Good day, everyone, and welcome to the Nucor Corporation's fourth quarter and year-end 2014 earnings call. As a reminder, today's call is being recorded. Later, we will conduct a question-and-answer session, and instructions will come at that time. Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. The words we expect, believe, anticipate, and variations of such words and similar expressions are intended to identify these forward-looking statements, which are based on management's current expectations and information that is currently available. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risks and uncertainties relating to these forward-looking statements may be found in Nucor's latest 10-K and subsequently filed 10-Qs, which are available on SEC's and Nucor's website.
The forward-looking statements made in this conference call speak only as of this date, and Nucor does not assume any obligation to update them, either as a result of new information, future events, or otherwise. For opening remarks and introductions, I would like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer, and President of Nucor Corporation. Please go ahead, sir.
Thank you. Good afternoon. Thank you for joining us for our conference call. As always, we appreciate your interest in Nucor. With me for today's call are the other members of Nucor's senior management team, Chief Financial Officer, Jim Frias, and our other Executive Vice Presidents, Jim Darsey, Ladd Hall, Ray Napolitan, Joe Stratman, Dave Sumoski, and Chad Utermark. The entire executive management team would like to thank everyone on our Nucor, Harris Steel, David J. Joseph, Duferdofin, NuMit Steel Technologies, and Skyline Steel teams for a job extremely well done in 2014. You work hard, work smart, work together, and most importantly, work safely to deliver solid improvements in our performance, despite steel industry conditions that remain very challenging. I am pleased to report that full year 2014 net income increased significantly by 46% to $714 million. We also achieved very robust growth in our cash generated from operations.
2014's operating cash flow represents our strongest performance since 2008, demonstrating the strength of our business model. Best of all, our more than 23,000 teammates continued their excellent work implementing our company strategy for profitable growth. Subsequent to the last cyclical peak in the steel industry, Nucor has invested significant capital in a large number of projects that improve our cost structure and expand our product portfolios to include more value-added, higher-margin offerings. In 2014, we began to see some of the early benefits from these strategic investments. There are more to come. In 2015, these investments will enhance our ability to navigate through the current challenges presented by energy industry turbulence and high levels of imported steel. I will now ask our CFO, Jim Frias, to review Nucor's fourth quarter performance and financial position.
Following Jim's comments, I will update you on current market conditions and execution of our strategy for long-term profitable growth. Jim?
Thanks, John. Fourth quarter of 2014 earnings of $0.65 per diluted share exceeded our guidance range of $0.50-$0.55 per diluted share. This outperformance was largely driven by better-than-expected results from our sheet mills, joists and deck business, and our direct reduced iron plant in Trinidad. Newly acquired Nucor Steel Gallatin made solid contributions to our fourth-quarter earnings and cash flow, even after absorbing about $9 million or $0.02 per diluted share after tax of purchase accounting expenses early in the quarter. We are encouraged by our fourth-quarter performance given the strong seasonal and other influences dampening volumes during the period. Total sales tons to outside customers declined 10.5% in the fourth quarter compared to the third quarter. Our strong full-year 2014 earnings improvement highlights the value of Nucor's industry-leading product diversity.
We are North America's only manufacturer of all four major steel mill products, bars, beams, plate, and sheet. Our steel mill shipments of 22 million tons increased more than 6% year-over-year, which is more than double the U.S. steel industry's overall growth rate. The increased steel mill volume was further leveraged by steel mill metal margin expansion of $32 per ton. As a $37 per ton gain in our average steel sales price, offset by a $5 per ton increase in our average cost of iron units consumed. In addition to the strong profit growth at our core steelmaking operations, Nucor's downstream steel product segment more than doubled its profitability in 2014. These businesses are benefiting from the initial stages of recovery in non-res construction markets.
Particularly strong volume growth was achieved in our joist, decking, and rebar fabrication products. Nucor's 2014 earnings improvement was achieved despite a significant operating loss in our new DRI facility in Louisiana. Nucor Steel Louisiana's 2014 operating loss totaled $135 million, or $0.28 per diluted share after tax, and $35 million, or $0.07 per diluted share after tax for the fourth quarter. Production operations at the Louisiana facility have remained suspended since the process gas heater experienced a failure in early November. Due to the lead times on the specialty steel pipes that must be replaced, we estimate that the plant will not resume operations until late in the first quarter. The process gas heater is not part of the DRI technology utilized by Louisiana, but it is ancillary equipment required to operate the plant.
