Jul 24, 2012
Executives
Theresa E. Wagler - Chief Financial Officer and Executive Vice President Mark D.
Millett - Co-Founder, Chief Executive Officer, President and Executive Director Russel B. Rinn - Executive Vice President of Metals Recycling, Chief Operating officer of Omnisource Corporation and President of Omnisource Corporation Richard P.
Teets - Co-Founder, President of Steel Operations, Chief Operating Officer of Steel Operations and Executive Director Gary E. Heasley - Executive Vice President of Business Development and President of New Millennium Building Systems
Analysts
Kuni M. Chen - CRT Capital Group LLC, Research Division Michelle Applebaum - Steel Market Intelligence Inc Luke Folta - Jefferies & Company, Inc., Research Division Timna Tanners - BofA Merrill Lynch, Research Division Sohail Tharani - Goldman Sachs Group Inc., Research Division Arun S.
Viswanathan - Longbow Research LLC Shneur Z. Gershuni - UBS Investment Bank, Research Division David Olkovetsky Evan L.
Kurtz - Morgan Stanley, Research Division Mark L. Parr - KeyBanc Capital Markets Inc., Research Division Aldo J.
Mazzaferro - Macquarie Research
Operator
Good day, ladies and gentlemen, and welcome to the Steel Dynamics' Second Quarter 2012 Earnings Conference Call. As a reminder, today's call is being recorded.
At this time, it is my pleasure to turn today's call over to Ms. Theresa Wagler, Executive Vice President and Chief Financial Officer of Steel Dynamics Incorporated.
Please go ahead, ma'am.
Theresa E. Wagler
Thank you, Andrea. Good morning, everyone.
Welcome to Steel Dynamics' Second Quarter 2012 Earnings Conference Call. As a reminder, today's conference is being recorded and will be available on the company's website for replay later today.
Certain comments made today may involve forward-looking statements that by their nature are predictive. These are intended to be covered by the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995.
Such statements, however, speak only as of this date and involve risks and uncertainties related to our metals business or the general business and economic condition which may cause actual results to turn out differently. More detailed information about such risks and uncertainties may be found at the Investor Center Advisory Information tab on our Steel Dynamics website and our form 10-K annual report under the captions Forward-looking Statements and Risk Factors or as applicable in subsequently filed form 10-Q filed with SEC.
Joining me for today's call are Mark Millett, President and Chief Executive Officer of Steel Dynamics; and the company's Platform Executive Vice Presidents, including: Dick Teets, President and Chief Operating Officer for our steel operations; Russ Rinn, President and Chief Operating Officer for our metals recycling operations; and Gary Heasley, Business Development and President of our fabrication operations. Now for opening remarks, I'm pleased to turn the call over to Mark.
Mark D. Millett
Well, thank you, Theresa, and good morning, everyone. I'd like to add my thanks for spending time with us this morning not only to discuss the quarter's results but to also talk about some of the nearer-term earnings catalysts that, I believe, we have at Steel Dynamics, and I consider them quite compelling.
In challenging times though, the true character of both individual and company becomes apparent. This is certainly a challenging political and economic global arena in which we operate today.
Our industry is in a new era of greater volatility and less predictability than in years past. But I believe there's good news.
We continue at SDI to perform at the top of our peer group, maintaining our low-cost position, a key to our success. This is a tribute to our employee culture and to our great team of some 6,500 employees, each of whom contributes and each has a real impact, focusing on safety, bringing enhanced value to our customers and our innovation that will continue to differentiate ourselves from our competition.
Thanks to each and every one of them for their hard work and for their dedication. Our overall performance was commendable in what remains a challenging environment.
In the second quarter, we achieved stable sequential financial results from our steel and fabrication operations, although earnings in our metals recycling operations deteriorated as margins and volume compressed. We reported net income of $44 million or $0.20 per diluted share on net sales of $1.9 billion for the second quarter of 2012.
This matches the $0.20 reported in the first quarter this year, but is substantially lower than last year's second quarter results of $0.43 a share. It should be pointed out, I think, that the first half of 2011 was a time frame in which historically high margins in Flat Roll were achieved.
This past quarter, the combination of increased domestic Flat Roll capacity and increased imports have stripped the demand of a slow U.S. economy that did not allow for that level of margin to be repeated.
Overall steel demand through the quarter remains steady, although the added burden from imports from the additional domestic Flat Roll capacity exerted downward pressure on Flat Roll pricing, muting second quarter sheet steel margins. However, long products operations did see some metal spread expansion in the quarter as product pricing decreased less than scrap raw material costs.
Our steel mills operated at 83% production utilization rate in the quarter, slightly lower than the 85% for the first quarter of this year. This compares to the recent domestic industry rate of under 80%.
Notably, even though nonresidential construction is still anemic, our Structural Rail division has operated at 53% utilization for the year. Rail production has helped that.
We increased our rail shipments over 12% this past quarter, shipping 38,200 tons. Dick and his team will continue to focus on increasing this number throughout the year.
Operating income per ton shipped for our steel operations decreased about 5% from the first quarter rate of $98 to a second quarter rate of $93 a ton. Average combined steel pricing related to second quarter shipments declined $21 in the quarter, which is just over 2%.
And based on shipping mix, the decrease in Flat Roll pricing was the most prominent factor in the overall change. The cost of scrap used for the production for the second quarter declined $22 per ton charged into our furnaces [ph].
From a current market perspective, the automotive manufacturing, energy and construction markets continue to be stable, while a slight tempering appears to exist in the transportation and agricultural sectors. Steel backlogs have drawn down to a small degree since the end of March.
This has been principally, I think, procurement-driven as buyers stayed out of the market in anticipation of even lower scrap prices or taken the opportunity to realign their inventories, particularly in the SBQ arena. Underlying demand appears, though, to be stable.
And with some capacity exiting the market, low sheet imports and a strengthening scrap market, positive momentum may be gained. Our steel operations continue to outperform our industry peers through the market cycle.
The team delivers best-in-class results by maintaining their laser focus on being the low-cost producer with a determination to exceed each customer's highest expectations. Metals recycling.
The domestic industry experienced a tough second quarter. The ferrous scrap market was oversupplied as the export market was softened dramatically, leaving a lot of material that would normally gone to Turkey or elsewhere in the states.
On top of that, U.S. Steel mill utilization declined, so domestic scrap demand decreased while scrap flow, particularly in prime grades, remain strong.
This created an oversupplied market and some fairly significant price declines, which continued into July. Our ferrous metals spread decreased 10% in the quarter, the stabilization though of scrap prices, I think, going forward would not only benefit our metals recycling platform but likely it would also support steel prices.
