Dan Lesnak - General Manager, IR David B. Burritt - EVP and CFO Mario Longhi - President and CEO.

Luke Folta - Jefferies & Company Anthony Rizzuto - Cowen Group Evan Kurtz - Morgan Stanley Brett Levy - Jefferies & Company David Gagliano - BMO Capital Markets Timna Tanners - Bank of America Merrill Lynch Nathan Littlewood - Credit Suisse Curtis Woodworth - Nomura Securities International, Inc.

Matt Murphy - UBS Brian Yu - Citi Gordon Johnson - Wolfe Research Phillip Gibbs - KeyBanc Capital Markets Michael Gambardella - JPMorgan Justine Fischer - Goldman Sachs Jorge Beristain - Deutsche Bank Aldo Mazzaferro - Macquarie Research David Lipschitz - CLSA.

Ladies and gentlemen, good morning, thank you for standing by and welcome to the United States Steel Corporation 2015 First Quarter Earnings Call and Webcast. At this time all lines are in a listen-only mode. Later there will be an opportunity for your questions and instructions will be given at that time. [Operator Instructions].

And as a reminder this conference is being recorded. I would now like to turn the conference over to our host, General Manager of Investor Relations, Mr. Dan Lesnak. Please go ahead..

Thank you, Tom. Good morning and thank all of you for joining us for United States Steel Corporation’s first quarter 2015 earnings conference call webcast. For those of you participating by phone, the slides that are included on the webcast are also available under the Investors section of our website at www.ussteel.com.

There is also a question-and-answer document addressing frequently asked questions on our website for your reference. On the call with me today will be U.S. Steel President and CEO, Mario Longhi and Executive Vice President and CFO, Dave Burritt. Following their prepared remarks we'll be happy to take your questions.

Before we begin I must caution you that today's conference call contains forward-looking statements and that future results may differ materially from statements or projections made on today's call.

For your convenience the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release and are included in our most recent annual report on Form 10-K and updated in our quarterly reports on Form 10-Q in accordance with the Safe Harbor provisions.

Now to start the call I would turn it over to our CFO, Dave Burritt..

Thank you, Dan. Good morning everyone, and thank you for joining us. Turning to slide three, we reported an operating loss in the first quarter of $21 million at the segment level.

EBITDA adjusted to exclude the restructuring charges associated with the permanent shut down of our Gary Works and Granite City Works coke making facilities was a $110 million for the first quarter.

We faced extremely difficult conditions in the first quarter with high levels of imports and supply chain inventories and rapidly falling spot prices and rig count significantly impacting volumes at both our flat rolled and tubular segments. The continuing strengthening of the U.S.

dollar, particularly in relation to the euro helped to keep import pressure high in North America and negatively impacted our European segment results.

While we are taking aggressive actions in the near term to mitigate the downside resulting from the difficult market conditions our results over the last 12 months reflect the earnings leverage we have when market conditions begin to improve.

We remained focused on the execution of projects supporting our Carnegie Way transformation that improve our earnings power. Turning to cash and liquidity on slide four; we have a strong cash balance and enough liquidity to keep us well positioned to deal with the currently difficult conditions.

We generated a $136 million in cash from operations in the first quarter and have generated over a $1billion of cash in the last 12 months. We remained focused on cash management and continue to build on the working capital gains we made last year.

A strong cash position, substantial liquidity and an improved balance sheet keep us positioned to invest in high return projects including projects that we have referred as quick wins which were smaller in size and have very short implementation periods.

Our strong cash position also supports our strategic initiative to increase our funding for the research, innovation and technology needed to develop the steel solutions that will create value for both our customers and our stockholders. Dan will now provide additional details about our segment results. .

Thank you, Dave. On slide five, first quarter results for our flat-rolled segment decreased significantly compared to fourth quarter primarily due to lower shipments including inter segment shipments to our tubular segment.

Our flat-rolled segment results continue to be adversely impacted by the mass of steel imports that accelerate during the first quarter many of which we believe are unfairly traded.

Average realized prices have decreased due to the adverse effect of these imports which has served to dramatically reduce spot market prices and indices and have negatively impacted pricing on both spot and certain contract volumes.

The declining results also reflects the inefficiencies resulting from reduced production levels at all of our facilities. On slide six first quarter results for our tubular segment decreased significantly compared to fourth quarter, primarily due to lower shipments.

Shipments were adversely impacted by reduced drilling activity caused by low coal prices and a significant amount of tubular import volumes. Inefficiencies from reduced operating levels at all of our tubular facilities also negatively affected first quarter results.

For our European segment results were comparable to the fourth quarter with the positive effect of increases in shipments and reduction in raw materials cost offset by negative foreign currency effects and a slight decrease in the average realized Euro based prices.

Now I'll turn the call back to Dave for some additional comments on our Carnegie Way transformation and the favorable impact they continue to deliver. .

Thanks Dan. Turning to slide eight, on our earnings call at the end of January, we disclosed that we would have $150 million in Carnegie Way benefits in 2015 as compared to 2014 as the base year.

