****

**Russel Metals Inc.**

**Management's Discussion and Analysis**

**For The Year Ended December 31, 2003**

****

The following management's discussion and analysis of financial condition and results of operations of Russel Metals Inc. andits subsidiaries (Russel Metals or the Company) provides information to assist the reader and should be read in conjunction withthe audited Consolidated Financial Statements for the year ended December 31, 2003, including the notes thereto.  Statementscontained in this document that relate to Russel Metals' beliefs or expectations as to certain future events are not statements ofhistorical fact and are forward-looking statements.  Russel Metals cautions readers that there are important factors, risksand uncertainties, including but not limited to economic, competitive and governmental factors affecting Russel Metals' operations,markets, products, services and prices that could cause the Company's actual results, performance or achievements to be materiallydifferent from those forecasted or anticipated by Russel Metals in such forward-looking statements.  All dollar references inthis report are in Canadian dollars unless otherwise stated.

The Management's Discussion and Analysis includes a number of measures that are not prescribed by generally accepted accountingprinciples and as such may not be comparable to similar measures presented by other companies.  The Company's definition ofgross margins, segment operating profits, Adjusted EBITDA, coverage ratio, and inventory turns are provided in the sections whereused.

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***Overview***

Russel Metals is one of the largest metal distribution companies in North America based on revenues and tons sold.  TheCompany conducts business primarily in three metals distribution business segments: service centers; energy sector related pipe,tube, valves and fittings; and steel import /export.

2003 was an active year for Russel Metals highlighted by the acquisition of Acier Leroux in July.  The Company reported$0.51 per common share earnings from continuing operations before other costs.  The demand for steel by end users remained atsimilar levels to that experienced in 2002 in the service center sector on a same store basis.

The import/export operations experienced lower volumes driven by trade actions, increased domestic production capacity, thelower U.S. dollar, which made North American steel markets less attractive, and the demand for steel in the Far East, whichdiverted large portions of international steel movements to China.

The energy sector activity for the first six months of 2003 was strong but still not at levels expected given the high price ofoil and gas.  However, activity has increased in the oil country tubular goods (OCTG) area during the last six months of2003.

In 2003, management concentration on working capital allowed the Company to report earnings in the first half of the year whenmany of our competitors had losses.  The operations of Acier Leroux have been profitable since the acquisition in the thirdquarter, and the rationalization of working capital and fixed assets has generated profits and significant cash flow.

2002 was a year of contradictions in the steel sector, and was as unique as 2001, but for different reasons.  Severalfactors contributed to the record $0.75 per common share earnings from operations before other costs of Russel Metals.  TheNorth American trade actions, coupled with the financial weakness of North American steel mills, which caused reduction incapacity, led to an unprecedented 40% price increase in flat rolled products, including plate.  The supply side driven priceincreases were at odds with the demand side fundamentals, which remained static in 2002.  The rapid price increases resultedin inventory holding gains and higher gross margin dollars per ton.  In the case of Russel Metals, these higher per tonmargins, despite the relatively flat demand, enabled the service center segment to generate stronger earnings than the previousyear.  In addition, the import/export operations experienced higher volumes and increasingly strong margins under the umbrellaof the aforementioned higher steel prices.

Political uncertainty and merger and acquisition activity negatively influenced energy sector exploration and development andcaused weak drilling activity in 2002, despite very strong oil and gas prices.  This decline in activity led to lowerrevenues, gross margins and operating profits in our energy sector distribution businesses.

Strong balance sheet management resulted in lower borrowings and lower interest expense.  Inventories did climb in theimport/export operations during the later months of the year due to strong activity in our import/export operations.  Theseelevated inventory levels were reduced during 2003.

***Results of Operations***

The following table provides a summary of revenues, segment operating profits (revenue minus cost of sales and operatingexpenses excluding corporate expenses and interest expense) and gross margins (revenue minus cost of sales) as a percentage ofrevenues for Russel Metals' operating segments.  The table shows the segments as they are reported to management and they areconsistent with the segmented reporting in Note 13 to the Company's 2003 Consolidated Financial Statements.
| *     *             | *     *     | *     * | *     * | **2003**                         | 2002                             |
|----------------------------------------------|--------------------------------------|----------------------------------|----------------------------------|----------------------------------|----------------------------------|
| *     *             | *     *     | *     * | *     * | **Change**                       | Change                           |
| ***(in thousands of dollars,***              | *     *     | *     * | *     * | **as a %**                       | as a %                           |
| ***  except percentages)***        | **2003**                             | 2002                             | 2001                             | **of 2002**                      | of 2001                          |
|                                              |
| *Segment Revenues*                           | *     *     | *     * | *     * | *     * | *     * |
| Service center distribution                  | **$   922,778**            | $   750,878            | $   706,173            | **22.9%**                        | 6.3%                             |
| Energy sector distribution                   | **297,532**                          | 289,623                          | 360,515                          | **2.7%**                         | (19.7%)                          |
| Steel import/export                          | **283,579**                          | 348,055                          | 321,454                          | **(18.5%)**                      | 8.3%                             |
| Other                                        | **13,201**                           | 14,719                           | 14,367                           | **(10.3%)**                      | 2.5%                             |
|                                              | *     *     | *     * |
| *     *             | **$1,517,090**                       | $1,403,275                       | $1,402,509                       | **8.1%**                         | 0.1%                             |
|                                              |
| *Segment Operating Profits*                  | *     *     | *     * | *     * | *     * | *     * |
| Service center distribution                  | **$     37,903** | $     31,516 | $     19,352 | **20.3%**                        | 62.9%                            |
| Energy sector distribution                   | **13,764**                           | 13,612                           | 18,406                           | **1.1%**                         | (26.0%)                          |
| Steel import/export                          | **13,380**                           | 28,090                           | 14,175                           | **(52.4%)**                      | 98.2%                            |
| Other                                        | **4,002**                            | 5,732                            | 6,177                            | **(30.2%)**                      | (7.2%)                           |
| Corporate expenses                           | **(8,018)**                          | (8,539)                          | (7,489)                          | **6.1%**                         | (14.0%)                          |
|                                              | *     *     | *     * |                             |
| Operating profits from continuing operations | **$     61,031** | $    70,411       | $     50,621 | **(13.3%)**                      | 39.1%                            |
|                                              |
| *Segment Gross Margins*                      | *     *     | *     * | *     * | *     * | *     * |
| *  as a % of Revenues*             | *     *     | *     * | *     * | *     * | *     * |
| Service center distribution                  | **26.4%**                            | 26.8%                            | 24.9%                            | *     * | *     * |
| Energy sector distribution                   | **11.6%**                            | 13.1%                            | 13.9%                            | *     * | *     * |
| Steel import/export                          | **10.8%**                            | 14.3%                            | 9.4%                             | *     * | *     * |
| Total                                        | **20.9%**                            | 21.3%                            | 19.0%                            | *     * | *     * |
|                                              |
| *Segment Operating Profits*                  | *     *     | *     * | *     * | *     * | *     * |
| *  as a % of Revenues*             | *     *     | *     * | *     * | *     * | *     * |
| Service center distribution                  | **4.1%**                             | 4.2%                             | 2.7%                             | *     * | *     * |
| Energy sector distribution                   | **4.6%**                             | 4.7%                             | 5.1%                             | *     * | *     * |
| Steel import/export                          | **4.7%**                             | 8.1%                             | 4.4%                             | *     * | *     * |
|                                              |
| Total                                        | **4.0%**                             | 5.0%                             | 3.6%                             | *     * | *     * |
|                                              |

