Ladies and gentlemen, thank you for standing by, and welcome to the United States Steel First Quarter 2011 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mr. Dan Lesnak, Manager of Investor Relations. Please go ahead, sir.

Thank you, Kylie. Good afternoon, and thank you for participating in United States Steel Corporation's First Quarter 2011 Earnings Conference Call and Webcast. We'll start the call with some brief introductory remarks from U.S. Steel Chairman and CEO, John Surma. Next, I will provide some additional details for the first quarter, and then Gretchen Haggerty, U.S. Steel Executive Vice President and CFO, will comment on the outlook for the second quarter of 2011. Following our prepared remarks, we will be happy to take any questions. Before we begin, however, 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 begin the call, here is U.S. Steel Chairman and CEO, John Surma. John P. Surma: Thanks, Dan. Good afternoon, everyone, and thank you for taking the time to join us today. Earlier today, we reported a first quarter loss of $86 million or $0.60 per share. Although we did not return to profitability in the first quarter, the economic recovery has continued, resulting in market conditions where we expect to be significantly profitable in the second quarter. Now before I discuss our results in detail, I would like to make a brief comment about our safety performance. Through the second week of April, our 2011 global safety performance, in terms of our total recordable injury rate, has improved by over 4% as compared to our 2010 performance. Likewise, our days-away-from-work rate has improved by over 12% from the 2010 base period. Safety is our #1 priority. And with the active participation of all of our employees, we will continue to pursue our goal of 0 injuries. Now turning to our first quarter results. The operating loss for the Flat-rolled segment was $57 million in the first quarter, a significant improvement compared with the fourth quarter 2010 as the impact of a rising price environment that began in December ran ahead of the impact of a continuing increase in raw materials costs. Although our total increase in shipments was relatively small, we did have improved shipment levels in virtually every market we serve. Our raw steel capability utilization rate was 77% for the Flat-rolled segment, 5% higher than the fourth quarter 2010. Hamilton Works steelmaking facilities remained idle throughout the quarter. We incurred approximately $40 million in idle facility carrying costs at Hamilton during the first quarter. For U.S. Steel Europe, we had an operating loss of $5 million, an improvement from a $39 million operating loss in the fourth quarter as the benefits of increased euro-based transaction prices and improved product mix and higher shipments across most of our markets exceeded the continuing increase in raw materials costs. Shipments increased by 17% to 1.4 million tons due to increased customer demand driven by improved economic conditions, reduced imports and lower customer supply chain inventory levels. We operated at 92% of raw steel capability for the first quarter, a 15% increase over the fourth quarter of 2010 as we restarted the blast furnace at U.S. Steel Serbia that was idled during the fourth quarter. Tubular income from operations was $30 million in the first quarter. The decrease in operating income from the fourth quarter was primarily results of increased costs for hot-rolled bands and rounds supplied by our Flat-rolled segment and decreased average realized selling prices due to changes in product mix and lower prices for OCTG products. Tubular results did benefit from a 10% increase in shipments to 425,000 tons as rig counts remained at good levels. Now before turning things back to Dan, I want to add a few comments on our strategic view of things. Prior to the recession, we had invested in our iron and steelmaking facilities, and we're now focused on important strategic projects to address our coke requirements and to improve our market position in both the automotive and tubular markets. The Carbonyx coke substitute projects at our Gary Works, the new C Battery we are constructing at Clairton and the addition of pulverized coal injection to the rest of our blast furnaces in Europe will generate significant cost savings as we reduce our exposure to the comparatively expensive merchant coke market. The new heat treat and finishing facility at our Lorain Tubular Operations and the new continuous anneal line at our U.S.S.-Kobe joint venture in Ohio will position us to serve the growing demand from the shale developments and to provide the grades of advanced high strength steels that will soon be required by our automotive customers. Over the longer term, we're considering strategies to take advantage of our significant iron ore resource position and the abundance of natural gas in North America to further reduce our dependence on raw materials such as coal and coke. Our goal would be to create a more flexible and cost-effective business model as raw materials have become more constrained and costly and our markets have become more volatile. While the recent and dramatic change in the natural gas environment in North America is providing excellent opportunities for our Tubular business, we could realize further benefits from this now abundant competitive and environmentally friendly source of energy. This could be as basic as increasing natural gas injection in our blast furnaces in order to replace costly purchased coke and lower our CO2 emissions. Looking over at much broader and longer time horizon, it could be as involved as supplementing our blast furnace production with gas-based direct reduced iron and electric arc furnace steelmaking to further leverage our strong iron ore position and increase our operating flexibility. While all of this is very conceptual at this time, we believe it is appropriate to consider these types of options given the changing landscape in which we operate. Now I will turn the call back to Dan for some additional information about the quarter's results. Dan?

