucor's senior management team, Chief Financial Officer, Jim Frias; Chief Digital Officer, Joe Stratman; and our other Executive Vice Presidents, Jim Darsey, Ladd Hall, Ray Napolitan, Dave Sumoski and Chad Utermark. Our leadership team is joining you today from our Washington, D.C. office.

I have just returned from a meeting with President Trump and Secretary Ross, where we took another important step in advancing our commitment to work together to level the playing field for American manufacturers.

We would like to thank all of our teammates throughout Nucor for their excellent work in the first quarter to build a safer, stronger and more profitable Nucor. You are the reason our company's best years are still ahead of us. Thank you.

We also want to extend a very warm welcome to the newest members of our Nucor family, the approximately 120 teammates who joined us with the first quarter acquisitions of our bar grating facility in Bourbonnais, Illinois and our Vulcraft-Omega Joist plant in Alberta, Canada. Nucor is very proud and excited to have you on our team.

Our Chief Financial Officer, Jim Frias, will now review Nucor's first quarter performance and financial position. Following those comments, I will update you on the execution of our strategy for long term profitable growth.

Jim?.

Thanks, John. Nucor reported first quarter of 2017 earnings of $1.11 per diluted share. These results were in line with our guidance range given in mid-March of $1.10 to $1.15 per diluted share.

They represent significant improvement compared to the fourth quarter 2016 earnings of $0.50 per diluted share and first quarter of 2016 earnings of $0.27 per diluted share. It is also Nucor's highest quarterly earnings since the third quarter of 2008.

Earnings for the most recent quarter were highlighted by significantly improved performance for our steel mills segment, led by our sheet, bar and plate mills. This segment also benefited from attractive profit contributions from our recent tubular products acquisitions.

Our raw materials segment also delivered very strong improvement on both a year-over-year and linked quarter basis. That was despite the burden of a 5-week unplanned outage during the quarter at the Louisiana direct reduced iron facility. More than offsetting that drag were performance improvements from our David J.

Joseph Company scrap business and our direct reduced iron facility in Trinidad. The David Joseph team has done excellent work reducing the cost structure of their operations and working more closely with Nucor steel mills that benefit profitability across the enterprise.

In addition to their solid profit contribution, the new iron team at the DRI facility in Trinidad set a production record in the just-completed quarter. A quick comment about our tax rate as it can be confusing due to the impact of profits from noncontrolling interests.

Excluding profits belonging to our business partners, the effective tax rate was 32.4% for the first quarter. Nucor's financial position remains strong. With total debt outstanding of $4.4 billion, our gross debt-to-capital ratio was 34% at the end of the first quarter. Cash and short term investments total approximately $1.7 billion.

Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving credit facility which remains undrawn. The facility does not mature until April of 2021. For 2017, we estimate capital spending of approximately $550 million and depreciation and amortization of about $730 million.

While recent trade case decisions have begun to reduce the flood of dumped and subsidized products from foreign producers, imports continue to negatively impact the U.S. steel industry overall. Through the first quarter this year, imports remain at a stubbornly high 25% share of U.S. market.

Certain countries continue to brazenly break and circumvent our nation's trade laws. While significant progress is being made, there is a tremendous amount of work still to be done. Nucor will continue to be proactive and aggressive in pursuing effective and timely enforcement of U.S. trade laws.

At the same time, we will also work to call attention to the issue of global steel production overcapacity. That overcapacity is the result of the trade-distorting practices of some governments. Earnings in the second quarter 2017 are expected to increase compared to the first quarter.

This further supports our previously expressed view that full year 2017 profitability could significantly exceed the level achieved for 2016. In the second quarter, our sheet mills should experience further gains in price realizations as a portion of their contract sales are priced on a lagging quarterly basis.

We expect our plate mills to benefit from recent trade actions that provide a more level playing field. Our fabricated construction products order books indicate that the nonresidential construction markets have regained momentum in 2017. That, along with seasonal trends, will benefit the second quarter performance of our steel products segment.

We're also encouraged by the emergence of improving demand in other end-use markets, including energy and heavy equipment. With stronger demand for iron units, our raw materials business should be solidly profitable over the balance of this year.