***Service Center Distribution***

**

**a)        ****Description of operations**

The Company provides processing and distribution services to a broad base of more than 18,000 end users through a network of 58Canadian locations.  In addition, the Company has 4 U.S. locations.  The Company's network of service centers carries abroad line of products in a wide range of sizes, shapes and specifications, including carbon hot rolled and cold finished steel,pipe and tubular products, stainless steel and aluminum. Russel Metals purchases these products primarily from steel producers inNorth America and processes and packages them in accordance with end user specifications. The Company services all major geographicregions of Canada and the Midwest region in the United States.  Within Canada, the service centers operate under the namesRussel Metals, Métaux Russel, Drummond McCall, A. J. Forsyth, Acier Leroux, Acier Dollard, Acier Loubier, Ennisteel, LerouxSteel, Russel Leroux, Poutrelles Delta and Vantage Laser. Heavy gauge flat rolled operations are conducted by B&T Steel andMcCabe Steel, both located near Hamilton, Ontario. Russel Metals' U.S. service center operations are conducted under the namesRussel Metals Williams Bahcall and Baldwin International.  The Williams Bahcall operations focus primarily on the distributionof general line carbon products through three facilities in Wisconsin. Baldwin International distributes specialty alloy productsthrough its facility in Ohio.

On July 3, 2003, the Company completed its acquisition of Acier Leroux inc.  The merger plans have proceeded at a fasterpace than predicted at the acquisition date and, consequently, management is in the final stages of merging the twooperations.  Acier Leroux was a publicly traded company with sales of approximately $471 million for the year prior to theacquisition date.  Sales from Acier Leroux's Canadian operations for such period were approximately $401 million.  Thebalance of the revenue was from U.S. operations, which the Company has discontinued.

The results of operations of Acier Leroux for the period from acquisition to December 31, 2003 have been consolidated in theRussel Metals service center operations.  The U.S. operations, which have been substantially closed, are reported asdiscontinued operations and thus are not included in the service center segment.  The fourth quarter charge for discontinuedoperations was $0.2 million.

Acier Leroux specializes in the processing and distribution of steel products including reinforcing steel, steel bars, angles,channels, beams, tubing, pipes, plates and hot rolled sheets from service center locations mainly in Ontario, Quebec, New Brunswickand Nova Scotia.

In September 2002, the Company purchased the operating assets of a service center located in Milwaukee, Wisconsin formerly knownas Williams Steel.  This operation has been combined with the Russel Metals Bahcall operations.  Williams Steel had salesof approximately $49 million for the year prior to the acquisition date.

**b)        ****Factors affecting results**

The following is a general discussion on the significant factors affecting service center results.  More specificinformation on how these factors impacted 2003, 2002 and 2001 is found in the sections that follow.

Steel pricing fluctuates significantly throughout the cycle.  Steel prices are influenced by overall demand, tradesanctions and by product availability.  Product availability is affected by supply side management practised by steelproducers in North America and international supply and demand which impacts steel imports.  Trade sanctions are initiatedeither by steel mills or Governmental Agencies in North America, and less directly worldwide.  Selling prices increased duringthe second quarter of 2002, as a result of trade tariffs in the United States increasing the price of imported steel. However, due to low demand and sufficient available mill capacity, selling prices have leveled out during the remainder of 2002 and2003.  The mills have implemented surcharges and price increases in 2004, which will result in increased selling prices andgross margins.

Demand is significantly affected by economic cycles with revenues and operating profit fluctuating with the level of generalbusiness activity in the markets served.  The Company is most impacted by the non-automotive segments of the economy. General business activity and thus customer demand have been at low levels during the period 2001 to 2003.  The U.S.operations of Williams Bahcall have been most significantly impacted by the general business conditions in the Wisconsinarea.  The Company does not foresee a pick up in demand in the near term.

Canadian steel service centers, which represent a large portion of the service center distribution segment operations, areparticularly affected by regional general economic conditions.  The Company has operations in all regions of Canada and has amarket share of approximately 24%.  This large market share and our diverse customer base of 18,000 customers means theCompany's results should mirror the performance of the regional economies.  Alberta has been the region most significantlyimpacted due to the oil and gas rig activity, which reduced revenues 14% in 2002 compared to 2001.  The rig activity hasincreased in 2003 resulting in higher tons in the Alberta region and a revenue increase of 6.7% over 2002.

The revenue growth recorded in 2002 was primarily due to the acquisition of A. J. Forsyth, and in 2003 was primarily due to theAcier Leroux acquisition.

**c)        ****Service center segment results -- 2003 compared to 2002**

Revenues for 2003 increased 22.9% due to the acquisition of Acier Leroux.  Revenues from operations excluding Acier Lerouxwere approximately the same as 2002.  The operations, excluding Acier Leroux, had tons and selling prices in 2003 thatapproximated the same levels as 2002.  Alberta and British Columbia had higher tons due to more activity related to the oiland gas industries and a slight pickup in the pulp and paper industry in British Columbia.  Ontario flat rolled operations hadlower tons whereas the tons in other regions in 2003 were comparable to 2002.  Our manufacturing customers in Ontario haveexperienced lower demands.  Williams Bahcall volumes were higher due to the Williams acquisition, but the operation continuedto be unprofitable due to generally weak customer demand in the Wisconsin region.  Gross margins decreased from 26.8% in 2002to 26.4% in 2003. The decline relates to inventory holding losses versus holding gains in 2002 in the Russel Metalsoperations.  The Company has the centralized information systems necessary to manage change in the volatile steelsectors.  Our focus is on inventory management and gross margin generation.  Rising steel prices create inventory holdinggains and declining prices result in inventory holding losses.  The Company does not incur the expense to quantify theseinventory holding gains/losses due to the complexity of our over fifty service center operations which buy and sell over 14,000different SKU's.  The Company proactively reacts to changes in market forces and this additional information would not beavailable on a timely basis.