Nonferrous margins also declined in the quarter, most notably in copper. Index copper prices fell $0.33 per pound during the quarter, resulting in a 43% decrease in our copper margins.
Since the end of the quarter, copper has seen some improvement on reports of the strong housing data from the U.S. and an easing concern regarding China's growth potentials.
Excitingly, in June, our SDI LaFarga copper rod mill began operations on schedule. The team is doing a great job as they work through the ramp up of the new facility.
I want to congratulate them, each and every one of them, on a stellar safety record as well. They ran it [ph] without a single recordable injury during the entire 12 months of construction and commissioning.
Within recycling, we are implementing several initiatives in 2012 and into 2013 to help offset some of the margin compression created by the macro supply and demand dynamics existing within the metals recycling arena today. We're opening -- or planning to open additional retail yards, which tend to bring in higher-margin materials.
We are introducing new technology to recover even more nonferrous material from our shredding operations to further reduce the yield [ph] loss and to increase margin. We're exploring the auto business -- auto-body business, albeit in a small way, in an attempt to garner more unprocessed material at cost levels that should improve margins, and are also exploring small strategic acquisitions to enhance our existing geographic footprint to further increase retail business and to support our shredder volumes.
Now turning to Minnesota. One of the key aspects, I think, of our success in the past has been controlling our cost as far into the supply chain as possible, coupled with innovative approaches to execution.
Our pioneering efforts in Minnesota is providing SDI with a captive [ph] source of iron, eliminating the dependence on foreign pig iron markets. As stated in the press release, we have made significant progress since restarting the facility in May.
Plant availability increased to over 80%, and we feel confident that we can achieve our target plant availability rate of over 90% in the near future. Additionally, our operating rate, our actual rate of production, also improved in June to nearly 25,000 metric tons for the month.
Operating at higher rates for longer periods of time, we've been able to observe other deficiencies -- or efficiencies, I should say, that can be gained and that need to be implemented to reach our target capacity at quality levels and financial results. There are several solutions that we believe are viable, and we are currently determining the best approach.
Our expectations are to implement solutions as quickly as possible within the next 10 to 12 months, dependent upon equipment delivery, lead times and subsequent installations start up times. One of the financial hindrances of the project to date, as you know, has been the sourcing of the plant's key raw material, iron concentrate.
From the onset of the project, we were intending to provide the concentrate through our own mining efforts. I'm happy to report that our iron concentrate facility is on schedule to begin supplying concentrate to the nugget plant later this quarter.
However, as we have stated in the past, we do have higher priced third-party material in inventory, and that will be consumed through the first quarter of the next year depending on our production rates. This is a critical step to improve our financial performance.
Iron concentrate prices peaked in February 2011 at $193 per metric ton and have been in the market range of $130 to $150 per metric ton over the last 6 months. We believe we can recover concentrates for approximately $50 per metric ton on a freight [ph] loaded all-in-cost basis, which obviously will be a significant stable [ph] to us.
If commercial pig iron prices remain at current levels and production levels continue to ramp up, second half 2012 losses associated with our Minnesota operations should be similar to those recorded in the first half of the year. If future plant modifications are successful and pig iron prices remain stable, we believe these operations should still become profitable some time in 2013.
As for fabrication, the operations continue to operate in a weak nonresidential construction market that has created an incredibly challenging operating environment for our 6 fabrication plants. Disappointingly, the architectural building index began a downturn in April and continued declining in May and June, suggesting a potential extension of weak nonresidential building activity.
However, although we saw a decline in new bookings in June, our order backlog was slightly stronger at the end of June as compared to the end of March. It is great to be able to report that Gary and his team made our first quarterly operating profit for our fabrication operations since 2009, so congratulations to the team then.
In this segment, our volumes continue to grow. The team strategically set out to improve our financial results by broadening our geographic footprint to garner national accounts by continuing to focus on customer service and cost containment.
Our facilities and their operating teams are ready to execute when market opportunities present themselves as we have configured today with a national presence with 425,000 tons of capacity just waiting to be fully utilized. So I think the highlight is looking forward.
And as a company and despite challenging markets, Steel Dynamics is still delivering superior performance through the cycle when compared to our domestic industry peers. Our operating and EBITDA margins continue to be best-in-class.
Superior operating and financial performance clearly demonstrate the sustainability of our operating platform. In keeping within our entrepreneurial spirit that flows throughout our company, we will continue to assess opportunities for growth, whether in new products, new technologies or new business lines.
The focus is toward not only top line revenue growth, but growth that will enhance and provide more consistencies -- consistency to margins. We're squarely focused on positioning the company for long-term growth, and there are a number of earnings catalysts that I would suggest are compelling.
Since the 2008 downturn, we have expanded our steelmaking capacity and have yet to have a steel economy in which to fully realize the benefit. The additional capacity is principally in hot roll and structural steel.
We have over 7 million tons of capacity and have only reached shipping volumes of 5.8 million tons to date on an annualized basis. That leaves over 1 million tons of latent capacity waiting to be utilized.
We've already discussed many margin-enhancing initiatives within our existing businesses, our capacity expansions and use of innovative technologies within metals recycling and our geographic expansion within fabrication. The $76 million SBQ rolling mill expansion, and that's due this year.
I believe it's a very compelling project. It hits all the key drivers to our success: increased volume of 325,000 tons, product diversification into smaller bars, our customer support, increased margins and I believe great investment returns.
It will be among the largest single-site SBQ suppliers in North America. Our top customers are very excited about the one-stop shopping availability of our high-quality products, and they will also provide us the ability to increase utilization at our structural and rail division that they will supply blooms to the engineered bar division for their rolling operations.
Also, the structural team is exploring long-term solutions for our -- for excess capacity of structural products, given the anemic nonresidential construction market. It is critical for us to lessen that mill's exposure to one sector and provide greater diversification and eventually, more sustainable earnings power through the cycle.
This has been done partially through our rail initiative and SBQ expansion, though we must diversify that further. We've also discussed the prospects for turnaround at our Minnesota operations.
And I think, collectively, all these initiatives have the potential to be appreciable earnings drivers going forward. And we look forward to keeping everyone up to date on the progress of these initiatives as they occur.
With that, I'd like to hand it over to Theresa to give us some more financial color.
Theresa E. Wagler
Thank you, Mark. Again, good morning.
As Mark mentioned, our earnings for the second quarter of 2012 were $0.20 per diluted share, at the upper range of our earlier guidance of between $0.15 and $0.20. On a sequential quarter basis, that is compared to second quarter of 2012 to the first quarter of this year, revenues decreased $72 million or 4% caused by a 16% decrease in our metals recycling revenues, which more than offset a 2% increase in sales from our steel operations.
