Dan Lesnak - Investor Relations Mario Longhi Filho - President & Chief Executive Officer

Curt Woodworth - Credit Suisse David Gagliano - BMO Capital Markets Matthew Korn - Barclays Capital, Inc. Evan Kurtz - Morgan Stanley & Co. Timna Tanners - Bank of America Merrill Lynch Brett Levy - Loop Capital Michael Gambardella - JP Morgan Gordon Johnson - Axiom Capital Management Seth Rosenfeld - Jefferies International Ltd Phil Gibbs - KeyBanc Capital Markets Alexander Hacking - Citigroup Global Markets Jorge Beristain - Deutsche Bank Aldo Mazzaferro - Macquarie Sean Wondrack - Deutsche Bank Matthew Fields - Bank of America Merrill Lynch

Ladies and gentlemen, thank you for standing by, and welcome to the United States Steel Corporation's 2016 Fourth Quarter and Full Year 2016 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded. I would now turn the conference over to your host, Dan Lesnak. Please go ahead, sir.

Thanks, Kevin. Good morning and thank you for participating in United States Steel Corporation’s fourth quarter and full year 2016 earnings conference call and webcast. On the call with me today will be U.S. Steel President and CEO, Mario Longhi; and Executive Vice President and CFO, Dave Burritt. We posted our slide presentation and prepared remarks as well as an updated question-and-answer document under the Investors section of our website when we released our earnings after the market closed yesterday to provide everyone with a better opportunity to prepare for the call. We will begin this morning with some brief introductory comments from Mario and then proceed directly to the question-and-answer session. Before we begin, I must caution you 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 in the slide deck posted on our website, and are included in our most recent annual report on Form 10-K and updated in our quarterly reports on Form 10-Q in accordance with the Safe Harbor provisions. Now to start the call, I will turn it over to our CEO, Mario Longhi.

Good morning, everyone, and thank you for joining us today. We have now completed the third year of our transformation and our progress continues to exceed our expectations. The hard and competent work of the Carnegie Way transformation is translating into stronger financial results and better performance for our investors, customers and employees. As we have demonstrated over the last couple of years, we have a robust process in place that has consistently generated benefits even during times of difficult market conditions. Our aspiration to become sustainably profitable earning economic profit across the cycle and being profitable at the trough remains unchanged. At the beginning of our journey, we identified the three areas we needed to address to achieve our goal; reduce our fixed costs and create a more flexible cost structure, improve the capabilities, productivity and reliability of our facilities, and improve our product mix by creating differentiated solutions for our customers. We have given you regular updates on the significant progress we have made on improving our cost structure and our increased focus on our customers through our commercial entities, which has resulted in the continuing improvement in our value-added product mix. We have also been investing in our facilities, and as we indicated last quarter, increasing both the pace and magnitude of our efforts in this area is a priority for this year. Before we move onto 2017, I would like to give a quick recap of some of our important accomplishments in 2016. The very strong headwinds we faced in late 2015 actually got stronger early in 2016 before conditions began to slowly and steadily improve. Still we were able to [Indiscernible] improve the results in 2016 despite facing our lowest average realized prices since 2004. The hard and capable work we put in place into our efforts on trade issues has started to deliver value. The trade cases decided in 2016 began to address market distorting practices by foreign producers. However, we are certainly a long way from achieving our level playing field and still have more work to do. We executed two very successful capital market transactions that strengthened our balance sheet, improved our cash and liquidity and addressed our near-term debt maturities. As we move into 2017, we are starting with much better market conditions than we faced at the beginning of 2016. Our Carnegie Way transformation efforts have improved our cost structure, streamlined our operating footprint and increased our customer focus. These substantive changes and improvements have increased our earnings power and while we will benefit from improved market conditions they continue to be volatile, and we must remain focused on improving the things that we can control. As I mentioned earlier, accelerating our efforts to revitalize our assets is a priority for 2017. We have developed a comprehensive plan to improve our profitability and competitiveness and to meet the increasing expectations of our customers. We face structured and flexible plans based on the completion of a large number of smaller and less complex projects to reduce execution risk, and it is adaptable in both its scale and the pace of its implementation to changing business conditions. We will be implementing this plan over the next 3 to 4 years in order to minimize disruptions to our operations and to ensure we continue to support our customers throughout this process. Our asset revitalization plan is not just sustaining capital and maintenance spending. These projects will deliver both operational and commercial benefits. After we complete our asset revitalization plan we will have well-maintained facilities with a strong core infrastructure, strong reliability centered maintenance organizations and we will deliver products to our customers with improved reliability and quality. Executing this plan is a critical milestone in the Carnegie Way journey to take us from earning the right to grow to driving and sustaining profitable growth.