Service center operating profits in 2003 increased $6.4 million or 20.3% compared to 2002.  This increase is primarily aresult of the acquisition of Acier Leroux partially offset by lower operating profits in certain of the remaining operations. The lower operating profits in the Russel Metals regions in 2003 excluding Acier Leroux resulted from the gross margindecline.  Operating expenses for the operations excluding Acier Leroux were reduced $1.5 million in 2003.

Operating profits as a percentage of revenues in 2003 were 4.1% compared to 4.2% in 2002.  In the first half of 2003, priorto the acquisition, the service center operating profits as a percentage of revenues were 3.5%.  In the second half of 2003after the acquisition, service center operating profits as a percentage of revenues improved to 4.5% due to the acquisition andimproved conditions across Canada.  In the second half of 2003, revenues were up 39.0% compared to the first half of 2003 as aresult of the acquisition.

**d)        ****Service center segment results -- 2002 compared to 2001**

Revenues for 2002 increased 6.3% due to higher selling prices and acquisitions compared to 2001.  Revenue increases weremost significant in the British Columbia region due to the acquisition of A. J. Forsyth in October 2001.  Volume declinesoccurred in Alberta due to lower oil and gas activity and at our U.S. operation, Williams Bahcall, due to general lower customerdemand in the Wisconsin region and customer facility closures.

The average selling price per ton was approximately 5% higher in 2002 compared to 2001.  The average selling price startedto increase during the second quarter of 2002, reflecting price increases implemented by the North American steel mills.  Theaverage selling price plateaued in the last half of 2002.

Gross margins improved from 24.9% for 2001 to 26.8% for 2002, mainly a result of rising selling prices during 2002, whichresulted in inventory holding gains.

Service center operating profits for 2002 increased by 62.9% compared to 2001.  This increase is a result of selling priceincreases and corresponding higher gross margins, and the acquisition of A. J. Forsyth. Operating expenses for 2002 were $13.6million, or 8.7% higher than 2001.  Approximately $10.2 million of the increase in operating costs relates to the BritishColumbia region due to the acquisition of A. J. Forsyth.

Operating profits as a percentage of revenues for 2002 were 4.2%, a significant improvement over 2001 at 2.7% in one of theweakest years on record for the industry.

GRAPHS OMITTED

***Energy Sector Distribution***

**a)        ****Description of operations**

These operations distribute pipe, tube, valves and fittings, primarily to the energy sector in Western Canada and the WesternUnited States, from 5 Canadian and 2 U.S. locations. Russel Metals purchases these products either from the pipe processing arms ofNorth American steel mills or from independent manufacturers of pipe and pipe accessories. The energy sector operates under thenames Comco Pipe and Supply Company, Fedmet Tubulars, Triumph Tubular & Supply, Pioneer Pipe and Spartan Steel.

**b)        ****Factors affecting results**

The following is a general discussion on the factors affecting our energy sector operations.  More specific information onhow these factors impacted 2003, 2002 and 2001 is found in the sections that follow.

Demand is significantly affected by oil and gas pricing, which impacts oil rig count and subsequent drilling activitiesparticularly in Western Canada.  Oil and gas pricing has been stable for the period from 2001 to 2003; however, demand waslower during 2002 due to financial consolidations and restructuring in the customer base we service.  The drilling activityreturned to expected levels during the second half of 2003 and is anticipated to continue in 2004.

Canadian operations can be affected by the U.S. dollar since some products are sourced outside Canada and are priced in U.S.dollars.  The effect of the appreciation of the Canadian dollar on the 2003 results was negligible since this appreciation wasoffset by rising metal prices.  The dollar was relatively constant for 2002 and 2001 and, therefore, was not a factor.

Pricing is influenced by overall demand, trade sanctions and by product availability.  Trade sanctions are initiated eitherby steel mills or Governmental Agencies in North America.  Trade sanctions have not been a factor for pipe products in thelast three years.

**c)        ****Energy sector distribution results -- 2003 compared to 2002**

Energy sector revenues increased 2.7% for 2003 compared to 2002.  Stable oil and gas pricing and more rig activity in 2003compared to 2002 have resulted in some volume increases for the oil country tubular goods operations in Western Canada.  ComcoPipe, which distributes pipe, valves and fittings to other fluid handling industries as well as the energy sector and is heavilyinvolved in project business, had decreased revenue of 24.5% in 2003 compared to 2002.  Comco had significant revenues fromlarge projects during 2002 that did not continue into 2003. Comco's revenues for 2003 are comparable to 2001.

Energy sector operating profits increased by 1.1% in 2003, compared to 2002.  The increase relates to higher volumes in theOCTG operations in Western Canada.  The increase in volumes in the OCTG operations offset the lower volumes and profitabilityin our Comco operations due to lower project business.

d**)        ****Energy sector distribution results -- 2002 compared to 2001**

Energy sector revenues decreased 19.7% for 2002 compared to 2001.  Lower rig activity for 2002 compared to 2001 resulted involume declines for the oil country tubular goods operations in Western Canada and the United States.  Although oil pricing iscomparable to 2001 levels, the consolidation of some large players and the restructuring to income trusts have impacted investmentin capital and contributed to lower drilling levels in 2002.

Comco Pipe had increased revenue of 28.9% in 2002 compared to 2001. Comco Pipe's revenue is more project oriented and as such isnot as dependent on drilling levels.

Energy sector operating profits declined $4.8 million, or 26.0%, in 2002 compared to 2001.  The decline is related to thedrop in volume in the oil country tubular goods operations, partially offset by increased operating profits at Comco Pipe due tohigher volumes from large projects.

GRAPHS OMITTED

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***Steel Import/Export***

**a)        ****Description of operations**

Russel Metals' steel import/export business primarily imports foreign steel products into Canada and the United States.  Italso exports steel from Canada and the United States.  The international presence provides the Company's other businesssegments with valuable insight regarding international pricing trends and their potential impact on steel markets in NorthAmerica.

The main steel products sourced by the import/export operations are structural beam, plate, coils, pipe and tubing.  Theoperations in this sector are Wirth Steel and Sunbelt Group.

**b)        ****Factors affecting results**

This section discusses the general factors affecting our import/export operations.  More specific information on how thesefactors impacted 2003, 2002 and 2001 is found in the sections that follow.