During the second quarter of 2012, our gross margin percentage declined 62 basis points, eroding a portion of the 153 basis point gain achieved during this year's first quarter. Margin compression within our metals recycling operations more than offset price gains and margin from our steel and fabrication operations.
In the second quarter, metals recycling saw decreases in both total ferrous and nonferrous shipping volumes and in overall metal spread, resulting in a $20 million decrease in sequential quarterly operating income. Within steel, on increased external shipments of 4%, declines in our average sales price were virtually matched with declines in ferrous raw material costs used in production.
When we compare the second quarter 2012 to the same period 2011, gross margin percentage decreased 375 basis points. As Mark mentioned, the historically high Flat Roll and recycled ferrous margins achieved during the first half of 2011 were not repeated for the industry in 2012 due to macro conditions commented [ph].
Our operating income per ton shipped for steel operations declined $60 when compared to the second quarter of 2011, and our operating income for metals recycling declined $13 million. Our second quarter effective tax rate was 39%, consistent with our first quarter.
The rate still remains higher than our expectations, given the inability to recognize any benefit from research and development tax credit that have still not been approved by Congress for 2012. Cash flows from operations provided $101 million during the second quarter, with operational working capital contributing $19 million.
As receivables decreased 9% due to lower selling value and work-in-process and finished goods inventory volumes decreased 12% during the quarter. Strong cash flow generation during this challenging environment is a continued testament to our low-cost, highly variable cost structure and diverse value-added product portfolio.
Our second quarter capital investment totaled $55 million and were $100 million year-to-date. Just over 50% of these investments were related to our copper rod mill, which started operating in July, and on iron concentrate joint venture which is expected to begin operations yet this quarter.
Second quarter depreciation was consistent at $45 million, a full year estimate of $180 million to $190 million remains reasonable for depreciation and $36 million for full year amortization of intangible assets. Our cash flow statement shows a $56 million contribution from other investing activities this quarter.
This amount reflects the sale of certain short-term investments that were reinvested in cash equivalent instruments. Our current estimate for second half 2012 capital investment is in the range of $125 million to $145 million, including approximately $20 million to be spent in 2012 for our special-bar-quality capacity expansion project, which is still on target to begin operating during the second half of 2013.
Over 70% of the capital investments planned for 2012 are what we would consider growth-oriented for projects that are intended to increase capacity, efficiency and margin in future periods. At the end of the second quarter, total debt was $2.4 billion.
Our current net debt, defined as total debt less cash and short-term investments to trailing adjusted EBITDA, is 3x. And our interest coverage ratio, 4x.
Our long-term preference is to maintain that leverage at below 3x. And our current expectations are that net leverage would be back to under 3x by the end of this year.
At the end of the second quarter, cash, short-term investments and restricted cash totaled $459 million. We also have the full benefit of our $1.1 billion revolving credit facility which had no outstanding borrowings at the end of the quarter.
Our balance sheet remains strong at over $1.5 billion of liquidity and minimal secured borrowings. Funds that were available to us after our minimum liquidity covenant were $944 million.
Looking forward, our current 2012 cash flow allocation plan remains to invest in our existing and announced operation, to reduce the portion of our outstanding debt while maintaining sufficient liquidity for growth and to provide for cash dividends to shareholders. And lastly, for those of you who use the breakdown of our Flat Roll shipments for your financial model, during the second quarter, we shipped 296,000 tons of hot-rolled, 103,000 tons of P&O, 43,000 tons of cold-rolled, 102,000 tons of hot-rolled galvanized, 54,000 tons of cold-rolled galvanized, 95,000 tons of painted products and finally, 14,000 tons of Galvalume.
Thank you. Now, I'll pass the call back over to Mark.
Mark D. Millett
Thanks, Theresa. And in conclusion, I think we would like to again give our sincere thanks to our employees for their continued hard work and dedication, to remind them that safety is truly our highest priority, and thank our loyal customers and shareholders for your continued trust and support.
And with that, Andrea, we'd like to open it up -- the call, for questions.
Operator
[Operator Instructions] And we'll go first to Kuni Chen with CRT Capital Group.
Kuni M. Chen - CRT Capital Group LLC, Research Division
I guess just on Mesabi, I think you had previously guided to a target of 55% operating rate by the end of the year, but it looks like you ran ahead of that level in June. So is there a potential to raise your outlook for the balance of the year?
And can you talk about more specifically on some of the process optimization opportunities and what type of work needs to be done on the plant at this point?
Mark D. Millett
Okay. I think, as I said, the team I think has demonstrated significant improvement since the shut down.
Six months doesn't -- I mean, 6 weeks probably doesn't necessarily make a full year, but I think we are -- our confidence has been boosted. And as we said the plant availability exceeded 80% in June, which gives us the confidence that eventually we'll get to that 90%, 95% plant availability required to achieve greater capacity.
The specific production rate has also improved up there. And we had an average rate equating to nearly 25,000 metric tons per month or 63% of rated capacity in June.
I think the higher rates -- I don't think, I know -- higher rates have been achieved, but with degradation in quality. And as considered, with minor optimization, we estimate the plant can currently run at 350,000, 375,000 metric tons of furnace-ready nuggets per year.
And we've identified some key opportunities for process enhancement that we need to address to bring the plant up to its 500,000 metric ton per year rated capacity. I think, specifically, the greatest opportunity is to increase combustion efficiency within the rotary-hearth furnace.
We're losing sort of a lot of energy. A lot of CO is going out the sack, and we've identified a variety of different solutions to eliminate that issue.
Half of that energy is being combusted within the rotary-hearth furnace, serving its useful whole-hearth purpose.
Kuni M. Chen - CRT Capital Group LLC, Research Division
Okay. Then just a follow-up on the -- as far as working capital goes, your comments seem to imply there's some inventory destocking in the channel.
Would you expect that to result in working capital as a source of cash as well in the third quarter?
Theresa E. Wagler
It's a potential, yes. I see the second half of the year being probably some funding from working capital, but not huge amounts.
Operator
Our next question will come from Michelle Applebaum with Steel Market Intelligence.
Michelle Applebaum - Steel Market Intelligence Inc
It's nice to see, Mark, your conservatism coming through on this stuff. That's showing up nicely, and the performance was terrific.
I wanted to ask about -- the whole discussion really is on the resource side. And it's getting frustrating because Iron Dynamics is working out really well now, right?
Mark D. Millett
Iron Dynamics is being -- is operating very, very consistently. It's producing, just month-in, month-out, of about 18,000 to 20,000 metric tons a month, of liquid iron.
And I think Dick would attest it's not only good material according to the Electric Arc Furnace, but it's integral to the high productivity levels that the flat mill is achieving today.
Michelle Applebaum - Steel Market Intelligence Inc
But it took how many years for that to happen? Was it like 8?