We have continued to make progress as our pipeline of value creating projects has grown and we continue to focus on the disciplined and systematic execution of these projects. Including the benefits from projects we implemented during the first quarter our new total for 2015 Carnegie way benefits for 2015 is $340 million.

A few examples of projects implemented in the first quarter include process improvements increased the recovery of off gases [ph] in the steel shop at USSK for reuse as fuel for our boilers, not only reducing our purchases of natural gas and coal but also lowering total CO2 emissions.

Process improvements for tracking and management of coupling inventories at our two wheeler operations resulting in lower inventory levels and reduced coupling purchases.

Process improvements for management of inner plant shipments in the flat-rolled segment resulting in lower freight cost and more efficient inventory planning and working capital management.

There are thousands of projects that aggregate, deliver substantial benefits that are getting us to the impressive results we have achieved so far and I would once again like to emphasize that these are not targets or objectives and they are not speculative. These are the results of projects and improvements that have been implemented.

We're spending cash wisely, implementing Carnegie way projects that create value and require less expenditures.

Our pace of progress on the Carnegie way transformation continues to exceed our expectations and the continuing benefits will improve our capability to earn the right to grow and then drive sustainable, profitable growth over the long term as we deal with the cyclicality and volatility of the global steel industry.

Now turn to slide nine for an update on our Carnegie way transformation process. The Carnegie way is focused on value creation through a disciplined and structured improvement process with the objective being to earn an economic profit throughout the business cycle and deliver above market returns to our stockholders.

The Carnegie way transformation is a way we work to create value for our stockholders by improving our margins across the business cycle through sustainable improvements to our cost structure achieving operational excellence at all of our facilities and providing our customers with differentiated and value creating solutions.

We are in the second full year of what we see as a multi-year process but as our current results reflect we are not where we need to be yet.

We are making real progress and we are creating value by producing better margins than we have in similarly difficult conditions in the past and the continuation of this process will lead us to sustainable margins that will deliver economic profit throughout the business cycle.

Today equity markets are too heavily influenced by short-term focus which can be a true impediment to real and sustainable value creation by detouring and discouraging the investments in and commitment to innovation, technology and product development that will drive profitability over the long-term.

We are pursuing a value creation strategy that will benefit the true long-term investors, that provide a sustainable capital base for our company.

These are the people that own our company and are the people we work for and we will make our strategic decisions based on what we believe are in their best interest and not for the benefit of those that invest in short-term market volatility.

With the Carnegie Way we achieved economic profit in 2014 and created commercial entities to get closer to our customers. We launched operational excellence strategies where the improvements in CapEx management and delivery performance and are holding our leadership team to high levels of personal and professional accountability.

No doubt we have a lot more work to do and we will not be deterred by short-term volatility. And now I will turn the call over to Mario to cover several important areas..

Thank you, Dave. We’ve taken aggressive and decisive actions to address the extremely challenging conditions we are currently facing in North America. Some of these are very difficult decisions that have a significant impact on our employees and their families and we do not take these lightly.

But these are some of the actions that are necessary for us to remain well positioned to respond when the market conditions improve.

We have reduced our operating grades at all of our facilities in North America and will continue to make the adjustments necessary to serve our customers in the most cost effective manner without sacrificing quality, delivery and service that our customers rely on.

And most importantly we will do this without compromising our commitment to the safety of our employees. In this regard while we continue to make improvements in our safety processes and performance we are still not satisfied and we’ll keep working toward our goal of zero incidents and injuries.

Our order rates have been significantly impacted by high levels of imports into the North American market that have continued unabated, resulting in operating levels that have caused us to lay off a significant number of our employees and will likely result in the number of lay-offs increasing going forward.

We are attacking every aspect of our cost structure and exercising every opportunity that we have to eliminate, reduce and defer costs. We have many cost levers that we can pull in response to a downturn in market conditions and we are pulling them as quickly and as hard as we can.

We estimate that the impact of these short-term actions will reduce costs over the balance of the year by at least $200 million. I would like to emphasize that these are the result of short-term actions that will reverse as eventually -- as we eventually return to normal operating levels and bring our people back to work.

These cost reductions are in addition to the sustainable improvements to our business model resulting from our Carnegie Way transformation that Dave discussed a few minutes ago.

Unfortunately we have also had to resort to issuing award [ph] notices over the last few months which will help us with the flexibility we need to continue to adjust our operating levels to match our customer’s needs.

While these award notices cover a large number of employees and facilities the actual number of employees laid off and the operating levels at our facilities will be determined by market conditions. We are also taking actions to reduce our corporate and support function cost.

We currently have three blast furnaces idled at our steel producing facilities, one at Fairfield, one at Granite City and one at Gary. We will run the other eight blast furnaces at levels that will provide the steel we need to meet our customers’ requirements and we remained ready to respond as order rates improve.

We continue to operate finishing facilities at all of our flat-rolled plants and are producing energy tubular products for our customers at all of our tubular facilities with some facilities running at significantly reduced operating rates.

While we are taking these short-term actions we continue to aggressively pursue the long-term strategic initiatives that are critical to the ultimate success of our transformation and the creation of value for all of our stakeholders.