The DRI technology itself has worked well and established new world-class quality levels, as measured by metallization rates and carbon content. Although Louisiana has been a challenging startup, it will be a major step forward in the implementation of our long-term raw material strategy. The recent declines in iron ore pricing and the fourth-quarter profits generated by our DRI facility in Trinidad provide further validation to our work over the past decade, establishing and growing Nucor's DRI production capacity. A quick comment about our tax rates, since it can be confusing due to the impact of profits from non-controlling interests. After adjusting out profits belonging to our business partners, the effective tax rate was 33.6% for the fourth quarter and 35.3% for the full year of 2014. Nucor's financial position remained strong at the end of 2014. Our gross debt-to-capital ratio was 37%.
Cash and short-term investments totaled more than $1.1 billion at the close of 2014, putting our net debt-to-capital ratio at approximately 31%. Our next significant debt maturity is not until December of 2017. Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving credit facility, which remains undrawn. The facility does not mature until August of 2018. Nucor is the only North American steel producer to hold an investment-grade credit rating. John mentioned our very robust operating cash flow generation in 2014. Cash provided by operations of approximately $1.3 billion comfortably exceeded capital spending of $668 million, combined with cash dividends paid to our shareholders of $475 million. In 2014, Nucor's strong balance sheet, liquidity, and cash flow again allowed us to take advantage of attractive opportunities to build long-term earnings power.
During the fourth quarter, we completed our purchase of all of the equity of Gallatin Steel for a cash purchase price of approximately $779 million. The acquisition was funded from cash on hand and the issuance of approximately $300 million of commercial paper. By the end of 2014, we had reduced the acquisition-related commercial paper outstanding by half to about $151 million. For 2015, we estimate capital spending will be approximately $500 million. Most of our recent larger-scale projects have been completed or are nearing completion. Our capital spending forecast also reflects our joint decision with Encana, our natural gas working interest partner, to extend our drilling suspension through the end of 2015. This year's capital spending for drilling will be very modest and consist of drilling a few wells required to maintain leasehold rights. Depreciation and amortization for 2015 is expected to total about $700 million.
Nucor's financial strength, as evidenced by our strong balance sheet and healthy cash flow generation through the economic cycle, is the bedrock foundation to our mission of growing shareholder value. From this position of strength, we are able to allocate our shareholders' valuable capital to the most optimal or attractive uses at any given point in time. Our financial strength allows us to invest in capital projects during severe industry downturns, when the long-term returns are most attractive. It allows us to make strategic acquisitions when the right assets at the right price become available in the marketplace. It allows us to reward our shareholders with a steadily growing base dividend, supplemental dividends during upcycles, and opportunistic share repurchases. During the current downturn from 2009 through 2014, our investments totaled nearly $6 billion, with about two-thirds going to capital spending and one-third going to acquisitions.
These diverse projects all grow Nucor's long-term earnings power by expanding our product portfolios into higher value-added offerings that are less vulnerable to imports, by improving our cost structure, and finally, by building upon our market leadership positions. Growing stronger during downturns is a long tradition of Nucor. It is how we achieve higher highs in profitability from one cyclical peak to the next. With our disciplined approach to capital allocation and success in building long-term earnings power, Nucor is able to reward shareholders with attractive cash returns. Our base dividend has more than tripled since the end of 2007. With the increase effective with next month's quarterly dividend payment, Nucor has increased its base dividend every year since it first began paying dividends in 1973, or 42 consecutive years. During the last industry upcycle from 2004 to 2008, Nucor paid a total of $5 per share in supplemental dividends.
Over the 10-year period ending in 2014, Nucor returned a total of $6.7 billion of capital to our shareholders through dividends and opportunistic stock buybacks. The Nucor team's unrelenting focus remains on continuing to build upon our record of being an effective steward of our shareholders' valuable capital. First quarter of 2015 earnings will be impacted by the significant headwinds that developed for the steel industry at the end of 2014. The collapse in oil prices has triggered inventory reductions amongst pipe and tube producers, an important customer group for Nucor and the overall steel industry. At the same time, imports are up dramatically entering 2015. On the positive side, we continue to see favorable trends in non-residential construction markets that will benefit both our steel mills and fabricated construction products.
