Brian Hedges - President and Chief Executive Officer John Reid - Executive Vice President and Chief Operating Officer Marion Britton - Executive Vice President and Chief Financial Officer

Anthony Zicha - Scotiabank Sara O'Brien - RBC Capital Markets Brett Levy - CRT Capital Michael Tupholme - TD Securities Bert Powell - BMO Capital Markets Justin Wu - GMP Securities Frederic Bastien - Raymond James John Novak - CC&L

Good morning, ladies and gentlemen and welcome to the 2015 Third Quarter Results Conference Call. Today’s call will be hosted by Mr. Brian Hedges, President and Chief Executive Officer; Mr. John Reid, Executive Vice President and Chief Operating Officer; and Ms. Marion Britton, Executive Vice President and Chief Financial Officer of Russel Metals Inc. [Operator Instructions] I will now turn the meeting over to Ms. Marion Britton. Please go ahead.

Good morning, everyone. I will start by reading the cautionary statement Page 3 of this package that we have sent out. Certain statements made on this conference call constitute forward-looking statements or information within the meaning of applicable securities laws, including statements as to our outlook, future events or our future performance. All statements other than statements of historical facts are forward-looking statements. Forward-looking statements are necessarily based on estimates and assumptions that while considered reasonable by us inherently involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Our actual results could differ materially from those anticipated in our forward-looking statements, including as a result of the risk factors described below in our MD&A and in our annual information form. While we believe that the expectations reflected in our forward-looking statements are reasonable, no assurance can be given that these expectations will prove to be correct and our forward-looking statements included in this call should not be unduly relied upon. These statements speak only as of the date of this call and except as required by law, we do not assume any obligation to update our forward-looking statements. I will ask you to flip to Slide 5 of the conference call package. The metal service centers tons were down 10% in Q3 and are down 7% year-to-date. Activity out there has slowed a little bit compared to the first half of the year. Metal service center margins did improve 19.3% in Q3 from 18.3% in Q2 and this has to do with the fact that the falling prices first half of the year, we were – reduced our inventory pricing and we are able to obtain higher margins. Although at the end of the quarter, there was a further reduction in steel prices, which will limit our ability to get to 19.3% higher in Q4. Metal service centers reduced their inventory to the point that the turns are now 4.7 times, which is a positive move on their part. Rig count remains low both Canada and U.S. Anticipated Q4 volume – low volumes due to the current oil and gas situation out there. Competitive pressure has also caused lack of demand for the pipe and there is excess inventory in North America, some of the imports. The U.S. is particularly hit in the Houston area and Texas from imports. Turning to Page 6, summarizing the results, Q3, $13 million, $0.21 EPS, obviously a lot lower than 2014 when the environment was much better. Nine months, we recorded an EPS of $0.77 compared to the $1.51 a year ago. Free cash flow was the positive. We had free cash flow of $42 million or $0.68 per share and change in working capital of $88 million, and I will speak a little bit more to where the change in working capital comes from. Cash and cash equivalents at the end of the quarter was $81 million, which is up from $3 million at June. Dividend was declared of $0.38 consistent with previous quarters. In addition, we – in the quarter, at the end of September, we put out announcement to redeem our convertible debentures of $174 million. The redemption of the convertibles will result in us having over $7 million of interest savings annually. But, however, in the fourth quarter, there will be a $5 million pre-tax non-cash charge in relation to the remaining accretion and debt cost on the statements. On Page 7, we have all of the data as consistent with prior quarters. Although I am going to flip over to Page 8 to speak to a couple of items, in the quarter, we did look – take a look as normal at our earn-out for both Apex Distribution and Apex Monarch. And due to their current results and look forward results, we did reverse the finance charge income expense related to the earn-out and so we had income in the quarter of $5.5 million. In addition, that’s what it is for the nine months we have the chart. If we take our adjustment for some items, other items being the NRV severance and the earn-outs, our competitive EPS is $0.25 compared to the $0.21 and $0.86 year-to-date. Flipping forward to the balance sheet, I just want to point out the current portion of long-term debt on here. The $169.6 million is the portion of the convertible debentures that’s in the equity as you know, just split between – I mean, in the debt portion and there is a equity portion. The $5 million difference to bring it to $174.1 million will be – or $174.3 million charged in the quarter. In addition, the 28.6 equity component of convertible debentures is up remaining in shareholders’ equity when we do this. Looking forward to Page 10, I have said I will speak a little bit more about our change in working capital. You will see in the quarter