We also expect intercompany profit eliminations to have a smaller impact on earnings in the second quarter. We're confident that Nucor's significant competitive advantages, highly adaptable business model and proven strategies will allow our team to continue to deliver profitable long term growth and attractive returns to Nucor's shareholders.

Thank you for your interest in our company.

John?.

Thanks, Jim. On our January earnings call, I observed that the Nucor team was ready and eager, ready and eager to realize the significant pent-up earnings power we have built during the steel industry's lengthy downturn. Today, my message is unchanged. Our focus remains on the execution of our disciplined strategy of long term profitable growth.

We're certainly encouraged by our strong first quarter performance. It provides additional evidence that our strategy is working. But we view the first quarter results as just an early indication of the long term payoff we expect from the more than $7 billion we have invested since the last cyclical peak.

Our objective and our record over many decades is to deliver stronger profitability throughout the economic cycle. We describe this work as building higher highs in Nucor's cyclical peak earnings power. The strategy is simple and flexible. We're leveraging Nucor's 5 drivers to profitable growth.

The 5 drivers are, one, strengthen our position as a low-cost producer; two, achieve market leadership positions in every product line in our portfolio; three, move up the value chain by expanding our capabilities to produce higher-quality, higher-margin products; four, expand and leverage our downstream channels to market to increase our steel mills' baseload volume for sustained results; and five, achieve commercial excellence to complement our traditional operational strength.

I will now update you on the highlights of our team's recent progress implementing our strategy for profitable growth. During the first quarter, we completed the acquisitions of Southland Tube and Republic Conduit.

Together with the late 2016 acquisition of Independence Tube, we have established a new platform for profitable growth, Nucor Tubular Products. This value-added business has annual shipments of approximately 1 million tons.

I am very pleased to report that our Nucor Tubular Products team had an excellent first quarter, with both strong financial performance and achieving synergies with their teammates at Nucor's sheet mills. We're also very encouraged by the reception of our customers to our broader capability to serve construction markets.

Our expansion into the hollow structural sections or HSS and electrical conduit, niches of the pipe and tube market, squarely hits the target on all 5 of Nucor's strategic drivers to profitable growth. We immediately gained market leadership positions in HSS and electrical conduit as the second-largest producer of both products.

And like Nucor's other operations, these tubular businesses are built around extremely efficient manufacturing, a highly variable cost structure and continual improvement. Equally important, their cultures share Nucor's strong emphasis on the value of our team members.

Both the HSS and the electrical conduit products offer significant value-added opportunities regarding quality, reliability and servicing the short lead times inherent in construction projects. These factors are why import penetration in these products is limited compared to the overall pipe and tube market.

Our value-added tubular products provide an attractive channel to market for Nucor's hot-rolled sheet products. Prior to establishing our tubular products growth platform, our channel to market opportunities for our approximately 6 million tons of annual hot band sales volume were very limited compared to our overall steel mill product mix.

The addition of HSS and electrical conduit tubing to our portfolio is an important step forward in Nucor's pursuit of commercial excellence as North America's most comprehensive supplier of steel solutions to the construction and infrastructure markets. Without a doubt, Nucor is the strongest name in construction steel and steel products.

Congratulations and thank you to our tubular products teammates for a great start in building this exciting new platform for Nucor's profitable growth. Please keep it going. Nucor's fabricated construction products group also completed 2 acquisitions during the first quarter.

In February, our Fisher & Ludlow bar-grating business acquired a facility in Bourbonnais, Illinois. With expected annual production of 50,000 tons from this facility, this acquisition is an important step in growing our North American market leadership for bar-grating products. It almost doubles our market share.

In March, our Vulcraft joist and deck business acquired a facility in Alberta, Canada. This acquisition complements our current start-up of Vulcraft's new joist and deck plant in Ontario, Canada.

Nucor's plate mill group has rapidly and very effectively leveraged its broader product offering provided by the August 2016 acquisition of our Longview, Texas specialty plate mill. Nucor Steel Longview produces specialty plate products ranging from 1 to 12 inches thick and up to 138 inches wide.

This is a significant expansion of Nucor's plate portfolio as the capabilities of our North Carolina and Alabama plate mills reach up to 3 inches thick and 120 inches wide.

The addition of Longview's capabilities positions Nucor's plate mill group to expand our overall share in a number of attractive segments that include bridges, military armor and tool steels. Giving Nucor full access to the bridge market, Longview recently developed a difficult-to-make grade of bridge steel and a 4-inch thickness.