Thanks, John. Capital spending totaled $180 million in the first quarter, and we currently estimate that our full year capital spending will be approximately $990 million. Depreciation, depletion and amortization totaled $169 million in the first quarter and we currently expect it to be approximately $675 million for the year. Pension and other benefits costs for the quarter totaled $140 million, and we made cash payments for pensions and other benefits of $117 million. As we indicated on our January call, we expect an increase of just over $160 million for pension and other benefits costs in 2011, and our first quarter results reflect an increase of approximately $41 million in line with that projection. You can see in our earnings release that $28 million of this increase is reflected on the retiree benefit expenses line. That's a first quarter amount of $71 million compared to $43 million in the fourth quarter. The remainder of this increase is in the segment results primarily in the Flat-rolled segment. For the full year, we expect both our pension and other benefits costs and cash payments for pension and other benefits to be approximately $595 million. These estimated cash payments exclude any voluntary contributions we may choose to make to our main defined benefit pension plan in 2011. Net interest and other financial costs were $21 million favorable for the quarter and included a foreign currency gain of $77 million. Excluding foreign currency effects, net interest expense for the first quarter was $58 million, and we expect it to be approximately $55 million in the second quarter. For the first quarter of 2011, we recorded a tax provision of $16 million on our pretax loss of $70 million. The tax provision does not reflect any tax benefit for pretax losses in Canada and Serbia, which are jurisdictions where we have recorded a full valuation allowance on deferred tax assets, and does not reflect any tax provision for foreign currency gains that are not recognized in any tax jurisdictions. Now Gretchen will review some additional information and the outlook for the second quarter. Gretchen?

Thank you, Dan. Our first quarter cash flow from operating activities was slightly positive at $17 million, which included: a $45 million increase in net working capital; as a significant increase in accounts receivable due to higher shipment volumes and selling prices; an amount in excess of $500 million was almost entirely offset by lower inventories and higher payables. While working capital can be difficult to predict within a particular period, we are expecting a further significant build in accounts receivables given the higher average realized Flat-rolled prices we're anticipating in the second quarter. Accounts payable changes should reflect higher operating and capital spending activity in the quarter. And as for inventory, we expect to build during the quarter as we rebuild our North American steel inventories, which finished the quarter at lower-than-planned levels, and also as we strive to meet the requirements of our automotive customers that may have shifted from the second quarter to later periods. We ended the first quarter with $421 million of cash and total liquidity of $2 billion. And, of course, it is our objective to continue to maintain a strong liquidity position. With that in mind, we are actively looking at refinancing opportunities for the approximately $200 million of environmental revenue bonds that we're obligated to repay or refund by the end of 2011. In addition, we've been exploring opportunities to amend or replace our existing domestic liquidity facilities well in advance of their scheduled expiration dates: May of 2012 for our inventory facility and July of 2013 for our accounts receivables facility. Now turning to our outlook for the second quarter of 2011, we do expect to report a significant overall operating profit primarily due to the realization of price increases in our Flat-rolled segment. Order rates for most customers groups, which began to improve later in the fourth quarter, remained firm throughout the first quarter. And while recent order rates have moderated, we remain cautiously optimistic that improving global economic conditions will continue, further stimulating end-user demand. We are assessing the effect of the events in Japan on our business. As I alluded to in my earlier comments, some of our automotive customers have reduced April builds and adjusted future production schedules due to parts shortages. However, we expect reductions in automotive production during the quarter to be made up in 2011 as vehicle inventories, which are presently low compared to historical levels, will need to be replenished. Flat-rolled results for the second quarter of 2011 are expected to improve significantly compared to the first quarter of 2011 driven largely by significantly higher average realized prices. Raw material costs are expected to remain relatively stable reflecting our iron ore, coal and coke position. Average realized prices are expected to increase from first quarter of 2011 as we realize the benefits from increases in spot and contract prices with index-based contract prices reflecting significantly higher published market price assessments. Our raw steel capability utilization is expected to increase from the first quarter of 2011 as all of our steelmaking facilities are expected to operate for the majority of the period except for Hamilton Works. We expect second quarter 2011 results for our European segment to be in line with the first quarter of 2011 as increased average realized prices are expected to be offset by higher raw material costs and decreased shipments. Our average realized prices in Europe are expected to increase from first quarter of 2011 as we realize the benefits from increases in contract prices. And our raw material -- our raw steel capability utilization rate is expected to decrease from the first quarter of 2011 due to reduced spot market demand caused by increased production across Europe and the rising threat of imports. We believe that the strength of underlying demand, as well as low to moderate inventory levels across the supply chain, should limit the duration of this current cycle. Based on the current low level of spot customer orders, we have decided to accelerate planned maintenance on a blast furnace in Serbia originally scheduled for later in the year, and we will continue to adjust our blast furnace configuration to coincide with our customers' order rates. Second quarter results for Tubular are expected to be in line with the first quarter as the benefits of increased average realized prices and shipments will be offset by higher costs for hot-rolled bands supplied by our Flat-rolled segment and purchased rounds. Our average realized transaction prices are expected to increase from the first quarter levels as price increases take effect and product mix improves. Dan, I'll turn it back to you now.

Thank you, Gretchen. Kylie, can you please queue the line for question.