Our commercial entities are firmly in place and are actively engaged with our customers to find the differentiated steel solutions that will drive higher margins for both of us and our customers and transition us from merely being just another vendor to being a trusted business partner.

We continue to make the investment to implement our Carnegie way driven reliability center maintenance program at all of our facilities.

This will result in more consistent, efficient cost effective and safe operating conditions as we are focused on achieving operational excellence at not just our production facilities but in every aspect of our business model.

Now before we take your questions I would like to give a brief summary of what we are seeing in our markets and our guidance for 2015. The automotive market continues to be a very good market for us and we expect it to remain strong throughout the year.

We expect to see continued growth in construction, including increased demand for construction equipment. Recent service center data, particularly flat rolled inventory levels and materials and order levels suggest that order rates should start to improve during the second quarter.

Excluding the energy sector, steel consumption in North America is generally good, but extremely high level of imports, many of which we believe are unfairly traded continue to negatively impact order rates for domestic steel producers.

In the energy markets, rig counts continue to decline and the high levels of import tons that continues to arrive suggest that a recovery in domestic order rates will be difficult until late in the year at best. We continue to expect slight growth in steel consumption in Europe with better growth rates in the Central European region.

To turn out to slide 12 and we'll take a look at our outlook. We have entered 2015 in a very volatile market and facing significant headwinds from dramatically lower oil prices, lower steel prices, a stronger US dollar and significant import pressure. As we progressed through the first quarter, these headwinds became much stronger.

Spot prices for flat rolled products have decreased at an accelerated pace reaching levels well below market expectations at the beginning of the year and imports have remained at historically high levels.

The pace and the magnitude of the drop in both oil prices and drilling rig counts has resulted in decreased steel demand for both finished products and substrate supplied by our flat rolled segment for the production of tubular products.

Lower order rates for both flat rolled and tubular products have resulted in lower utilization rate and increased operational inefficiencies at all of our facilities in North America. We expect lower overall steel consumption level to extend time needed to rebalance supply chain inventory levels in both flat rolled and tubular markets we serve.

We have taken aggressive actions to reduce costs and adjust our operating levels in the near term, but cannot fully offset these increased headwinds. Taking into account all of the significantly negative changes we have seen in our markets over the last three months.

We now expect our full year 2015 adjusted EBITDA to be between $700 million and $900 million. We are taking actions [ph] for not only cost reduction but also for the increased opportunities that our more nimble cost structure enables. We are in the long term journey, we're making progress and we will continue to do so. .

Thank you Mario. Tom, can you please queue up for questions. .

Yes. [Operator Instructions]. Our first question today comes from the line of Luke Folta representing Jefferies. Please go ahead. .

Hi good morning. .

Good morning Luke. .

First question I have is, just in regards to how we should think about some of the moving parts into the second quarter.

And I know you’ve sort -- you stepped away from providing specific guidance on a quarterly basis but pre-mature price pressure, I have seen in the first-half of this year and you got lag in contracts and that is going to impact selling prices. You have also been very aggressive on the cost reduction side, and idled some facilities.

So I was just hoping you can provide some higher level color in terms of how we should think about 2Q versus 1Q, the full year guidance is interesting but without some level of context it isn’t as useful as I think it could be with some color on that?.

Well Luke, I think you are exactly right about prices. I mean clearly when you look at our contract structures and we have that chart that we shared [ph], we will see some significant decreases in our average prices of flat rolled quarter-over-quarter.

And I think as you look on the markets I don’t think there is expectation you will get any volume offset for that. You know on the tubular markets, the rig counts just continue to fall. We are already down into the low 900s now, that resulted in making the supply chain inventory situation worse there, because [indiscernible] so fast.

So I think you are going to see a continued deterioration in tubular markets for some time also..

Okay. So I mean it sounds like you are saying else equal you think 2Q lower than 1Q but then nice recovery in the second-half largely up on pricing. .

Yeah, you should think of it as a normal flow-through when you look at the contract prices that are there for us. But there are signs that some inventory levels on the flat rolled side are beginning to dwindle. We are beginning to see an order intake pick-up and there seems to be inflection as far the pricing is concerned. .

Okay. And then secondly on tabular, the shipment declines in the first quarter were bit more extreme than expected, clearly we are expecting a fall off given the rig count but I recall you pointing out that January-February shipments were generally okay.

So as we look through the remainder of the year I guess my thoughts on where we might see a bottom in terms of timing and just magnitude and shipments, feels like its maybe moved up a bit. As you look out, you think it is going to be well into the back-half of the year before we see a pick-up in shipments.

How do you think about the progression of shipments in tubular from here do we sort of stay at this level for next couple of quarters, or you see that sort of you know continuing to decline?.

Well I think the decline into tubular is continuing, certainly in the order Luke. I think we will see and close to very, very low bottom at that point and then we are just going to have see how much CapEx is going to begin to flow back, and the other thing is going to be how imports are going to keep playing a role in there too..

Our next question today comes from the line of Tony Rizzuto with Cowen and Company. Please go ahead..

Thanks very much. Hi, gentlemen..

Good morning, Tony..

Good morning, Mario.