Longview also began first-time production of military armor for tank and submarine applications. Tool steels are another new growth opportunity for our Longview team and they are already pursuing it. These examples are just the beginning of how our new one-stop shopping capability will allow Nucor to profitably grow our plate business.

The long term strategic and commercial value of our Longview acquisition is clearly very significant. At the same time, I want to recognize and thank our Longview teammates for all that they have accomplished in the short time that they have been part of the Nucor family. It is worth noting that they continue to set production and shipping records.

Thank you and please keep it going. Nucor's profitable growth strategy is always anchored by our team's continual drive to enhance our position as a low-cost producer and market leader in all of our businesses.

That focus is the bedrock foundation for delivering sustainable long term growth in our profitability that rewards our shareholders with attractive returns on their valuable capital. Nucor Steel Marion recently announced a rolling mill modernization that is a perfect example of this work.

Our Marion, Ohio bar mill announced in March an $85 million investment to upgrade its rolling mill and other related equipment. Nucor Steel Marion is Ohio's largest producer of rebar and sign post with annual capacity of more than 400,000 tons. The mill is strategically located in a prime market for rebar consumption and one with aging infrastructure.

Our Marion team recently celebrated the mill's 100th year of steelmaking. With this project, we're investing in the next 100 years of profitable growth for Nucor Steel Marion. These are just some of the exciting initiatives we're implementing to drive profitable growth. We continue to make excellent progress on a number of other projects.

Equipment contract negotiations were completed for our Arkansas sheet mill's specialty cold mill, with start-up expected in late 2018.

Groundbreaking is set for later this quarter at our 50-50 joint venture with JFE Steel of Japan to build and operate a facility to produce galvanized sheet steel serving the growing Mexican automotive market in Central Mexico.

Nucor achieved strong first quarter growth in the automotive market as our sheet and engineered bar teams expanded both customer base and penetration of product platforms and momentum continues to build with the rollout of Nucor-Yamato's major new structural steel product introductions.

After reviewing our first quarter financial results and progress implementing our profitable growth strategy, one key point stands out to me. Nucor's success is the result of our focus on continual improvement and increasing the value we deliver to our customers.

That's why Nucor always thrives in a marketplace of free and fair competition, where winners are determined by real economic advantage. For a company such as Nucor, with its unique position of strength and proven ability to execute its strategy for profitable growth, this is a time of great opportunity.

Our team is both ready and eager to demonstrate the pent-up earnings power that we have built into our company during the industry downturn. I am absolutely confident that Nucor's best years are still ahead of us. We appreciate your interest in Nucor and would now be happy to answer your questions..

[Operator Instructions]. And we'll go first to Curt Woodworth from Crédit Suisse..

I was wondering if you could just talk a little bit more, John, about some of the interaction you've had with the Trump administration. And specifically, the Section 232 investigation launched today. I think that was pretty unexpected by the industry.

Can you just comment on how you see sort of that -- the particulars of that investigation, specifically with respect to how imports could be affecting U.S.

national security and any insight into how you think that process will unfold?.

Well, I have to tell you, we were a little bit surprised by it also. It came up very quickly, although President Trump mentioned during his press comments today that he and Secretary Ross have been working on this for several months. So it was unexpected to us, but they've been planning this for a while.

I have to tell you, we welcome an investigation into the impact of imported steel upon our national security, particularly given that many of these steels are imported illegally, violating our trade laws. And so we're happy to see this. I think it was a bold move by the President.

He clearly set a time frame that's aggressive and it's a good thing for the industry. You asked about, in particular, how does this really impact national security. And when you talk about steel, clearly, steel plays a major role in national security. Case in point, look at the armored plate grades that we've been developing at Nucor.

I mean, submarine applications, tank applications. There's numerous applications for steel in military use and it is critical to our national security. As the President said earlier today, we really don't want to be dependent upon a foreign country to provide the steel we need to defend the citizens of the United States. So I'm very excited about it.

I can tell you that Secretary Ross is engaged during the meeting this morning, the signing ceremony this morning. President Trump was engaged with the industry, spoke to several of us and asked very good, pointed questions about trade and what we were specifically looking for.

