John Surma - US Steel Chairman & Chief Executive Officer Gretchen Haggerty - Executive Vice President & Chief Financial Officer Dan Lesnak - Manager of Investor Relations

Kuni Chen - Banc of America Securities Timna Tanners - UBS Luke Folta - Longbow Research David Lipschitz - CLSA Brian Yu - Citigroup Michelle Applebaum - Steel Market Intelligence Michael Gambardella - J.P. Morgan Mark Parr - KeyBanc Capital Markets Tony Rizzuto - Dahlman Rose & Co.

John Tumazos - Very Independent Research Charles Bradford - Affiliated Research Group Sal Tharani - Goldman Sachs Zach Schreiber - Duquesne Capital Dave Cass - JP Morgan

Thank you, Chris. Good afternoon and thank you for participating in United States Steel Corp.’

s second quarter 2009 earnings conference call web cast. We’ll start the call with some brief introductory remarks from US Steel Chairman and CEO, John Surma.

Next, I will provide some additional details for the second quarter, and then Gretchen Haggerty, US Steel Executive Vice President and CFO will comment on the outlook for the third quarter of 2009. Following our prepared remarks, we’ll be happy to take any questions.

Before we begin, however, I must caution you that today’s conference call contains forward-looking statements and the future results may differ materially from statements or projections made on today’s call. For your convenience, the forward-looking statements and risk factors that could affect those statements are referenced at the end of our release and are included in our most recent annual report on Form 10-K and updated in our quarterly reports on Form 10-Q in accordance with Safe Harbor provisions.

Now here to begin the call is US Steel Chairman and CEO John Surma.

Thanks Dan and good afternoon everyone, thank you all for joining us. Earlier today, for the second quarter we reported a quarterly loss of $392 million or $2.92 per diluted share and included a $0.36 per share favorable effect of two non-operating items.

Before I get into results, let me first say a word about safety, which continues to be our number one priority regardless of operating conditions. A year-to-date, our global OSHA reportable rate and our global place away from work rate have continued to improve and we remain unwavering in our commitment to safety.

We thank our employees for their sheer commitment to this most importance of our objectives. Second quarter was a very difficult period for the domestic steel industry and for our company as the AISI reported industry utilization rate of less that 45% for the quarter and steel consumption in the US was at the lowest level in some decades.

Weakness in several of our major markets resulted in capacity utilization for our North American Flat-rolled operations of 32.4% as demand for attributed products fell off dramatically in two of our major automotive customers worked their way through bankruptcy restructurings. As a result of the significant decreases in selling prices, we’ve encouraged substantial or across the market inventory adjustments in the recent quarters including approximately $100 million in the second quarter.

While inventories at our Flat-rolled operations in the US are not generally affected by LCM adjustments, we some very old LIFO inventory layers, inventories in Canada, Europe and our Texas operations have been effective. As we’ll discuss more in a moment, we’ve recently experienced some improvements in order rates.

Our Granite City operation is back to work, and we are making and shipping more steel, but the sustainability of this order trend remains remain uncertain as both the US and global economy struggle to recover. We anticipate that we’ll continue to face challenging conditions until a recovery becomes more apparent and more sustained.

Now, let me we turn to our results. We reported our second quarter loss from operations of $465 million which included pretax income of $45 million from the reversal of the litigation reserve as a result of a favorable court ruling, and pretax income of $34 million associated with the recovery of Federal excise taxes that we are paying on coal export sales way back in the early 1990s.

Net interest and other financial cost in the second quarter of 2009 included a foreign currency gain and it increased net income by about $41 million or $0.31 per diluted share due to the remeasurement of US dollar denominated inter company lines or European affiliate and related Euro-US Dollar derivatives activity. Our North American Flat-rolled segment had an operating loss of $362 million in the second quarter.

As a result of weak demand in our markets and a continuing destocking of inventory throughout the supply chain, our Flat-rolled shipments decreased almost 15% to $1.8 million net tons. Average realized prices decreased $38 to $677 per net ton.

The Flat-rolled results included approximately $285 million of continuing employee and other costs associated with our idle facilities as compared to $230 million in the first quarter as our Lake Erie plant was idle for the entire quarter, and we idled additional iron ore capacity. We had an operating loss of $53 million for the second quarter in our European segment, a significant improvement compared to our first-quarter loss of $159 million.

Shipments were just over 1 million net tons, a 15% increase over the last quarter, primarily the result of the destocking process slowing and an increase in automotive related orders in part as a result of government incentives. While average realized prices fell $70 per ton, $602 per net ton.

We realized the benefits from lower raw materials cost, a $34 million gain from sales of emissions allowances and lower inventory write downs. For our Tubular segment, we had an operating loss of $88 million in the second quarter.

Shipments were 92,000 net tons in the second quarter down 56% from first quarter levels. Prices fell 35% to $1,526 per net ton.