I mean it was a long learning curve, and it appears that Nugget is -- the whole Minnesota operation is turning into the same thing. At the same time, we're starting to see resource prices collapse, I don't even think that's too strong a word to use anymore.
And then next year, there's a big flood of DRI coming on in the U.S. And that's going to probably -- that adds to the ferrous resource base, right, of the country?
Even though it may not -- you may not have access to that, it's a competitor's deposit. So when do we come to the point when we say that the economics has changed permanently?
Or in this new world of lower-priced ferrous units, are the economics of what you're doing in Minnesota going to prove -- do the economics still work, and do they work as well? How has -- there's been a fundamental shift in the macro, so how has that changed how you look at what you're doing?
Mark D. Millett
I think, Michelle, first of all, first and foremost, a reduction in ferrous resources, whether it be iron, DRI, or scrap, the price puts us in a phenomenally competitive position against our competitive peers in the integrator mill. So having low-cost inputs, I don't think is a bad thing.
Relative to Mesabi Nugget itself, in terms of Iron Dynamics, the team there has done a phenomenal job. They're out of the sort of iron concentrate arena.
They are recycling 100% of mill scales and other steel mill waste. And we believe that will continue to be a great contributor to our results.
Mesabi Nugget, obviously, it's been a pioneering effort. And not unlike Iron Dynamics, I think the ramp up already though has been steeper than Iron Dynamics.
If you go back and as Bogart said in Casablanca, too long ago, I can't remember, but in the early days of Iron Dynamics, we were in a startup-shutdown, startup-shutdown mode for many years. And so for the facility to have reached the 60-plus-percent of its rated capacity to date I think is promising.
Relative to the economics, I think things are uncertain. One can posture that China will lose its appetite eventually for scrap as it actually starts churning out scrap in its sort of economic cycle with Nucor and other scraps-dealing DRI.
The supply-demand equation will change. So again, I think the underlying issue is that cheap resources for us is a benefit.
Michelle Applebaum - Steel Market Intelligence Inc
Can I ask on the concentrate that you're getting, once you are integrated in Minnesota, could that concentrate be used to make a pellet for DRI? Or is the sulfur content too high?
Mark D. Millett
You would have to do some pretty good benefit depreciation [ph]. It's not impossible, but it's not best suited for DRI pellets.
Michelle Applebaum - Steel Market Intelligence Inc
With the economics of -- now that gas prices were so much higher when you started this process, now that gas prices have plummeted, if you were to fresh slate drawing board, would the economics be that it will be worthwhile to put that concentrate into a pellet into a DRI instead of the route that you are currently doing? Would that be a lower-cost alternative?
I know hindsight is...
Mark D. Millett
One always has to remember, when equating any of these technologies is to go to the liquid hot metal. That there are some attributes.
Obviously, a nugget is 96%, 97% pure iron. It is more beneficial to put that into an electric arc furnace.
The productivity of that material is much higher than putting DRI in at, I should say, 92% metallization rate, with only perhaps 88%, 89% actual metallic blend in the material. I would say that it is no doubt though given the natural gas arena, where it is today and if you have a captive source of DRI-grade pellet, that would be an attractive alternative today.
Michelle Applebaum - Steel Market Intelligence Inc
When you say captive source, captive source at what price? Would you say captive source at market or just reliable source?
Mark D. Millett
I'm suggesting if you have a source of pellets that you're backwardly integrating into the mine, obviously, the economics there would be incredibly attractive.
Michelle Applebaum - Steel Market Intelligence Inc
Even assuming you were paying market for the pellets?
Mark D. Millett
You're paying market for the pellet? Obviously, it's not as attractive.
Operator
We'll go to our next question from Luke Folta with Jefferies.
Luke Folta - Jefferies & Company, Inc., Research Division
My first question was more just broadly. You made some comments regarding the demand environment that you're seeing.
And you noted some high trip [ph] prices [ph] slightly just in ag and transportation. And I guess I'm just curious to know whether you think that these -- or the pullback we've seen in these markets are isolated to those end markets?
Or do you think this could be the beginning of a more broad-based patch of weakness? Also, I wanted to also get some color on what you're seeing in the scrap export trends.
Understanding it was weak in the second quarter. But with sentiment turning a little bit more positive on scrap pricing, at least in the U.S., has that changed the order of patterns in the export market?
Mark D. Millett
Let me hand that over to my peers. They are the ones doing hand-to-hand combat in the trenches.
So, Russ, do you want to tackle the scrap first?
Russel B. Rinn
On the export side, we did see early in the month of July some increased activity export-wise, some gain in the quarter. And we're starting to see some activity that way.
Although when you look at the troubles of Spain and Europe in general, and in fact with the euro has now dropped low 1.20s [ph] versus the dollar, certainly that's going to have some impact on the export markets in the short term. Whether that's long, whether that's sustained throughout the quarter, it's just too early to tell.
Despite that, I think the scrap market in general has firmed up. I think it's taken a big hit probably the last -- a little more than a quarter, and to the point where the flow has dropped very dramatically.
I think we're sitting with fairly low inventories throughout our yards. Dealers are not moving material into our yards.
So I again, I think we reached a pottering out [ph] effect and we are seeing some upward price pressure on the domestic side for our scraps. So I think that from all indications, the near term should be an upward movement in the scrap market.
Dick?
Richard P. Teets
I think, of course, your question has to be looked at from a basis of individual plants and products. And if you're asked about the -- what's demand been and what does it look like and so forth with the end customers in mind, and you look at flat-rolled and I'd say flat-rolled has been solid.
Inquiry activity is good. The price has rebounded and appears to be moving in a direction that's favorable in comparison to scrap.
I'll tell you no speculative buying is going on in the flat rolled world, as well as anywhere, but -- especially there. And so we're doing fine.
Construction and residential markets are weak. But again, those guys, I think, will tend to see a slight improvement.
Though I'm not going to tell you that it's a major end to our problem. But we continue to shop and buy on a very limited basis.
But more activity has appeared. I think when you look at the beams, the construction world, as much as it's all been dismal or sounds like it for the first half of the year, order entry year-over-year has been up for about 20%.
Now I tell you that, hey, that here in July it's fallen off, precipitously. And is that any kind of indicator left for the month, it's one month, what did that make.
I'm not too sure, but we need to be paying attention to it. Our rail orders are up 8%, almost 10% year-over-year.
And here in the last month, our inquiry is about 200%. And so we're making a headway into the rail market.
As Mark mentioned, we've been focused on it and there's still some good projects to be done there. And so we're excited about what rail and other products that we are expanding into, and we talked about them.
But they've been working on development of additional products. So that's a changing...