I also want to drill down on your guidance and specifically we are trying to get a better handle on how to think about unit cost progression and I look back at the results in the fourth quarter in the flat rolled segment we were very impressive, even with a nearly 20% decline sequentially volumes, the calculated unit cost were only up $10 per ton and in the first quarter and certainly I applaud you guys for operating with all the challenges you had, 60% operating but with volumes down 13% sequentially, unit costs blew out up a $100 per ton.

So can you help us understand a little bit about the moving parts and the impact on the unit cost and how we should be thinking about that as you are also aggressively working on Carnegie Way going forward, how should we think about that coming together?.

Well Tony on the unit cost you know the lower operating rates go the stronger inefficiency you get they just get to be a bigger headwind on that point basis.

The other thing that probably in that first quarter versus fourth quarter projection is you do have a normal seasonal impact, negative impact 1Q versus 4Q on your mining operations and that will not be not only our whole year mining operations but also we think about our investees, our investment in mining JV that flows through also and then I think there is also some, as we are moving towards lay off we have some accruals in there that address the coming lay-offs that are going to be hitting us.

So those are probably some of the cost pieces that make that absorption look worse, much worse during the fourth quarter and the absolute total cost were a little bit down but with volumes being down the cost absorption just really takes over. .

Okay so if I understand you correctly some of those items were certainly as you guys are repositioning the workforce and resizing it if you will and some seasonal and also we note that the AASI operating rates seem to have picked up during in the last couple of weeks.

Would that be indicative of what you guys are seeing in your trends in your order books? So if from an operating or capacity utilization standpoint how should we think about that for you guys?.

I think that’s true in the flat rolled side Tony. If you look at inventory they came down a little bit again I think order intake is -- we’ve seen that beginning to grow but on the tubular side there is still a very significant amount of inventory in place, I would suggest around 9 to 10 months and imports are still coming in.

So you got to make that distinction. .

And again that’s going to impact the substrate, I guess pull from flat rolled as well continued?.

Yeah, very definitely Tony. We have a significant presence in the energy business and the flat rolled segment is the sole supplier to the energy division. .

Okay I’ll turn it over and look to get back in the queue, thanks. .

Thanks Tony. .

And our next question today comes from the line of Evan Kurtz with Morgan Stanley. Please go ahead.

Hey good morning guys.

So just wanted to walk you through some simple math on the slide and it seems like if you take Q1 as a starting point, annualized EBITDA would be somewhere around 440 and then if you add to that additional Carnegie it’s another 190 and short term benefits are 200, you kind of get a little bit to the -- above the midpoint of your guidance range.

So I guess that’s kind of how you’re thinking about it, but can you maybe talk a little bit about what sort of I guess, the unknowns in that equation are, volume trajectories and volume pricing trajectories in energy for the rest of the year, can you talk a little bit about what might you to the high end of your guidance range versus the low end?.

Well I think Evan you have the imports. The question’s going to be, the three bigger factors are going to be prices and volumes and quite the biggest, couple of bigger factors of volumes are the import levels and how fast the supply chain inventory can normalized.

So I think when you look at that range of outcomes for us there is a range of that -- those three pieces, one, new prices move how much, how fluent, how long they last; one is pricing inventories really get absorbed and the order rates start showing up and really as the import situation moves do they get better.

So I think there is a range of outcomes in all those that kind of when you put them all together give us a range of numbers that we’re looking at here. .

Okay, maybe one other one if I may on just an update on the trade case, seems like it’s been pretty tough beginning of the year.

It seems like the industry has been harmed, given everyone’s results have been so, since you stepped down from 4Q to 1Q are we close to some sort of filing you think at this point?.

Evan, what I can tell you it’s not a question of if, it’s a question of when. And make no mistake we are going to continue to fight against the legal dumping, period. .

Okay, well I guess I’ll stay tuned then, all right, thanks guys. .

And our next question is from Brett Levy with Jefferies. Please go ahead.

Hey guys, to sort of follow up on your answer to Tony, it sounds like you may take an active Congress, typically the IPC did not consider currency movements this quarter, their dumping margins.

Can you talk with a little bit more granularity about kind of the steps and typically it takes two quarters of losses before it’s most effective to get the optimum dumping margins, can you talk a little bit about your strategy, a little bit kind of what you’re doing, kind of within the IPC within Congress? Just talk about your strategy.

It’s clearly something that’s necessary and everybody on the call really wants to know kind of what are the [indiscernible] of what you’re doing?.

Let me put it to you this way, the cases that are filed, not they are only not complex to put together but they are a one important time saddle that takes place against a certain country or certain company. What we have done though in the bigger strategy, we have proposed trade language that we hope will be a part of the ongoing debate on PPA.

That language very much clarifies the true definition of injury, it is engrained into X where we can implement and enforce that law and that is the ultimately solution to this situation.

In reality I think the debate around PPA has provided us with a window of opportunity where we can implement what I consider to be the ultimate solution to dump in a country. That is the most critical part of that.

So it’s an ongoing affair, but now I think we have a better moment to try to do something at this point in time that may become the ultimate solution..

And Brent the other thing is that we do have on our website where we post our Q&As we have a one in there that is a pretty good description of how the process works and what our approach is. So that’s probably a pretty good reference to everybody in that Q&A documents that is on page five of that document that’s on our website right now.