This severe downturn was primarily driven by the combination of lower demand due to reduced drilling activity, and extremely high inventory levels in the tubular supply chain caused by unprecedented levels of unfairly traded and subsidized Tubular imports from China. The Tubular results also reflects idle facility carrying cost of approximately $25 million and lower cost to market adjustments.

Now turning the call over to Dan for some additional information about the quarterly results. Dan.

Thank you, John. Capital spending totaled $88 million in the second quarter, and our full year capital-spending plan remains at $410 million.

Depreciation, depletion and amortization totaled $159 million in the second quarter and we currently expect to be approximately $630 million for the entire year. Pension and other benefit costs for the quarter totaled $104 million.

And we made cash payments for pension and other benefits of $108 million. For the full year, we expect our pension and other benefit costs to be roughly $465 million, and we expect required cash payments for pension and other benefit to be approximately $525 million.

Net interest on the financial cost, totaled 9 million in second quarter, and included a foreign currency gain of $32 million. Our effective tax benefit rate of 17% for the quarter was lower than statutory rate because losses in Canada and Serbia which are jurisdictions where we have recorded a full evaluation allowance under deferred tax assets did not generate any tax benefits for accounting purposes.

Lastly, our weighted average shares used for EPS purposes for the quarter was 134.6 million shares, there is a 27.1 million shares we issued in our public offering were only outstanding for about two thirds of the quarter. These shares will be fully reflected in the EPS calculations for the third quarter.

Now, Gretchen will give some additional information and the outlook for the second quarter.

Thank you Dan. End of the second quarter, our cash flow provided by the operating activities was $52 million, including a working capital benefit of $423 million.

Cash flow used in investing activities was $131 million, and cash provided from financing activities was $888 million, which includes the net proceeds from our issuance of common stock and convertible notes of more than $840 million, after we repaid $655 million in term loans with the proceeds. The total change in cash was an increase of $819 million in the second quarter.

And we end with the quarter with $1.95 billion in cash and total liquidity of approximately $3.1 billion. Turning to our outlook; while we anticipate an increase in our third quarter operating rates from the extremely low-levels of last quarter, we expect each of our segments to report an operating loss in the third quarter, due to continued low operating rates, idle facility carrying cost and lower averaged realized prices.

They are sometimes the destocking cycle has ended in the North American and Central European steel markets, and increased customer orders across almost all industry segments have resulted in an extension of lead time. We have began to bring up idle facilities inline with customer demand, and we have implemented price increases in our Flat-rolled and USSE segments in the third quarter.

Despite these times of improvement, the outlook for overall demand remains uncertain and the timing and magnitude of sustained economic recovery remains difficult to forecast. For Flat-rolled, third quarter results are expected to decrease from the second quarter, reflecting lower index-based contract prices, which tend to lag the stock market, as well as increased shipments of lower margins semi finished and hot-rolled products.

Raw steel capability utilization and shipments are expected to improve in line with increased customer orders as we restart raw materials and steel making operations. However, the favorable effects of these items are expected to be offset by higher raw material and energy costs, as well as costs to restart idled facilities at our Granite City Works and several raw materials operations.

Consideration will be given to restarting other facilities if sustained customer demand supports higher production levels. Also, we are currently negotiating with the United Steelworkers for a successor to the labor agreement covering our Lake Erie Works operations, which expires on July 31 of 2009.

Third quarter results for US Steel Europe are expected to be in line with the second quarter. Lower raw material and energy costs and higher spot market prices later in the quarter are expected to be offset by the non-recurrence of the gain on sales of emissions allowances and lower contract prices.

We have experienced a delay in the intended start up of our third blast furnace at US Steel Kosice, but it is expected to be operating in late September. In the meantime, we are meeting our customers’ requirements with increased production at US Steel Serbia.

Third quarter results for Tubular are expected to show some improvement compared to the second quarter, mainly due to a slight increase in shipments as customers fill limited inventory needs for certain specialized products. However, we expect an operating loss as we continue to incur idle facility carrying costs and shipments and average realized prices continue to be depressed by the inventory glut created by the surge of unfairly traded and subsidized product from China.

Dan that’s it.

Thank you Gretchen. Christine, please queue on questions.

Just to start off, obviously you have some price increases on the table for September-October, I’m not going to ask you to comment on pricing, but I just want to know for your Flat-rolled guidance if there is some element of higher spot prices baked into your outlook there and can you also give us some perspective on where your order book stand relative to September and October?

Just to start off, obviously you have some price increases on the table for September-October, I’m not going to ask you to comment on pricing, but I just want to know for your Flat-rolled guidance if there is some element of higher spot prices baked into your outlook there and can you also give us some perspective on where your order book stand relative to September and October?