[Audio Gap] a local [indiscernible] the other day and he said he can't end up vehicles. He said I cannot have fair enough vehicles in my life I could sell despite of me [ph].
And I'm shocked by that kind of comment just from a little guy in the local arena. So things are still fine in SBQ.
I know there are some weakening in the food chain. But I think now that the end-users are telling guys upstream a little bit, "Hey, reduce your inventory [indiscernible] at cost [ph].
I know if you have it, you're going to be looking for me to make good on it, so therefore let's just tighten up. And everyone sees that big drop in the merchant bar.
As far as merchants go, we're fine there. We see third quarter and forward.
We're over 90% utilization in Roanoke, and we were and we continue to be. We don't always like the price and we're making more rebar than we ever had.
But again, the fact is that we're running, we're running well. We don't have any unscheduled downtime.
We had a maintenance outage in April for a week there and that wasn't extended because of the market in any way, shape or form. It was the product -- the projects.
And we just had a couple of days down at the end of June and into July due to storm damage. But other than that, we're not doing badly there.
And in fact, our export billet sales are up and our domestic billet sales are up. And so we're pleased with the operation.
And going over to Steel of West Virginia it's pretty steady-eddy. Now again, either -- both our custom sections as well as merchant bars, the melt shop is running flat out -- has been running flat out, and so we don't see any concern there.
And from a rolling mill perspective, we have taken a little bit of time on #1 mill. And I think that's really due to inventory adjustments downstream there, our just-in-time delivery person.
And so when someone says back off, we don't build inventory. We immediately wrap [ph] to it.
But on the merchant side, we're still fine and there's scheduled fold [ph] in #2 mill. So I can't tell you that there is -- maybe Mark has a different opinion.
I can't see that this is a weakening trend that's going to -- forebode poorly for the second half. It's just probably pretty normal for second half buying patterns.
Mark D. Millett
And I would agree with Dick. Obviously, there's a lot of uncertainty right there.
But I think the inflections of late, rather unlike the inflections back in the first quarter, it's more procurement-driven than sort of fundamental underlying demand-driven. The buyers still continue to watch scrap intently.
And given the downturn in truck [ph] and scrap market the last almost 3 months, they've been hanging out. They've been waiting to order.
And hopefully, with stabilization of the scrap prices, as Russ indicated, we're going to start seeing stronger market ordering.
Luke Folta - Jefferies & Company, Inc., Research Division
That's great detail. I appreciate the color there.
Second question, last question, you talked about spending some money on nonferrous technology, separation technology. In truth [ph] if you went over this and I missed it, I apologize, but can you talk about what you plan to spend on those types of projects?
And also maybe on a ferrous ton basis, what do you expect the benefit could be, is it couple of bucks a ton, or any information you could provide there would be helpful.
Richard P. Teets
On the steel side, nothing is a couple of bucks a ton anything, right? I'm putting a little few words in Russ' mouth.
Theresa E. Wagler
We haven't discussed the actual numbers around the benefit expected, Luke, on those projects. The projects are about, I believe, Russ, correct me, they're about $30 million in total.
And there's 2 separation facilities being placed. And those -- the first one should be in operation...
Russel B. Rinn
In about fourth quarter of this year. The second one should be the first quarter of next year.
Theresa E. Wagler
So you should start to see the benefit from that a little bit through the rest of this year and then more fully next year. And to give you a little bit of a caveat, the returns that we look for any investments, the hurdle rates, are for an ROA of at least 20%, an IRR of at least 15%.
Not everyone meets that criteria, but most do.
Operator
Next, we'll go to Timna Tanners with Bank of America.
Timna Tanners - BofA Merrill Lynch, Research Division
Just a couple of housekeeping questions. So on the rail side, I had written down that you were targeting 180,000 tons for the year.
Is that the right number, or is that kind of a longer term projection?
Richard P. Teets
That was our projection at the beginning of the year. Approximately there for by the end of the year, we still think there's a good market in the third quarter, which I just said that the inquiry rate has gone up substantially, and we're now selling into turnouts that track appliances.
And so -- I mean, I do know we're going get there ultimately, but that's our goal.
Timna Tanners - BofA Merrill Lynch, Research Division
Okay. And then another question on Mesabi Nugget, I'm still kind of perplexed I think on how to think about the timing of any -- of the catalyst that you were talking about, Mark.
So it sounds like through the end of the year, we're probably working down high-cost inventory, so status quo maybe in some of the losses. And then we should start to think about, what?
First quarter of next year, some contribution? Maybe I missed it, but I wasn't sure how to think about modeling the contribution and the timing.
Mark D. Millett
So I think the -- it's difficult to project specifically because obviously there are 3 legs to that stool. One is concentrate price that obviously we've got an eventual answer to.
We do have that higher-priced market-bought material going through. That still is probably going to flow into the first quarter.
Obviously, pig iron pricing. If pig iron price, not market price, which actually is kind of the index, but the transfer price, that remains stable and up, and our volumes pick up.
We still would suggest that we will see profitability sometime in 2013, probably later, rather than sooner. The big change or big screen I do believe is really a 2014 story.
Obviously, the losses will dissipate dramatically in 2013, but from an earnings potential, it's a 2014 story.
Timna Tanners - BofA Merrill Lynch, Research Division
Okay, that's helpful. And then the final question, I just wanted to know if you could explore a little bit more.
You talked about the SBQ market in the short term. The new capacity you're adding is a compelling project, and I think it's been interesting to see quite a bit of new SBQ capacity coming in the next 18 months or so.
Can you just remind us kind of what gives you conviction that, that market can stay strong enough to absorb the extra supply coming on?
Richard P. Teets
Timna, I'll try to answer that one. We are a predominantly large bar supplier, 90-plus-percent of our products that are going out are greater than 2 3/4 inches.
And so when we have such a high concentration of those markets and the largest market by far in North America is below 3 inches as far as consumption rates, and so not a very large percentage of the overall market is small bars, it needs to be acquired [ph] in which to fully complement the mill and new added capacity. We look at that -- there's a lot of extra bang for the buck in this project that we knew was justified.
And let the hurdle rates that Theresa earlier mentioned, scheduled in a manner that we only anticipated running the new mill half the time. Because about, let's say, a quarter of the time is either maintenance or interference the way it was laid out with a large bar mill.
But there's still extra upside opportunity there should we want to take advantage of it. But we are currently using this moment in time when, let's say, inquiries are a little bit lower than we'd like at the SBQ mill to actually go out and start doing approval process -- processing of potential orders with our existing customers and say, "Okay, what will you be looking for?"
And let's already get in the food chain or in the process, the approval process for many of these applications. And in addition to that, the configure [ph] time allows us to run a small mill as currently configured, even a little more so in an attempt to either files or production runs.