And we were quick to point out that all we were really looking for was a level playing field. Given that, we expressed our confidence that we could compete successfully against any country or company if we had that level playing field. So good news for the industry. We're excited about it.

We've all committed to work with the President to help him understand the nuances of steel and its application in national security..

Okay. And then just a quick follow-up regarding the HSS and electrical conduit market, the 1 million tons of, I guess, capacity or volume.

What percent of that is being supplied internally by you right now? And where do you think that figure could get to, say, over the next 6 to 12 months?.

Right now, we're supplying about 75% to 80% of that product. And we've been working over the last couple -- frankly, the last couple months to work with them so that we can get up to these levels of sub-80% and 90%. And I think that that's probably where we'll peak out, somewhere at about 90%. But there's many other things that come along with this.

I'll just maybe mention a few of them that I'm sure you're aware of, but just to highlight. When you look at Nucor and you look at our sheet business, without a doubt, we're hot band-centric. And yet, when you look at the amount of our product in hot band that went downstream compared to our other steel products, we were somewhat underweighted.

So this really came at a good time for us and also, with the addition of Gallatin to the Nucor family. But it also provides a great downstream outlet for one of our larger sheet segments. And of course, this is a value-added play. It's one of the key points of our -- key drivers of profitable growth.

One other point that I would mention, since we were just talking about imports when you raised that question earlier, because of its application to the construction industry with the short lead times that are -- that go along with construction, the product tends to be somewhat import-resistant. So we see that as a plus also..

Next, we'll go to Jorge Beristain with Deutsche Bank..

My question is about service center inventories which remain quite low. And I'm just wondering what you have heard is the explanation for that.

And do you think that the industry itself could get caught unawares in terms of having to do a rapid restock in the second half?.

Well, without a doubt, the inventory levels, as you mentioned, are extremely low. Our sheet products are about 1.8 months on hand. I can't -- frankly, I can't remember the last time they were that low. Plate inventories are somewhere around 2.3 months on hand, also well under the normal PIV rate.

And in terms of the impact or what we're hearing as to why that's been happening, I guess, part of it has been that the service center industries have been waiting to make sure that what they're seeing today in the balance between supply and demand and its impact on pricing is longer term.

They want to make sure that this wasn't one of those short pops. And I think that they began to accept the fact that the strength in the market is longer term and we'll begin to see them rebuilding those inventories.

At the end -- also, bear in mind that at the end of the year, you've got a -- all these service centers work hard to manage their working capital and that happens at the end of each year.

Typically, as you go into the first quarter, it didn't have as much of a demand as you've seen going into this first quarter, so I think it was harder for them to rebuild their inventories as rapidly as they've done in the past. If you look at their shipments out of the service centers, you'll see they were also very high during the first quarter.

So that made it more difficult for them to rebuild those inventories. So we expect them to, over time, continue the order entry rate to rebuild those inventories to a more normal level. And we're awaiting their orders..

Okay. And then on the scrap price outlook, it's again been really volatile.

But coming off recently and people are pointing toward lower iron ore prices, particularly the seaboard market, what's your view on scrap in the second half? Is it going to track a little bit of the raw materials like iron ore? Or is it more related to pig iron? And do you see the U.S.

market kind of being stable, I guess, for scrap pricing going forward?.

As we see going forward, we see it more or less stable now. Of course, there's always going to be small moves up and down. But given the situation with iron ore, we don't see any major moves up. In fact, we see some downward pressure. How far is up is anybody's guess, but we think we'll see it go down. Frankly, you mentioned pig iron.

I can tell you that our last pig iron buy was down from the previous buy and the negotiations for future pig iron is even lower. So we see pig iron peaking. We see iron ore going down. All of that bodes for scrap to be steady or go down slightly..

And we'll go next to Seth Rosenfeld with Jefferies..

I have a question on the plate market in the U.S. right now. You flagged that in the release as being one area that drove the strength in your steel mills segment.

Can you just talk a little bit about where you see the current supply-demand balance? Clearly, you had a bit of a benefit as one of your major peers had an extended outage over the past 1.5 months or so.

As they come back into the market, are you at all concerned that some of the recent price momentum could begin to fade? Or do you think that underlying demand has recovered such that, ultimately, this recent price strength can be more sustainable into the back half of the year?.