The order book side, as our release indicated and as Gretchen mentioned order flow has improved bottomed up probably in April and May, and order flow in June and so far this month has been better and we’re out into September had a pretty healthy clip for some of the longer lead time, contract business were probably out further than that. It’s really hard to say much more about how sustained and how long that’s going to be at that level.

So, we are really reluctant to make any predictions, but so far at least from the bottom, which again we think, looking at our figures was in April and May, things look a bit better. There has been lots written in the Trade Press and elsewhere about price moves, we are don’t usually say much about it publicly, but we are trying to retain what the market price is, and right now at least those spot prices are higher than the low point and the spot pricing releases we saw probably in June.

We’ll get, I suppose some of that in this current quarter, but because we do have a good bit of business that’s on index either monthly, quarterly, some annually in certain cases. I think as you saw last year when prices were moving up it took us a quarter or so to catch what you saw on the spot market.

This year we held on a little bit longer as the spot price came down. That lag effect is going to be part of our business cycle.

Now, I think we’ve tried to work with our customers to have a little more sustainable pricing mechanism, it doesn’t have as many ups and down in it. So, the price movement is in the right direction, begin to see some but it will take a little bit longer to work it through the system.

Then just as a follow up, can you give us an update on the potential for permanent capacity shuts and really kind of go through how your thought process has evolved here over the past one or two months? Then also for Gretchen, can you walk through some of the major cash costs associated with any permanent potential closures?

Then just as a follow up, can you give us an update on the potential for permanent capacity shuts and really kind of go through how your thought process has evolved here over the past one or two months? Then also for Gretchen, can you walk through some of the major cash costs associated with any permanent potential closures?

There is not a whole lot we can say about that Kuni, we of course are looking at our configuration all the time in good markets and in not so good markets. It’s a question really, what we foresee in the market and how long and what of course the market will take to get to a level that were sustained our configuration at a reasonably high and profitable level of utilization.

Things are just sort of opaque in the market, but it’s very hard for us to reach a fair conclusion on that right now. We’re looking at it, studying it, considering what the effects are, one way or the other.

I remind people from time-to-time that in 2003 everyone said, we should shutdown Granite City and we didn’t, and then we ensuing seven or eight years we made $1 billion. So, I think there is a risk in waiting and a risk in going too soon.

We’re going to try to make the right decision with better information we have today, because today we just don’t have a good view of how long and where the market is going to go. We think there is a pretty good chance that the level of consumption, which was implied by what the shipments were with the industry back in the middle part of the year was unsustainably low, probably moving back into something that’s more aligned with what real end use demand is.

We don’t really have a good idea what that is, until we have a little bit more time to assess it. I don’t think for the long term it’s likely that the U.S.

Steel consumption per capita will be one half of what it’s been for the last 20 years. That seems unlikely, but it’s possible.

So, we want to get a better fix on that before we do anything that would be longer term. Gretchen.

As far as cash cost, if we were to consider some shutout of facility, the near term cost would tend to be more on the employment side cash cost there. There would be some longer term items that we would have to consider environmental cost.

For example, depending on what location we’d be looking at that might not entail immediate cash, but it would have to be a consideration in the overall cost of a potential shutdown.

There is probably some contractual commitments too for suppliers of one kind or another. If you dug way back into our history in 1979, 1983, 1987, 1991, you would see those kinds of actions were taken.

We know how to do it and those would be the elements of what we had content with back then.

I’m wondering if you could give us a status report on the restarts of capacity that have been discussed. I was surprised that you mentioned that there would be more impact of semi-finished production and Flat-rolled U.S.

operations, if the new demand is considered to be more high end auto, so could you explain that please?

I’m wondering if you could give us a status report on the restarts of capacity that have been discussed. I was surprised that you mentioned that there would be more impact of semi-finished production and Flat-rolled U.S.

operations, if the new demand is considered to be more high end auto, so could you explain that please?

I’m not sure, what she just clarified Timna about semi finish. I’m not sure, I understand what you said.

You talked about on a third quarter, the mix shifts will be more low end, I was confused by that, because I did think that the restart of the capacity were meant to meet some of the auto related demand?

You talked about on a third quarter, the mix shifts will be more low end, I was confused by that, because I did think that the restart of the capacity were meant to meet some of the auto related demand?

We’re trying to meet every piece of demand we can find. We’re trying to keep our facilities running.

So in recent years where we had more of a semi-finished capability, we need it for our own finishing. We have had done some semi-finished sales from time-to-time and those have been up and down.

This particular quarter looking ahead is likely to have a bit more, and when you look at the realized price number what was close at the end of the third quarter, there will be an impact there and we just thought we would draw that to your attention. I’d say that’s really suffered in a part from our overall demand, although it certainly helps to keep the facility loaded.

The order flow is coming from a variety of sectors, automotive would be one of them, and we’re looking at what’s being ordered and what we can make aware and what the capabilities are, we have arrived at a configuration that has, I think it was noted in the release. As Gretchen pointed out, I mentioned that Granite City is backup and operating.