Mark D. Millett
And just to add a couple of thoughts. As Dick said, we're not chasing a huge portion of the market.
You got a 10 million ton market. Small bars are about 50%, 55% of that, so it's -- as Dick said, we're not chasing a huge percentage of it.
And yet, he and Barry Schneider and the team have done a phenomenal job with customer loyalty and support. And they are the ones actually who kind of, not urged us, but suggested that we get into that arena because there's great advantage to them having a sort of one-stop shop where they can buy the little bars, the big bars and send one truck in and get all their product.
So I think from a customer perspective, it's a compelling project. And then also, the team has done a phenomenal job penetrating some very, very high-quality applications.
And that market is not one that you just turn on an SBQ mill and suddenly are able to penetrate all markets. So there's a kind of a high barrier to entry, I do believe, when you're dealing with the grades and the physical promises that Barry, Dick and the team have been able to achieve there.
Operator
Next we'll go to Sohail Tharani with Goldman Sachs.
Sohail Tharani - Goldman Sachs Group Inc., Research Division
On the comment about the diversification at Columbia City structural rail mill, a couple of things, first, can you give us some more color on what other arena you can use this metal? B, what percentage of that mill actually right now has been diversified or will be diversified once the SBQ is running?
And, C, if beam does come back, 2, 3, 4 years down the road, and Dick, you recall, when you first started rail you weren't able to run rail because beam was so hot. If that were too reverse, do you have ability to switch back or add more capacity to fulfill that demand a few years down the road?
Richard P. Teets
Well, the first thing is we've entered the rail market in a serious way, and we are not going to go backwards on our commitment to the rail markets regardless of how hot the beam market is. That's just the way we do business.
So therefore, we've committed to it. We're moving forward.
We're developing better and newer and better products. And that's being reflected in our inquiry rates and our operating rates.
The #2 mill is where the most opportunities to diversify are available. Number one, because we're only running it basically half the time, a little bit more than half the time.
But we only have 2 crews of mill operators assigned to it. We do have additional maintenance people and roll grinders because roll grinding is 24-hour-a-day, 7-day-a-week process regardless of how many tons we're doing.
The rolls still, once they're used are used. Even if they're not consumed in the same manner as we might think.
So we have the ability to expand tremendously on our small bar mill, a small section mill as it stands today. The places where we have the opportunity, if you ask, what are we doing today, I'd tell you next nothing that we're shipping is what I consider OEM-direct opportunities that we're pursuing, and most of them are asymmetrical sections that are a bit more difficult to make.
We make them at some of our other mills and they give us some assistance at Columbia City as far as engineering goes. But Columbia City is now attempting to market it.
And then the inquiries they've gotten, we have the crew, we can make it. And so we've run some trials and in -- it's a perfect opportunity on some of these other sections.
Mark D. Millett
A little of what you'd call mixed [ph] thoughts more than anything, but the penetration of rail, we would anticipate 350,000, 400,000 tons would be our goal. And I think it aligns with our 2 very specific strategies of not only increasing margin but getting more consistent margins through the cycle.
And as you said, there will be times that perhaps the structural market is going to come back and margins again will be massive in just the structural business itself. But given the capacity in North America today, we feel that there are only going to be short periods of time where it's going to be fully loaded, and those markets are going to be there.
And it's more important for us to get consistent higher margins as opposed to an occasional peak, if that makes sense.
Sohail Tharani - Goldman Sachs Group Inc., Research Division
That does make sense. I have one more question.
Was there any -- Theresa, was there any hedging loss or gain during the quarter on your Recycling divisions?
Theresa E. Wagler
Yes, there was a slight gain, Sohail. And we have that on -- within our little supplemental information.
I think the gain for the quarter was -- the gain for the quarter was $1 million. And that compares to a $2 million gain in the first quarter of this year.
And I think you asked one more question. The question that you asked was related to when the structural mill start to supply Pittsboro, what kind of volume might that increase for the structural mill, and I think that's 200,000 to 250,000 tons.
Richard P. Teets
Yes, I apologize for missing that part of the question. I mean, that's an opportunity number.
And we look at that, I said that was the worst case for Pittsboro. From its project justification, going back to the hurdle rates, would be to have a higher percentage of the product supply from Columbia City.
And yet we continue to work on the efficiencies and the output of the melt shop at Pittsboro continues to break records. And needless to say, it's in their best interest to minimize the amount that they purchased on the outside.
Because I assure you that it's an extremely interesting dynamic within our company whereas Roanoke sell billets to Steel West Virginia when it's the right bottom line decision. Columbia City sells billets -- blooms to the Steel West Virginia when -- and it's sometimes at the expense of Roanoke.
And yet, it's a dynamic that we have to constantly we're looking at as where the markets are, what the costs are, what's labor cost. And then for Pittsboro, that it receives some of their billet potentially from Columbia City is a dynamic that ultimately will play out, and we're going to continue to move it around.
And if the structural market comes back, there's no problem. We have 4 strands on the #1 caster installed and we have opportunities to expand the second caster by an additional spend if needed, and they have the horsepower within the arc furnaces that have never been utilized and so there is no concern in my mind of missing the mark, on missing out the market opportunity.
Sohail Tharani - Goldman Sachs Group Inc., Research Division
While we're on the rail, Dick, what is going on with the head-hardening process. Have you ordered the equipment?
Richard P. Teets
That's an ongoing development opportunity, and so I don't really think we can comment on it. But we're just constantly working at improving our capabilities.
Operator
Our next question will be from Arun Viswanathan with Longbow Research.
Arun S. Viswanathan - Longbow Research LLC
I guess first off, I just wanted to get a little bit more color what you're seeing on metal margins thus far in 3Q. I mean, as you said, there was a sharp drop off in scrap prices.
We've seen some firming in hot-rolled. So do you expect your metal margins to expand?
Mark D. Millett
I think one might see metal expansion or margin expansion to July as that cheaper scrap flows through. But as Russ indicated earlier, we're anticipating -- or at least the market looks to strengthen, and we're anticipating that strength.
And that will moderate margins then for the rest of the quarter.
Theresa E. Wagler
Only if steel price doesn't move it down.
Mark D. Millett
Exactly. Again, the crystal ball, incredibly cloudy.
And there's a lot of uncertainty out there.
Arun S. Viswanathan - Longbow Research LLC
Okay. And then I guess the other question I have was just on overall supply demand.
We've seen some maintenance by some of your competitors. We've seen some of the weaker guys potentially exit the market.
Are you taking any share from some of those moves? And do you see any opportunities to maybe pick up where some of those weaker competitors are now out of the market?
Or would you consider potentially looking at some of those opportunities of capacity as well?