Overall, we expect first quarter 2015 earnings will decrease from fourth quarter to a level slightly exceeding the first quarter of 2014. Nucor will again follow our practice of providing quantitative guidance in the final month of the quarter. Whatever short-term economic and steel industry conditions we face in 2015, Nucor's unrivaled position of strength will allow our team to continue to execute on our proven strategies for delivering profitable long-term growth. We appreciate your interest in our company. John?
Thanks, Jim. There certainly has been an abrupt change in the near-term outlook in recent weeks. The two headwinds mentioned by Jim, collapsing oil prices and surging imports, will certainly challenge our team during the first quarter. That's okay. Our team has faced and overcome challenges and adversity in the past, and we will do it again. Energy is an extremely important driver of demand for steel in the U.S. and here at Nucor. Pipe and tube producers serving the energy markets represent approximately 10% of our steel mill shipments. Meaningful production and inventory adjustments by our pipe and tube customers are currently underway. Following this period of marketplace adjustment, we believe the future remains very positive for low-cost energy production in North America. Importantly, lower energy costs over time should support increased U.S. manufacturing activity and consumer spending. That is all very positive for Nucor.
The other major headwind is from a renewed surge in import activity. Full-year 2014 imports of finished carbon steel products are estimated to have jumped to an unreasonable and unacceptable level of approximately 34 million tons. That is an increase of about 37% over 2013, and just under 2006's record level of 35 million tons. Indications are that January 2015 finished steel imports may set a monthly record of around 3.9 million tons. These short-term headwinds are significant, but Nucor is extremely well-positioned to navigate through them, and we will. Some key advantages of our company come immediately to mind. We will benefit from our low and highly variable cost structure. Additionally, we expect continued growth in non-residential construction activity. Iron units are our largest single cost item. As previously mentioned, profitability at our DRI plant in Trinidad is benefiting from the large declines in iron ore costs.
After resuming production, the Louisiana facility will also benefit from what appears to be an oversupplied oil market over at least the next several years. Continuing on the raw material cost topic, we believe that the U.S. scrap is currently significantly overpriced versus iron ore and global scrap markets. Based on increased import steel penetration, slack international demand for U.S. scrap, the strength of the U.S. dollar, and moderating U.S. demand for scrap, we expect scrap prices to fall dramatically in early 2015. During this period of transition, Nucor will continue to utilize our unmatched global supply chain to optimize all raw material costs. Our investment in DRI and in scrap yards, as well as our access to international raw material markets, gives Nucor best-in-class capabilities and flexibility in approaching the market for iron units. Non-residential construction markets account for more than half of the end-use demand for Nucor's products.
As measured by square footage, U.S. non-residential construction activity increased by 6.7% in 2014. We expect continued improvement in 2015. It is worth noting that the 2014 square footage activity level represents only about 56% of 2007's peak activity level. So there is plenty of room for additional improvement. Whenever the steel industry and the economy hit unexpected periods of turbulence, like what we are experiencing now in early 2015, Nucor will do what Nucor always does. We will grow bigger, stronger, and more profitable, and we will outperform our competitors. Here are the reasons why Nucor will do this. Our balance sheet and through-the-cycle cash flow generation is unrivaled by any of our competitors. Our industry-leading product and market diversity continues to grow as we move up the value chain in all of our businesses.
The recent expansions in our offerings include normalized and heat-treated plate, wider and lighter sheet steels, additional SBQ and wire rod products, and new piling sections. All of these products are less impacted by irrationally priced imports. Our low-cost structure will benefit from increased DRI production capacity as our new Louisiana facility completes its startup process this year. Our commitment to achieving commercial excellence by leveraging Nucor's competitive advantages, such as product diversity and operational flexibility, to create more value for and build stronger relationships with each of our customers. Most importantly, Nucor's employees, the right people. They are our company's greatest asset and our greatest competitive advantage. Here are just a few of their 2014 achievements implementing our strategy of investing for long-term profitable growth. In the fourth quarter, our Nucor Yamato structural beam mill, steel mill, began prime production of its new sheet piling sections.