Thank you, Mario. Kevin, will you please queue the line for questions now?

[Operator Instructions] The first question from the line of Curt Woodworth with Credit Suisse. Please go ahead. Curt Woodworth : Hi, good morning Mario and everyone.

Good morning Curt.

Good morning Curt.

I wanted to get clarification on some of the assumptions that underlie the $1.3 billion guidance, I mean, depending on the data provided hot-rolled sheets trading between 6.10 and 6.40 a ton, and obviously every $20, $30 is a pretty big variance to EBITDA, so can you just let us know what the actual deck you are using is, and then secondly in terms of the contract book, which is 40% of your volume can you give us any guidance on the magnitude of price change that you are able to achieve for [Indiscernible] contracts?

Sure Curt. We were using because we didn't have the time to prepare last month’s CRU numbers are the basis for our US operations. That would have been the series to start with 626 for hot-rolled, in Europe we were using the deck and started with 552 per metric ton. So those are the base points we are coming from.

I guess on the contract side Curt, all I can tell you is that we are happy with the progress that we have made so far.

Curt, I guess, to give a little more color on that 1.3 outlook, we are holding more than just prices. We are holding the costs, our variable costs also steady, and particularly on the raw material side, raw materials costs are very high now. So if you look at how we get to that 1.3, and compared to last year you're going to have raw materials cost headwinds there of about $1 billion overall. We are going to have some increased outage and maintenance spending we have in relation to asset utilization, net of some other changes. It is about $150 million headwind there. And then we have an $18 million headwind from increased pension OPEB. So there were some pretty big cost numbers we are offsetting, and then if you look at our Tubular segment, certainly that is an improving environment right now. ':

Okay, and then – I'm sorry. Could you just give me those numbers again, so, you are saying you have got a billion of total cost headwinds this year at current spot of…

Raw materials.

And of that 1.50 is asset revitalization, 80 is pension and then…

No, the $1 billion is just the raw materials impact.

That is just raw, okay.

Yes, it would be somewhere in that range and then you would have the increased outage of 1.50 and increased pension OPEB on top of that.

Okay. And then just lastly on the asset revitalization plan, the incremental spend of $200 million, how much of that would be Capex versus Opex and what is the baseline spend that you had last year, just to get a sense of the magnitude of the increase?

Actually, we are just focused on the difference year-over-year. And out of that 200, about 150 is that outage and maintenance increase. So that is your P&L impact. You are increasing Capex year-over-year is about 50. As we get projects up and running the Capex piece starts to grow, but – so we are in the early stages now but like I said we have been investing. We are just going to do it at about $200 million higher level than we did last year.

Okay, thanks very much.

The next question is from the line of David Gagliano, BMO Capital Markets. Please go ahead.

Okay, great. I actually have a couple of related questions, so just to clarify – so, the $1.30 billion includes expected maintenance downtime, correct?

Yes, absolutely.

Okay, and then, did you say you had $1 billion of raw material cost headwinds year-over-year?

If you held them at today's prices because today raw material prices are very high.

Right. But in the press release and in the Q&A, the coal costs were only 19 bucks a ton, which is about $170 million, so what is the other…?

That is just coal in the US. You are going to have scrap. You are going to have iron ore. You are going to have all your coating metals. All those things are high now, and particularly in Europe, our raw materials prices in Europe, particularly coal are really inflated right now. So you have to pick up all those parts. And natural gas, I mean – we have to have natural gas here. Natural gas is probably up $1 MMBtu or more. But I would say the bigger piece is actually in Europe because they are more exposed to market based materials and they are more exposed to materials that are directly in-line with the global markets.

So the coal cost information I was provided in the press release, 8.5 million to 9 million tons at 19 bucks a ton year-over-year?

Wait. I don't know where you got the 8.5 million to 9 million tons. We need about 0.5 ton of coal for every ton of steel we make, and that $19 is our US pricing.

Maybe you can help me then. I'm sorry. Can you just tell me what the coal cost increase is expected to be specifically in Europe year-over-year? That will just for that in.

Europe has quarterly pricing. So, Europe we can’t say, but like I said, first-quarter it is high. First-quarter they are probably, up versus fourth quarter of $100 a ton.

Okay, and then just – I'm going to switch gears real quick, obviously a lot of projects mixed into the 200 million. I think the indications in the Q&A was 40% of the projects are 10 million bucks each and are lower, and 60% are 20 million or lower. It seems to me 10 million to 20 million in a steel mill doesn't really go that far. So I'm just wondering what are some of the bigger ticket items that we should be thinking about here number one, and number two is there a way to quantify for us the expected in aggregate cost save or margin improvement from all of these projects, thanks?