that we had positive flow from our accounts receivable. We also had significant cash flow from inventories, $114 million, and that was split between all of our segments with distributors contributing the most at $41 million, metal service centers, $34 million and energy, $38 million. I will speak a little bit later to the fact that when you look at the balance sheet, it gets that confusing because of the FX and our acquisition. So, our total cash from operating activities is $104 million for the quarter and $178 million year-to-date. As you know, this is the norm for us that we through up cash in the down cycle. Flipping forward to Page 14, speak a little bit to the margins. As I mentioned before 19.3 compared to 18.3 metal service centers, year-to-date we are at 19.2, a little bit less than prior year. The energy sector held up because of less activity in our lower margin OCTG business. There has been pressure in all of our operations, but the mix resulted in the margin being very close to last year’s margin that we were on a very much lower volume as you can see 40% reduction in the quarter in our energy products revenues. Steel distributors also was under a lot of pressure in this quarter particularly in U.S. products that was moved at very low margins and resulted in some operating losses in the U.S. side, so therefore that’s which caused the 7.1%. The Canadian side had a little bit of benefit from the exchange impacting products pricing in Canada. Flipping forward to Page 15, you would see the exchange rates just at the bottom of that page that has impacted the balance sheet and the operating ones that particularly I wanted to point out the fact that we were using 1.16 versus 1.34 for our balance sheet, that’s relevant when I get to the inventory section later. Turning to Page 16, I will explain a little bit there the changes in the quarter and year-to-date on the metal service centers. Obviously, the activity in Western Canada has been the area most impacted in our metal service centers particularly Alberta and BC, although Manitoba is also under significant pressure because of the ag industry isn’t doing that well. Quebec and Atlantic regions volume increases, however it’s down in bigger regions to offset the activity, the negative in the Western side, also we are seeing some reduced demand in our U.S. operations. Turning forward to Page 17 speak to the energy sector, you will see comment in the middle of the three months for the revenues from our Canadian operations serving oil and gas drilling activities decreased 52% for the quarter, so that’s the area where activity has not picked up. We would expect to see pickup in third quarter and leads to concern as level of activities in fourth quarter. Our U.S. operations has been moving inventory out of a loss to reduce our exposure because similarly operations there are – they are actually off more than they are in Canada as we count in the U.S. are down 60%. Our Apex and Comco operations are down, but they are doing okay. During the quarter, we did record NRVs $8 million and most of that was in the energy segment. And in addition we did record $2 million of severance cost. We have been proactively trying to reduce our cost and have taken out some additional people in the quarter. And just to compare that to our year-to-date numbers the NRV number year-to-date is $14 million that we have taken as charge and our year-to-date severance is approximately $3 million. There will be other cost reductions as we work through the Q4 and that should probably be where – what we are going to try and done, so that we are better starting in 2016. Turning to Page 21, I will comment just on capital expenditures $30 million is for the nine months compared to last year’s $37 million. We will probably end the year around $35 million. We have some projects undergo were basically completed with our Edmonton relocation of our plate processing that should be done in Q4, few other activities going on although we put a few things on hold to speak where activity pickup will happen. At the bottom of the page you will also note we have commented on the impact of FX on our inventories, so $39 million increase in inventories related to FX only, so at some point people say inventories have gone up, but actually we are having $39 million of FX and then $16 million of acquisition related inventories and $16 million is all in the energy segment. Turning over the page to Page 22, you will see the inventory levels compared to where they where at year end 931, down to 829. And as I mention a few items there that are increasing our inventory turn service centers, the best we have had in the last 12 months. Energy segment obviously impacted by the lower revenue and steel distributors and starting to bring its inventories down which is getting their turns in better shape. Turning to Page 23, in the quarter in September actually we did our main credit facility with our syndicated Canadian, U.S. banks. We increased the facility to $400 million, part of this being because we are going to use that to take out convertible debentures. It was also extended to be a 4 year facility. So it’s now due September 21, 2019. In addition, we were able to get certain reductions in interest and other fees under the facility. Those would be my comments for the quarter. I am going to turn it over to the operator and we will take questions.

Thank you. [Operator Instructions] Your first question comes from Anthony Zicha, Scotiabank. Anthony, please go ahead.