The initial output was sold to Skyline Steel, a piling distributor, and will be installed next month at a construction project in New Jersey. Nucor Skyline expanded its product portfolio to include wider piling sections that are lighter and stronger, covering more area at a lower installed cost. The market for these high-value-added niche products is currently largely supplied by imports. In addition to taking advantage of Nucor Yamato's world-class structural steel manufacturing capabilities, our customers will benefit from this new domestic solution, which will create valuable synergies with the other products and services offered by Skyline Steel. Acquired in 2012, Skyline is the market leader in its business with an unrivaled package of engineering support, stocking locations, processing centers, and dedicated sales teams. In 2014, our Nucor Steel Hertford County plate mill leveraged its heat-treating capabilities to capture a growing share of the market for value-added plate products.
For example, through 2014, Hertford County has more than doubled its share of the bridge market during the current steel industry downturn. Over the same period, shipments to higher-margin OEM customers have doubled as a percent of the mill's total volume. These value-added products are also less vulnerable to pressure from commodity inputs. Our Nucor Steel Berkeley sheet mill's successful startup in 2014 of its WideLite capital project continued to build momentum. Shipments of the new WideLite products totaled over 120,000 tons in the first year. Berkeley now has the lightest hot-rolled gauge capacity capability of any sheet mill in the Southern U.S. market, and with a finished product width of up to 72 inches. We estimate the size of the new market segment now available to Berkeley to be approximately 4 million tons annually.
Of particular importance, the upgrade allows Nucor to produce thinner, high-strength steel grades that can be used to develop lightweight automotive applications. In closing, based upon all of these strategic practices and the faith, the absolute faith I have in our team's ability to face and overcome challenges, I remain very confident that Nucor's best years are still ahead of us. Thank you for your interest in Nucor. We would now be happy to take your questions.
Thank you. If you'd like to ask a question at this time, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please be sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to ask a question. We'll take our first question from Luke Folta with Jefferies.
Hi, good afternoon.
Good afternoon, Luke. How are you?
Good. First question is on, in the release, you talked about what you're expecting in terms of demand in the first quarter, and you made some comments around an expectation for significantly lower scrap prices. Just trying to get a sense if you could give us some more color around what your price expectations are heading into Q1. Give us what's baked into the assumption that earnings should be slightly higher year-on-year, and also, if you can give us some sense of what your LIFO expectation would be as well, that would be helpful.
Let me start with the first part of the question, then I will turn it over to Jim for the LIFO comments. Let me start by saying that our first quarter outlook is based upon what we see today in the current scrap prices. As I mentioned in the script, there are numerous reasons why we believe that that pricing will decline dramatically in the early part of the year, we believe probably in the first quarter. One of the biggest drivers for that is when you look at our scrap pricing, excuse me, our steel pricing, our steel pricing has already gone down. It has decreased across products maybe $50-$100 a ton. As a result, scrap pricing has to follow that steel pricing down.
We see the pricing, steel pricing, under pressure because of the imports that are coming in, that is produced with iron ore, giving them a cost advantage today over our scrap market. That has to, and we believe will, adjust. There are several other reasons we believe that we are going to see the scrap pricing drop significantly over the next couple of months. You have the strength of the U.S. dollar. Global scrap markets are lower. Scrap imports are bound to start coming in. As I mentioned, decreased demand for steel scrap as a result of decreased production of steel because of the pressure that we are seeing, both because of the imports being produced by the iron ore and because of the oil pricing, as we mentioned in the script.
Given these reasons, we believe very strongly that we will see a dramatic drop in scrap pricing in the first quarter. The other thing I would want to mention is that we are seeing some impact from the lag of the scrap pricing moves due to inventories in our mills. We have currently in our mills higher priced scrap because there is usually a 4-6 week lead time or lag time in our use of the inventories. Given all of those reasons, Luke, we believe that, A, scrap pricing is going to come down dramatically. I want to stress that it is following steel pricing down. The steel pricing has already come down. Scrap pricing must follow. I also want to mention that, again, that we based our first quarter outlook based upon current scrap pricing. Jim, you want to touch upon the LIFO adjustments?
Yeah, Luke, we are assuming a $25 million LIFO credit for the year. Obviously, if metallics prices fall as dramatically as we think they could, we will end up having a larger credit as the year advances. We are going to start the year off looking, I think it comes to $6.5 million in expense in the first quarter for a $25 million annualized pace.
Okay. Just to be clear, whatever big scrap move that we could see in February, I think last update, some of the people we were talking to were looking for down 30-50. Maybe that has changed over the past week or so. Your expectation now would be, your guidance is based on today's scrap price before a big down move in February? Or would that be included in that? Just saying.