At this point, no. As I said it is a multiyear project. We broke it into small pieces [Indiscernible] to operations. You could have a $5 million project to replace a drive on a line somewhere. You could have a couple of millions to replace sensors or upgrade the sensors or side-trimming, anything and everything. So, there is not any one big ticket project. You will have multiple projects on an individual facility that will add up over time, but we did it this way to reduce the executional risk of projects, and it gives ability to move projects backwards and forwards to run the operations in-line with our order book and take care of our customers.

The other thing it would do it will help us as you see that we keep improving our mix. It will give us the capability to keep doing that.

Okay, great. I will hop back into queue. Thanks.

The next question is Matthew Korn, Barclays. Please go ahead.

Hi, good morning. Mario and Dan.

Good morning Matthew.

So a question for you here, help me understand if you could how is your finished flat-rolled capacity going to flex over this next year as you have got some closures taken under the revitalization program as you pointed out, offset with the restart of some of the downstream capacity at Granite City, so I'm just wondering like presuming that imports do tighten, demand improves from policy or animal spirits or what have you, practically speaking could last year’s 10.1 million get to 11 million or 12 million, or be much more constrained in that practically when we are thinking about capacity?

Well, the capacity utilization for the finishing last year was pretty tight, and this was the reason why Dan was saying that some of the investments that we are going to be making, they are going to be given as a capability to do better products, but also to be able to push it up a little bit. We can't at this point precisely tell you how much more, but I can tell you that there will be more.

Fair enough. Let me then ask on the Tubular market. We are watching the volumes there, they are picking up while you are talking about price still being challenged and the import pressure, how do we think about your approach to shipping volumes here even with the substantial loss per ton, are you seeing enough vision either through improvement in costs or better demand soon enough driving what might be absolute lower segment EBIT is worth it in the near term or over the next year?

I would start by saying that we believe we have hit bottom for sure in that particular segment, Matthew. And what has been inspiring, I would say, is the fact that if you go back to May, we were running about half of the number of rigs that we are running right now. And the tendency should be to continue to increase. So from that perspective we are going to be utilizing our assets much, much better. The other thing is when it comes to competitiveness, the amount of improvement in our cost base that the folks have delivered throughout this year, even though we were still losing money is very significant. So we will not need to get back to the same levels of operations that we were to be able to deliver a positive return here. So the combination of the two – it is our view that in the next couple of years we should be in a better world than we have been.

And Matt, if you – we did shutdown – permanently shut down some operations to streamline our footprint, focus on where our most profitable opportunities are. In the appendix of the presentation we posted last night, we do give an update. So we reduced our exposure to welded because of the much more difficult markets. Our new footprint is outlined [Indiscernible], but roughly about a million tons of seamless capacity, about 400,000 tons of welded, but we are more focused on not really the commodity line pipe, but some of the smaller welded that is more of an OCTG product. And also moving forward with our premium connections business.

Got it. Thanks guys. We do appreciate all the additional detail you give with each sequential quarter. Good luck. Thanks.

Thank you.

Next is Evan Kurtz, Morgan Stanley. Please go ahead.

Hi, good morning. Mario, Dave and Dan.

Good morning.

So, just to be clear, I just wanted to understand the 150 headwind from asset revitalization that – is that just the impact on the operating expense line and how does that change going forward, so I assume that if you get a lot of these projects it probably actually becomes a benefit once they are finished, so should we view that as kind of a high water mark that decreases over the next few years as the program continues?

Evan, I don't know that I can say that decreases over the next couple because there is a lot of work over the next few years on the program, but I think you are on the right track, once we are done, we should have sustainably lower maintenance costs than we have had in the past.

Okay, and then just one question on that 180 million in pension and OPEB expenses here, how much of that is service cost?

Service cost is actually pretty – well, it depends on how you look at it, service cost plus our steelworkers in multiemployer trust in pieces and combined are probably about $120 million of that number.

Okay, and then I assume that assuming these FASB rules go through that that will drop out next year, will we see the service cost next year an expense, so that is kind of the high water mark there as well?

On service cost, on our service cost – our service cost continue to climb because our plants are shrinking, but as far as we go through the return the assets, the interest cost associated to get to that full calculation, it is too early to speculate on that. But you are right, our service cost should continue to decrease.

Great, thanks. I will get back in the queue.

Okay. Next is Timna Tanners, Bank of America. Please go ahead.

Hi, good morning guys.

Good morning Timna.

Good morning Timna.

I know you addressed this, but I wasn't clear on the OCTG assumptions embedded in your guidance, so I think you would probably have another reason, price hikes that were announced by [Indiscernible], and you would note that the rig count is improving. I just want to be explicit about assuming, A, are you embedding those into your overall EBITDA guidance, and B, I know in the past you made some of the large diameter grades, do you have any exposure potentially to the pipeline projects, or is that already built?