Sorry question five on the document..

Our next question comes from the line of David Gagliano with BMO Capital Markets. Please go ahead..

Hi, great, thanks for taking my question.

I did want to hone in again on the full year guidance now that has been revised, three months ago at $1.1 billion to $1.4 billion and back then there wasn’t much visibility, obviously in terms of the underlying price assumptions behind the guidance and I think that was a bit of a frustrating point for some of us on that call.

So now that we have to cut [ph] expectations so I am going to ask the same question again what is the pricing framework if you could give us a sense around? For example your expectation of second half rolled coil prices, that flows through the $700 million to $900 million and also what’s your framework around the tubular business for the second half? Thanks..

Well, I think for us to talk about prices, where we think prices will go when our competitors are on the line, our anti-trust guys will shoot us. So let’s just not [indiscernible] that question. We can’t have that discussion in public.

It’s against the law, but we will say that we look at indices, we look ForEx projections we look at same projection everybody else is looking at and I think if you go back to January most of the expectations where that CRE pricing levels for the year were going to be probably $50 or $60 higher than those same indices are projecting now.

So I think that’s the magnitude, the change that we are picking up now but I think that’s just from the observable market indices that are out there. We look at all those that we can. We base our decisions on that. We don’t have some unique view of the world we are putting under those projections..

Okay, just as a follow-up on the $190 million Carnegie benefits how much of that actually flowed through the Q1 results? The $190 million incremental sorry how much of that flowed through the Q1?.

That’s some stuff that was done during the course of -- it’s usually that’s much more of a future impact because the current quarter we do those things you don’t get a lot of immediate impact..

Okay, alright..

That’s really what’s going to -- most of that would definitely show up in the next three quarters..

Okay.

And then just the last question, I know you can’t give us a number but are you embedding some kind of price improvement in the second half in your expectations?.

We just say we think market conditions will be better. Market conditions are going to be a combination of prices, volumes, imports those things..

Okay, all right thanks..

And we have a question from the line of Timna Tanners with Bank of America..

Yeah, hello, good morning..

Good morning Timna..

I just wanted to -- sorry I had the wrong button pressed, you hear me now right..

Yeah..

Okay excellent. So I think you explained really well the caution to the first quarter but it does seem like the contract structure that you gave on page 18, it’s a trailing 12 months. So if we were to see that now it would be changed, I imagine because of OCTG dropping off.

So does that explain maybe why your prices only fell $7 a ton quarter-over-quarter. Can you talk a little bit more about how to think about the price trajectory.

I know you have contract structure the way it is but it seems like it’s been slow to pass through the sharp drop in prices just looking for a little bit more color about the timing and how to think about that?.

Yeah, so I think the biggest piece, you do see the contracts so you can get a good look on how that flows. If you look these lower volumes certainly we did much less spot, would typically be much lower price. So we didn't have as much of that flowing into our mix. So from that standpoint you have a little stronger mix in your average selling prices.

I think if you look at same chart from last quarter, that rolling four months you will see that our spot percentage dropped 7% just in one quarter. So that's a pretty significant change of mix that's going to be impacting the average spot prices.

But without doubt when you think about the trajectory of CRU month-by-month and quarter-by-quarter the adjustable contracts are going to see their effects much heavier now than going forward than they did in the first quarter. .

Okay and maybe you turned away some business that was pretty low price or I mean it seems like a small decline. .

Very definitely Timna we always said that, that’s something that we learn more about and we're focused on and that's exactly what happened here. .

Okay and my other question is just a clarification. I think you said pretty clearly in the discussion, but you said the one that just don't necessarily mean that you just closed facilities. But it's kind of gives you that flexibility.

But in light of the fact that imports are already falling off here irrespective of all this discussion about a trade case and prices seem to be recovering. I just was wondering how to think about how quickly you could change your trajectory or how quickly could we start some of this capacity.

How do we think about and if we had a view that things were on the recovery, how quickly could you respond. .

Well Timna I can't give you a specific number. But I can tell you that if you look at the recovery at whatever rate it comes back we're going to be there to meet it. That's the kind of flexibility that we have put in place. .

Yeah Timna we have three furnaces that we sort of operate now. One at Granite City will be down for a lot of period because of the cash flow project until that's completed but the furnace at Gary and the Furnace at Fairfield they could they come online immediately. So we have the flexibility to bring that on.

And so there is really only very small piece of our capacity that's out for an extended period because of the cash flow project at Granite City. .

And we'll go to line of Nathan Littlewood representing Credit Suisse. Please go ahead. .

Hey guys. Thanks for the opportunity. Listen I just have some question on LIBOR [ph] one off associated with some of these unfortunate redundancies you are having to put through. If we add up all of the employees you've already laid off plus all the people that you've got on one notice at the moment, the totals about 9000 which is….

That’s correct. .

Which is about 40% of your total North American workforce. I was just wondering if you not be able to tell us what sort of allowances existed in the March quarter for some of these redundancies. And are there any sort of metrics or rules of thumb you could give us thinking about that in the future. .