Yeah. Luke, as John was explaining, we tend to have scrap on the ground. When we made the forecast, we're assuming that the benefits of the falling scrap price, we don't know if it's going to fully come through in February or partly leak into March, that we'll just start to see some of the benefit in March. If we see it sooner, our results could be better. Our forecast probably is a bit conservative in terms of receiving any benefit from scrap prices, if that helps. We don't like to give a specific, "Here's the number," because quite frankly, we don't have that. It's a bottoms-up forecast of every business unit individually making a forecast.
Got it. That's all. Thank you. Just the second one, in terms of your energy demand, your shipments, John, I think you said it was 10% or so of your total steel shipments. Can you give us some sense of how that breaks out by product in flat roll versus SBQ? Anything in terms of the magnitude of how that's changed just over the past month or so or in the first quarter would be very helpful. Thank you.
The vast majority of it occurs in our sheet products. Probably about three-quarters of our shipments come out of sheet products, maybe 75%, 80%. There's a small amount that comes out of our SBQ. As I mentioned, we've seen a significant adjustment by our customers who produce pipe and tube that goes into the oil business. They're adjusting their inventories, and we're seeing that impact upon our order book. I do want to stress, as I mentioned several times in the script, the investments that we've made over the last several years in diversifying our products and our markets will help us get through this period.
Just as one tidbit of information, when you look at just in 2014, there's about 700,000 tons of product that is either new or value-added product or product that we can now supply into markets that we could not supply into previous to these investments. Although we're going to be taking a hit on the oil and gas, no doubt about it, 10% of our shipments go into that. We believe that through the investments that we've made in diversifying our products, we'll mitigate that impact. I'll also stress, as I mentioned in the script, that 50% of our products go into non-residential construction, and we expect to see continued improvement in that market.
Thanks, everyone.
We'll take our next question from Matt Murphy with Union Bank of Switzerland.
Good afternoon. A question just on, I guess, your order book. What sense are you getting? Are customers holding off waiting for the market to find a bottom, or are you finding pretty healthy inquiries out there?
Again, other than the pipe and tube that's oil and gas related, the rest of the markets are okay. Certainly, there's a lot of doubt about what's going to happen, both on pricing, but I think more particularly on what the customer's view might happen with scrap pricing, which is why I'm once again emphasizing that it's an unusual event where we're going to be seeing scrap pricing following steel pricing down. Typically, it's reversed. This time, because of the pressure from imports and from our competition that is ore-based, we are seeing the inverse effect take place. Steel pricing has gone down before scrap pricing. We believe that, as I mentioned, scrap pricing will follow it down, and it will happen pretty quickly and pretty dramatically. But again, it's following the steel pricing down, not the other way around.
I think our customers understand that, so they're not expecting large price decreases as scrap continues to move down because we've already seen the impact of that on our pricing. One other point that I'd mention in terms of just bookings as a general statement, we talk about imports being high, although we've been successful in some of our trade cases on rebar and hot-rolled coil and wire rod, there's still a lot of that imported steel that's in inventory that is impacting our order book, and we'll see that for the next couple of months.
Sure. That's helpful. When you talk about repeatedly your strategy of going into higher-end product, I guess, how are you finding competition from imports in the higher-end categories? If that remains a better business for Nucor than for imports, is it fair to say maybe we would see imports continuing to attack in some of the lower-end applications? Maybe you don't get the volume growth, but you still get the margin growth from the higher-end product. Maybe if you could just talk through how that might look. Thanks.
Well, clearly, the higher valued products have a greater resistivity to imports, as well as having higher margins. So you kind of get a double benefit of that. In terms of your comment about would we expect to see volumes not growing, I would not agree with that statement. We expect to see our volumes grow in the higher value-added products because as we continue to develop them, there'll be more and more market share. As it's always been Nucor's policy, we don't give up on the lower commodity products. Okay? We're in this game across the full spectrum. We're just as interested in maintaining our market share in rebar as we are in developing the advanced high-strength steels. We'll grow in all of the products that are out there, and we'll not concede market share easily to either our competitors or to our imports, to imported pressure.
We will continue to fight. In other words, we'll gain higher ground without giving up what we already have. That answer your question?
Perfect. Thanks.
We'll take our next question from Evan Kurtz with Morgan Stanley.
Good afternoon, everyone.
Good afternoon.