I think both furnaces online at this point and most of the facilities are operating quite well. We’re going to let the market tell us, whether there is more that needs to be done.

We haven’t decided that yet and we don’t normally talk much about it although others seem to. We’ll try to make sure we have enough capacity on to satisfy our customers, but we’re not in the business of laying swabs on the ground and wait for someone to show up and take them, that’s not what we do.

So, we described what we are doing with Granite City, we do have a little iron ore coming on that keep things in the right place. Although, we continue to draw inventories down from an iron ore standpoint, so we have what we need at this point.

We may need to do more, we’ll let the market tell us that and we look forward to doing that if we can.

Can I just ask about Tubular inventories, I know that the data we get from MSCI doesn’t cover it entirely; can you give us an update maybe incorporating the broader inventory that you know of maybe at the ports and other sources?

Can I just ask about Tubular inventories, I know that the data we get from MSCI doesn’t cover it entirely; can you give us an update maybe incorporating the broader inventory that you know of maybe at the ports and other sources?

Sure. We look at a number of sources for Tubular inventory, the MSCI, it tends to do more on structural and other things and aren’t part of our Tubular segment directly.

Although, we sell to those Flat-rolled and those markets are doing pretty well right now, but on the SCTG, which is of more importance to us. The inventories are quite high, although recent reports that we get from a couple of sources plus our look into our distributors, which gives us a pretty good view.

I think we get pretty good data there. It might suggest that the inventory draw down has started, not in a huge amount, but it looks like maybe we are over the peak that will be affected not just by what’s being produced in the imports, but which are down probably, but also by how much consumption there is and I guess the drilling rig rate is back over 900 if I saw the last figure that I saw and that’s certainly good news.

It’s not 2000 where it was last year, but that’s probably good news. So, I think we are into the draw down phase but that could take some time, but inventory seem like they are on the way down.

First off regarding the percentage of shipments you have under the quarterly contract reset pricing. Can you give us an estimate of how much that would be as a percent of your business in North America and in Europe as well?

First off regarding the percentage of shipments you have under the quarterly contract reset pricing. Can you give us an estimate of how much that would be as a percent of your business in North America and in Europe as well?

Well, in Europe our total contract business is on the order of 30%. So, it would be some piece of that and not a huge piece necessarily.

I think on the North American piece that’s somewhat flexible than fluid, because we are going through those revisions all the time. I just looked out through this year, the amount that would be on some kind index based probably would be on the order of 20% of our contract business, might be on an index base something like that and then that would be a financial index.

We also would have some indexation going on against the cost based imports that’s probably another 15% to 20%. So, a meaningful part of our contract business is on some kind of adjustment based on an index, either cost inputs or financial index.

If you hypothetically were able to run full out now, now that you have Granite City back online. How much could you ship at maximum in the third quarter if you want?

If you hypothetically were able to run full out now, now that you have Granite City back online. How much could you ship at maximum in the third quarter if you want?

You mean with our current configuration?

With Granite City now back online with your current configuration.

With Granite City now back online with your current configuration.

It would be a lot more than we ship in the second quarter, but it’s probably at least 2.5 million tons maybe a bit more than that.

Then, just one more quick one if you could, regarding how much of the idled facility carrying cost you have in the third quarter and how much you think is going to impact results there?

Then, just one more quick one if you could, regarding how much of the idled facility carrying cost you have in the third quarter and how much you think is going to impact results there?

I think the third quarter idled facility cost should be lower for two reasons. One, Granite City is running and we’ll have some more raw materials operations running and therefore they will be absorbing their share of cost and that’s positive, but also with those facilities which are still idled.

Our operators doing a really good job of continuing to whack the cost down and find ways to cut off the energy requirements and reduce the staffing that’s required for whatever purpose and to reduce the amount of outside services. So, we should have that moving in the right direction for both of those reasons.

Question to you on your coke and coal inventories or coke inventories, where do you stand on that? Have you gone into any negotiations yet for next year or where do we stand on that?

Question to you on your coke and coal inventories or coke inventories, where do you stand on that? Have you gone into any negotiations yet for next year or where do we stand on that?

We are always in negotiations. We have reduced the amount of coal that we are going to take this year to a level that we have agreed with our several suppliers.

It’s something both we and they can live with, a lot less than we needed. We have in some ways reduced that by operation of the contract terms we have and other cases we’ve negotiated reductions, in other cases we moved it into later years.

A variety of price discussions around that usually with callers and some indexes in some cases just to be negotiated, so as a result we have all we need this year, I’m sure, and we have some volumes of some significant amount in one form of contract to another through 2012, even 2013, meaningful volume, it’s not everything but meaningful. So, we have a fairly good position with suppliers that I think established a good position with over periods of time.

Also have you hedged any natural gas for next year?

Also have you hedged any natural gas for next year?