Yes. Hi, good morning. Brian in this current weak operating environment, could we anticipate additional one-time expenses going forward or are we really running a tight shift now?

Well, we have been running a tight shift for a while. However, the characteristics of the marketplace around us probably dictates there could be some more changes yet again, because the price of steel is coming down still and the price of oil countries coming down. So there still could be some inventory-related charges on NRV basis. But our operating costs are still being fine tuned, but there won’t be any big severance costs, if that’s what you are asking.

Okay. And what’s your feeling in terms of pricing pressure, like do you think we are reaching not far from a bottom?

Given the accuracy of our last prediction in August that we would hit the bottom in the metals and the steel, I do want to make any predictions at this point. But certainly, it’s come down about $100 since we thought it was at the bottom last time on the steel side. I don’t think oil countries are at the bottom yet.

Okay. And can you give us a bit more color relating to Apex performance and the weak energy operating environment?

I think all our operations have done what we thought they would. So the areas like Apex that are more into MRO and Comco have done much better than the others, although they are both down. They are in much better shape than the other companies. The two operations in the United States are the most down for us, particularly the oil country and that’s more because I think they deal with the large vendors. The two operations in Canada are in the middle. They are down, but less than they are – the rig counts down and I think that’s because they deal with a lot of junior and intermediate drillers who are active still. So even though their own rig counts are down, their customer base is still drilling.

Okay. And one last question, relating to dividend, like what would it take to one potentially cut the dividend going forward and then and you are revising the situation, I believe every quarter?

We take the Board deciding to cut it. I think the reason you are in Russel Metals and one of the positive characteristics that we have is that throughout the cycle, we produce countercyclical cash flows and that’s happening today. And we already have a very strong quarter and we are continuing to have a strong quarter, which is going to help us take the converts out and save us a lot of interest expense. In addition, that’s the advantage of a conservative balance sheet. We don’t have the pricing pressures or the cash flow pressures that a lot of the producers in that have. If you look at during the year, our equity position has gone up by $50 million even with the dividend. Now a lot of that is exchange gain, which flows through comprehensive income, but our equity is still over $1 billion and our debts come down by $50 million in the last nine months. And it’s only $384 million, which is a debt to equity of 0.4. So our balance sheet doesn’t have any financial stresses on it right now despite where we are in the cycle.

Okay. Well, thank you very much.

Thank you. Your next question comes from Sara O'Brien, RBC Capital Markets. Sara, please go ahead. Sara O'Brien: Hi guys. Just following up on of the dividend question, just wondered Brian, what’s the priority here, is it to grow into – because at some point, I guess earnings pay – payout on earnings is not going to – it’s going to be greater than 100% for sometime if things don’t improve. Is Russel’s priority now to grow in through acquisition to an earnings that makes more sense or is there some kind of ability the cost reduce further to come to some kind of a reasonable margin that will maintain a payout ratio of somewhere around 100% or less?

The answer is all of the above. We have been doing the cost cutting. And so far this year, the earnings have been impacted by a combination of some downsizings that we have done. A lot of which are efficiencies that don’t come back when we grow back up again. So we have taken efficiencies into consideration as well as laying off people just because of the volume. So there is positives to that. We have also taken all the margin compression. And even though the number that we have identified is the NRV number, also in our margins is another 2% or 3% margin deterioration that goes away once we find the bottom. So, I think finding bottom is coming a little even going sideways, our earnings will go back up again because we have taken all the hits this year. Will there be companies that we have been looking at, there will be better targets right now because of these conditions, I think that’s probably true. Although they may not have real good earnings right now, we would have – we would do acquisitions so we had – we had the earnings as we came out of the cycle. Obviously, at the bottom of the cycle, nobody in the industry is going to do that well. Sara O'Brien: When you talk about the M&A targets, are you talking in your current industries or would you look for further diversification?

Well, we have been looking at industrial distribution on valves and fittings and pipe site. So, not a oil country that or that sector, energy sector. But so we are looking at that. We would also be looking at service center operations unlikely that we find something in energy of any size that you would be interested in. Sara O'Brien: Okay. And then just wondered if there is any – what should we reprove to John Reid’s promotion to President, and effective January, is this kind of a normal course long-term succession planning or is there a real change to the role at this point?