I had a question for you. I am guessing, John, that you are probably following this Leveling the Playing Field Act that Senator Brown introduced last December. I was just wondering if you would kind of walk us through what that might actually mean for the steel industry. How could that benefit Nucor? This might be asking too much, but your kind of handicap on whether such legislation might be able to make it through a Republican Congress.
Well, I am going to ask our political guru here, Pat McBride, to answer that question to the level that we can answer it.
That legislation, it is going to be good for us, but it is something that is very difficult to get through the system. I really do not want to go into it on this call, but I would be happy to talk to you afterward.
Okay.
Give us a call later in the day or tomorrow, and we will give you some more color on that.
Great. I will definitely follow up. Maybe just asking about the trade case on the coated flat roll products. Where does that stand right now? I know it's hung up a little bit because of concerns about the injury determination. With pricing rolling over as much as it has over the past quarter, are we getting a little bit closer to the point where we might actually see something pretty soon?
I'm not going to answer that specifically. I will say that I'll make a general statement that we will be proactive and we will be aggressive. The level of imports, as I mentioned, have reached absolutely ridiculous levels, and we believe that there's the potential for action coming up. We're monitoring the situation very closely, and we'll be aggressive. When we look back at the last couple of cases and the success that we've had over those cases, we had the rebar case against Mexico. We were very successful in that case, and we saw rebar imports from Mexico reduced by about 70%. We've seen wire rod, the case against China, result in virtually eliminating the Chinese wire rod from the U.S. market. Then finally, I would mention the elimination of the suspension agreement for hot-rolled coil against Russia.
We anticipate continuing to see significant reductions in Russian hot-rolled coil coming into the country. So based upon those recent successes, we feel pretty good about our chances going forward. I'm going to leave it at that. We'll monitor it closely, we'll be aggressive, and we'll be proactive in pursuing cases when it's appropriate.
Great. Thanks. I'll follow up offline.
We will take our next question from Sal Tharani with Goldman Sachs.
Good afternoon.
Good afternoon, Sal.
A couple of questions. First, on the end markets, more than 50% is non-res, 10% energy. Anything big you want to mention after these two?
I would mention, as we've mentioned several times on past calls, automotive, and we're looking at about 10% of our automotive qualified steels going today. 10% of our steels that are qualified to go into automotive, we're shipping into that sector. If you look at our total tonnage, about 5% of that would be going into automotive today. Obviously, we don't normally count structural steel beams. Not much of that can go into the automotive, so we don't factor that in. But if you look at what is possible to go into automotive, we're shipping about 10% of that flat-rolled SBQ into automotive today. SBQ is just about If we picked up a little bit in SBQ over the last year, it might have bumped up to about 11%. But again, flat steel represents the vast majority of the product that we're putting into automotive.
Got you. And you postponed the drilling this year. How long can you do that? Is it part of contract that if gas prices remain low, do you have ability to continue postponing it?
We can continue to postpone it as long as we and our partner in Encana agree to do that, and as we've mentioned several times, we have a great relationship with them and we constantly communicate with them. We made a decision this year to suspend drilling other than the few wells that are necessary to maintain the leaseholds, and we'll take a look at the situation again during the course of the year. If we should see a sudden increase, radical increase in pricing, we'll begin drilling. If we don't, we will suspend it again. The key thing to remember about this agreement is the gas is in the ground. It's not evaporating. It's not going anywhere. It's there waiting for the right, the optimum opportunity for us to take it out of the ground.
Are you hedged for gas this year?
We are partially hedged for gas. It's a percentage of our production at the Louisiana plant, which we're using, obviously, at our steel mills that are operating.
Great. I'll get back in the line with some more questions. Thank you.
We'll go next to Brian Yu with Citi.
Great. Thanks. I want to go back to the comment you made earlier about the scrap prices. As I think about it, I guess at first it is going to start with the scrap yards, and I was wondering if you could share with us what's happening with the buy prices that you're getting at the yards that you operate, or how much are those down, say, as we go into February?
I'm not going to give specific numbers, but I will say that they are down. They're down significantly, and we expected that, and we're reacting properly to it. I'm not going to give, obviously, any specific numbers. Our competitors would love to hear that number.
Okay. On the energy side, obviously, that's having an impact. Can you give us a sense of how much have orders dropped so far in the year versus, say, what you were seeing back in 4Q? Is there any backlogs when you ship to the OCTG manufacturers that you're working off of now?