No. Not of any consequence we have some co-generation facilities that we buy forward for where we know against what the electricity price would be, which is usually too high, we go ahead and buy what we need and lock in with that savings on a rate would be, but beyond that for our operating units not really very much.

Just backup to one on the cold question, so on coke inventories, where do you stand versus your normal inventory level?

Well, I guess you have to look at normal in the context of what we’re operating. If we’re operating, our inventory might be a tad on the high side but not really, for what we’re operating now we have more that we need, but our plans already continue to draw it down, all of our raw material as much as we can, coal and coke are difficult because we have commitments to take coal and it’s probably better to store coke than coal.

We’re trying to move the materials that coal and the coke locations where we need it, including in some cases to Europe. So I think our coke inventories would be about where we targeted them for, we would make them lower if we could, but that’s not going to be easy to achieve.

John, in your European operations how much of the drop in pellet settlements will be flowing through in the third quarter?

Although, it’s going to flow, we’ve I think used up virtually everything that’s been possible, we’re going to follow something somewhere, but I think virtually everything has been pretty well consumed. So, not just pellets but it would be [Inaudible] and everything else that we’re buying pellets wise and the prices would come down substantially across the whole group.

So, we’ll see that pretty clearly in the third quarter, we had a little bit of it in the second quarter of course, the change in the spot prices in the second quarter didn’t allow us to enjoy as much of it, but those were the cost that start coming through.

Then sticking on the input, sticking with the input side, so we are looking at Millers to coal cost going out into 2010, I know it’s very early, but it seems like sea borne spot prices might be moving up a bit, at the same time, you are paying a much higher price this year than last year. How should we think about sea borne dynamics versus kind of what type of cost position you have?

Well, we do have higher coal cost this year, we’ve talked about that in this form over a number of time, and that’s in part, because we did a really good job of buying our coal in 2007 for 2008. We were well below the big numbers you all read about on the sea borne settlements, we were nowhere near that, I think our average cost last year were delivered in North America were 125 or some number like that, 121 or somewhere in that zone delivered.

This year, I think we have guided you towards about a 160, a little bit more than that, that’s probably a pretty good number, which is lower than we were initially thinking when we were seeing the big price tags that you’re referring to. I don’t know really how the sea borne settlement figures will affect that, we’re buying mostly from local sources, Appalachian sources.

We’ve got pretty good logistics and I think we’re generally a pretty good customer, because of where we are and how we transport things. So, my sense is that our coal cost will, we’ve to wait and see how it turns, but we have got a pretty good handle on that for next year, and I think our coal cost will be less affected by whatever the sea borne settlements are later, and more affected by what we have accomplished this year and establishing positions with our suppliers for the longer term.

I just wanted to compliment you on, you got your 10-Q filed about an hour ago and you do that almost every quarter when you get the 10-Q out within 48 hours of releasing that’s very impressive.

Thank you, Michelle. What we’ve discovered it is waiting an additional 10 days or so does not make the numbers look any better.

I wanted to ask you little bit about trade, you had an advantage at your, I think at the Mon Valley Works couple of weeks ago. Could you talked about that and there was some discussion of alternative to trade suits I think, they came out of that I had heard and I was wondering if you could talk a little about what we might be able to see on that?

Well, you’re referring to the visit of the Ambassador Kirk, the U.S. Trade Rep, paid us at Edgar Thompson Works at their request.

We were delighted to make our plant available. We do that pretty routinely for other officials if they wish and he made a very important presentation, it covered a wide range of issues.

I can’t recall vividly Michelle with the one item as you’re referring to, but I think he talked about trying to engage both his office and the appropriate Commerce Department folks in trying to spot problems early and try to work through those in someway other than waiting a long time it takes under our system to have a trade case go through from start to finish. During which time the industry that’s affected like us can be damaged severely before any relief is granted.

So, I think that was what he was describing, but I really can’t say much more than that. I’ll defer to the experts on that.

So, you don’t know if there might be alternative to trade cases?

I don’t recall a word alternative and again my recollection of it was try to spot and engage in discussions about problematic practices earlier. I don’t recall anything real definitive beyond that.

I am sorry I just don’t remember.

Then can you talk a little bit about the WTO case, with China, the resource case because that is different and I don’t have a precedent for understanding that?

We don’t have a lot either, but it’s a matter that the industry as I remember companies had been working with supplying information and ideas to the USTR for quite sometime it goes back a year or two probably, and there are number of inputs that are of importance to us. Other industries are affected as well, coke and magnesium and zinc and few other things that are important to us.

The USTR decided to take that case to the WTO, the technical term, as I understand that is to ask for consultations. I think the EU at about the same time did about the same thing.

I have no idea how it was cording or not but it just happened about the same time. I think there is a process under the WTO of consultation.