Steel pricing is influenced by overall demand, trade sanctions and by product availability both domestically andworldwide.  Trade sanctions are initiated either by steel mills or Governmental Agencies in North America.  Mill capacityby product line in North America and international supply and demand impacts steel imports and significantly affects productavailability.  Higher steel prices resulting from U.S. trade actions significantly increased revenues and gross margin in2002.  Lack of product availability to import and increasing product supply from North American producers were the mostsignificant factors reducing revenues and operating margins for 2003.

The Canadian import/export operations are affected by movement in the U.S. dollar since purchases are mainly in U.S.dollars.  The effect of the appreciation of the Canadian dollar on 2003 results was negligible since the appreciation wasoffset by rising metal prices as Canadian suppliers increased their prices under the umbrella created by U.S. steelproducers.  The U.S. dollar versus the Canadian dollar was relatively constant in 2002 compared to 2001.

**c)        ****Steel import/export results -- 2003 compared to 2002**

Steel import/export revenues decreased 18.5% in 2003 compared to 2002.  Selling prices in 2003 have decreased compared tothe high selling prices experienced in 2002.  Lack of product availability due to high demand in the Far East, uncertainty dueto Canadian trade actions, increased production by North American producers and the weaker U.S. dollar contributed to the reducedrevenues and gross margins in 2003 compared to 2002. Gross margin as a percentage of revenue was 10.8% for 2003 and is a morenormal level than the 14.3% reported in 2002.  The high margins experienced in 2002 were directly related to U.S. tradeactions, which artificially induced mill price increases on flat rolled steel. In addition in 2002, lack of product from NorthAmerican suppliers, who had temporarily banked their steel-making, resulted in higher selling prices and margins for inventory onhand.

Steel import/export operating profits decreased by 52.4% in 2003 compared to 2002.  Lower demand and the return to morenormal margins both contributed to this decrease. The reduced revenues and gross margins resulted in operating profit as apercentage of revenue decreasing from 8.1% for 2002 to 4.7% for 2003.

**d)        ****Steel import/export results -- 2002 compared to 2001**

****

Steel import/export revenues increased 8.3% in 2002 compared to 2001.  A decline in revenue was experienced during thefirst quarter of 2002 compared to the first quarter of 2001, when uncertainty existed related to the resolution of the U.S. andCanadian trade rulings.  The U.S. made its ruling in March 2002, while the Canadian Safeguard initiative was under reviewduring 2002.  This resulted in increased steel pricing.  Revenues during the remainder of 2002 were significantly higherthan 2001 due to a slight improvement in customer demand and higher selling prices.

Steel price increases initiated by North American steel mills contributed to higher selling prices resulting in a stronger grossmargin of 14.3% for 2002 compared to 9.4% for 2001.  The gross margin as a percentage of revenue of 14.3% for 2002 is higherthan normal and declined in 2003.

Steel import/export operating profits increased 98.2% to $28.1 million for 2002 compared to 2001.  The increase was mainlyrelated to a higher gross margin.  This higher gross margin resulted in operating profits as a percentage of revenues of 8.1%for 2002 compared to 4.4% for 2001.

GRAPHS OMITTED

***Other -- 2003 compared to 2002 and 2001***

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Other revenue and income represents the results of the Company's coal handling terminal in Thunder Bay.  Revenue in 2003was lower than 2002 and 2001 due to decreased coal volumes.  The lower volumes resulted in lower earnings from operations.

***Consolidated Results -- 2003 compared to 2002***

The following table discloses earnings from continuing operations net of income taxes, other costs net of income taxes, unusualitems net of income taxes, and discontinued operations net of income taxes.  Earnings per common share are disclosed to assistthe reader in determining results from ongoing operations.
| ***(in thousands of dollars except per share data)***              | **2003**                         | 2002                             | 2001                             |
|--------------------------------------------------------------------|----------------------------------|----------------------------------|----------------------------------|
| *     *                                   | *     * | *     * | *     * |
| Operating profits from continuing operations                       | $ 61,031                         | $ 70,411                         | $ 50,621                         |
| Interest expense                                                   | (22,800)                         | (20,324)                         | (23,017)                         |
| Income tax expense on above                                        | (14,536)                         | (19,340)                         | (11,503)                         |
| Income tax rate adjustment                                         | (900)                            | -                                | 378                              |
| Earnings from continuing operations                                | *     * | *     * | *     * |
|      before other costs                        | 22,795                           | 30,747                           | 16,479                           |
| *     *                                   | *     * | *     * | *     * |
| Other costs                                                        | *     * | *     * | *     * |
|      Restructuring costs                       | (3,583)                          | (2,749)                          | (2,400)                          |
|      Goodwill impairment                       | (2,410)                          | -                                | -                                |
|      Foreign exchange gain (loss)              | 348                              | 261                              | (1,383)                          |
|      Debt repurchase costs                     | -                                | -                                | (391)                            |
|      Income taxes recoverable on other costs   | 2,137                            | 977                              | 1,627                            |
| *     *                                   | (3,508)                          | (1,511)                          | (2,547)                          |
| Earnings before unusual items                                      | 19,287                           | 29,236                           | 13,932                           |
| Unusual items                                                      | *     * | *     * | *     * |
|      Loss on sale of business                  | -                                | -                                | (6,000)                          |
|      Acquisition costs                         | -                                | -                                | (1,688)                          |
|      Income taxes recoverable on unusual items | -                                | -                                | 2,364                            |
| *     *                                   | -                                | -                                | (5,324)                          |
| Earnings from continuing operations                                | 19,287                           | 29,236                           | 8,608                            |
| *     *                                   | *     * | *     * | *     * |
| Net loss from discontinued operations                              | (788)                            | -                                | -                                |
|                                                                    | *     * | *     * | *     * |
| Net earnings                                                       | $ 18,499                         | $ 29,236                         | $   8,608              |
| *     *                                   | *     * | *     * | *     * |
| Basic earnings per common share from                               | *     * | *     * | *     * |
|      continuing operations before other costs  | $     0.51   | $     0.75   | $     0.37   |
| *     *                                   | *     * | *     * | *     * |
| Basic earnings per common share from                               | *     * | *     * | *     * |
|      continuing operations                     | $     0.43   | $     0.71   | $     0.17   |
| *     *                                   | *     * | *     * | *     * |
| Basic earnings per common share                                    | *     * | *     * | *     * |
|      after discontinued operations             | $     0.41   | $     0.71   | $     0.17   |

Earnings from continuing operations before other costs were $22.8 million in 2003, compared to $30.7 million for 2002. Asignificant operating profit decline in the steel import/export segment was offset by an increase in service center operatingprofit due to the acquisition of Acier Leroux.  Consolidated revenues for the entire Company increased by 8.1%, to $1,517.1million, in 2003 compared to 2002.  The revenue increase relates to the acquisition of Acier Leroux.