There's a small backlog that we're working our way through, but we're working with our customers. We understand the situation that they face and the inventory problems that they're looking at. So we've been working with them on that. As I've said before, we've seen significant drop in the orders for our flat rolled product going into oil and gas. Our other markets remain very strong. Heavy truck is still looking very good. Automotive is still looking very good. So there are areas where we feel confident that our order book remains strong. But we have seen a significant drop in our orders for specifically pipe and tube that goes into the energy markets.
Okay. Can I get one more?
Sure, one more. That's it.
Okay. All right, thanks. At Gallatin, I think roughly half of the shipments going to the energy markets. Are there other end markets that
I apologize, but I've got to correct you right off the bat. It's true that about half of that product is into pipe or tube, but the vast majority of that goes into structural tubing. Only about 10% of Gallatin's product shipments go into energy-related pipe and tube, which is similar to our number here at Nucor.
Okay. Got it. Thank you.
Next to Timna Tanners with Bank of America Merrill Lynch.
Hey. Good afternoon, guys.
Good afternoon. How are you?
Hi. Thanks. That's my dog in the background, sorry. I wanted to just ask you about, there's some talk about blast furnaces idling capacity in response to the level of import and the destocking on energy tubulars, as you mentioned. Two questions, I guess. One is, how long do you think this destocking might last? Secondly, would Nucor be among those that's preemptively idling some capacity in response to the large level of imports? Thanks.
Well, it's hard to predict how long this is going to last, but that's somewhat of a function of how long and how deep the oil pricing situation goes on. You hear all kinds of predictions on that. It's frankly as far as I'm concerned as anyone's guess at this point. It's entirely up to the producers and how much oil they start pumping out of the ground. But currently, if we were to remain at today's levels of oil pricing, and we look at the inventories, we would be looking at probably around 6- 7, eight months of inventory on the ground at today's usage. Now, having said that, there's always a shock to a system when something has a radical change, and we see that happening today. Big change, people throughout the entire supply chain are caught with inventory on hand.
It's a radical, it's a major change, major reduction in the orders. Given that, there will be a period of time when all of this kind of works out, starts flushing through, and we'll begin to see the orders for pipe and tube going into energy returning to a new normal level, albeit less than where it was. But there will be some level greater than where it is today, but less than where it was a year ago. The other thing that I would mention about that is that you asked about reducing our capacity. As you know, Timna, our furnaces are extremely flexible. We make that decision on a weekly basis.
We run our mills to fill orders, and given our variable cost structure and the flexible schedules that we have, we can react extremely quickly to any changes. Okay? Whether or not we see some improvement in that energy market quicker than we anticipated, or whether we see an uptick in one of our other markets, we stand ready to be very quick in responding to any changes in the market. Again, when you compare our operations to those of a blast furnace, clearly once you shut down a blast furnace, it's down for a while, and we have much greater flexibility. We don't need to shut down an EAF. We can simply skip a couple of heats or skip a couple of shifts and come back in a couple of days if we see the order book warrants it.
Okay, that's helpful. If I could, I also just wanted to see if you could give a little bit more color on the plate and SBQ markets, given that they have some energy exposure, and just haven't heard as much about them lately.
We haven't seen that much of an impact on either the plate or the SBQ markets. Certainly there's some, a small amount, but a lot of our plate that goes into what we would call energy might go into wind towers and other applications that really aren't impacted this heavily by the oil price going down. As I mentioned earlier, SBQ does sell a little bit into that. It's been growing. We've been focused on that as a growth area, but it's not that heavy for us. Where we see the bigger impact, frankly, on our order book in both SBQ and particularly in plate is due to the imports. We have imports. We see some impact due to the oil pricing, but frankly, a larger impact due to imports.
Okay, helpful. Thank you very much.
Timna, one more thing that I might mention.
Because you'd mentioned specifically about the plate market. When you think about some of the infrastructure, although it's coming way too slowly, there are some infrastructure repairs being made, particularly in the bridge. There's a couple of bridges going on, some bridge fabrication, bridge repair, and our plate business is doing well in that arena. We've seen some pickup in our plate order book as a result of general infrastructure and particularly bridge fabrication.
Okay. Thank you.
We'll take our next question from Michael Gambardella with JP Morgan.
Hey, John. Good afternoon.