No. I think it’s a consolidation of an evolution. John has increasingly taken on more operating parts of the company underneath him. And at some point, you have to recognize that. And it’s also a clear signal about succession in the company, obviously to the market as well as to employees. So, it’s all guys just a natural evolution. There is nothing earth shattering about it. I am not going anywhere anytime soon. Sara O'Brien: Okay. Thank you.

Thank you. Your next question comes from Brett Levy, CRT Capital. Brett, please go ahead.

Hi Brian. Hi Marion, as you guys look at sort of the M&A opportunity, is this kind of your moment. And then the other question would be stock buybacks and bond buybacks and the weird thing is that like in the pipe industry, as you well know, there is a company called [indiscernible], their bonds are trading like 17.5% right now. I mean, you could just buy the bonds and that would be an interesting return. It’s like for a company with strong balance sheet, are you guys actively looking at everything from your own perspective and from an M&A perspective and even from like an investment perspective in other related companies’ bonds?

Well, no. We wouldn’t invest in bonds to get yield. We might look at companies’ bonds that we are interested in these bonds, but we wouldn’t just do it for investment purposes, no.

And then you mentioned is pipe the main area of your sort of M&A activity right now, as you look at it?

No. Energy is not, I mean it might be the least of all the possibilities. We have looked at industrial distribution, which I don’t consider to be pipe and also service centers.

Alright. And then you said that basically you see OCTG as having more downside, is there anything that you would look as you look at the next 12 months or even further up in that that gives you any clause for a turn there?

I think the inventory is coming back under control, what that will mean would be a turn in the margins. I don’t see anything is going to cause a pickup in the rig counts, no.

Alright. And then back to kind of the dividend versus stock buyback, I mean it seems like the equity markets have, as a result of all of the recent metrics turned somewhat negative on you guys. Obviously, you understand the countercyclical nature of your cash flows, is there something that says that the Board should approve a larger stock buyback program?

It’s a consideration we always look at. But again, as I have said before, the reason stock is where it is as good people are exiting. We still have an awful lot of shareholders who bought in here and our confidence that we have the dividend that’s attractive. So you got to deal with both sides of it. But we are looking at all – in a market like this, we will look at all opportunities.

And then on the industrial side, anything from a trade case or anything else like that that suggest you that maybe the industrial business finds some better footing in 2016, I mean I feel like new service centers, especially gets a dominant market share like you are getting a better window into the future than maybe a lot of other people?

We are still concerned of the United States. We think Canada is probably getting to the bottom as far as the volumes.

Alright. Thanks very much guys.

Thank you. Your next question comes from Michael Tupholme, TD Securities. Michael, please go ahead.

Thanks. There was a mention that activity within the metal service centers has slowed since earlier this year. And I think, Marion ran through that a little bit, but I was just wondering if you could circle back and help me understand that all a little bit better, what areas specifically have you seen slow since earlier in the year?

I will let John answer that.

Michael, we obviously – Western Canada is slowing like oil and gas related natural resources, ag as Marion mentioned although there is a slow, we have seen pickups in Eastern Canada. And they are just not enough to offset what’s going on in Western Canada. The U.S. has tapered off somewhat, but it’s in relation to the MFC statistics, we are maintaining or gaining just a little bit of market share there.

Okay, perfect. Thank you. Sticking with metal services, there was a comment about expecting some pressure on the gross margins in the fourth quarter given deterioration in steel prices towards the end of the third quarter. How should we think about that, should we be looking at the kinds of gross margins you earned in Q2 sort of in the low 18% range or can you maybe just help me think about the magnitude of pressure relative to where you are at in the third quarter?

I don’t have a very good crystal ball because if you remember in August, I said that both quarters would be better. So I would probably take the difference between Q2 and this quarter Q3 and use that for your modeling purposes, because I don’t think – I think our inventories are in very good shape, our turns are up. I don’t think we are going to go back quite to where we were in Q2.

Any color on that, John?

The biggest thing you are going to see is challenges. Some of the competitive situations may not have their inventory that’s going to shape. So, there maybe some pressure there to generate cash. And so we will have to react to maintain market share, but I think, Marion is right, I think somewhere in between, but again our best way to combat this is to continue to turn the inventory.