I guess it’s a discussion and I am not really sure I understand how it works. If that doesn’t lead to a satisfactory response then a WTO adjudication process begins and that’s about as much as I know about it.

We were pleased to see the USTR taking that action early in the new administration; we think it pretence good things. We are trying to ensure that the trading rules that apply to everyone in the world are respected and that the rules must be complied with.

We think it’s good.

I got a question you’re almost booked now in the US Flat-roll business, you’re almost booked through this third quarter. See I have pretty good hand on what that looks like.

In the second quarter, US Flat-roll you mentioned operated at 32% of capacity. Where would you say you’re going to operate in the third quarter?

We have lot of steel yet to make, but I think if just with our existing configuration that I described just looking at raw steel we would be somewhere north of 50%.

So, pretty meaningful increase obviously, but what kind of penalty do you think you take on these index link contrasts on the pricing side in the third quarter?

I am reluctant to call it a penalty because if we could have our choice of making sure we always got the benefit and the customers always didn’t that would be the system probably wouldn’t work too well. I think it’s just a lag and we had it on the way up last year and on the way down this year and we will have it on the way up again assuming we do the lot but, if we just look at our total average realized price sort of thing, it’s not a smaller number, it could be $20 to $30 per tons something in that range.

We know that met coal is up versus last year. Could you rank order other raw material pressures that you’re seeing for the second half of the year?

Well scrap, which although it’s not huge input for us is meaningful, and that’s certainly up from the lower levels we had earlier in the year. So I’d say scrap would be one that it would be noteworthy for us.

Coal for some degree although I think we sort of described that we have essentially had those kind of coal prices in the system. In the third quarter we may have a slightly different blend that in and of itself is going to give us slightly higher cost but it’s not a huge affect.

We will have some higher iron input costs in the third quarter, because we’re going to be consuming some materials. We have to reposition, there is extra freight on it.

We think that’s an appropriate thing to do from a cash conservation standpoint. We won’t overdo that, but I think that will give us a little bit more cost in the near term.

I think a decent cash affect. Beyond that nothing will really be significant.

Everything else is relatively stable, natural gas. I mean you can see the strip away that we do that the number is relatively low, but the strip is up.

So I mean, we’ll probably have higher gas cost, but I think you can see that as well as we can, but those will be the high points.

Could you quantify at all the magnitude of the extra freight associated with the iron inputs?

Not specifically, I think in general if you’re talking about moving a ton of that kind of material, it’s going to be $20 to $30 depending on what, where you have to move it, handle it more than once, but it’s in that zone probably.

So this is material that’s moving from one mill to another?

Again, I mean we’re thinking, although we done some that. We may do some more, it really depends on what we’re running and what our configuration is, and it’s a long way from here to the end.

I had two other questions if I could and I’ll just leave it open for you. One, I was wondering if you could give us an update on some of the operational challenges, that I think there have been some at Gary works.

I was wondering if there is an update there, any changes and also to what extent are you looking at engaging the export markets between now and end of the year?

Gary, it was widely reported earlier in the year, we did have a refractory lining failure that took us offline for a while, it’s been repaired and the furnace is back in operation. We’ve not been running it at full out levels out of care and caution.

We have longer term of repaired plant in mind and that may take place later this year, it may go into next year depending on getting the materials we need, it’s a fairly specialized process, some important design, one of technology and this we want to make sure we get it right. So in the meantime, we’ll be running that furnace at a somewhat lower level than it produced at in the last several years when it was fairly new and in operation.

So I think we’re going to take that step-by-step and being very careful thinking about the long term importance of that facility to us, and some point like we had a repair job later this year or early next year. Of course goes into our planning as to what our configuration is going to be as well.

Export sales, given where the dollar is going and if the experts are right. I’m not wondered if the dollars continues to weaken a bit by definition makes a bit more attractive.

We’ve had some export sales of hot band. We’ve had some export slab sales.

Most of the slab business has been domestic, but export potential was also there and for the right price, and if it’s our configuration as are attracted to markets then we will take those. We’ve worked hard the last couple of years to establish positions.

So we’re not in an out. We’re trying to have positions that are fairly consistent and customers at the other end who know who we are and where we are.

So we find that to be attractive, but only if the price is right.

I wondered, John if you could address the lawsuit in Canada. I see the investment in Canada and they’re requiring you to run the legacy Stelco operations.

I was just wondering, what you see as the different possibilities of how this maybe resolved? I’ve got another smaller question too.

In our 10-Q, which was pointed out was just filed, has I think some disclosure in their on that. Tony, I won’t try to improve on that.

Except to say that that’s current and there’s also, as I understand around this whole investment Canada process, some pretty strict, confidentiality requirements, which we at least intend to respect and won’t going to end up to argument with them about it. I just observed that when we made the acquisition, we got off to a pretty good start and we were meeting all the requirements.