Timna, I would say, our outlook is based on where prices where. So those price increases announced in the last few days wouldn’t be in there, and it will be based on where rig counts were late last week. We wouldn't be projecting an upside. What we are saying is, we are not projecting an update, we are saying if they stayed right where they were. As far as line pipe, the large diameter line pipes for those big transmission lines, that's spiraled. We don’t make spiral directly but that is certainly an opportunity for our Flat-Rolled segment. If that market picks up, we have the ability to supply that like X70 pipe hot rolled, it's would be very good product for us. Our own lot of capabilities would only get us up to about, actually now our lot of capabilities only get up to about a eight or nine inches. So, if they get into seamless -- maybe last week of 12, 2016. There you go.

Okay, helpful. All right, and then I wanted to ask about what volume improvement or we might be able to anticipate in Flat-Rolled in 2017 under your current configuration. It was helpful you clarify that you're running what three blast furnaces obviously not running Granite City, just rolling now which was helpful for some I think. But do we -- what kind of volume might we expect into 2017, where can you flex from 2016 levels that at least started out pretty strong if we have a decent demand environment into your imports in 2017?

Well, our blast furnace capacity is going to be capable of supplying whatever additional alternatives that we're going to find out there Timna. So, from blast furnace capacity, we're not anticipating bringing any of that online. What we do anticipate is to being more reliable than we were, so that we can benefit from being able to roll more of that.

So, you can run a 100% and add what amount or not a 100%, sorry at full utilization relative to last year's level, what amount of additional tons roughly could we anticipate?

Yes. That's about 5%, Timna.

Okay, thank you.

Sure.

Okay. Next is Brett Levy, Loop Capital. Please go ahead.

See guys, as a follow to what Timna is saying, I mean, the OCPD market was massively oversupplied lots of months of inventory sitting around. Can you talk about kind of what utilization rate you've seen and are seeing going forward, what the bookings have been, etcetera and you see the equilibrium coming back to the pipe market. Give some details from your order book if you would.

Sure. I would start within inventories because inventories have been hovering around the nine to 10 months and I think for the first time in a long time, we're seeing that it has come down to around six. And what is happening is that we're seeing a lot of specific requirements, because six months is still not a small amount of inventory. So, I think we still probably have another couple of months of inventory that we consumed and then I think we'd get back to a more balanced environment and then we're going to have also a broader amount of needs which are going to put the demand at a higher pace. So, we foresee that if the things continue with a trend that we're seeing, sometime probably by the second quarter, we would see an improvement on throughout the whole mix of products that we can make.

And then in the service center space. Do you see in some of the service centers in Tubular's starting to speculate and starting to build inventories or asking what you have in what month or anything like that?

No. Then we don’t see them build an inventory, of course as a request for can you do this, can you make that, do you still have that. That is normal and to have increase given the fact that the depletion inside of the current inventories increasing for some of those products. So, that has increased. And we expect it to continue as I mention hopefully in the next couple of quarters who were in a more interesting space.

Okay. Mario, Dan, thank you.

Sure.

And next is Michael Gambardella, JP Morgan. Please go ahead.

Yes, good morning, Dan and Mario.

Good morning, Mike.

Good morning.

Just couple of questions. First one on trade. Mario, I was watching I think CNN and saw you in the White House with President Trump, I think it was second day he was in office. Can you talk about what you know just strictly forcing our steel trade laws would mean would give us demand and strength this year?

I think it's one of the areas Mike, where the opportunity still remains real. Because many of the elements we were able to improve in the trade laws require that enforcement is performed at a higher level. That's some area where we continue to remain engaged or is good work that is being done both from an amount of the folks that keep checking everything. The utilization and better artificial intelligence analytics. The commerce department is now issuing more regularly information on what materials supposed to become imported from where. So, the ability to do better analytics will help with all of the enforcement that we're seeing. So, I mean, would the current administration has very openly declared that they're going to do everything they can to make these rules to be properly enforced. One of the areas that still remains a concern is about circumvention. That's still delicate area that requires a lot more work to be done. But I feel optimistic that this administration they're saying all the right things and they are asking for how can they better prepare themselves to make sure that our laws are respected.

Okay. One other questions in terms of your forecast for over $1.3 billion. Were you already have a $1 billion headwind from raw materials? Could you break down the raw material and the billion dollars because I noticed on your release yesterday you said that your met coal price contracts were only going to be up $19 year-over-year? And I was curious in a sense I think you did the forecast scrap prices are assumed to come off about $10 $20 which I would assume the benefit to that $1.3 billion. So, I was just trying to understand the components of the $1 billion headwind.