[Operator Instructions] Our first question will come from the line of Michael Gambardella with JPMorgan. Michael F. Gambardella: I have a question on Tubulars, because with -- I can understand how the Q1 Tubulars profitability could be getting squeezed, but I would have thought that you'd have a catch-up in Q2 as opposed to just basically staying flat at these levels of profitability that are quite a bit below normal. John P. Surma: Well, we are, Mike, we are after a fashion having a catch-up on the commercial and price side. I think our volumes were expected to be decent, I think, as Gretchen indicated. And there have been a number of price increases we've talked about with our customers, and some of those are going to be coming through in the second quarter. But the fact is there's a pretty good dose yet of higher hot band cost also to come through in the second quarter. And April and May are really sort of the peak, it looks like, prices from a hot band standpoint. So those are flowing through as well. So I think what we're suggesting by saying in line, or whatever the term Gretchen used, is that we probably have sort of stemmed the downward movement, and we're trying to move the margins back out to something that we're more comfortable with. And just take a little bit more time to do that. But the prices are moving in the right direction, but costs are still moving in the second quarter. Gretchen, do you have anything you wanted to add to that?

No. Michael F. Gambardella: Because the Tubular profits per ton are about 1/3 or even less than where they have been historically. John P. Surma: Yes, I think, this is a squeeze that we're in here, and there's really not much we can do about it except try to move the prices through as quickly as we can. We do have a good bit of business in our OCTG business, in particular that's on -- that are on programs. I wouldn't say that it's contract business in the sense we think about it with fixed prices and all that, but we do have a program structure in certain cases. And there are certain timelines on price adjustments, and they are taking a little while to feed-through. So again, costs are still moving up. Prices are moving but not as quickly as we like. And we, like you, I think, want to get those margins back as quickly as we can. Michael F. Gambardella: And one last question on the coke offsetting the expense of coke purchases. When do you start to really feel that in terms of some of these cost-saving efforts that you're doing on Carbonyx, PCI and so forth? John P. Surma: Well, I mean, the capital is still just being spent, Mike. So Carbonyx is next year, sometime late. And then the C battery, little ways after that. So those will take a longer timeline. We're already injecting higher levels of natural gas on the furnaces now, and when -- I think Gretchen mentioned, that are -- well, we're using natural gas in a lot of places in North America as well. When Gretchen mentions that our overall cost structure is going to be relatively stable in Flat-rolled in the second quarter, that's one of the reasons, I think, when purchased coke is in the $300, $400 range and gas is really anywhere below 10 or so, which is way below that, it's a real good thing to do to reduce, change those BTUs from carbon into gas. And so we're doing a lot of that already, and that's part of the reason our cost structure stayed relatively stable. But the big ticket, we'll get some of it in Europe later on this year, when our coal injection is all on in both Slovakia and Serbia, and then the big projects in North America don't come on till a little bit later.

We'll go next to the line of David Gagliano of Credit Suisse.

Thanks very much. Just a couple of quick questions. On the U.S. Flat-rolled business or on the North American Flat-rolled business, I was wondering if you could just drill down on the cost side. Obviously, there was a considerable increase sequentially on the implied unit costs. And I'm wondering if you can break it down a little bit more between some of the components. Met coal, obviously, was part of it. Pension, I think, was part of it. I was wondering if you could just quantify it in more detail. Thanks. John P. Surma: Sure. I think you named 2 of them right there. I think the pension figures and -- Dan, you can correct me on this. But I think we've talked about pension costs year-over-year, up $160 million. Is that the number we talked about maybe in January?

Yes, that's correct. John P. Surma: And I think Dan or Gretchen called out a piece of that, that was in the retiree benefits line on the P&L.

$28 million in the first quarter. John P. Surma: So if you take $160 million and divide that, you get $40 million. You could take that piece out, there's $13 million or $12 million whatever the number would be, would be in the Flat-rolled segment. So that would be 1 figure that you could probably put your hands on with some calculations. And then there's, as you point out, some coal costs. Although I think we've reported that our coal costs, on average, this year, we expect to be about $180 a ton or so in North America, and that's probably about $10 a ton more, I think, than last year. So if you go through coke yields and process costs, you end up with about $10 a ton of raw steel, probably something like that. So those would be 2 you'd call out. And then, I think, in the first quarter, we probably also had some pretty heavy scrap increases would be our single biggest number, if I just look at a -- reconciliation scrap would be a big number. And just based on how much we spend and how much we buy, there's probably $50 million or close to it, somewhere in that zone. So those would be probably the biggest ticket items we'd see across the way.

Okay, that's helpful. And then just back on the carbon to nat gas. I was wondering if you could just quantify how much, over time, roughly you think you could substitute away from the coke and towards the nat gas? John P. Surma: Yes, I don't have the capability figures with me. In some of it, we have to put additional injection equipment on in some of the furnaces where we don't have the right clear [ph] injection capability, and we're injecting other things, so -- but it's fairly meaningful. It's not a small amount. And to the extent we're using, on average, let's just say, 800 pounds of coke, on average -- I mean, that would be our target, we're probably above that right now. But if we use 800 as a number, could we pump out 100 or 200 through gas or coal? Sure. There are blast furnaces in the world that go to 400 probably, and we may well just try to get there, but it's a trade off because you have other things that go the other direction. But it's meaningful. It's a meaningful portion of that total coke load, if you think about it, of 800 pounds per ton of raw steel.