Right. And then in terms of the operating expenses in that segment, I don’t know if there was something unusual going on and off, but you had on a sequential business here, your metal service centers revenues were down about 4% in Q3 versus Q2 yet the operating expenses were actually up even if you adjust for the land sale gain you had in Q2. Can you just – was there something unusual going on there? And then – and maybe more importantly, how do we think about those going forward maybe as a percentage of revenues or just in general?

There is couple of things. If you are looking at the actual dollars, the FX does play a bit of a havoc in the expenses, I know that doesn’t look – it does not so much in the percent when you are looking at that. There was some cost taken in the quarter there for reductions in staffing and we are getting down to some areas where we have our fixed cost or our costs that are necessary to run the business. It’s based at the bottom level. The problem being that even though the tons have come off, we seem to be shipping about the same number of line items. So, the activity in the plant hasn’t really decreased. What happens is everybody once their weekly shipment or how often they take it, but it’s for our lower volume. So, we are getting down to the point where we have the fixed cost of running the plant. People are taking out what they can, but weren’t able to get to anything lower. We continue to look at it and do what we can.

Okay. And then, Brian, when you are asked about the dividend, the sustainability of the dividend on the last conference call, you suggested at that time that you didn’t see any issue with maintaining it through 2016, have your views on that changed at all?

Mine haven’t, no.

Okay. And then just very quickly, quick housekeeping, Marion, the tax rate even if you adjust for the change in fair value contingent consideration was pretty low this quarter, how do we think about that going forward?

One of the things also that plays into that is the fact we had losses in the U.S. You will see that in our segment note. And when you have a loss at 36%, 37% and an income at 27%, you get the mix thing, I guess. It’s probably the easiest way to describe this. I would go back to our normal earn-out margin. Hopefully, we are – we are not going to have losses in the fourth quarter. We don’t have losses year-to-date just was in the quarter.

Okay, thanks for the time.

Thank you. Your next question comes from Justin Wu, GMP Securities. Justin, please go ahead.

Thank you. Good morning. Just firstly in terms of the cost-cutting initiatives, I was wondering if you could comment on what you expect to be annualized tax savings related to some of the severance costs, etcetera?

Well, I don’t have that number.

No, I don’t have that number handy. I mean, also we have lower compensation because we paid for performance. I am sorry, Justin, I can’t really give you an annualized, I don’t know of last year or this year.

I mean, in the fourth quarter, you guys alluded to more severance, should we anticipate around the similar type of magnitude?

I would say less than the $2 million that we put up in Q3, probably about $1 million of that. Additional activities are going to – I mean, there is going to be additional people laid off due to activity, but it’s not going to be that significant.

And I guess just in terms of the energy business inventories, I am just trying to get a handle of how much of that is really at risk for impairment or write-downs. I mean, a large part of that is related to Apex, which I assume is in pretty good shape. So, I guess I am trying to get a sense of how much your inventory is on the energy side is related to kind of downhaul OCTG type business?

Apex, you are right about Apex. Fortunately, but unfortunately, they turned the best in the energy patch, so they have less inventory than the others, but theirs is the most protective. On the oil country, I think that’s where the exposure is. I am not sure what the actual count is. It’s probably at least a third of our inventory and energy is really what I am worried about. I am not as worried about line pipe although there are some pressures there.

And can you comment on what’s happening on the line pipe side in terms of activity?

Well, it’s just another more stable market so for this year than the OCTG. There is lot of completions going on. I think that’s probably still got some legs on it, whether it will make it all the way through to 2016, I don’t know.

And I guess just in terms of margins, on the metal service centers side, obviously, we saw a decent increase given the costing on the inventory. On the energy side though, wondering how close do you think you are before we start to see margins start to stabilize or even pickup kind of Q1, Q2?

Well, the problem is the mix gets in the way of that whole mess. I mean, the margins in Apex have held up quite well. And because of business in the emergency gaming, we are able to maintain those margins, but they are on a lower volume. The issue will be if we ramp up the OCTG sales or our margins will actually come down. So, you have to kind of do your modeling based on your assumptions so much of the increase in revenue is related to OCTG versus flat lining or increasing the Apex, that business comfortable Apex.

But I have a concern though in the industry, Justin, is that there is still about 8 or 9 months of inventory on the ground.

Pipe inventory.

Pipe inventory, OCTG in Houston. That’s got to work its way through for the margins at the industry to improve on pipe sales. And I think we are probably not going to see that as early as the first quarter.