I think there was like 31 of them or something like that and we were running quite well on the employees, and we were very pleased with all of that. In low and behold, we have an unprecedented and severe economic downturn in the most severely affected sector in the global economy as wind steel even though Ottawa’s get most of the news about it.

I can only guess that the news of that economic downturn hasn’t reached Ottawa. I’m confident that overtime we will do, we have to do.

We’re not depend ourselves, we’ll do so vigorously and at the end we look forward running our facilities in a way that best fits our company’s objectives and benefits our employees.

The other question I had, you might also have covered in the Qs. I was wondering if you could quantify the emissions credits that you received at U.S.

Steel Europe.

Yes, that was $34 million, Tony.

I think you referred to within the text that it’s not likely to be as large in three Qs, is that correct?

Well, I think we’re saying that anticipate the non-recurrence of that in the third quarter, so we aren’t anticipating any sales at this point.

Just a follow-up on the Tubular question earlier, I think I heard you indicate that there were more specialized products that you’re seeing maybe somewhat lower inventories. I wonder if you could provide a little bit more clarity to me in terms of which products those are they in certain diameter ranges or is it some other type of quality.

No, again we are seeing holes that need to be fulfilled, our Fairfield plant has a very responsive configuration so we can respond quickly when the whole does come up in a customer’s inventory, and it would probably be focused mostly on the middle size range or five inch sort of stuff, higher alloying, casing I think that would be the bread and butter of what we’re seeing.

I guess sometimes business is just rough, but there is a carving, rolling mill in Alabama Tucson is building in. In their literature they list four coding lines, galvanized, galvanil, aluminized and galbanum, and given the importance of the auto market I was wondering if U.S.

Steel has any plans to improve upon or renovate or invest in the coding operations?

It’s a fair question, John. We have been spending some capital, better than facility is over the years and we acquired national, we have got a couple of very good lines in that transaction.

So, we’re aware of the potential new competition, we don’t fear it, we’ll take a head on and if we do the good job for our customers, I think it would be just fine. We don’t really have any projects to announce today, but we’re looking at what the longer range requirements are for the auto sector.

We just talked about some other things today here internally, and that’s a key sector for us and we intend to remain competitive and if it takes capital we know how to do that, but nothing specific that we could tell you that would be designed to deal with that future competitor you mentioned or any other one.

Do any of the market share shifts with some of the traditional U.S. companies, smaller, and non-traditional companies bigger Fiat entering into Chrysler’s mix.

Do any of those change the preference toward coding technologies?

I wouldn’t even limit at the coding. I think there are preferences that could emerge from some of those developments that would affect metallurgy as well, and we are aware of those and I think longer term trends have been away from certain products and towards others and we’ve got to make sure we stay with them in front of that, and so there are changes and they’re not just today, they’re three or four five years out depending on what the configurations are for the cars that have been made here.

So, I think the answer is yes, and I don’t want to sort of get into that detail because it is really very, very confidential information from our stand point, but the answer is yes and we are aware of it.

First of all, generally your operating rates have been pretty close to the industry average, which was 43.5% in the second quarter, but you reported 32%. Was there anything that caused you to keep the rate lower, or was it trying to whole pricing, was it mechanical problems, or what was that behind it?

Well, it wasn’t for any of those reasons, I can assure you. We made everything that our customers ordered from us and I think Jeff, can I try to mention this in my remarks.

I might have been too soul about it, but the two things that appeared us to be one reason potentially so that would be that we are pretty heavily configured towards Tubular, not just the two grounds we make, but also the Flat-roll that would be otherwise go into our welded operations, which last year was a million ton, this year was virtually zero. So the Tubular business being so far off, I think affected us maybe more than the broad industry average that you saw.

From an auto standpoint, that’s an important sector for us. We have strong positions with two of our large customers, who went through restructuring and had an interruption of operations of a variety of durations.

I think those two things will be the two biggest things probably that we were affected by.

I would think that AKC would be hit especially hard by the latter even more than you would?

I guess you’ll have to ask them.

The rate was much better, okay another area. You were building a spiral well, a large diameter pipe mill in California with a couple of Asian partners, what’s the status?

You are correct. It is with POSCO, our long term partner in West Coast and SeAH, who’s in the Atlantic business.

We’re just in the commissioning phase right now and testing and running trial orders those kind of things, so it’s just in the commissioning phase and sometime later in the year we have make them pipe.

Are there any orders out there, is seems like things have dried up quite a bit?

Everything has been slow. I think the credits availability has been quite constraining in that regard for new projects.

It seems like line pipe orders are moving ahead at a slightly better rate recently, just slides and again everything form our standpoint is from a really low base. So I’m seeing some slight improvement from the very low base, but I think there is a great need for additional transmission lines all across the country and I think eventually that market is going to be strong.

Just wanted to get some color on the shipment levels in Europe, you had a nice 15% increase sequentially and you also mentioned some government incentives. Is that sustainable, how are you seeing the market right now over there?