Okay, that's very helpful. And then very last question on the Tubular business. It does seem like there may be a bit of supply pressure shaping up, and I just want to clarify what you just said on that business. Do you think the market's strong enough to absorb the supply, to the point that the price increases will be more than any other cost pressures, i.e margin? Or do you think that it's mostly just price or cost-related price increase? John P. Surma: No, I think -- we think, at least, that the market is firm enough, particularly just because of the strong activity on the liquids side, although gas is still going pretty good as well, that the market's strong enough to absorb our capacity, because we think we have really good capacity in the right place with the right connections and the right metallurgy and the right distribution network. And while there's new capacity coming on, we don't fear that, and we think we can compete against that quite well. What we don't know necessarily is what's coming on a ship from some place far away, and we're a little anxious about that. If you follow the import numbers like we do, there have certainly been some trends that are unsettling. And I think that's the wildcard here, and we keep a close eye on that. We all know what that means. But in terms of the absolute competition, we're making our own steel and we're enjoying that synergy all the way along the line. We've got great metallurgy. All of our customers know that now. And I think we're going to compete just fine with whatever comes, whether it's new capacity or otherwise. Imports, we'll keep an eye on.

John, it would be helpful to say, too, that on the cost side -- on the revenue side, you talked about the programs, and the revenues get a little stretched out at that side. But the cost side comes in pretty fast on Tubular, maybe a little faster than that, so. John P. Surma: Yes. In effect, we treat our Tubular business unit as if it's just a trade hot-rolled customer, and it's got basically the same terms, same extras and same delivery term. So that's generally a monthly spot assessment, and its coming through pretty directly every month.

And next, we'll go to the line of Dave Martin of Deutsche Bank. David S. Martin: Thank you, and good afternoon. I wanted to start with Flat-rolled pricing. I know forecasting quarter-over-quarter changes can be a little dicey, but I wanted to ask you to remind us of your general mix of spot and contract. And in particular, I wanted to understand the percentage that was related to this quarterly contracts that, I believe, are CRU index. Could you provide some details on what percentage of the order book they represented in the first quarter, and how much they may be in the second? John P. Surma: Sure. I'll give you just a number that we expect to be about, the average for the year. I don't know that the first or second quarter will be a whole lot different, so I'll just give you the broad numbers I have in my head. We're guessing -- this sounds way too exact, but 37% would be the spot number. I mean, that's way too exact, so you could say 35% to 40% would be a probably better range. It would be a sling spot number, generally, monthly and we all know what that means. The remainder would be contracts, and the exact number I have in my head is 27% for contracts. That would be either firm for a period, 6 months, a year, probably not longer than that or that has some cost adjustments in it, usually halfway through, not for 100% of the change but for some portion of it. So that would be 27% that are relatively firm, stable, maybe a cost adjustment, maybe no adjustment. And I think that would lead, if my math is right, 36% for market-based contracts, and the index you mentioned is a common one. And that would be about half-and-half probably between monthly and quarterly. There may be a stray semiannual here or there, very small. So I think it would be about half monthly, half quarterly. So if I recap that, it would be 37% spot, 27% cost or firm, 17% monthly index, 18% quarterly index. I think that would get you there. David S. Martin: Okay. But then, I guess, the key point is you're not expecting a lot of volatility and/or movement in the distribution of that makeup? John P. Surma: Well, it's not -- we're not going to try to cause that, I don't think, Dave. I mean, the customer have a different view, and we'll talk about it. And the customer is always right, of course, so. But I think, those general array has been fairly stable for some time now. David S. Martin: Yes. Okay. And then on contracts, can you comment on how many tons you have coming up for renewal July 1? John P. Surma: Oh, we have some, but it's not a large number. I don't have it off the top of my head, but it would be less than 1 million tons, maybe less than 0.5 million tons. It would be somewhere in that range. I'd have to think a bit further, but it's not a huge number. We had a larger cluster at the end of last calendar year. Then we had a larger number that typically comes up at the end of March and April because of some of the Asian manufacturers prefer that date, and the rest is kind of happenstance. But there maybe 1 or 2 at the end of June that are significant, but it would be in that range. David S. Martin: Okay. And then I had just one last question on the Tubular business. Your average prices were down quarter-over-quarter, albeit modestly. Was there any mix impact in the first versus the fourth quarter? And then secondly, on the OCTG program business, are those traditionally annual contracts or 6-month contracts? John P. Surma: I'll take the last one first. Dan will come up with an answer on the first. And I think the program business, as we call it, it's relatively new, but I think what we've been shooting for is to have at least a year or maybe a longer framework of volume and commitments. We have capacity we committed. They have volume requirements that they need, and then we might have pricing definition. It may be monthly negotiated pricing or it may be quarterly type of pricing that has some specificity to it for a period of time. And we're working on some indices there. I'm less enthusiastic about those. I'm not so sure that they're really going to give us a good idea what's in the market because of the variety of the pipe grades and applications is so great. It's just hard to get a, I think, a decent read on index for both of them. So that's a long answer to your question, but I think that the programs have some duration. The pricing within those, typically, would be a bit shorter, maybe a quarter, maybe a month. Dan, the first one?