Consolidated interest expense in 2003 increased $2.5 million to $22.8 million compared to 2002. This is due to higher short-termdebt outstanding related to the acquisition of Acier Leroux partially offset by lower exchange rates on U.S. denominated long-termdebt in 2003 compared to 2002.

The rationalization of the duplicate Acier Leroux and Russel Metals operations in Eastern Canada has impacted Russel Metalslocations.  Russel Metals locations are incurring restructuring costs related to plant closures, employee severances andinventory moves.  Generally accepted accounting principles in Canada and the U.S. require that these charges be included inthe income statement in the period that they occur.  Rationalization costs related to the Leroux facilities are charged togoodwill as a part of the purchase equation.  During 2003, the Company recorded a charge of $3.6 million related torestructuring at Russel Metals locations. In September 2003, the employees at the Russel Metals' Lachine, Quebec location were toldthat the location would be closed at the end of 2003.  Employee severances and pension and benefits charges related to thoseemployees were accrued at September 30, 2003.  Employee related charges for Ontario and Atlantic region restructuring werealso recorded during the six months from July to December 2003.  Adjustments reducing the pension and benefit numbers accruedat September 30, 2003 were offset by costs incurred in the Ontario and Atlantic regions in the fourth quarter of 2003. The Companyanticipates restructuring charges or income to be reported in subsequent quarters related to the restructuring of Atlantic, Quebecand Ontario regions of Russel Metals not completed at December 31, 2003.

In September 2002, the Company acquired the Williams Steel operation in Milwaukee, Wisconsin.  Economic conditions in theWisconsin region have resulted in significant deterioration in the Williams Bahcall customer base.  As this operationcontinued to report losses in 2003 and does not project a significant improvement over the forecast period, the Company determinedthat goodwill of $2.4 million related to this acquisition was impaired.  The goodwill related to Williams Bahcall was reducedto zero in the fourth quarter of 2003.

Income taxes for 2003 were $13.3 million compared to $18.4 million in 2002 due to lower earnings.  The income tax expensefor 2003 includes $0.9 million recorded in the fourth quarter of 2003 relating to an Ontario tax rate adjustment enacted, whichreversed tax rate declines previously enacted for the years subsequent to 2003.  The $0.9 million additional expenserepresents the difference in rates applied to future tax liabilities.

Net earnings from continuing operations for 2003 were $19.3 million compared to $29.2 million for 2002.

Net loss from discontinued operations was $0.8 million for the year.  The loss relates to the U.S. operations of AcierLeroux.  Russel Metals announced it would discontinue the U.S. operations of Acier Leroux at the time the Company made itsoffer.  In October 2003, an assignment of the Company's interest in the Acier Leroux U.S. joint venture to an unrelated partywas completed.  All U.S. branches except Plattsburgh, New York have been closed.

Basic earnings per common share from continuing operations before other costs for 2003 were $0.51 compared to $0.75 in 2002 andafter other costs were $0.43 for 2003 compared to $0.71 in 2002.

The weighted average number of common shares outstanding for 2003 was 40,021,479 compared to 38,024,034 for 2002.  Theincrease relates to the common shares issued on the acquisition of Acier Leroux and stock options exercised in 2003.  Thesignificant increase in the Company's stock price during 2003 resulted in employees exercising stock options representing anaggregate of 1,419,567 common shares.  The number of common shares outstanding at December 31, 2003 was 43,023,342.

GRAPHS OMITTED

***Consolidated Results -- 2002 compared to 2001***

******

Earnings from operations were $70.4 million, an increase of 39.1% compared to 2001 at $50.6 million. This increase in operatingprofits for 2002 relates to higher volumes and margins in service center and import/export operations offset by lower volumes inthe energy operations.  Consolidated revenues for 2002 approximate revenues for 2001.

During the second quarter of 2001, the Company reported a number of items that are not representative of the Company's ongoingbusiness and thus were disclosed separately.   The loss on sale of business related to the sale of the inventory and fixedassets of Total Distributors and the acquisition costs related to the cost of due diligence and legal expense of an unsuccessfulacquisition attempt.  These items are referred to as unusual items.

The acquisition of Williams Steel was completed in September 2002.  Similar to the acquisition of A. J. Forsyth in 2001,the Williams Steel operation was a strategic acquisition.  Williams Steel had one large operation in Milwaukee, which servicedmost of Wisconsin and other nearby states.  The restructuring with Bahcall resulted in the closure of the Bahcall locationnear Milwaukee in the first quarter of 2003.  The closing of this location as well as employee terminations related toeliminating duplicate functions has been estimated to cost $3.1 million, pre-tax.

The 2001 reserve, which provided for the restructuring of A. J. Forsyth with the Russel Metals operation in British Columbia,was reduced in the fourth quarter of 2002 by $392,000, pre-tax.  The facility closure costs were less than originallyanticipated.

During 2002, the Company recorded a foreign exchange gain of $0.3 million related to U.S. denominated debt that was notdesignated as a hedge of the Company's net investment in foreign subsidiaries.  The movement in the Canadian dollar againstthe U.S. dollar caused the gain for 2002 versus the loss for 2001.

Consolidated interest expense decreased $2.7 million to $20.3 million for 2002 compared to 2001.  This decrease is due tolower borrowing levels to fund working capital and lower U.S. denominated debt in 2002 due to the purchases of US $9.4 million ofthe U.S. Note in September and October 2001. The majority of the interest expense relates to the fixed term 10% Senior Notes and,therefore, no benefit was experienced from lower prime borrowing rates available through the bank credit facility.

Income taxes for 2002 were $18.4 million compared to $7.1 million for 2001.  This dollar increase relates to higheroperating earnings before tax for 2002 compared to 2001 and the unusual items recorded in 2001.

Basic earnings per share for 2002 were $0.71 compared to $0.17 for 2001. Earnings per share before other costs and unusual itemswere $0.75 for 2002 compared to $0.37 in 2001.

The weighted average number of common shares outstanding for 2002 was 38,024,034 compared to 37,981,501 for 2001.  Theincrease relates to stock options exercised.