Good afternoon. How are you?
Good. Very good. And you?
I am warm and dry.
That is good. Me too. I have a question, just about this whole change in the raw material markets here, particularly with the scrap move and the lack of a scrap move, I guess, relative to iron ore in the past six months. When you look forward, I would think, in the next few months would be a great opportunity for you to gain share, particularly on the sheet market, not to close down your production, because if you are not already, you are going to become the low-cost producer in the market for sheet. When you look at the sheet market, it is about two-thirds iron ore integrated based, and about a third, you and the rest of the mini mills on the sheet side.
You have been suffering from a relative cost disadvantage because scrap did not come down, relative to iron ore in the last six months, and now it is. I guess my question is, going forward, you have kind of seen the worst scenario, you relative to integrated, like X and AK, but is not it a great opportunity to pick up some share as your costs drop and their costs basically do not?
Well, I will say that we have seen the worst of the times relative to our position, because we do believe scrap is coming down. I will point out that we fared a little bit better on our cost side relative to most of our EAF-based competitors because of our DRI situation. We call that, with the iron ore pricing going down, our DRI cost of production has been going down also.
We have seen a benefit at our Trinidad facility, and we will see a benefit as our Louisiana facility comes back into line. Yes, we believe we have seen the worst of the times. Okay. Yes, we see scrap pricing going down, and we will benefit from that. Yes, we fared better than our other competitors in the EAF arena because of our DRI capabilities. I am not going to comment on just what all of that means going forward. We will stay competitive. We will take care of our customer needs. We will continue to supply our customers with high-quality, fairly priced product on time with great service, and we will see how it plays out in the marketplace.
Okay. Thanks a lot, John.
Thank you.
Andrew Lane with Morningstar.
Hi there, good afternoon.
Good afternoon.
Given the significant declines in both iron ore and natural gas prices since this time last year, do you expect to achieve profitable DRI production in Louisiana shortly after the facility is restarted, or will it likely take some time to ramp up production before your output is profitable?
Well, it will take some time to ramp up our production, and it will also take some time to work through the higher cost iron ore inventory that we have on the ground, iron ore that was purchased last year that we have not worked our way through because the facility has been out of commission. So it will take time to work through that inventory. It will take some time to get up to full production, but we expect to see the Louisiana facility running well and profitable by the end of the year.
Okay, great. Then to change gears, you mentioned that the energy end market represents about 10% of your steel mill shipments. Could you provide a split as to how much of that total is directly associated with shipments for oil and gas drilling projects, and how much is associated with shipments for other energy-related applications such as power generation?
Well, we do not break it down that definitively. I would say to you that probably, if you look at the energy pipe and tube as opposed to other oil and gas applications, you are looking at probably 90% going directly into the energy pipe and tube that would be associated with drilling. Maybe 10%. I am giving you rough numbers here. Maybe 80/20, 90/10, somewhere in that area.
Okay. That is helpful. Thanks. If I can just ask one last question, would you be able to provide an update as to how the integration process is going for the Gallatin Steel operations, and are the incremental 2015 benefits you initially expected still intact?
I would love to do that, actually. The integration is going extremely well. We expected that it would go well. The team there is a great team. Their management style, their culture is very similar to our Nucor culture. So we anticipated a smooth integration. I have to tell you what, it has gone even better than we anticipated. Those guys have been doing a great job. The financial team there, I give a call out to them. They very, very quickly integrated into our financial programs. I am surrounded by some financial people in the room here, and they are all nodding their heads saying what a great job the Gallatin financial team did in getting up to speed very quickly and converting the systems, integrating the systems. I would also make that statement relative to the commercial team. They integrated extremely well into our commercial team.
We are enjoying the synergies that we anticipated from that, and hey, it is going great.
All very encouraging. Thanks.
This does conclude the question and answer portion of today's conference call. I would like to turn the call back over to John Ferriola for comments and closing remarks.
Well, thank you. Let me just conclude by saying thank you to our shareholders. We certainly appreciate your confidence and your support. Thank you to our customers. We appreciate your business. I want to say thank you to all of my Nucor teammates for creating value for our customers, generating attractive returns for our shareholders, and building a sustainable future for all of us. Most importantly, thank you all for doing it safely. To everyone on the call today, thanks for your interest in Nucor. Have a great day.
This does conclude today's conference. We thank you for your participation.