Richard P. Teets
I'll try to address the current market situation. And as people, as they exist, there are local markets that we intend to capitalize on.
When one guy goes out of the Galvalume market, therefore our capacity looks more backable [ph] as a Galvalume product and then as a galvanized product, and so therefore we're looking to exploit those opportunities. And of course, further east, when Jeffersonville does more Galvalume than [ph] galvanized, it presents opportunities for some of our tech operations in Pittsburgh.
And they also had competing galvanized capacity that was available in the East, and so therefore it strengthens the market there. Gary and his team, from a manufacturing perspective, as we heard about them, have increased backlog and so forth.
We don't supply nearly all the steels, but every bit of it is competitively bid, and we get a spare amount of that business. But the markets are improving.
And as people step out in those regional markets, we're trying to take advantage of them. We want every share, every piece of the market we can get.
Mark D. Millett
Given the -- and looking at what the potential for or the potential destiny for RG might be, obviously, we prefer not to speculate as to the end game there. Although it's difficult to envision a profitable scenario for those assets given the competitive environment we all face today.
Arun S. Viswanathan - Longbow Research LLC
Right. I guess, in the past, you guys have considered Black Beauty.
Obviously, that's not on the table given the supply demand where we are right now. But is there any scenario where you potentially look at some of the assets that are available in the market?
Mark D. Millett
I would say, as we've said in the past, what we need to keep our finger on the pulse so to speak and evaluate things as they come up. Again, it's difficult to envision any of the RG assets.
Certainly, the RG asset as a whole, is getting a sort of a profitable -- creating a profitable position given the competitive markets we're in.
Richard P. Teets
Just for a record, Gary and his team, in this case, in the steel side, we look at all the opportunities there in the market and trying [ph] with an open mind, consider the opportunities that SDI could improve upon things to benefit with the equipment, with the people, with the markets and the products. And so therefore, we investigate each and every one and do not write anything off, regardless of what the circumstances or the venues [ph] or [indiscernible] projects.
Operator
Next we'll hear from Shneur Gershuni with UBS.
Shneur Z. Gershuni - UBS Investment Bank, Research Division
My first question is kind of I guess related to lead times. You start to seeing imports moderating, ticking down a little bit.
We've seen RG file, we've seen capacity reductions and so forth. I was wondering if you can talk about how this will likely translate into pricing on a go-forward basis and if you're starting to see an impact on the lead times as well, too.
Mark D. Millett
I guess when you look at the markets, you've got to consider the supply-demand balance. The fact that imports have dissipated somewhat here of late and the fact that there's some domestic capacity idle.
Obviously, that strength will change that balance perhaps favorably. But again, there's a huge amount of uncertainty out there.
The markets, as we stated, are very, very fickle. And people, I think, are unsure.
You have macro, truly macro sort of structural issues on a global basis that is not only suppressing real demand but is also sort of tempering consumer confidence. And I think it's also inducing a corporate reluctance to invest capital.
So in an arena of such uncertainty, I don't think we really want to predict where pricing may or may not go.
Shneur Z. Gershuni - UBS Investment Bank, Research Division
But you haven't seen any improvement in lead times at all in the last couple of weeks?
Richard P. Teets
I don't know if that could be stated. I mean, again, it's product by product.
When you hear about $110 a ton reduction in merchant bars, whether that overshadows a $40 a ton price increase on flat-rolled as being the object of sales efforts. And so it's a balancing statement to try to answer.
There's no firm concluding answer for that.
Mark D. Millett
But again, that being said, we are seeing in the markets, manufacturing, energy, auto markets, as Dick said earlier, they're strong. Well, stable at least.
We are seeing mixed signals in transportation. On the one hand, the indexes are coming off a little bit.
Yet our customers are suggesting, "Hey, keep on making and producing and supplying the steel." Aquaculture is probably the only arena that we've actually seen true softening to some small degree.
But I think that's probably more a case of it was an early construction start, early season for those folks because of the good weather, and you've got a dreadful one [ph] now. So that arena perhaps is softening a little bit, but it's not a huge market for us.
I think it's probably maybe 5% or 6%.
Richard P. Teets
And to Mark's point, things such as the Farm Bill it's debated in Washington, things like that. Those are influences on our customers and they have to weigh, what's the tax rate for saw bits [ph].
What's the write off or the depreciation schedule for these large purchases that they make. Each and every one of those outside of our control influences our customer base.
Shneur Z. Gershuni - UBS Investment Bank, Research Division
Okay. And one follow-up question, I know that you don't typically comment on size for the upcoming quarter and so forth, but some of your competitors have indicated that they expect things to soften a little bit into Q3.
Given the fact that you recognized the benefit of scrap potentially earlier, you talked about it in July, for example, are you thinking similar direction or do you think that you could possibly be flat to up?
Mark D. Millett
Again, as I said earlier, there's huge amount of uncertainty out there. And as we've done in the last few quarters, we're not going to comment on Q3 guidance yet.
Maybe we will later in the quarter as we've done in the past.
Operator
Next, we'll hear from David Olkovetsky with Jefferies.
David Olkovetsky
First question relates to liquidity position and your current debt. Are you content with the bonds that you have outstanding?
Is there any thought about doing a potential refi?
Theresa E. Wagler
Well, the liquidity that we have right now, as I said, is in record levels. We're over $1.5 billion.
We've got the full availability of the revolvers, so we're quite content with that. That allows for some growth as well.
And regarding the notes that you're commenting on, there's $420 million that are maturing in November of this year. And with the strong cash flow, we're in a position where we could absolutely repay that in totality or we could decide to refinance some of that in advance.
It is something that we continue to look at as to monitor our capital needs and where we see the business moving.
David Olkovetsky
And then as it relates to pricing in the metals recycling in ferrous shipments sector -- segment and also your nonferrous segment, can you give me a little bit of color as to what that pricing look like in those 2?
Russel B. Rinn
Well, this is Russ. On the ferrous side of it, again, that's for the last bloodbath on pricing over the last 3 or 4 months, which has been down over $100 a ton.
We think it's finally got to the point where the dealers are no longer content with bringing material in because they just can't afford it. And so what we've seen is a dramatic reduction in inventories, and affirming in July that we think will continue at least in August and maybe again beyond that is hard to say.
But we think we've at least hit the bottom of the scrap market under the current economic conditions. So I think the price direction on ferrous scrap looks to be upwards at this point.
On the nonferrous side, that's kind of a mixed bag. It's really going to follow the general economy.
We've seen it in the quarter decrease fairly dramatically. And again, on the nonferrous side, China is such a big player.
If their growth abates, then certainly that's going to have a big impact on the nonferrous sector. If it does not, if it continues, then I think we'll see a fairly stable pricing structure.