Nathan, our 10-Q which will be filed later today, there is some disclosure on 10-Q on those costs. I don't have it in front of me but they are in the Q. So you will be able to get a good look at those. .

Okay, great thanks. And I will check that out. The other question I had was just on the tubular business. Again if we look at the asset idlings that have been announced today.

They seem, I guess until at least recently, they were mainly in the welded pipe, less so in the sort of seamless than it wasn't until recently we saw some announcements on the connections business.

So is there, I guess as you look at the tubular portfolio there’s obviously a difference across all of these assets in terms of their margins and profitability.

But I guess is there a certain amount of high grading going on of the tubular portfolio and is it perhaps that the rig count data for example kind of overstates the impact to the earnings potential of that business.

And then what were really being left with once this is kind of downsized a little bit is perhaps a slightly higher grade or higher margin coal. .

Well the basic strategy as we've talked about before really is leading towards an enhanced type of product mix that we’re going to with the generation of the premium connections that we will be launching several than this year. So that is a correct assessment Nathan.

The part though is that if you look at the way in which prices of oil fell the rate at which CapExes on the part of our customers were curtailed or to a very large degree stopped, and the dollar stronger and the amount of imports, it has impacted pretty much all the way through.

So we have idled facilities that were in the ERW arena a few months ago but we have significantly curtailed production on the other parts of that business too.

So the operating levels of some of these facilities are incredibly low and that’s what has led for us to be able to have this view that for a long period of time, throughout this year, the recovery is not going to be there and that’s why the [indiscernible] notices were put in place..

The next question comes from the line of Curtis Woodworth with Nomura. Please go ahead..

Hi, good morning, Mario and Dave..

Morning, Curt..

In addition to the project Carnegie benefits of 340, there's obviously a lot of other fixed cost reduction that you guys are trying to achieve either through Granite City or the idling of the blast furnaces, as well as potential head count reduction.

Can you kind of help us quantify the amount of additional fixed cost reduction you are targeting this year or what would be kind of embedded in your guidance range..

The fixed parts is really more in Carnegie, the other pieces really that 200 plus that we disclosed today, is from lay-offs and idling and things again, those are more shorter term operating changes, those cost reductions are about 200 plus that we have on that slate today.

Fixed costs are really more of the Carnegie long term improvement business model..

So the 19D has an assumption for head count reduction for the remainder of the year..

Yes, the 19D would have the assumption of head count reduction to the extent they are permanent headcount reductions. Anything that is temporary will be in the part of that 200..

Okay, and then a question just on, trade case dynamics and how you are thinking about it, seems like a lot of the discussion of market has been cold rolled and Coda [ph] filings but less so on the hot rolled markets, so I am just wondering do you believe that the overall market in terms of the sheet market can improve, if for example you put a cold rolled or a [indiscernible] case on what would prevent the company or country from just shifting say to hot rolled production and then exporting that and coated in the US.

Do you feel like you need more I guess a blanket solution to the whole problem..

Well, Kurt, first and foremost the trade cases that we work on they are all over, they are not just confined to flat rolled. They are significant indeed in the tubular side also. When you talk about a permanent solution, I refer back to the work we are doing trying to seize the moment with the discussions around PPA.

That really is the blanket solution. We need a legislative relief that is sustainable and that’s why we’ve worked very hard and we offered Congress the proper language that clarifies definition of injury, that is part of the Company Bills that are being debated today.

And if that goes into place, then the whole scenario is going to change quite significantly..

The next question is from the line of Matt Murphy with UBS, please go ahead..

Hi, just a question on energy costs and whether you are seeing any benefit to the potential to the locking lower cost, natural gas prices to a certain extent.

And also wondering just with respect to your mining operations are you seeing much help from current oil prices?.

Well, we normally do apply a hedging strategy going forward to a portion of the energy bill we need from a gas perspective. And certainly our teams are diligently always looking at it in order to try to expand the periods of the hedge. The iron ore operation though it’s -- we are being as flexible again as we need to be.

If you look at the adjustments that we made to the steel production side we are aligning that with the mining operations, and again there is flexibility there. So that we can recover whenever these markets change but we are trying to align the whole value chain to the current market conditions..

The next question comes from the line of Brian Yu with Citi. Please go ahead..

Great, thanks, good morning..

Good morning, Brian..

Hey, on the first quarter what was the kind of idled and outage costs and as we think about the ongoing costs in 2Q, 3Q, let just say that ongoing basis assuming that these three blast furnaces stay idled what would be those quarterly costs?.

Yeah, we haven’t cogged those specifically either. In fact I think when we got into that discussion back in ’09, trying to be helpful it created a level of confusion than it helped. So I mean those are just with the inefficiencies the cost absorption, they are all just absorbed in that.

So the timings of volumes is going to be the most important factor, whether you have a line off here or a blast furnace off there, that’s not the big driver, I said we learn from our strength and past outlook and they just turned out to be very helpful anyway..

Okay, how about me trying to ask a little bit different way, you operate at 60% utilization rate, if you are able to maximize utilization of the facilities that you have currently running what utilization rates do you get up to?.