Well, I'd say it's a combination of a couple things. Demand is better. Now certainly, the fact that we had a competitor that was out for a while, that impacted the supply side of it.

Relative to Nucor itself, when we look at what we've done with our latest acquisition of Longview and how that has really expanded and broadened our supply and our ability to feed the market, particularly when it comes to bridge and other applications and we see that -- we think that, for us, the plate market will continue fairly strong into the second quarter.

Bear in mind that we also had a very successful trade case. It wasn't exactly everything we wanted. But for the most part, it was very favorable. And in the places we didn't get as favorable of a response as we would like, we will watch those countries carefully.

If we see an influx of steel from them, illegally, unfairly traded steel, we will be quick to take action again. So a combination of demand getting better, a combination of the trade cases that we successfully prosecuted last year.

And again, I really want to stress the additional fact that what we've been able to do with our plate supply and the markets that we've been able to attack that we couldn't attack in the past as a result of bringing Longview into the Nucor family are all reasons that we're pretty optimistic about our plate business going into the second quarter..

[Operator Instructions]. And we'll go next to Timna Tanners from Bank of America Merrill Lynch..

You're now reporting tubular products and more information is always appreciated. But we've had 2 quarters now and I just wanted to probe and understand that segment a little bit better.

So first question on that is, first quarter run rate for volumes, is that a good run rate going forward? Is there any seasonality there? And then second one is, pricing quarter-over quarter went up a lot.

How do we think about what drives prices for that segment? And costs, do they line up with the prices? Or how do we think about those inputs?.

Well, let me start with your first question about demand and how we see that going forward. We think demand has been pretty solid, but there's a lot of tie-ins in the construction industry, obviously, with this product. And as we've mentioned several times, we see the construction industry slowly improving.

We think this year, we'll see an improvement in construction somewhere in the neighborhood of 5% to 6%. And frankly, that's the Dodge report number and it is also supported by the backlogs that we see in our downstream businesses which are, for us, frankly, a better leading indicator than the Dodge numbers.

So we see continued improvement in construction. That'll bode well for our HSS businesses.

I would also comment that working together with the conduit business, this really gives Nucor and, obviously, our structural products, our Vulcraft products, it really enhances our business ability to supply a wide range of commercial solutions in the construction industry for steel and steel products.

So we think that's going to give those businesses a boost also. Frankly, in terms of how we see them contributing to Nucor, they're 2 great companies that have come together. There are all kinds of synergies that we're just learning about relative to how they interact with our steel mills, how they interact with each other.

A simple example would be how you can increase the length of harness on various sizes now that you have more than one facility producing that. And of course, you've got all the logistical considerations as to how you best reach customers now that we have 5 different facilities producing that product.

So based on all of that, we think that this was a great move. Our business development team did a great job in making it happen very quickly and the teams are working extremely well with our sheet mills. We're very excited about this new growth platform for our company..

Okay. I can follow up with you later.

I was just trying to understand in particular the pricing moves there since it's a new segment we have the first time ever 2 quarters to compare and we're seeing tubular up quarter-over quarter over, what, $200 -- almost $220 a ton, whereas the sheet price, for reasons that you partly explained on the lag effect, only up $60 a ton.

Does tubular tend to move with hot-rolled? Does the cost tend to move with hot-rolled? Or is it just supply and demand negotiated? Or how do we think about that?.

Well, it's both, okay. Obviously, it does move somewhat with hot band. But at the end of the day, I've said this in the past and I truly believe it to be the case. At the end of the day, pricing is a function of supply and demand. And when we see the demand going up and if supply becomes tight, prices go up.

As I've mentioned right now, we see the construction business looking pretty good in the first quarter. There's been -- demand for our HSS product has been very strong. And with that strong demand, pricing has moved up.

Certainly, it's tied somewhat to our hot band, but I would discourage you getting too hung up on that and recognizing that pricing -- it's economics 101. Pricing is a function of supply and demand..

Can I slip one in for Jim then on dividend, please?.

Jim is waiting with bated breath..

In the past, you've said that when Nucor achieves over $1 of earnings per share, that would be when you'd start to think about factoring in a special dividend. Nucor's dividend has been rising every year, but by pretty small increments.