Yes, Mike. I said it is coal that coal increase the US. Here it's much higher in Europe. When you talk about roughly a billion headwind to be held, all price is constant, a majority of that would be in New York because of our exposure to global and a more majority that would be on the coal side. So, that's really what's driving more than here. You're right, if any of those materials prices moved down throughout the year, we'd expect a couple of benefit against that number.

Okay, thanks.

All right. Next question is from the line of Gordon Johnson, Axiom Capital Management. Please go ahead.

Good morning, guys. Thanks for taking the question.

Good morning.

Good morning.

Just I guess, continuing on the thought of trade cases. Just looking at what's happened in China, we've seen imports in China, imports from China rather into the US dropped 63% in 2016, yet total imports were down just 15% into the US, still imports. We've seen China's mix drop from 6.1% of total imports to 2.6% in 2016. So, I guess the question is do you guys see additional trade actions against China as impacting the I guess import balance. And then secondly with respect to Vietnam we saw in I guess December imports job 56%, yet it looks like adjusted for the full month they're up a 112% in January. So, do you guys see the I guess protectionism actually having a positive effect looking forward?

Absolutely, Gordon. I don’t like to use the word protectionism because that some people interpret it as if we're asking a favor of somebody, which is the opposite. All that we want is the rule of law prevail, so that we can really go and compete in a way the world market should compete. But market for us display the rule not subsidies and all types of -- that is protectionism. So, the reduction that you've seen are a direct consequence of all the hard work that we've been putting in that arena. And we're not done and we'll never let up. It's something that is important, it's something that the globalized environment is to really provide betterment for societies that rule of law has to prevail everywhere. And it's proven that if we don’t remain vigilant, these things can deteriorate pretty quickly. So, we will always be watching out of it over this. And when it comes to China, you will see that we do have a 337 case against him that's in process and the dimensions of aggression to our markets are so normal that they are beyond just dumping. You have all the circumventer and trans shipments, and you have the hacking of intellectual property incorporated into level of aggressiveness that takes place. So we will remain vigilant in this regard.

Thank you. Next question is from line of Seth Rosenfeld from Jefferies International Ltd. Please go ahead.

Good morning. I have a couple of questions on your European business please. Can you please walk us through some of the drivers of significant quarter-over-quarter uplift in shipment you saw in Q4? Seems to account to normal seasonality for taking share versus domestic peers or imports or expanding your customer mix second question with the recent news of the various disposals options at play could go give us any update on expectations and would you be in maintaining a stake in that European business given the intriguing market dynamics in the region? And then one third last question sorry on guidance just for the European call expectations when you say you are modeling spot is that reflective of the Q1 contract price for your seaborne purchases or reflective of the spot seaborne price contract 285 seaborne price 175. Thank you very much?

Hey, it’s reflective of the Q1 benchmark for that and then from the volume perspective I guess we saw a little counter seasonality maybe restock but I am thinking it wasn't anything unusual going on over there.

Okay. Thank you. And on the disposal options obviously there has been various headlines recently, would you be interested in maintaining a stake in that European business or just completely economic dependent?

That we don't comment on rumors or speculations. We are always focused on creating value for our stockholders and we always consider any strategic options that have the potential to increase value for us and whenever any business decision that regard is to be made we will let you know but we will never comment on rumors.

Okay. Thank you. With one follow up for the Q4 volumes was there any shift in your product mix Q4 versus the prior quarter or normal seasonal of the year I mean you said kind of normal but the pickup Q over Q does seem quite large versus what we have seen from your peers or from national production stats?

I don't think we saw any mixed shift now, and I am – we might still have some upside going into 1Q but -- it maybe that maybe we are off a little bit 3Q for some reason but I have to check on that.

Next question is from the line of Phil Gibbs, KeyBanc Capital Markets, please go ahead.

Good morning Mario and Dan.

Morning Phil.

Mario what type of feedback do you think president Trump is looking for from you and the steel industry to stimulate US manufacturing and then sub-question there what do you think Bob brings to the table as the US trade representative because most of us on the sale side are old enough to understand his offers during the 80s?

Well from what we have seen the President is remaining true to his promises during the campaign and one of them is buy America and hire America. So in PCs and in manufacturing environment a tremendous opportunities for that promise to be fulfilled. So he has been very open. He wants to hear what the recommendations are. I think he is paying attention to the different nuances that exists between different business segment. He is wanting to continue to do that. So I think this is all a very, very positive because you look at around manufacturing is responsible for 33% of China's GDP and we are very low over here. The potential for good quality jobs to be created in maintained is truly real when it comes to manufacturing probably for every job that we can create inside of our industry seven more quality jobs will be created as a consequence of that. And I think if you add on top of that the dimension of security that is required economic security is a fundamental one. So if we can make this country grow at least 3.5% per year you can see all the good that will come out of it. So he has been very open. He is very curious and he is addressing I imagine that when the full cabinet is in place, the conversations will continue and my expectations is it will all lead to action that can be very positive for manufacturing and certainly for the steel industry.