Well if you go back and you look at similar conditions that we have faced in the past and you do the base analysis on the differences in input costs like coal and energy and all that and prices, if you look at the portion of it, that we can really control we are better than we have been in those situations before and that is just going to continue.

In this journey where we are taking cost out, improving the efficiencies on a regular basis as soon as this market turns you are going to see that the earnings power is going to have grown quite significantly..

All right, great. Thanks, good luck guys..

Thank you..

All right. And we will go to line of Gordon Johnson with Wolfe Research. Please go ahead. .

Thanks for taking my question..

Good morning, Gordon..

Hey, guys. I guess with respect to the EBITDA guidance for the full year it seems like there is a heavy weighing to the back half. Can you maybe some clarity on how much of this is volume versus ASP versus cost reduction related? Then I have a follow-up..

It is a combination of all three because depending on what volumes do, will dictate what we do on the cost side, will dictate what happens on the price side. So we will react differently depending on which direction these three pieces move.

Certainly we will work as hard as we can on the cost side but what happens with pricing with influence our decisions on what we do as far as what work we take, we don’t what configuration we go to, I think if we see a better trajectory in orders rates that certainly would influence what our pricing expectations would be..

Okay, that’s helpful..

There are really three moving parts that interact with each other so there is not a static piece for any one of them..

The one thing that is real too Gordon is the fact that some of the Carnegie Way improvements that are directly related to operational efficiencies, the higher utilization that you have it’s exponentially higher than the numbers of dollars that you are going to get.

So that by itself you will see translated in bigger dollars if we can more get volume into the operations..

That’s helpful, that’s helpful. And then with respect to the trade case clearly we have seen a significant fall in iron ore prices, the dollar is high. So I guess do you think right now is a good time to potentially file a trade case given it seems like some of the market dynamics are really what’s driving the imports versus unfair trading.

When you look at the margins of the Chinese Steel makers they still remain fairly positive across the board. You think now is good time or do you….

Any time that we can conclude the analysis is a good time to do that. What we know is that it’s happening, it’s there, some of these factories that you mentioned just put a little more complication in the analysis but as soon as we nailed the case it goes regardless..

And it really is a product by product assessment, it’s not whether a company is making, a Chinese company is making money in total. It is what they are doing with a particular product and how they are pricing that particular product..

Yeah, regardless of all those additional factors illegal dumping is ongoing and that has got to be stopped..

And our next question is from the line of Phil Gibbs with KeyBanc. Please go ahead. .

Good morning..

Good morning, Phil..

Just curious on [indiscernible] and that idling and really what would bring that back given the fact that with your future operational footprint you may not need those tons and is there any future desire, if Canada is restructured to reenter that business either in part or in full?.

The flexibility is complete over there Phil. We mentioned in the past that there is eventually an opportunity for DRI, there is eventually an opportunity for even pig iron and bringing it back on is not a very difficult affair.

So we have it, it’s there, it’s a good quality, the operations are excellent and it’s a flexible tool that what we have at our disposal here to use as the market needs. .

And then any comments on Canada as far as willingness to get back in to that business either in part or in full if it’s restructured?.

Well, it’s deconsolidated. They are going through their motions over there in order to resolve the situation and we’ll see how that goes. We’ll keep our eye on it. .

Okay and then just as a follow-up if I could, is the second half exit rate in EBITDA indicative, isn’t indicative of current pricing conditions or some improvement in pricing conditions, i.e. what we’re seeing on the futures curve? Thanks. .

I don’t think you can look at a single quarter and use that as a full indication, given the fact that some of the variables flow through and then you really need probably a longer period of time to see where that’s going. .

Our next question comes from the line of Michael Gambardella with JPMorgan. Please go ahead.

Yes, good morning. .

Good morning Michael. .

Just have a follow up question on the trade cases. It’s clear that there is a lot of imports around -- while they’re going to be clear that they are causing some injury eventually, but is it more difficult to really say that they were unfairly traded and to prove that when for most of 2014 U.S.

sheet prices were about 40% or 50% higher than Chinese or foreign prices. .

The U.S. prices are one of the criteria for the trade loss. Trade loss are what they are doing in their markets and what they’re doing in relating to their cost, U.S. prices aren’t part of the trade loss. .

Right, I understand but you have the price premium in the U.S. at record highs, above $200 for most of the year and it shouldn’t be any surprise that imports are high now because of that premium.

I'm just saying is the delay in these cases on flat rolled because it’s you’re running into difficulty proving that they are unfairly traded last year?.

No, you look at it we had what 30 million tons roughly about a year and a half as imports, it’s up to 47 million right now and you take a portion of that being illegally dumped in here, it’s a big number. .

Okay, so you can prove that the vast majority of them are illegally dumped and prices in the U.S.

were at such a big premium for all last year versus foreign price?.

Yeah, I’m sure there are some imports coming in because of price arbitrage that are fairly traded and those aren’t the issues, the unfairly traded ones are really the issue. .

Okay, all right thanks a lot. .

Our next question is from the line of Justine Fischer representing Goldman Sachs. Please go ahead.

Good morning.