But again, that can change the tomorrow.
Operator
Next, we'll hear from Evan Kurtz with Morgan Stanley.
Evan L. Kurtz - Morgan Stanley, Research Division
Just a follow-up on Mesabi. Just wondering what grade your -- of coal you're currently using over there.
And I know you talked at one point about being able to eventually move to using weaker and weaker coal, perhaps even thermal coal. Just wondering if that's something that you still see in the cards going forward.
Mark D. Millett
We are, on a lab basis, testing different coals, Evan. And with the intent of moving to more high-vol coals going forward, but not so sure that we'll get to the real basic thermal coals.
Evan L. Kurtz - Morgan Stanley, Research Division
So you're using the premium low-vol right now?
Mark D. Millett
Yes.
Evan L. Kurtz - Morgan Stanley, Research Division
Okay. And then just a separate question on SBQ.
I know you talked about this a little bit already. But would you be able -- willing to share any specifics on -- you mentioned backlog was quite a bit lower now on months there?
And also just on pricing, have you seen pricing fall more than scrap over the past quarter or so here?
Mark D. Millett
I think going forward, and I know that we've tended to guide on backlog on a mill-by-mill basis in the past, but I think we're going to evolve a little bit -- we'll give you perhaps directionally where our overall backlogs are. But we don't wish to define that by division-by-division.
Richard P. Teets
A little more color on SBQ. Much of our [indiscernible] -- very little is commercial or spot there.
A lot of it is a longer term and most of those have an index arrangement. So SBQ is the least of our products that are -- or the product that is least affected by the directional movement from a sales pipe perspective.
Operator
Next we'll hear from Mark Parr with KeyBanc.
Mark L. Parr - KeyBanc Capital Markets Inc., Research Division
It's too bad about the scrap situation, but I guess there's pluses and minuses for you guys that maybe some other guys that are just all in the scrap market aren't going to get here over the near term. I was curious, can you help at all, if let's say, if we assume that scrap is up $20 in August, I'm going to assume that that's really the supply for September, how much would your scrap surcharges be down?
Or can you give us some color on how much reduction in scrap cost you could achieve or see in the third quarter?
Richard P. Teets
I'm just going to talk to the mechanics that you've alluded to, and you're correct in the fact that the buy of 1 month is normally planned for the consumption in the following month. So there is a trailing effect of the price movement both up and down.
When we have, and we have since the acquisition of OmniSource, have done a much better job of being able to minimize steel mill inventories and taking risk out of that just like our customers are trying to take risk out. So it's pushed back, as Russ was saying, even to the peddler arena that's saying, "Hey, there just packing [ph] in," and therefore nobody wants to bear that risk.
Many times these reported indexes on, I'd say, the 10th of the month or the first Monday past that, and usually that's the indicator that's used for the next month's direction on pricing. Sometimes it gives a reason to adjust base on the merchants.
And on the SBQ, it gives a direct indication as to by what dollar amount in [ph] the scrap work. And there are other surcharges that are in SBQ are in effect, but they're relatively stable.
And so therefore, it happens immediately the first of the next month.
Operator
Mr. Parr, does that answer your questions?
Mark L. Parr - KeyBanc Capital Markets Inc., Research Division
Yes. Dick, what you're suggesting is that I should just look at that index on the 10th and that would give me the information that I need if I wanted to estimate kind of how much the surcharges might be down?
Richard P. Teets
I'm not going to tell you how to do your job, but I'm not going to tell you that's the only indicator, but it's the market direction that is an indice [ph]. Because we use different ones for different products and some are combinations and some of the things that Russ does are not only -- there are some other publications, and so, but it's a good indicator of scrap direction and...
Russel B. Rinn
Directionally, a directional indicator.
Operator
And we'll take our last question today from Aldo Mazzaferro with Macquarie.
Aldo J. Mazzaferro - Macquarie Research
I just had a couple of little questions on the metal recycling area in the ferrous resources, the whole sector. You show a loss in operating income line of $13 million, and I think you broke out the Minnesota at $11 million and the OmniSource at a $5 million profit, which seems to imply about a $7 million loss somewhere else, would that be in IDI?
Theresa E. Wagler
No. Aldo, the Minnesota number that we gave you is net income, not operating.
Aldo J. Mazzaferro - Macquarie Research
That's net, okay. I'll work backwards on that then, okay.
And if I could ask another one, on the fabrication business, I noticed the profitability came in there. I wonder if, maybe if Gary is there, he could talk about what the outlook might be for volume and sales revenues over the next few quarters, if there's a seasonal pattern we should watch for or whether there's impacts of acquisitions coming in for the top line that might be helpful?
Gary E. Heasley
Yes, there really isn't that significant seasonal pattern when you look across the whole of the year. It's a little slower at the beginning of the year, coming out of winter or it's January, February a little slowing down in the November, December time frame, but what we shouldn't see too much seasonality.
What's been the bigger driver I think the last couple of years has been overall growth. We're hoping to see this year be up 10% over last year's demand, and that's nice growth.
That still leaves a market that's relatively small if you look back to the pre-2009 history. But we are seeing improved backlogs, good order entry.
Now we've seen a couple of quarters here where we will see 1 or 2 good months more of entry, and then the month is not strong. And so it is spotty.
The architectural building index full impact, the way Mike described earlier in the call, to us is a serious indicator that there's some turbulence in that market, right? And that was improving nicely month over month for a while and then pulled back.
So I'd say, although it looks a little spotty out there, and we've got to keep executing every single day. Now those new plans that are coming up are, I think, more stabilized, and we're getting better productivity out of the groups.
We've put in additional manning that is now more experienced and better trained and becoming more effective. That is definitely going to help us as we go forward to the end of the year.
So I'm still looking for improvements as we go through the end of the year. But the market is a big question mark.
And some of the concerns that Russ talked about with Europe and Dick talked about, Mark talked about. The concerns in the macro environment I think are dampening the enthusiasm for some companies to go build projects right now.
Nonetheless, we're going to look at that continued improvement.
Aldo J. Mazzaferro - Macquarie Research
That's great. It's time to show up, for sure.
And just finally, Theresa, did you mention what the CapEx was for the full year? I think I heard you say something but I missed the number.
Theresa E. Wagler
I gave you the second half, we had $100 million CapEx through the first 6 months. And for the second 6 months, we're expecting between $125 million and $145 million.
Operator
And with that, everyone, that does conclude our question-and-answer session. I'd like to turn the call back over to our presenters for any final and closing remarks.
Mark D. Millett
I would just like to thank you all for your time today and for your interest and support of our company, and be safe out there. Thank you very much.
Operator
Once again, ladies and gentlemen, that does conclude today's call. Thank you for your participation, and have a great day.