What about in terms of the promotion the US trade are up in terms of what you -- to them and how to go ahead.

I think you can qualify Bob as one of the top specialist on that object matter. He has been added for a long time. He has seen so many different cycles, so many different ways in which trade has been impacted. I think you would be incredible contributor to establishing the rule of law and make all trade a balance effort for this economy.

Just a follow up are you anticipating any improvement in your position within the UPI joint venture in terms of being a substrate provider? Thanks very much.

Sure. We are here to supply the customers and even though UPI we are to adventure over there. They are also customer in that regard and we would be willing to support them in whatever they need.

Next question is from Alexander Hacking, Citigroup Global Markets, Inc. Please go ahead.

Good morning Mario Longhi.

Good Morning.

My first question is on your CapEx guidance for 2017, the $475 million, could you give the breakout there on savings versus growth?

We have been running pretty close to 50-50, this year it's probably little more growth, because a lot of our asset evaluation really is growth and not savings. So I would say it would be more than half will be growth.

Okay thanks. And then just coming back to potential asset sales, I don't you don't comment on rumors, but your I would say you are still in quite a strong liquidity position at the moment credit to the company, where are you in a significant cash inflow from an asset sale, how should investors think about capital allocation in that kind of scenario where you could get a billion dollars plus in cash?

Every day we are looking on how do we create more value in that’s just another piece of the puzzle that we try to solve every day here. And I say clearly we made great progress in the balance sheet, but go forward de-leveraging is still one of our projective. We'd also look at where the growth. So I think we'd be pretty balanced on our approach to capital allocation in that type of scenario.

Okay. Thanks a lot.

Next question is from the line of Nick [indiscernible], Stifel. Please go ahead.

Hi. Good morning. I wanted to talk about how you think about the margin outlook for European operations versus the U.S. given that most of the raw material, price pressure is going to be in Europe. Are you thinking you're going to be able to keep the EBITDA per ton stable or is there going to be compression in Europe and you're going to see margin expansion in the U.S. markets?

Well our expectations is that despite of Dan was commenting the headwinds are real, but the folks have been working very hard with both ends, continue to get the cost better, continue to shift the product mix to a better place. And our expectation is that European folks will continue to do better.

And then with the asset revitalization program, is that going to change the mix of your products and markets transition away from spot pricing and towards more contracted business. Any change in your product look?

I think certainly moving away from the base commodity volume is this front and center to the strategy and I think we'd be in successful in that regard and thus we continue.

Do you have any targets for where you want to get to for the book of business?

We do have some targets that the folks are still in each of the crucial end that these are dissecting and crafting the journey ahead. There is a lot of innovation that they are working on, so there is a pretty nice approach to how we should move forward.

And any timeframe over which you guys thinking to accomplish this?

This is just like the asset revitalization approach, it’s a multi-year program, in many of the markets where this innovation takes place are markets that’s mature they develop and mature over a cycle of a few years. So when we look it to the next four to five years there is a lot of new things that are going to be coming to -- and you look at the types of availability of new products they have been created just in the past three years, it's quite significance. So this is quite an exciting environment that we're playing in.

Thank you. Next question is from the line of Jorge Beristain, Deutsche Bank. Please go ahead.

Hey guys, good morning.

Good morning.

I just wanted to maybe circle back on that CapEx question of the $200 million that you're putting in this asset revitalization programs a lot of them you said are in $10 million and $20 millions. What is the payback on these kinds of projects, are you are looking for 6 to 12 months or could you pre-admit in kind of return on capital framework?

I still, my product but I think I would say that in total this plan that we're implementing meets all war thresholds we'll have for normal evaluating capital projects and returns that we expect and reply before implemental projects. So like I said, these are maintenance, this isn't just spending the spend, this is with projects that yield returns, like I said at levels that are consistent with how we would normally view capital projects, there is really nothing unusual on that side.

Right, but what I am trying to get at this, are these sort of really low lying free type of projects that because they are small in nature have abnormally high paybacks?

Not necessarily because some of these projects are small step. We will take a bigger project and come into smaller steps, so we don't disrupt operations as much, so some of these projects into the completed series is [indiscernible] way, so it will be a mix bag.

Got it, and then on your comments that you would be cash positive for 2017, does that include the potential proceed from the McGee sport two wheeler plant sale or when you say you will be a cash positive is that just based on operations?