So I'm just wondering if you had any thoughts about how you'd recommend to the board to proceed on the dividend or any thoughts that they've had on that..

That's a good question, Timna. And we think about the dividend not on a quarterly basis, but on an annual basis. So let's see how the rest of 2017 plays out and we'll think more about whether it's appropriate to increase the dividend or do something with other dividends or do other things to return cash to shareholders by the end of the year..

And we'll go next to Phil Gibbs from KeyBanc Capital Markets..

I had a question on the DRI business. And more so, been reading in the press that the Louisiana operations have been up and then down and then up and then down and then kind of up again. So just wanted kind of a status update there.

And then also, how should we be thinking about the profitability momentum overall given the fact that there's a very favorable spread between pig iron and iron ore right now?.

Well, I'm going to start with your first question. There have been challenges at Louisiana. There's no doubt about that. It's -- that's not untypical of a start-up, especially one that's a complicated technology. We had similar issues when we first started our plants in Trinidad.

But I will point out that we still have a great deal of confidence in the technology and point out that the challenges that we have had have not been with the technology or with the furnace itself. It's been auxiliary equipment. We've struggled with the process gas heater.

We've done a redesign of the top half of that which failed couple years ago with a major failure. We're working on a redesign on the bottom half that just gave us some problems a couple weeks ago. Fortunately, not nearly as severe of a failure. And as we got that back online and started up, we had a problem with the belt.

One of our belt lines -- conveyor belt lines failed. So yes, it's -- we've had our challenges. We're working our way through them. Again, I really want to stress that the issues are not with the technology, not with the furnace.

I'll point out that, in terms of technology, our Trinidad plant, as we mentioned in the script, just set a record for production in the quarter. And both plants are producing DRI in terms of production efficiencies and yields and quality are working at world-class levels. And at the end of the day, it's about our long term strategy in raw materials.

And we're confident, okay, that it's to our benefit to gain control over the largest single cost of our steelmaking operation, particularly -- I mean, I -- scrap -- iron units, in one form or another, account for about 60% of the cost of steel.

And we feel, particularly as we continue to move up the value chain which is one of our stated goals, okay, we continue to move up the value chain, we're going to have a greater demand for virgin, low-residual iron units.

And we see that becoming more challenged as we go into the future because less manufacturing and integration -- degradation of the existing prime scrap in the United States..

No, I'm with you, John. I was just -- I was more curious just in terms of if you've got it to a level where you think you could have some reliability and then thinking more about the economic opportunity because the spreads favor the product right now..

With every failure -- and we go back in and we engineer. We don't just patch it. We do it right. So I'm confident. And if you look at the time lines between the failures, they are extending. So we're confident that we'll work our way through these issues. In terms of the profitability, you're spot on.

We expect it to be very good for the rest of the year as the spreads continue to grow. And personally, as I've said, from a strategic perspective, I believe that's a long term benefit to our company. We'll see that getting better and better as the years go by..

Perfect. And Jim, can you give us just a sense -- you mentioned in the release some of the contract lags on the flat-rolled side. Can you give us any sense in how should we be thinking about some of that in terms of magnitude as we look forward here in this quarter? And just trying to handicap that..

It's not a tremendous amount, but we're pricing – we're in March. But if you think about it, we started the quarter, meaning the first quarter, in January, with much lower pricing than we finished the quarter. So on average, we think the pricing will be higher. We don't think it's raising dynamically from where it was at the end of March.

We think it's more of the average across the quarter will be better in the second quarter..

Okay, perfect. And then last one, just on the inventory positioning. I know sometimes you have work-in-process inventory benefits and headwinds that get captured in the conversion cost. I was wondering if there was a reversal of the headwinds that you had seen in Q4.

And did you see a bit of a benefit from inventory lag in Q1?.

Look, Phil, of course, when we're in an inflationary period with the pricing with raw materials which we certainly saw from the beginning of the first quarter to the end of the first quarter, we're benefited in our cost side as we start the quarter with lower-cost inventories.

But by the end of the quarter, we were using much more extensive scrap and had our highest costs of the quarter. And our highest profits were in March of the 3 months in the quarter. So pricing moved up more than cost moved up.

And so although we will start the second quarter with higher cost, we're going to start the second quarter with higher prices as well by a larger amount. So again, that's why we have comfort in the guidance that we expect improvement compared to the first quarter overall. And it's going to be a little different by product.