GRAPHS OMITTED

***Interest Expense***

The following table shows the components of interest expense.
| ***(in thousands of dollars)*** | **2003**    | 2002    | 2001    |
|---------------------------------|-------------|---------|---------|
| Interest on long-term debt      | **$18,839** | $20,550 | $21,396 |
| Other interest (income)         | **3,961**   | (226)   | 1,621   |
| Total interest                  | **$22,800** | $20,324 | $23,017 |

The long-term debt interest expense relates to the 10% Senior Notes and the 8% Debentures.  The decrease in the long-termdebt interest relates to lower interest costs due to the lower foreign exchange on the U.S. denominated debt interest.  Theincrease in other interest relates to bank indebtedness related to the acquisition of Acier Leroux.

***EBITDA and Adjusted EBITDA***

The following table shows the reconciliation of GAAP earnings from continuing operations to EBITDA and Adjusted EBITDA:
| ***(in thousands of dollars)***                                                              | **2003**                         | 2002                             | 2001                             |
|----------------------------------------------------------------------------------------------|----------------------------------|----------------------------------|----------------------------------|
| *     *                                                             | *     * | *     * | *     * |
| Earnings from continuing operations                                                          | **$19,287**                      | $29,236                          | $8,608                           |
| Income taxes                                                                                 | **13,299**                       | 18,363                           | 7,134                            |
| Interest expense-net                                                                         | **22,800**                       | 20,324                           | 23,017                           |
| Earnings before interest and income taxes (EBIT)                                             | **55,386**                       | 67,923                           | 38,759                           |
| Depreciation and amortization                                                                | **16,502**                       | 15,192                           | 14,663                           |
| Earnings before interest, income

   taxes, depreciation and amortization (EBITDA) | ****

**71,888**                 | 83,115                           | 53,422                           |
| Restructuring costs                                                                          | **3,583**                        | 2,749                            | 2,400                            |
| Goodwill impairment                                                                          | **2,410**                        | -                                | -                                |
| Foreign exchange (gain) loss                                                                 | **(348)**                        | (261)                            | 1,383                            |
| Debt repurchase costs                                                                        | **-**                            | -                                | 391                              |
| Loss on sale of business                                                                     | **-**                            | -                                | 6,000                            |
| Acquisition costs                                                                            | **-**                            | -                                | 1,688                            |
| Adjusted EBITDA                                                                              | **$77,533**                      | $85,603                          | $65,284                          |

Management believes that EBITDA and Adjusted EBITDA may be useful in assessing our operating performance and as an indicator ofour ability to service or incur indebtedness, make capital expenditures and finance working capital requirements.  The itemsexcluded in determining EBITDA and Adjusted EBITDA are significant in assessing our operating results and liquidity. Therefore, EBITDA and Adjusted EBITDA should not be considered in isolation or as an alternative to cash from operating activitiesor other combined income or cash flow data prepared in accordance with Canadian GAAP.

***Adjusted EBITDA to Interest Expense Ratio***

Russel Metals' Adjusted EBITDA to interest expense ratio for 2003 strengthened in the second half of 2003.  The Company'sability to meet interest payments for the next two years remains strong.
| ***(in thousands of dollars, except ratios)*** | **2003**                         | 2002                             | 2001                             |
|------------------------------------------------|----------------------------------|----------------------------------|----------------------------------|
| *     *               | *     * | *     * | *     * |
| Adjusted EBITDA                                | **$77,533**                      | $85,603                          | $65,284                          |
| Interest expense                               | **22,800**                       | 20,324                           | 23,017                           |
| Adjusted EBITDA to interest expense            | **3.4x**                         | 4.2x                             | 2.8x                             |

The Adjusted EBITDA and the Adjusted EBITDA to interest expense ratios are provided to assist readers in determining the abilityof Russel Metals to generate cash from operations to cover its financial charges, income taxes and items not considered to be inthe ordinary course of business.

GRAPHS OMITTED

***Accounting Policies and Estimates***

****

**a)****        ****Change in Accounting Policies**

****

During 2003, the Canadian Institute of Chartered Accountants issued two Emerging Issues Committee Abstracts that impacted RusselMetals in 2003.  EIC-134 Accounting for Severance and Termination Benefits and EIC-135 Accounting for Costs Associated withExit and Disposal Activities (Including Costs Incurred in a Restructuring) apply to events occurring after March 31, 2003. Russel Metals has applied these abstracts to the restructuring steps taken subsequent to the Acier Leroux acquisition.

Effective with the Acier Leroux acquisition, the Company adopted the new Canadian accounting standard for the disposal oflong-lived assets and discontinued operations.  This standard has been applied to the U.S. operations of Acier Leroux.

During the fourth quarter of 2003, the Company adopted the fair value-based accounting method for stock-based compensationeffective January 1, 2003 and expensed stock options issued in 2003.  The amount expensed was $217,000 for 2003, whichrepresents less than $0.01 per share.

**b)****        ****Other**

The preparation of the Company's financial statements requires management to make estimates and judgements that affect thereported amounts.  On an ongoing basis, the Company evaluates its estimates, including those related to bad debts,inventories, fixed asset useful lives, income taxes, restructuring costs, pensions and other post-retirement benefits,environmental, contingencies and litigation.  The Company bases its estimates on historical experience and on various otherassumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgementsabout the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results maydiffer from these estimates under different assumptions or conditions.

The Company's most significant assets consist of accounts receivable and inventory.  The Company maintains allowances fordoubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  If thefinancial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required.  The Company reviews its inventory for obsolescence and to ensure that the cost ofinventory is not in excess of the estimated market value.  Inventory reserves or write-downs are recorded if required.

***Capital Expenditures***

Capital expenditures in 2003 were $34.9 million compared to $12.8 million in 2002.  During 2003, the Company expended $22.5million on the relocation of B&T Steel related to the purchase of land, construction of a new building, a new cut-to-lengthline and cranes.  The B&T Steel operation relocated to this facility in December 2003.

Russel Metals' normal capital expenditures are mainly related to maintenance capital, the purchase of additional processingequipment across a broad base of the operations and upgrades to its existing facilities and computer systems.

Depreciation expense was $15.3 million in 2003 and $14.0 million in 2002.  The increase in depreciation relates to thedepreciation on the assets of Acier Leroux for six months.  Depreciation expense will increase in 2004 due to higher fixedassets for the full year.

***Liquidity***

Russel Metals stresses working capital management to ensure working capital is minimized and leverage reduced over the economiccycle.  As anticipated in 2002, during 2003 the Company reduced the inventory bulge that existed at December 31, 2002. Inventory in the import/export operations was $80.0 million lower at December 2003 compared to December 2002.  Factorsincluding dumping tariffs from trade actions and high demand for product in China have resulted in lower inventory levels in theimport/export operations.  Service center inventories were higher by $57.1 million related to the Acier Leroux branchesacquired in the year.  It is anticipated that an improvement in the economy would cause the working capital employed by RusselMetals to increase to support the incremental revenues.