Dave, on mix side, yes, we did have some mix change. We did have some pretty strong volumes on the carbon side. So the mix moved in that direction somewhat, but it was more driven by an increase in carbon volumes as opposed to a decrease in alloys. We just saw more carbon this time. John P. Surma: Our alloy mix gets back up to more of a traditional trend in the second quarter is our expectation. David S. Martin: Okay. Thank you and good luck. John P. Surma: Thanks, Dave.

We'll go to the line of Brett Levy with Jefferies & Company.

It's David Olkovetsky for Brett. My questions regarding the Tubular business as well. We've seen hot-rolled coal prices up from, call it, $600 to $900 a ton. What's your view on the Tubular price increases for the second quarter? Is it $150 or $200 maybe? John P. Surma: Well, it's hard to give you an absolute blanket number on that. I think the latter number you've mentioned strikes me as a bit on the high side. I'm sure there'll be some business that $200 is within reach, but that's a little bit on the high side. And maybe the lower number or just a tad lower than that might be what the overall average would be because if -- we're talking overall average, including welded and carbon. So I think, on average, there would be some that would attract that kind of a number, but overall, it would be somewhat less than that.

Okay, great. And then relative to ERW versus seamless. I think there were comments made that you were expecting improvement from mix in the second quarter. Is that a shift towards more seamless or a shift towards larger diameter pipe or anything along those lines? John P. Surma: No, the seamless-ERW mix might just tilt a tad back towards seamless, but it's all -- it's about 50-50, plus or minus. It's not going to be a big change. We probably will have little more of our total shipments will be OCTG just because those are up higher. We'll probably have a little more volume on the alloy side than carbon. Carbon absolute volumes probably stay the same. Alloy OCTG probably increases a bit, and we may do a little more export business that gives us a chance to pick up a couple extra turns on some of the mills and get a little more volume. So the overall mix would be relatively similar, just small changes around the margins, but, I guess, the most noteworthy thing would be probably higher alloy volumes than carbon. And we were a little limited on our alloy ability to respond to everything, because we were doing a blast furnace outage at Fairfield. And our round supply, we had enough, but we didn't have any extra. So I think that probably limited us a little bit. We're going to pick that back up this quarter.

Okay, perfect. And one more, if I may. Are you seeing a continued drawdown of inventory levels at either the distributor or end-user level within the Tubular business? John P. Surma: Inventories have gotten down to somewhere on the 6-month version. I don't know that we've seen recently any big change in that. They've been in sort of a reasonable position, and supply has been increased, mostly by imports, but consumption has been good. And the tons per rig, particularly in the unconventional resources, particularly with longer laterals, the tons per rig are pretty good. So they're using a good bit of pipe for the same number of wells, maybe a little bit more. So I'd say, inventories have been relatively stable. Again, it's hard for me, just anecdotally, to give you that. There are 2 or 3 outside services, and you can see what those say, 6 months, 5.5 months, something like that. But our distributors, I think, would say that they probably have some holes in inventory, but generally, they're pretty well fixed. But their inventories aren't too heavy, I don't think either. I think we're about in balance.

We'll go next to the line of Dave Katz at JPMorgan.

I was hoping that you guys could talk a little bit more about Hamilton Works. Is the $40 million carrying cost you saw there this past quarter what you would expect there in the second quarter? And then what would it take for you guys to kind of open that up back up? John P. Surma: Well, on the carrying cost, it'll vary around that a bit. We'll do our best to try to make it as low as we can. But when you look at property taxes and pension and OPEB allocations and depreciation, I mean, there are some certain diet of cost there it's hard to avoid. Then we have some fuels and utilities just to keep the equipment in an operative way, and then some labor for fire watch and lubrication. So we want to be able to operate the facilities when we're able to, and that's about what we need to spend we think. It's going to be hard for us to spend a whole lot less than that. Now with respect to restarting Hamilton, we really need to get to the position where we have a successor labor contract that covers the operation there. And we don't want to comment too much on the specifics of that because we think that's between us and the negotiators, but there really isn't a whole lot to report. We remain interested in negotiating an appropriate contract. That's the best interest of us, we think for the employees as well and for the facility to get that done as soon as possible. The steel workers have negotiated lots and lots of contracts all over North America, many of them with us. There's one that's been negotiated, probably you read about it, that is, I think, to be voted on in the next week or 2 or 3, if I understand what's in the trade press at R.G. Steel. My reading of that would suggest that the terms that we have offered that the contract has not been voted on are probably a bit more generous to the employees at Hamilton than they would be at the R.G. Steel, but that's just my observation. There's no reason we couldn't reach an agreement like that at Hamilton and -- but that has to be an agreement that's competitive, and it can't be an agreement that has pension provisions that are just singularly out of touch with what the rest of the North American steel industry has. So long to answer to your question, but I would be delighted to do that if we have a competitive agreement and that's where we have to get to.