If you're based on that, if you're over that $1.3 million outlook intake what your cash requirements of being cleared CapEx guidance that would be due to cash positive number, equipments on the key sport is the material and that for the last year.

Okay. So again also the U.S. SC sale I forgot to ask about that. So in another words your free cash flow kind of outlook is exclusive of asset?

Yes, you're right, on Canada, we have not gotten, yet that will be additional cash in the door.

Perfect, thank you.

Next is from the line of Aldo Mazzaferro, Macquarie, please go ahead.

Good morning Mario and Dan.

Good morning.

I think I've already saw, you might have 5% of still volume growth, could you talk about what market you might see driving that growth next year in volume?

It’s the spread throughout all the commercial entities all those that’s an aggregate, that’s the number that we have.

And I think that's what capacity wise we have that kind of ability if not necessary that it is going to be there, but if it grows we'll be willing to serve it.

Oh I see, okay. Second question, you guys are doing a great job of getting SG&A in line, I notice $49 million this quarter down shortly from the previous quarter down over 50% from a year ago. What kind of sustainable level that you initially expect?

This quarter we had a favorable item of about maybe $9 million, but if you're just for that you are getting to pretty much what should run rate is going to be.

What was that $9 million?

It was related to workers comp, true apps at the end of the year.

Okay. And then one final one Mario, do you think Trump puts a border tax on inputs of steel that he would include slabs in that or not?

Too early to tell those details although, but the essential thing is free and fare trade should be balanced for everybody that is the core, but how they are going to come up with their all sorts of difference speculations, so hard to tell right now.

Next question is from John Tumazos. Please go ahead.

Thank you very much for taking the question. As it begins to rain cash flow, how much do you want to reduce debt and post employment liabilities before you have full latitude to the money and dividends or extra dividends or share buy backs first? And second, how big is queue of potential capital projects if we would add up the finishing the Fairfield shop or improvements for alter the new deals you're inventing everyday for orders or maybe fixing up to hard strip value, whatever the queue of projects that may have been put on hold when things were tough?

Well I think that the -- we see there is a lot of value in continuing to invest in our facilities, invest in our innovation and it's all about how that we make the best effort to continue to create value as we move forward. The investment in Fair field we do have all the equipment for the new electric or furnace that we have and it would be a little more than $100 million to finish off whenever we feel that that's the right time to do it. And it's a myriad of projects we have under the concepts and it's not in the 100 it's been many cases in the thousands. So that's why when we mention we have a robust process to access it. It is a robust process, it took a while to get the proper granularity in all of those. It took a while for us to embed flexibility because I still think that we live in a very volatile environment certainly seemed like conditions were getting better where we can have a more sustainable positive environment to play but that kind of flexibility is one key element that applies to the new things, to the new development and also to the reliability that we need. The other thing that I bring to this answer here is the fact that we really have to make sure that trade becomes a common affair under the law because there is still a risk of the over capacity, it still exists in the behavior that players they have not played by the rules, we are proving that only changes if we are very, very strong in enforcing our laws.

So Mario, if you are nervous about the $700 million tons of unused capacity you might be quicker to pay that debt or fund some liabilities and slower the take the dividend up to half of the year earnings threshold. Is that fair statement?

Well it's one of the alternatives that I would say we look at before we make it decision for sure.

And John on the like to liability side I would say our exposure is very low. We don't really see much funding risk that's out there for us there.

Congratulations. I hope it keeps raining and running.

Thank you. It's kind of you.

And next is Sean Wondrack, Deutsche Bank. please go ahead.

Thank you for taking my questions. Mario, first of all thank you very much for all the work you have done with the president otherwise regarding U.S. steel industry. I know that it's a big distraction but very important. First question, just regarding capacity utilization. When I look at the slides, it looks like you are adjusted capacity utilization is somewhere around 69% in 2016 at your flat-rolled segment. That feels like it's a little bit low. Why would that be and then you guys probably try to target around 80% obviously the item and kind of as a follow-up do you expect there to be improved demand relative to either infrastructure projects, pipeline projects, or potentially a law that gives you facility and enhance the utilization there. Thank you.

Sean, I will give you a piece of utilization and Mario can finish up that's utilization, flat making utilization and actually based on our more complex product mix the more valuable products our mills finishing lines were running very, very beautiful. So we made it flat, we can consume so that more important thing for us was we did fill up all of our finishing lines based on when we go to more complex products it takes longer to process and so we made all the flat and we needed to keep those lines full.