On July 3, 2003, the Company acquired 99.52% of the outstanding Class A shares, 97.53% of the outstanding Class B shares, 86.61%of the outstanding 8% unsecured convertible debentures and 87.2% of the outstanding 7.25% unsecured convertible debentures of AcierLeroux inc. in relation to its offers.  The Company issued 3,546,874 common shares of Russel Metals and paid cash pursuant tothe offers.  In August 2003, the Company acquired the remaining Class A and B shares and redeemed the remainingdebentures.

The total consideration for the Acier Leroux acquisition including shares issued, cash paid and debt assumed was $197.6million.  This amount includes transaction costs.  The total cash paid and debt assumed as a result of the acquisitionwas $177.6 million.  The Company used bank borrowings under its credit facility to finance the cash portion.  At December31, 2003, the Company had reduced its bank indebtedness, net of cash, to $59.1 million.  The Company had a net cash position,cash less bank indebtedness, of $3.9 million at December 31, 2002.  The bank indebtedness, net of cash, is lower thaninitially projected due to significant reductions in inventory levels at the import/export operations and reduced inventory levelsin the Acier Leroux operations.

During 2003, cash generated from operating activities was $41.0million and from changes in non-cash working capital was $111.3million.  For 2002, cash generated from operating activities was $55.7 million and from changes in non-cash working capitalwas $(29.1) million.

The balances disclosed in the consolidated cash flow statements are adjusted to remove the non-cash component related to foreignexchange rate changes impacting inventory, accounts receivable, accounts payable and income tax balances of the U.S.operations.  Assets purchased as part of the Acier Leroux acquisition are also shown separately based on balances at the dateof the transaction.

Reductions in inventory levels generated cash of $91.4 million in 2003.  Inventory turns for 2003 remained stable withseasonal buildup in the energy sector distribution inventories during the fourth quarter of 2003 and a significant reduction in theimport/export inventories during the last half of 2003.
| *     * | **Quarters Ended,**              |
|----------------------------------|----------------------------------|
| *Inventory Turns*                | **Dec 31,**                      | **Sep 30,** | **Jun 30,** | **Mar 31,** | Dec 31, |
| *     * | **2003**                         | **2003** | **2003** | **2003** | 2002 |
| *     * | *     * | *     * | *     * | *     * | *     * |
| Service center distribution      | **4.0**                          | **4.3** | **4.5** | **4.4** | 4.2 |
| Energy sector distribution       | **3.1**                          | **4.1** | **3.9** | **4.2** | 3.4 |
| Steel import/export              | **7.1**                          | **5.1** | **4.0** | **4.2** | 2.7 |
|                                  | *     * | *     * | *     * | *     * | *     * |
| Total                            | **4.1**                          | **4.3** | **4.2** | **4.3** | 3.5 |

Inventory turns are calculated using the cost of sales for the quarter annualized divided by the ending inventory position.

Service center inventory turns declined slightly due to the inventory levels at the Acier Leroux operations.  The AcierLeroux operations historically had inventory turns closer to the industry average. Russel Metals management is actively reducingthe inventory levels.  Russel Metals' service center inventory turns can be compared with the service center industry turnsestimated to be 3.9 for 2003 as derived from the monthly Metals Activity Report published for the United States by the MetalsService Center Institute.  It is management's goal to achieve service center inventory turns at significantly higher levelsthan the industry norm.

The other major component of working capital is accounts payable and accrued liabilities, which utilized cash of $12.7 millionfor 2003.  Accounts payable in the import/export operations decreased caused by lower inventory purchases.

During 2003, the Company utilized cash of $34.9 million on capital expenditures and $13.9 million on common and preferred sharedividends.  During 2002, the Company utilized cash of $12.8 million on capital expenditures and $8.7 million on common andpreferred share dividends.  The 2003 capital expenditure included a special project for $22.5 million.  Future years'capital expenditures are expected to return to previous levels.

For several years, the Company's cash flows were positively impacted by its ability to utilize income tax losses.  In 2003,the Company was required to make payments related to 2002 as well as instalments for 2003.  The Company made income taxpayments of $7.8 million in 2003.

***Debt and Credit Facilities***

The Company manages its cash position based on bank borrowings net of cash.  The bank credit facilities table provides thesplit between loans and cash on deposit.
| *Bank Credit Facilities*         | *     *     | *     *                          | *     * |
|----------------------------------|--------------------------------------|-----------------------------------------------------------|----------------------------------|
| *     * | Russel                               | U.S.                                                      | *     * |
| *     * | Metals                               | Subsidiary                                                | *     * |
| ***($ millions)***               | Facility                             | Facility                                                  | Total                            |
| Bank loans                       | $      79.0 | $          - | $     79.0   |
| On deposit                       | 5.9                                  | 14.0                                                      | 19.9                             |
| Net borrowings (cash)            | 73.1                                 | (14.0)                                                    | 59.1                             |
| Letters of credit                | 25.7                                 | 12.1                                                      | 37.8                             |
| *     * | $      98.8 | $     (1.9)                           | $    96.9         |
| Facility availability            | $    253.8            | $    45.2                                  | $  299.0                    |

The Company has two long-term debt instruments outstanding.  The $30 million 8% Subordinated Debentures mature in2006.  The 10% Senior Notes mature in 2009.  The balance outstanding on the Senior Notes at December 31, 2003 was US$115.6 million, unchanged from December 31, 2002.  The Canadian dollar equivalent of the Senior Notes fluctuates with theexchange rate.  At December 31, 2003, the long-term debt balance was $179.4 million.  See subsequent events forinformation on debt restructuring.

Russel Metals has a bank credit facility with a syndicate of Canadian and U.S. banks.  The $253.8 million credit facilityexpires on June 19, 2005.  The Company may extend this facility with the consent of the banks.   Russel Metals isentitled to borrow under this facility, on a revolving basis, up to an amount equal to the sum of specified percentages of eligibleaccounts receivable and inventories, to a maximum of $253.8 million.  At December 31, 2003, Russel Metals was entitled toborrow $253.8 million, including letters of credit under this facility.  At December 31, 2003, Russel Metals had $79.0 millionof borrowings and had $25.7 million in letters of credit under this facility.  At December 31, 2002, Russel Metals hadborrowings of $5.8 million and $8.0 million in letters of credit under this facility.