The question I have is on the impact of potential trade cases as opposed to the process and after the trade cases in OCTG were brought last year, I think a lot of us looked at the market data as far as the tonnage come in et cetera and I think people expected to see a massive improvement in pricing or a massive drop off in volumes and we didn’t really see that.

So my first question to you is what do we need to see out of a trade case decision in order to have a meaningful impact on OCTG trade given that the levies that were decided on last year and some of there were against you and some of the heavy importing countries didn’t seem to have that big an impact on the market?.

Well that’s why I mentioned that we have been offered legislative change on the part of the definition of injury.

That really is what is the ultimate solution and by the way some of the cases that were won last year the margins were very inappropriate, which proves the determination of some of those nations and companies to come after this market, regardless they have other purposes, other reasons to create those businesses over there.

I'll remind you in the case of South Korea on the CTG case we had barely a 15% margin that barely covers anything and by the way they produced some -- in tons of product of which they consumed none and 98% of that comes into the United States. So it's really this moment, with this new language that is tied to the TPA process could be a game changer. .

Okay thanks. And then my second question is just about the issue of market share. I think that when we have seen your announcements to cut the capacity we viewed that as positive as far as bringing the market overall and back into supply demand balance.

But do you feel as though you guys have lost some market share on the flat rolled side as a result given that there maybe some other mills that can just continue to produce on either on lower cost or higher levels.

I know you mentioned that you can bring back capacity fairly quickly, so maybe it's not kind of a long-term issue but do you feel that you ceded any in the interim. .

The only loss of the market share that we've had has been to imports Justine. That's the area where we lost it. .

Okay, great, thanks very much. .

Sure. .

And our next question is from the line of Jorge Beristain with Deutsche Bank. Please go ahead. .

Hi good morning. I just wanted to drill down a little more deeply into the cost issue again, given that realized pricing was roughly flat quarter-on-quarter and the big drop off in your EBITDA was due to that sort of $100 change in unit costs.

You did mention it was due to fixed cost or lack of fixed cost dilution but then you also mentioned earlier that there were some reservation that you were making in terms of the warrant notices that you put out and as well probably some layoff cost. So I was wondering if you could just quantify of that $100 sequential change we saw in cost.

But how much of that was due to fixed cost or a lack of fixed cost dilution and how much was due to one-offs. .

I don't have those details right now but in the Q there is a quantification of layoff impact. So I mean that you should be able to figure out how much of that $100 is related to those. But I don't have a detailed breakdown of the fixed and all the components with me right now. .

Next question is from the line of Aldo Mazzaferro with Macquarie. Please go ahead. .

Yes, so good morning. .

Good morning Aldo..

I think you just answered the question I was going to ask but the -- there has to be something in your numbers that caused those over $100 ton cost decline on an $8 ton decline in pricing. And just backing into it is difficult volume that I would argue that more than 100% of your costs are fixed.

So I wondered if you could just tell us if there were changes in your input costs, raw materials or how much you took as accruals for lay-offs or anything else that may have sequentially gone up or down in the cost structure. Thanks..

On the cost side were one-offs, like that the layoff numbers that are in the Q were costs that went up. And the seasonal impact of the mining operations, and the mining JVs would be a negative cost issue quarter-over-quarter. So those will be two decent size items in addition to the fixed cost absorption piece of that. .

Great and then Dan can you also explain what that tax benefit related to -- is there an offset somewhere in the costs that would reflect those higher depreciation expenses or what was that benefit due to?.

The big factors that moves us off a statutory tax rate is our excess depletion allowance that we get related to mining operations and unfortunately the closer our income is to breakeven the much bigger impact that has on that calculated tax rate. .

Okay, and could I ask one separate question on strategy [indiscernible]. When you go back to EAF and run it are you going to be making long products with that EAF like tool grounds [ph] or you're going to go after flat rolled deductions. .

No it's mostly rounds for the energy business Aldo. .

Right, that would make -- So you won’t openly be making flat rolled at that location anymore. .

No, the flexibility is there we can supply Fair Field operations with slabs from other places. So we're very, very flexible in that regard. .

Our final question today will come from the line of David Lipschitz with CLSA. Please go ahead..

Thanks guys.

Just to follow up on Aldo’s question about the tax, so in the second quarter do we expect a bigger tax benefit?.

I don’t have second quarter projection on tax. It’s based on your annual assumptions and like the biggest factor that excess depletion allowance and that’s if you look at 10-K that’s a pretty number. So it just depends on really what our operating results turn out to be on how that effects our blended tax position at the end of the quarter..

So let’s just say it was flat quarter-over-quarter would it be the same number?.

I don’t know. I haven’t seen that calculation..

Okay, thank you..

Okay thanks all. We appreciate all the questions. Mario, a final remark here for us..

Sure so before we sign off I would like to acknowledge the hard work of our employees and their extraordinary efforts to improve our company, while remain fully committed to our core values of ethics integrity and safety. We know some of the short-term actions that we take impact our team, but these actions are necessary to create a stronger company.

Slowly but surely all of the initiatives being pursued will make us stronger and better positioned to serve our customers and will result in a better and safer work place for all of our employees..

Thank you, Mario. We appreciate everybody joining us today and we look forward to giving you another update at the end of July. Thank you..

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