Item 1a.   Risk Factors

Our business, financial condition or results of operations could be materially adversely affected by the principal risks and uncertainties described in this section.

Our level of production and our sales and earnings are subject to significant fluctuations as a result of the cyclical nature of the steel industry and the industries we serve

The price of steel may fluctuate significantly due to many factors beyond our control. This fluctuation directly affects our product mix, production volumes and our sales and earnings. The steel industry has been highly cyclical and many of our products are subject to fluctuations in supply and demand. Highly cyclical industries such as the oil and natural gas, gas transmission, commercial equipment, rail transportation and durable goods industries represent significant markets for our Company. Future economic downturns, stagnant economies or currency fluctuations in the U.S. or globally could decrease the demand for our products or increase the amount of imports of steel into the U.S., which would decrease our sales, margins and profitability.

The energy tubular products (excluding large diameter pipe) business is dependent on the demand for and pricing of oil and natural gas, which drives the number of active drilling rigs in both the U.S. and Canada. The large diameter pipe business is dependent on the existence of large pipeline projects. During times of lower demand from the oil and natural gas industry, we endeavor to shift steel production from tubular products toward steel mill products or cut-to-length products and vice versa. Prolonged weakness in the oil and natural gas industry and the existence of fewer large diameter pipe projects in combination with weakened plate demand or an excessive supply of large diameter pipe could adversely affect our operations.

Imports of steel products into North America have, in recent years, adversely affected, and may yet again adversely affect, North American steel prices, which would impact the level of our sales, margins and profitability

Excessive imports of steel products into North America have in recent years caused, and may again in the future cause downward pressure on North American steel product prices and significantly reduce our sales, margins and profitability. North American steel producers compete with many foreign producers. Competition from foreign producers is typically strong when the economies of certain foreign steel-making countries weaken, and is further intensified during periods when the U.S. dollar strengthens relative to foreign currencies. Economic difficulties in these countries, combined with a reduction in demand for steel produced or an excess of supply by these countries tends to encourage greater steel exports to North America at prices lower than the prices otherwise charged by North American producers.

In addition, we believe the downward pressure on, and periodically depressed levels, of North American steel prices over the years have been further exacerbated by imports of steel involving dumping and subsidy abuses by foreign steel producers. The effects of these unfairly traded imports have been mitigated somewhat by government actions such as implementation of safeguard remedies and the enforcement of anti-dumping and countervailing duty orders; however these measures must comply with World Trade Organization rules and are temporary in nature. Moreover, products and countries that are not covered by measures and imports of these exempt products or of products from these countries may have an additional adverse effect upon our revenues and income. In any event, when any of the trade remedies are relaxed or repealed, or if increasingly higher North American steel prices enable foreign steelmakers to export their steel products into North America even with the presence of duties or tariffs, the resurgence of substantial imports of foreign steel could again create downward pressure on North American steel prices.

The level of imports of OCTG, which has varied significantly over time, affects the domestic market for these goods. High levels of imports reduce the volume sold by domestic producers and tend to suppress selling prices, both of which have an adverse impact on our business. The level of imports of oil and gas casing and tubing and line pipe is affected by numerous factors, including:  increased supply, overall world demand for oil and gas casing, tubing and line pipe; domestic and foreign inventory levels of casing, tubing and line pipe; the purchasing pattern of distributors and end-users; domestic and foreign trade policy; and the relative value of the U.S. dollar to foreign currencies. Many foreign pipe producers are owned, controlled or subsidized by their governments and their decisions with respect to production and sales may be influenced more by political and economic policy considerations than by prevailing market conditions. Actions motivated by these factors could increase competition and cause our sales to decrease. Such increased competition could have a material adverse effect on our business, operating results or financial condition. We cannot predict the U.S.’s or any other government’s future actions regarding import duties or other trade restrictions on imports of oil and gas casing, tubing products, line pipe or other steel products, or the impact of these actions on our sales of oil and gas casing and tubing products or line pipe. As discussed earlier, we are anticipating the ITC to make final rulings on several sunset review cases by the second quarter of 2007.

A reduction or slowdown in China’s steel consumption could have a material adverse effect on global steel pricing and could result in increased steel exports into North America

A significant factor in the worldwide strengthening of steel pricing over the past several years has been the significant growth in steel consumption in China, which until recently had outpaced that country’s manufacturing capacity to produce its own steel needs. This had resulted in China being a net importer of steel products, as well as a net importer of raw materials and supplies required in the steel manufacturing process. A combination of a reduction in China’s economic growth rate with its resulting reduction of steel consumption, coupled with its own expansion of steel-making capacity, could have the effect of a substantial weakening of both domestic and global steel demand and steel pricing. Currently, it is believed that China’s supply of steel now exceeds its demand for that product. Therefore, many Asian and European steel producers whose steel output had filled China’s steel import needs are shipping steel products into the North American market, thus causing erosion of margins through a reduction in pricing.