But overall, that's our perspective..

And we'll go next to Novid Rassouli from Cowen and Company..

Just you highlighted the renewed growth in demand on the energy side and I was wondering if you could provide details with respect to which products are seeing the greatest demand and maybe which specific subsectors within energy that are driving this demand..

Well, if you take a look at the U.S. rig count, it's up quite a bit. It's currently running at about 850 rigs. That's up from a low in the middle of last year of about 400. So the number of rigs have doubled. And as importantly, the amount of steel consumed per rig has doubled since about 2013.

So when you have a situation where you're doubling the number of rigs and the amount of steel consumed has doubled, that's a good situation for us. And again, as I mentioned, we're -- we tend to be heavy on hot band, particularly at our Gallatin facility. And Gallatin has always been a big feeder to the OCTG.

So we stand ready to supply this increased demand. Now having said that, we still have to keep an eye on imports, particularly when it comes to OCTG. We see a lot of pressure from Korea in that product and we're taking a look at that. There's been some increase of duties, but we're continuing to study that situation.

So to answer your question directly, rig counts are up, just about double. Steel consumed per rig, up just about double. That bodes well for steel consumption in that market..

And John, you mentioned hot band, but of course, also, it benefits our bar business as well with the seamless business..

Absolutely. Good point. Thanks, John..

And one quick follow-up, the trajectory that we've seen for rigs has been pretty aggressive. Based on, I guess, your order book and quotes and what you're seeing, is there any indication that, that could be slowing? Or is the momentum still fairly strong on that front? That's it for me..

Currently, we see the momentum still strong. I know OPEC is meeting, I think it's today or met yesterday. From what I understand, a decision was made to continue curtailing production and that bodes well for that business. So based on everything we're seeing and everything that we're hearing, we expect the momentum to continue..

And we'll go last to Alessandro Abate from Berenberg..

It's Alessandro Abate from Berenberg. I just have 2 questions, John. I mean, you've been quite explicit about development of the steel industry in the U.S. because connecting the dots, seems to be like a very positive earnings momentum well beyond Q2.

You say that inventory of sheet is 1.8 months in hand, rigs count that is absolutely going straight upward. There is a recovery, more than anything else, of segment which were lagging heavily behind demand of sheets in 2016 energy and up early demand for mining equipment.

So with China, South Korea out of the equation of import, even though there is a massive correction of the Chinese steel prices at the moment, but the average price of imported steel should be definitely higher because of the lack of South Korea and China's competition. It really seems that momentum's earnings is going to go well beyond Q2.

And also related to the demand -- the question of my one of my peers, is that related to scrap -- possible scrap decline? Clearly, there is the possibility.

But for what you're basically depicting at the moment with all this set of data, it really seems that, if anything, scrap is going to come down with strong supply and demand -- more favorable to demand this time, it seems that, if anything, as more corrections to price in the U.S., it might actually be definitely lower than any potential downside to raw material cost.

Am I correct in this assumption without going to the smaller [indiscernible]?.

Well, there's a lot of assumptions there, okay..

Yes. Just maybe [indiscernible] been saying, yes..

Yes. In general, I would have to agree with what you were saying. I will say, though, one point that I need to correct. You talked about basically the steel being cut off from China and Korea and some other -- Turkey, some other problem areas. I need to point out that, that is a battle that we're still fighting.

If you look at the import percentage today, we're probably still having 20% to 25% of the market share supplied by imported products, many of which are dumped products. So we continue that battle.

But in general, we take a look at things and we say, "Okay, what's -- where does the steel demand come from?" And at the end of the day, when you look at the United States, construction accounts for the vast majority of steel consumed in the United States followed by automotive, okay, followed by energy. So let's take a look at them.

We see construction has been increasing. At the end of the day, automotive, although it's high, we might see it coming down a little bit. It has been strong. But although the automotive market might decrease a little bit, I'll point out that Nucor continues to increase our market share of the automotive market. We're at 1.4 million tons last year.

We're at 1.5 million tons this year. I am fully expecting that we will be at 2 million tons by the end of 2018. So for us, automotive continues to go strong. And as we just discussed, energy is strong. So when you look at the 3 major consumers of steel, it's all looking pretty positive.