The general order flow in Europe has followed a similar pattern to what I described here in North America in April and May things were bottoming out and some improvement since then some of that was from auto. I think it reflected in some degree that incentive programs that the governments had over there.

They were not nearly as constrained as one that the U.S. congress passed recently.

I think that’s had a positive effect on our order flow. There has been some ridden in Europe by analysts and other experts about whether that is just pulling forward demand.

There will be falloff, some of the same questions used to be asked about incentive programs in the North American market, I just don’t know that. In the near term, the effect was pretty positive whether or not that would be sustained, it’s impossible for us to say.

You didn’t give guidance in the shipment volume number for the USSE. Do you expect flattish, higher, lower?

That we indicated in our outlook, I thought we indicated somewhat higher shipments, which I think, would be pretty likely.

I think, we were signing on Europe because if it is somewhat improved, it’s not going to make that much of a difference. So we talked about other things.

Just a quick question, just in terms of the order books and their increase, I think your comment was that some of your products are you sort of seeing them extend out. September or some of them you are seeing them extend a little bit further out.

I was just wondering if you can elaborate on just, how much the order books are extending by, and for what kind of products and what the length of those order books is now relative to where they were at the sort of trough?

I think one way to look at it is what the promise front is with the order input days would be and those were in very, very short promise fronts lead times were couple of week’s time probably for hot-roll. I think their [Inaudible] extended up now into the four or five, six week range which is four or five probably much more customary.

The other products would sort of follow that, some of the coded products for us at least were out maybe even further than that, some of the demand pickup and some of the coded markets has been pretty positive for us. So I would say our current configuration at about an average level of lead time on promised front.

That’s pretty normal if you look back in recent cycles that would maybe lead to some opportunity to improve our position price wise, and of course that’s what we’re trying to do so, from very short to about average is about where it would be.

Can you just talk about what kind of implied utilizations your forward order book support or I know that you have been saying quite religiously, that you are only going to make that what your customers demand. So, should we just assume that whatever the utilization you are running is that’s exactly what is being demanded, but is there some sort of utilization creep embedded in four order books as well?

It’s hard to say and I’m reluctant to predict because the way things are these days, the volatility is so extreme, but I think as I mentioned before with our current configuration our implied utilization rate today is above 50%, maybe it’s 51%, 52% something like that probably. If we would maintain a stronger order book for a period, we might need to go a bit higher than that and how far and how soon, impossible to say, but it is certainly better, meaningfully better than what we experienced during the very, very difficult second quarter.

Then just on the operating cash flow and the working capital benefit, $420 million benefit. Are we going to continue to have working capital benefits throughout the course of balance of this year or are we sort of done with that.

Then the cash flow possibly is much more driven by sort of core operating cash flows?

I could probably talk a little bit more in the near term in the third quarter. We probably still have more rooms that run on inventories and we’ll keep working on that.

So, I would expect still some favorable working capital effects from that. As our orders increase notably and start coming in, we will replenishing inventory and receivable, so it will be a negative effect there, which is, I think a welcome change frankly.

We still do have some room on inventories on the raw material side and I can see probably at least a quarter’s worth of relief on that and then it’s going to really depend on what we see on the order book and how we brought our facilities back and if we have a working capital bills I’ll look forward to that.

In terms of the third quarter should it be equal in magnitude or a little bit less than what we just saw on the second quarter?

I think we’ve kind of run the course on receivables, so we are going to start seeing some effect on that. So, I would expect it to be less than in the second quarter rather.

I was hoping that you guys could talk about, on specifically what you would have to see in the market just by moving ahead with some of the deferred projects like key one. Obviously you are operating conservatively, what would it take to take those off of deferrals?

I think we would need to have a much firmer view of the longer term trend, given what we have been through in the last six to eight months; it’s really premature for us to do that. Besides, we have sufficient materials capability to supply nearly any configuration we could think out in today’s world for sometime.

So, I know these projects take a long and we think that’s an excellent project in the kind of world we have last year, but it’s the kind of world we have this year, it doesn’t have quite the same degree of necessity to it. So, we know how to do this project, it’s got pretty good development prospects, we have got plenty rocks, well there’s no problem there.

The real question is do we have a place to take pellets and do we have orders to justify melting them and that’s the question we’re not really prepared to answer yet.

Would you be able to talk about the JV you have with JFE for the exchange of technical expertise, and any updates there?

No, I think it’s not so much of JV, it’s really an agreement to exchange information and we’ve a variety of business in our scientist and technologist and metallurgist to focus on different projects of mutual interest and they are very useful to us on a lot of cost savings and quality sort of things that we worked on, but it’s technical collaboration and largely research oriented. So, really nothing much more to say about that, it’s a very good relationship that we value, but it’s a technical research oriented relationship.

Alright. Thank you for joining us, we’ll talk to you next quarter.