And then coming back to R.G. Steel. With the expectation that more steel is going to be coming out into the industry because of what they're doing, do you guys anticipate any impact on you as a result of that? John P. Surma: Well, I hate to get into hypotheticals. There's not any steel being made there as far as I know at this point. So I guess it's possible if -- but if the market continues to develop and the economy continues to chug along at a reasonable rate, there may be room for additional supply, but I'm sure it'll be a competitive situation. But we know what the current incremental cost of raw materials are for us. Maybe they're smarter than we are, and they'll do better than that. But we know what it is for us, and that's not a simple thing today. So that capacity to the extent it does come on, I think we'll have a certain position in the marketplace that we're prepared to compete against.

Okay, excellent. Thank you very much.

And we'll go next to the line of Brian Yu at Citi.

Great, thank you. Could you discuss your order book and in terms of what the lead times are, and maybe how many weeks of spot exposure you have left in the second quarter? John P. Surma: Sure. I think our average lead time -- I'll just talk hot rolled. It's a little longer, of course, on the coated and cold rolled products, but hot rolled would be between 6 and 7 weeks, maybe 6.5 if I had to guess right now. And that's maybe in a week or so in the last month or 2, and that's okay. We think that's not a bad lead time, and it gives customers decent visibility and us a chance to plan our affairs. I think that's, from what I can tell, about or we can tell about what the industry average lead time is, even though there's a lot of variation of it. I don't know that we have much business to book for May, maybe a little bit but probably not very much, maybe some specific things that we're keeping space for. And we're, into June, on that business that we need to book, it isn't contractual in an early way but not meaningfully so far. So we have some business yet to go, and that would be in June and depends on how the economy does and how confident people are as to how far we're going to have to push to get that booked. It's interesting to note, though, that, from what we can tell, service center inventories are relatively low, and our customers are tending to try to buy just what they need to sell. They're not holding much inventory. That risk is ours at this point, and that means that they probably need to order, at some point, if their business continues to do pretty well, which, I think, they're doing. So we have some confidence that the overall market will smooth out. And that we ought to do fairly well, volume-wise, through the end of the quarter, but it's not all booked yet. And we have a lot of steel yet to sell and a lot yet to make.

Okay. Could you help us put some bookends on what type of realized price that we could be looking at in the second quarter? It doesn't look like there's that much spot for '11. Spot prices are actually still quite high. John P. Surma: Well, we're getting pretty good price response not just on monthly spot business but also on these index-based contracts and, in particular, on those that are based on a quarterly index. Because the first quarter quarterly index was based upon the third and fourth quarter comparison, which was quite low. And then the second quarter is based on the first and fourth. And so, that, if you follow that logic out as you just pointed out, spot prices are quite high. There's probably some room left for that calculation to help us all into the third quarter, but I won't go that far yet. If you look back at our statistical supplements, it tells me that our Flat-rolled price average realized was up $63. Is that right? Is my math right on that?

Correct. John P. Surma: In the fourth to first, I think, there's -- our expectation would be it would be quite a ways beyond that, again in the second quarter compared to first.

Okay. Would $100 change be out of the question? John P. Surma: If you took the percentage that I gave you and make some assumptions and work really hard, you probably can get there.

All right. Great, thank you.

And our next question will come from the line of Mark Parr of KeyBanc Capital. Mark L. Parr: Thanks very much. John, I've heard you talk a lot about mitigation of cost increase and kind of focusing on higher costs. And I think at the beginning, you were talking about working on lowering costs. I was wondering, do you have any quantifiable targets for cost reduction that you could share with us, or how you look for the -- is there like an overriding program around how cost reduction is expected to unfold for you guys over the next year or 2? And then can you give us any color on that at all? John P. Surma: I don't think I can, Mark, that's a good question. I'll have to think about it, maybe I'll have something better to say next time. But I think we're looking at the broader landscape and saying what do we expect to happen here. We expect ferrous material to be in relatively tight supply, relatively firm pricing. We have undeveloped resource. We think we can capture real value in one of several ways by further developing that, and we're about that now. And then to the extent we can using natural gas, which has, versus met coal and purchased coke, has a lot of really valuable economic advantages right now aside from being a much cleaner burning fuel, if you want to think of it that way. And that combination of things, depending on how we manage to harness it, whether it's cost reduction or new opportunities, I don't know, but it's real value creation, we think. But I don't know that I can give you a number. Gretchen or Dan. We haven't really thought of it that way. We could probably do some calculations. I can't do them right now because talk about just in the near term, how much we're going to able to save by having blast furnace coal injection in Europe and also by adding more natural gas injection in North America, we probably could -- those 2 things are fairly current, and they're fairly simple to understand. And then just think about our coke manufacturing costs, our coal plus a number, let's say, it's $250, $300 of coke costs, something like that. If you're buying coke at $450 or $400, you could see what your savings is right there pretty quickly. So the numbers add up pretty quickly. I think my ballpark I did in my head earlier today was that if you look at the purchased coke we have coming in, in North America this quarter or last quarter versus what we could have made it for ourselves with our given coal cost, would have been about $40 million, I think, was my number. So it's pretty meaningful stuff. Mark L. Parr: Yes. I know that's helpful. I appreciate that. Just another -- coke does a number of things in the furnace. One thing it does is provide a burden, provide a way for the iron ore to move effectively, physically. And I'm wondering if you're going to take some furnaces to 400 pounds of coke per ton of iron, I mean, is there any re-bricking involved in -- do you have to open a furnace up and re-brick it to rearrange in how the burden moves through the furnace? John P. Surma: Not necessarily, Mark, but I mean, you're onto one of the issues. I mean, these things all sound good. If you take them to an extreme, they don't work as well as you like them to. So it's a question of balance and getting the right combination of pulverized coal injection and natural gas injection and use of coke substitute. That's something that we have lots of science around but ultimately comes down to trial and error and seeing how the furnace behaves. So I don't know that we're going to have to do any structural -- say, I mean, we have to do things to inject and all that. But in terms of the actual process of burdening the furnace with the reductant value of these various hydrocarbons, I don't think there's anything we have to do to change the structure of the furnaces for that purpose. Mark L. Parr: Okay, all right. Well, I just -- I think a cost reduction plan would be great. I think it would be well received. And anyway, I look forward to more comments on that to the extent you're comfortable sharing them. So... John P. Surma: Sure. Yes, we do have an internal cost-reduction plan every year that every department has x amount per ton. And it goes into a web-based system, and they have to make monthly reports on it, and they're evaluated on. So we do all that, and it's in the $5 or $10 or $15 per ton kind of zone. And that's a repetitive thing we do. We're doing it for a decade now or so. But in the world of $160 iron ore and $200 coal, those numbers begin to get a little bit smaller, and we're talking about fairly small things. But we do that all the time. But I appreciate your advise, and we'll make sure we consider it. Mark L. Parr: Okay, John, thanks. Good luck.