Okay. And how about in the steel distribution side in terms of the costing on your inventory, how close is to market now?

John?

With our current level, we are at market as the market continues to evolve we think we will be there as fast as anyone. So, I think we are okay there, Justin.

Okay. So we shouldn’t estimate anticipate at least flat type margin performance in that business in the coming quarter?

Again, to my earlier comment, as long as we are not having to react to competitors trying to generate cash, low number.

Okay, great. That’s it for me. Thank you.

Thank you. Your next question comes from Bert Powell, BMO Capital Markets. Bert, please go ahead.

Yes, thanks. So, clearly, you guys have said Apex has performed relatively better. Can you just give us a sense of how much better it’s performed if the overall revenue is down 40% in the energy products business, where would Apex be or even if you could help us with the Apex type businesses, what would they be?

They would be down about half of that, yes, like 20% type number, 20%, 25%.

Okay. So, Brian, so that would put – and that would put Apex type businesses at about a third of the revenue for the quarter in energy products if that’s the math?

Yes, it’s pretty close.

Apex comps side.

Yes, Apex comp go, yes.

Yes, yes, yes just put them together. Okay. And that – there has been no – you have taken no severance that that business continues to perform reasonably well?

Yes, but they are very good operators. So, there are severances in their numbers that are in the numbers, but yes, they are downsizing. They have gone on to work sharing, time sharing. They have got 50 locations. So, they are very responsive in a downturn. They closed a couple of locations, but these are not big hits you are taking though either typically you only got two or three employees, but they are doing like everything it needs to be done to make money in this marketplace.

Right. And then just in terms of inventory, this quarter there was charges and in the U.S. operations, it was liquidation at a loss. Going into Q4 or thinking about the next couple of quarters, where do you think you have to be in terms of getting boiling out inventory at a loss versus actually just taking a charge for it?

Well, you do both and they will continue into the fourth quarter for sure.

You think your full…

We thought we will fit in distributors and in energy more so than service centers are in good shape and its U.S. in particular.

Okay. And then just lastly, Marion did you say is the – I thought I heard you say something about energy, some uptick in Q4, what were you really referring to, if I heard you correctly or you can’t say the word uptick in energy in the same sense?

I don’t know they would come together. I don’t think so.

I can’t imagine those two being in the same sense.

Yes.

Okay. I just wanted to make sure.

I think I have made a comment that we didn’t get the uptick we would hoped in Q3 [ph] and Q4, it doesn’t bode well for Q4, I think that’s what I have said.

Okay, perfect. Okay. Thanks. And then Brian and John, I mean John, congratulations. I don’t think it’s that much of a surprise. But what do you – Brian, what do you step back from and John where you step up to in the beginning of the year?

The management style of this company is that pretty well anybody in the executive team can get their hands in anything they think needs to be looked after. And we just sort of, go around picking up the pieces and examining them as we see fit. I am not sure very much is going to change. There may be a couple of new people reporting to John that weren’t before. But I know they are all accountable to me as well. So there isn’t a big change. But it’s more a change to give a clear succession message to the investors and to the employees.

That’s great. Thank you.

Thank you. Your next question comes from Frederic Bastien, Raymond James. Frederic, please go ahead.

Good morning everybody. Marion, I know you have touched on the inventory reserves and workforce reduction costs in the quarter, but could you break them down by segments?

Most of it’s in the energy segment. I would say that over $1 million of this severance was energy and the remainder was service center, nothing in steel distributors. For the NRV, once again mainly energy, but the difference was in steel distributors particularly our U.S. operations and the steel distributors numbers was closer to $1 million to $2 million.

Okay, that’s helpful. Now I guess, in the past few years we saw your service centers gain market share, but obviously you track the industry this quarter in terms of tons shipped, in terms of dropped tons shipped. I assume you continue to fare well in Eastern Canada and U.S., but that you may have lost some of that ground in Western Canada, is that a fair assessment?

I think we have held even across, Frederick on our market share. Typically, we have a downturn in market. We will lose a little bit because we won’t leave the price down. So overall, for our guys to hold even during this I think represents additional value added process in all three areas.

Okay. And what point of Quebec or Ontario and Eastern Canada become strong enough to offset the losses you experienced in Western Canada?

It would have to pickup substantially. It’s again as construction continues to go forward and larger projects continue to go forward, I don’t see that offsetting Western Canada in the near future.