And as far as the market is concerned the EPS we look forward to a better environment where there is going to be more activity infrastructure will go one way or another. It's a common theme that everybody understands that it's more than just roads and bridges and airports. Its water treatment stations, it's all of the infrastructure related to energy in general. So everybody understands the importance of that. And that is why for example if you can figure out way in which the conditions for the economy to grow at a higher rate are put in place all of these projects and infrastructure are going to drive significant improvement to all of the manufacturing companies. The other thing that this will do I think it will improve labor, it will improve salaries, it will improve the confidence of consumers which all -- well for the economy as a whole.

Next is from Matthew Fields, Bank of America Merrill Lynch. Please go ahead.

Hey guys, just wanted to ask a couple of housekeeping questions and then maybe more thematic one. I think Mario mentioned earlier that you guys see improvement in the tubular market as early as 2Q, just to be clear is that baked into your $1.3 billion guidance or is January 26 levels baked definitely?

No it is embedded in the guidance.

Okay. Thank you. And then one more basically to that same question I think I heard Dan say that you are assuming in your guidance $285 per ton met coal in Europe for the entirety of the year?

We are assuming their pricing based on what they settled against the first quarter benchmark. They don't pay benchmark.

Okay but you are assuming $285 benchmark for the year.

We are assuming whatever the first quarter was based on that benchmark stays the whole year, yes.

Okay. And then I know you said you are working on a lot of $10 million to $20 million projects, maybe even bigger ones cut up into pieces, can you let us know if there is a group of 4-5-6 or 7 of these projects that are focused on any one facility?

Over the course we will focus on all our existing facilities. Right now for the most part I think our mills have been our biggest priority. So it's all across all the flat-rolled facilities, the existing facilities. Now, existing facilities new projects are new facilities with different story but we are going after all the assets and I think like initially, mills are focus because that's where we had some unusual operating problems in third quarter.

Okay and then thanks for that, and the lastly Mario we are all saw you on TV last week with the president, did cafe standards come up in your discussions and can you tell us a little bit about what was discussed?

Yes. It did. And it was part of a broader regulations discussion that came to -- if you look at all of the players in that environment everybody has regularly being doing pretty good work when it comes to making more efficient. We have been implementing significantly better lighter, safer products the OEMs have persuade their alternative very significant improvement taking place in the power trains, and I think that will continue as network pace. What is important is that every new piece of improvement of legislation gets properly, I guess the economic impact and the overall impact into the environment in the world. It's proven that we can pretty much stop consuming carbon in this country here. Some other countries don't follow suite environment not change. And the other thing that was brought out that in spite of all the improvements that we have made in the United States if you look at the it's been negatively compensated by the activity that has taken place in other countries. As a matter of fact, when it comes to steel in particularly, every pound of steel that's not made here, that is made in some of the more natural places out there especially where over capacity exists, is most likely being generating a significantly worse conditions from an emission standpoint. So the discussion was around regulations in general, coffee was certainly one topic that was brought to table.

Thank you. Our final question will be from the line of Curt Woodworth, Credit Suisse, please go ahead.

Yes thanks. Mario I just got a follow-up with respect to the [indiscernible] because based on my numbers I had your total around 18 million tons in current requirement at 12 to 13 so for me I am struggling a little bit to understand why you need to restart that facility and can you just give some comments on how much third party public you think you can increase in the market this year?

Curt, just based on what we produced in 2016, we -- between 14 million pounds and 15 million pounds at those production levels.

That should give you the delta over third party sales.

So then, what we did is we entered into contract, we had the opportunity now, we’ve been pellets, we entered the contract and enough volume that supports the [indiscernible] restart as it was more volume than handle without --

Okay. Okay yes I was just assuming 20% scarp short, so I was getting to a number a lot lower than that for you pallet.

For our raw field production, if you have had a raw field taking about 1.3 to 1.4 tons of raw steel.

Okay. But 20% scarp charge is what you typically use, right?

25.

Right. Okay. And how much pallet do you expect to ship to the Bedrock or the assets?

That's a requirement based contract, so that really depends on how hard they run.

Okay. All right. Thanks.

Thank you, Mario, final comments.

Thanks Dan. We have, before we sign off, I really want to acknowledge and thank our employees. They have saved so many challenges over the last couple of years and they have taken on these challenges in delivering tremendous improvements for our business model. They have done so though while maintaining their focus on our core value safety which remains the foundation for the UA. While we are already in the industry leading safety performance our employees are continuously finding ways to become more efficient, effective and to further enhance our safety process. We still have challenges and more work to do but we recognize that we are making progress. We have dedicated and talented employee that will continue to be driving force behind our current UA and journey.

Thank you, Mario. I like to thank everybody for joining us and we will talk to you in the next quarter.

Thank you. Ladies and gentlemen, that does conclude your conference. We do thank you for joining while using the AT&T Executive Teleconference. You may now disconnect. Have a good day.