And next, we'll go to the line of Michelle Applebaum of Steel Market Intelligence.

Okay, so I appreciate the strategic big picture stuff at the beginning. I just want to get it straight. 2 of the things you said you would consider is building DRI or did you say an electric furnace? John P. Surma: I did.

Okay. So building a DRI plant or building an EAF, you said that right, to capitalize on your iron position...

And I think that we've had that included in the -- we referenced that in our 10-K earlier this year, too, Michelle, as something that we would consider.

Building an EAF?

Yes.

And my question on the iron ore is I thought there was kind of a limit to the life. And in the past, you've been fairly protective about expanding too much on the hot end because of that. And I was just wondering if that's changed or if I misunderstood that.

Actually, what we have -- we're really talking about our Keetac facility, Michelle, and we have plenty of resource available. What we have to look at there is more palletizing capacity. And so back in 2008, we announced that we were looking at expanding that. And while in all the turmoil of 2009, we didn't advance very far in that. We have continued to pursue permits for expanding that facility, and that's really what we're referring to that could give us the potential of a couple million more tons of capability. And I think if you read our 10-K, we've got significant iron ore capacity now between Minntac and Keetac. We do have some contracts in North America, long-term contracts that we buy under. But there's, I think, a lot of potential, given that resource space for us to look at how best we might use it. So I mean we've been continuing with this permitting process. It takes quite a while to complete. So we felt we should just start articulating some of the things that we would consider doing with that.

Okay. And then just speaking strategically, I was wondering about Europe. You guys when you bought USSK originally, it was -- I think it may have been the single best investment I've ever seen. I think it had a payback of 5 months or something like that. It was just amazing. And then that's continued to grow, and it's thrown off incredible cash flow. But I'm kind of wondering now, with the raw material situation being the way it is and their situation being the way it is, is there a possibility that asset might be worth more to someone else who might be in a better raw material position in that region?

Yes. I think we -- certainly, Michelle, we've articulated that being a little more in balance on raw materials there is something that we would hope for. So I think, almost by definition, given where raw materials are today that if you had a longer position on raw materials, you could do a little better there right now. Part of the issue that we have, I think, in Europe is just that the market's still on recovering, and recovering in fits and starts. And raw material prices have been very high, and there hasn't really been the economic strength, I think, to completely or quickly recover those higher costs and get the kind of margins that we have enjoyed in the past there. So there's probably a couple of ways to address that, but I think having some greater market strength over there is going to help our position.

We'll go next to the line of Sal Tharani at Goldman Sachs.

Thank you. Hey, John, did you have any impact from the gas issue with one of the plants? I believe there was a news during the quarter that Transtar had an accident and...

That was in the first quarter, yes. John P. Surma: Oh, I'm sorry. The industrial gas facility at our Great Lakes plant, we did. There was just an incident that took that facility out of production for a couple weeks, I guess, from start to finish, maybe a bit longer than that, before it was fully up. And it did limit our production in our Great Lakes facility, which is a very important plant for us, particularly in the automotive sector. And the hot end was virtually down or down, down for a period of time. We limped along on a low level of operation with some bottled gas, but it did affect us, affected a mill [ph] because hydrogen was out, everything was out. It was a very difficult place for us, and it's back up and running now. And we guess that in the first quarter, to make estimates on what things cost and what we could've done or didn't do, but it's probably a $20 million item in the first quarter, plus or minus. No hangover at the moment. We may have to do some repair costs in the vicinity. That might be some of our responsibility, but nothing significant.