Alright. And lastly just on – for me on the steel distributors side, the question was asked or asked differently your gross margins were – came down 7%, when would you expect them to revert back to the 10% margins as you have been able to achieve historically?

I would say next year. Q4 will be under pressure, continue under pressure because of excess inventory particularly in the U.S. But I think we know that there is still excess inventory at our competitors in Canada service centers where we have to move the product to. We are actively – we have actively reduced our purchasing on that size, because as you know we don’t try and just move tons and we are not sure that this is the market that we should be bringing in other products. So as we go back to doing basically products that’s not available. In North America, we will stabilize our margins.

Okay. I am sorry, I do have another one. In terms of competitive landscape, I am surprised that the rest of the – your competitors in the metal service centers are not in a dire situation, I mean what gives you?

I am not sure what you asked. All-in we have seen report so far was Reliance and their numbers were okay, for sure. But they don’t have the exposure to Western Canada that we do. I mean I think that’s where…

Reliance took a charge on their energy segment I mean some of the – the ones that are exposed similar to us are seeing that I think in Canada, our competitors are private. They are going to do what they are going to do.

Alright. But in terms of M&A, I would think there would be a little more interesting options for you on the metals service centers side, I mean judging from your initial comments, it doesn’t seem like that’s the case?

I think you get into that problem that the reason they are failing and then they are in insolvency type conditions. And we are looking at various. They tend to be pretty small. But larger ones don’t want to sell on today’s earnings because they know they won’t get full value and it’s a family run business or a large private business. They will just ride this cycle out a little bit. So – but we are looking at everything.

Okay, thank you.

Thank you. Your next question comes from Sara O'Brien, RBC Capital Markets. Sara, please go ahead. Sara O'Brien: Hi, thanks. It’s RBC. Just a follow-up on market share and how your competitors in both distribution, but also service centers have been reacting so far to of the downward pressure on steel pricing, I am just wondering has Russel had to liquidate inventory to maintain market share already or is that something that you expect will start as of Q4?

We don’t know. Okay. John, go ahead.

Yes. Service centers side, we have not seen that Sara. I mean, I would say margins were improving there. So, we have not seen that where I think we have just got to the bottom faster. And anything else, on the steel distributor side, we have had to be a little bit more aggressive because the market continues to fall. So at this point we have not had to liquidate anything to maintain share as much as we are trying to maintain turns. Sara O'Brien: So I mean, as you go into though that step down on steel pricing in Q4, would you expect to have to face some tougher competition on those who are not in the same inventory position as you have, just they have too much on the service center side?

There is going to be – it’s going to be specific to inquiries. And so on the service center side, we will see some of that. The steel distributor side is going to be primarily in the states that I think we will see that. Sara O'Brien: Okay. And just wondering given current level of steel pricing right now, do you have a magnitude of a potential inventory write-down at this point going into like if at current prices and is it mainly in the energy segment that you are going to see it?

We don’t have any forecast. But there is no doubt that the energy sector, which is really independent of the price of steel right now is going to have more pressure. Sara O'Brien: Okay. And is that because of the – because I mean obviously at some point, it’s got to come down to price matching or because the price of steel has come down lower on the pipe. I am just wondering at current levels if that’s something that we should expect a much more material write-down in Q4 relative to what we have seen in Q3?

I don’t know the answer to that. The pressure is caused by imports. Although price of steel is coming down in North America, nobody is making any pipe. So that’s almost not relevant right now. I mean U.S. ags announced they were running at 15% of capacity on the pipe side of it. So, basically everything is closed, but the imports continue to come in and they are putting the pricing pressure on. Sara O'Brien: Okay.

I think it’s really a matter of where the volumes come versus what inventory is sitting around and will people start to try and move it and we might have to compete. Sara O'Brien: Okay, thank you.

Thank you. Your next question comes from Justin Wu, GMP Securities. Justin, please go ahead.

Thank you. Just John, I was just wondering you mentioned earlier that you have seen some tapering of I guess demand or volume in the U.S., I was wondering if you can comment on the nature of that slowdown, is any of that related to seasonality or maybe we shouldn’t comment on some of the different customer segments and what you are seeing from them?