And so how long does that last? You want -- certainly, we think through the second quarter. That's why we're giving the guidance that we're giving. There's other things that we might be seeing coming down the road. We just -- we talked about the investigation that was launched today. That might have an impact, a positive impact for the rest of the year.

Certainly, President Trump has talked about infrastructure. And certainly, we support that. The infrastructure in this country is crumbling. It's an embarrassment.

And when you look at not only the impact that, that has on the economy and on manufacturing, let's remember why we built the infrastructure in this country in the first place after World War II. We recognized from a position of national security we needed to have a strong infrastructure system which today is falling apart.

So all of the things that you've mentioned are certainly looking good for the rest of the year. I've added a couple more things that we see as positives. I want to stress again what we've been doing and we talk about our pent-up earnings power. We've invested $7 billion over the -- during this present downturn.

We've got -- we're just ready, willing, eager for this demand to come back and for the upswing to occur as we see it starting to release this pent-up earnings power that we've been building for several years and investing $7 billion in. So we do feel good about the future.

We typically only talk about one quarter at a time and that's why we gave our guidance only for the second quarter..

If I may, just my second question related to Mexico, I mean, the venture that you are with JFE for the construction of the 400,000 tons of galvanizing steel. Is there any development there? I mean, if we take a look at the currency, I mean which is the lead indicator of a potential deterioration of trade relationship between the U.S.

and Mexico, the appreciation of Mexican peso which reflects a little bit softening stance of President Trump, seems to be a little bit more favorable to your decision to go ahead with the investment.

Correct?.

No, we fully plan to go ahead with the investment. We're planning a groundbreaking somewhat later this month or early next month, okay. So we're comfortable with what we're doing there, being able to supply the automotive market which is certainly growing in Mexico and our new plant is going right in the middle of the growth.

So we feel very good about the project. We're very pleased with our partners. We've been working with a great company, JFE of Japan, over the last year that we've been working with them and we find them to be very similar to Nucor in their aggressiveness in their time lines. And we continue to grow our ability to produce the automotive-grade steels.

So we're excited about it. We certainly are encouraged by what's happening in Mexico and we plan to go ahead..

So you see the demand in Mexico at the moment and also for the next, let's say, 6 to 9 months extremely strong?.

We do, but it's hard to know what's going on from quarter to quarter. But bear in mind that when we make these investments, we don't do them relative to a quarter at a time. We make investments, whether it be DRI or the JFE venture or our plate mill investments that we've made, we make them for the long term.

So we don't worry about what's going to happen next quarter, third quarter, fourth quarter. We just make sure that we make investments that are going to return to our shareholders the value that we should be returning to them for their valuable -- for their investment of their valuable capital. And we're confident that that's what we're doing..

And we'll take our last question from Phil Gibbs from KeyBanc Capital Markets..

I just had a quick one on the energy markets. And John, can you remind us where and kind of how you participate in that market? I would think on the hot-rolled side, it's in substrate. But maybe give us some view on how you may participate on the bar side as well or any other markets. I appreciate it..

Well, we do supply high-quality billets out of our Memphis mill that go into the seamless OCTG. And that's a good business for us and that's been a growing business for us. So you've nailed it. The substrate into OCTG, our Memphis facility with SBQ going into OCTG also.

Do you want to make a comment about cold finish?.

Yes. We also supply cold finish to a lot of energy applications as well..

Good point. Yes, energy in general, yes..

Mining as well..

And frankly, if you want to expand this into energy in very general terms, we can peel back and talk about, okay, we've talked about substrate and we've talked about billets. We've talked about cold finish into it. And let's not forget plate while we're at it, okay. So plate also goes into the energy market. So we're very involved in the energy markets.

And that speaks to the diversity of our company and one of the great strengths of our company..

And that concludes our question-and-answer session for today. I'd like to turn it back over to you, Mr. Ferriola, for any additional or closing remarks..

Well, let me just close by saying thank you to all of my Nucor family, our customers, our shareholders and of course, our teammates. Our success is due to your support, commitment and hard work. Let's continue to work together and most importantly, let's work together safely. Thanks for your interest in Nucor. Have a great day..

Ladies and gentlemen, that does conclude our conference for today. Thank you so much for your participation. You may now disconnect..