Got it. Also there was a news in a local Pittsburgh newspaper that your OCTG welded facility in McKeesport that you are building a new mill over there. Is that correct? John P. Surma: No, that's a little bit of a departure from what happened. There's a -- we have an ERW line pipe plant in McKeesport, and it uses mostly scale from our urban plant just up the hill, so it's quite a nice and easy delivery pattern. And it's been recently more busy just because of the additional line pipe activity going on in the shale plays, particularly Marcellus, which is obviously right here. For some years, and I forget how long now, but for some years, that's been operated by a third party under contract to us or from us. And just recently, we judged it an appropriate time to sort of become full operators of the facility again, and that contractual change is in the process of taking place, like right now, within the last week, this week, next week, sometime like that. And so we had to go through the process of, I think, a new labor contract and, in effect, change of employment but really no effect on the people. And we're going through that process right now. And we just judged at the right time because of its importance, that it would be better to be under our direct operating control. There's really nothing more to the story than that.

Okay. And lastly, on the market conditions going into the second quarter. Which end markets do you directly serve you've seen consistently stable, strong and where you see a little bit of slack as we go into the second quarter? John P. Surma: Almost every market has been pretty good, Sal. The auto market, we've talked about, before has been pretty firm. Appliance has been pretty form. Our piece of construction, such as it is, not very large, has been pretty firm. Like [ph] and tube markets have been pretty good. The container markets have been pretty strong. Where the variation might come is more from the intermediaries, the service centers and other types of processing customers we would have, and they might cut back on their buying because of trying to moderate their inventories. But that can't go for very long, because again, inventories seem to be relatively low. Any one company is one thing, but the overall sector looks to be in relatively good balance from an inventory standpoint. So I'd say most of the OEM or end-use markets, we can actually see into the end-use market, they're all going pretty well. I think the distributors and processors maybe is where some of the slowdown has come more recently, but we feel like that's probably going to work its way out.

Our next question will come from the line of Evan Kurtz at Morgan Stanley. Evan L. Kurtz: John, Gretchen, Dan, let's see most of my questions have been answered. But just looking forward, if you were to look at the Flat-rolled pricing in the U.S. and if it does manage to hold somewhere near the $800 ton level, just given your contract to spot ratio, would you see a possibility for a third quarter pricing somewhat on par with second quarter? John P. Surma: I have to do some math there. I have to get a couple of crays together on that one, Evan. But I think if the spot -- if you're saying that the exit third quarter, if I could say it that way, or the last month of the quarter CRU spot number would be 800 [ph] or so in that zone, well, I think our pricing for that quarter could look pretty good under that model. It depends on the inner months, of course, but I think it could probably look still pretty good.

We'll go to the line of Justine Fisher at Goldman Sachs.

The first -- actually, I just have 2 questions for you, Gretchen. The first is on the accounts receivable and the inventory facilities, I know that you guys secured your credit facility in 2009 when the market was a bit distressed, and there were some covenant issues. In your preliminary discussions with the banks, if there have even been any, have you guys looked at maybe reducing the security requirements of these facilities, or going back to something similar that you had prior to the financial crisis? Or are the banks still demanding security until maybe they see a more full recovery in the steel markets?

I guess the way I would probably respond to that, Justine, is that the market for borrowing-based type facilities, the ABL market, is really pretty strong right now. And I think that might be -- that's what we've been living with. I wouldn't say so much people are demanding that, but I would say it's probably where we could do the best and get the best pricing and the highest amount of liquidity. So I think that for now it makes the most sense for us. At some point in the future, we could consider another alternative or option, but that market's looking pretty good right now. I think we're -- that's really why we're exploring it now.

Okay. And then also on the environmental revenue bond, can you refresh our memories as to how you guys would go about taking care of that remaining portion? If I remember correctly, it would have -- 1 option was to refinance it in the muni market, and I think you may have done that for part of it already. Given the state of the muni market, are there other options? Did I get that right?

Yes, that's exactly right. I think your memory is good on that, Justine. We've had several hundred million dollars of those environmental revenue bonds that we have refunded over the last couple of years in the municipal -- in the tax-exempt market. And we've done that very successfully. We did our last tax-exempt offering in the fourth quarter of last year. It was really a recovery zone bond financing we did on the order of $70 million related to the Lorain quench and temper project that we had. So that was the most recent time that we were in that market. And I would say at that time while the deal was good, we did a good deal, it was a little sloppy, getting sloppy in the market. And I would say that, that market has become more distressed since then. So while we've continued to look at that, and you may remember, we can't really call some of those bonds until later in the year, we would probably look hard at maybe should we do some other financing and maybe in the taxable side, because that market seems to be a little bit better right now. So we're considering all those kinds of things given that we have to have it done by the end of the year, and there's maybe some market risk and rising interest rate risk associated with waiting for the tax-exempt market to clear up.

And I'll turn it back to our presenters. John P. Surma: Thank you.

Actually, I thought we had couple of people left.

They must've dropped off.

But apparently not. So I mean, we appreciate everybody participating, and we look forward to having another discussion next quarter. Thank you.

Thank you. And ladies and gentlemen, this conference will be available for replay today after 5:30 p.m. Eastern Time through May 3, 2011, at midnight. You may access the AT&T Teleconference Replay System at anytime by dialing (320) 365-3844 with the access code of 198067. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.