The U.S. seem to hold up a little bit longer than Canada did, so we are starting to see the impacts of the oil and gas now in the U.S. service centers side, be it where it’s railcars or if it’s barge, we are starting to see some tapering in that. And so with those backlogs we are out fully through ‘16 we are starting to pull back into reasonable levels. Obviously, ag has come off tremendously and we are seeing the layoffs across the U.S. with all the major companies we had, Deer [ph] I think has announced a large one, [indiscernible] announced large ones. So, we continue to see that in the heavy industrial manufacturing sector. Construction is maintaining although we are starting to see the small to medium project backlog drop a little bit. So, I think that we will see a challenge Q4 in the United States in addition to the seasonality I think it will be challenged.

Okay. And just a point of clarity, I think earlier, I mean, I think I missed this, did you mention that Apex and Comco represents around a third of your energy business?

I mean, I haven’t checked that recently but that’s the ballpark.

It’s a moving target with the changes.

And just the last thing, Marion, can you just give us the sense of what we should just in terms of working capital changes in the fourth quarter?

Yes, we will throw off some more cash. We typically do from accounts receivable at year end, but I anticipate that inventory will come down again in the fourth quarter. It won’t be as large as Q3 for sure.

Okay, thank you.

Thank you. Your next question comes from Michael Tupholme, TD Securities. Michael, please go ahead.

Thanks. Just setting aside the possibility of write-downs in energy on inventory in the fourth quarter, because it sounds like you are – it’s too early to tell. Is there anything else we need to think about when we look at the gross margins in Q4 versus Q3 in terms of seasonality, mix whether it relates to Apex or everything else that anything we should think about there to help us understand direction of margins absent inventory write-downs?

Yes, I don’t think seasonality has that much impact on margins, but we do always have, of course, a Christmas shutdown in Canada and the States. And then in the U.S., we have Thanksgiving. So, we have a little bit of seasonality downturn in the service centers, but we do typically have an uptick in energy, but I am not thinking we are going to see very much of that this time.

Okay. And then just lastly, can you talk about whether there has been any notable increase in bad debts in the current market?

I hate to say it, no, because I am waiting for when something would happen. My credit team is working hard and they are doing a great job.

Okay, perfect. Thank you.

Thank you. [Operator Instructions] Your next question comes from John Novak, CC&L. John, please go ahead.

I haven’t covered you guys over a number of steel cycles. I am concerned that you are not generating enough cash from working capital as we go into the back end of the year. You indicated your inventories are in pretty good shape. There maybe a little more on receivables that you can do and your cash generation in Q4 from working capital is going to be less than it was in Q3. How come you are not generating as much cash as you normally would at this point in the cycle? Is it because it’s been a drawn-out process or is it just because prices continue to fall as we go through this part of the cycle?

I think it’s a bunch of things. If you remember back in ‘09, the volume dropped 40% and the price came down by greater than that. This time, volumes have come off, but they are come off single-digits. They are sort of 6%, 7%. So that is drawing off as much as you would think. Now, the prices have come down pretty dramatically. And that’s what that’s bringing a lot of the cash flow out, but we don’t have as much volume decline as we did in the past, but we will generate pretty good cash in the fourth quarter. I mean, energy and steel distributions still have work to do.

But it sounds like we are going to be – you are going to be generating cash in that $30 million to $50 million range if it’s going to be less than where you were in the third quarter?

We have to look at the cash flow, though, John, because the accounts receivables from year end have come down $146 million and inventories is down $157 million. I mean, we have taken out quite a bit….

That’s what I mean, Marion. I mean, you have already taken a lot out. There is not a lot left to get as you get to this point in the cycle.

I think we have got one more quarter of it’s in that 50 plus range, for sure as things exist today.

But I guess on the flip side, I mean, you have to hope for a slow recovery, because given where you are in terms of the financial positioning, any type of rapid recovery would require massive amounts of working capital that we stock again?

I don’t think that’s true. I think we – both in the energy and in the steel distributors, but particularly in the energy, we need to get our turns up and we won’t be going back to those levels in the current models. So in an uptick we are generating good profits. I am not worried about a little bit of cash flow pressure.

Okay. Thank you very much.

Thank you. Your next question comes from the line of from Alex Cuson, Metroland [ph]. Alex, please go ahead. Moving on, there are no further questions at this time. Please proceed.

Yes. I would like to thank everybody for participating in the call. And we will talk to you next quarter.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating. And I would say you please disconnect your lines.