In addition, certain U.S. subsidiaries of Russel Metals have their own one-year bank credit facility.  The maximumborrowing under this facility is US $35.0 million.  At December 31, 2003, these subsidiaries had no borrowings and letters ofcredit of US $9.4 million.  At December 31, 2002, these subsidiaries had borrowings of US $11.8 million and letters of creditof US $5.6 million.

Subsequent to the year-end, the Company issued approximately $51.8 million of common equity and US$175 million 6.375% SeniorNotes due in 2014.  The net proceeds will be used to purchase or redeem all of the US$115.6 million 10% Senior Notes, the $30million 8% debentures, and the Company's outstanding preferred shares of $30 million.  The remaining proceeds will be used topay down the bank facility and pay fees associated with the refinancing.  As a result of the debt redemptions the Company hasno principal payments until 2014 and has reduced annual interest and eliminated preferred share dividend payments by $6.7 millionto approximately $18 million annually based on December 31, 2003 borrowing levels.

The metals distribution business experiences significant swings in cash flow to fund working capital.  Russel Metals hasone of the most working capital intensive balance sheets in the industry.  Total inventory and accounts receivable represent70% of the total assets employed by the Company.  The existing bank credit facilities are used to fund the growth in workingcapital caused by demand or steel price increases which require higher inventory and accounts receivable levels to support thehigher activity levels.  Based on the Company's recent experience, a $100 million increase in revenues would requireapproximately $30 million of net working capital to support the higher activity levels.  When the demand weakens, or the priceof steel declines, cash is generated from the reduction of inventory and lower accounts receivable levels.  This cash is usedto reduce the borrowings under the bank credit facilities.

The other major funding requirement of the Company is the purchase of fixed assets, which is projected to be between $15 millionand $20 million, annually.

Cash generated from operating activities before working capital changes has averaged $45.0 million over the last threeyears.  The cash generated from operating activities combined with the available bank facilities of $202.1 million at December31, 2003 is projected to be sufficient to fund interest obligations and fixed asset purchases with the balance available to fundworking capital expansion.  These available funds provide the Company with the ability to fund the working capital necessaryto support up to a $500 million increase in revenues, which management feels is sufficient for any foreseeable pick-up in theeconomy.

The Company has made several acquisitions over the last three years and believes it can continue to grow by acquisition. Russel Metals believes it has the ability to fund these acquisitions through the utilization of the existing bank facilities andthe issuance of new equity, if required.  Due to the high level and quality of accounts receivable and inventory the Companycould also select to finance working capital growth and acquisitions through an asset-backed facility.

GRAPHS OMITTED

***Contractual Obligations***

As at December 31, 2003, the Company was contractually obligated to payments under its long-term agreements and operating leaseobligations that come due during the following periods.  Subsequent to year end, the long-term debt was refinanced with thematurity being 2014.
| *     * | Long-Term Debt                                                               | Interest                   | Lease                           | *     * |
|----------------------------------|------------------------------------------------------------------------------|----------------------------|---------------------------------|----------------------------------|
| ***(in thousands of dollars)***  | Maturities                                                                   | Obligations                | Obligations                     | Total                            |
| 2004                             | $              - | $    17,340 | $     8,862 | $ 26,202                         |
| 2005                             | -                                                                            | 17,340                     | 8,054                           | 25,394                           |
| 2006                             | 30,000                                                                       | 16,140                     | 5,991                           | 52,131                           |
| 2007                             | -                                                                            | 14,940                     | 4,347                           | 19,287                           |
| 2008                             | -                                                                            | 14,940                     | 3,425                           | 18,365                           |
| 2009 and beyond                  | 149,402                                                                      | 7,470                      | 6,705                           | 163,577                          |
| Total                            | $ 179,402                                                                    | $   88,170       | $   37,384            | $304,956                         |

***Off-Balance Sheet Arrangements***

The Company does not have any material off-balance sheet arrangements other than the letters of credit referred to in the bankcredit facilities table.

***Dividends and Share Capital***

The ability to pay dividends on common shares is impacted by restrictions associated with the 10% Senior Notes due June2009.  Dividends on common shares and the repurchase of common and preferred shares are considered to be restricted paymentsunder the Note Indenture.  The Company increased its quarterly common share dividend twice during 2003.  In the firstquarter of 2003 the dividend was increased $0.01 to $0.07 per share and in the fourth quarter of 2003 it was again increased $0.01to $0.08 per share.  During 2003, the Company paid in aggregate common share dividends of $0.29 per share resulting in apayment of $11.6 million for the year.  At December 31, 2003, the Company had $13.2 million available for restricted paymentssuch as the common share dividend.

The ability to make restricted payments is adjusted quarterly by 50% of the quarterly net income or loss.  Net income isadjusted for certain exclusions that include: extraordinary items, gains or losses on asset dispositions and unrealized foreignexchange gains and losses.  In addition to adjustments due to net income, the ability to make restricted payments is enhancedby the proceeds on the issuance of share capital.

As at February 4, 2004, the Company had 43,023,342 common shares and 1,200,000 class II preferred shares outstanding.  Seesubsequent events.

GRAPHS OMITTED

***Vision and Strategy***

The metals distribution business is a segment of a mature, cyclical industry.  The use of distributors by bothmanufacturers and end users of steel continues to grow.  This is evidenced by the growth in the percentage of total steelshipments from steel producers to distributors.  As the distribution segment's share of steel industry shipments continues togrow, steel distributors such as Russel Metals can grow their business over the course of a cycle.

Russel Metals strives to deal with the cyclical nature of the business by operating with the lowest possible net assetsthroughout the course of a cycle.  In addition, its aim is to be more profitable through the various successive peaks andtroughs as the steel cycles progress.  In order to achieve this, management emphasizes profitability rather than revenuegrowth.  This intensive asset management reduces borrowings and therefore interest expense in declining periods in theeconomic cycle and creates higher more stable returns on net assets over the course of the cycle.  Our conservative managementapproach creates relatively stronger trough earnings but could cause peak earnings to be somewhat muted.  Management stronglybelieves that it is more prudent to be profitable throughout a cycle, without the spikes in earnings caused by less emphasis onasset management, and have average earnings over the full range of the cycle in the top decile of the industry.

Growth from selective acquisitions is also a core management philosophy. The Company focuses on investment opportunities inbusinesses that have strong market niches or provide mass to existing Russel Metals operations.  On July 3, 2003, the Companysuccessfully completed the Acier Leroux acquisition.  The Company believed it required stronger market positions in Quebec,Ontario and the Maritime Provinces and believes the Acier Leroux acquisition provides this result.

In the energy and import/export segments all of the companies in the Russel Metals group have significant operations in themarket niche that they service. Consistent with our acquisition philosophy, any new acquisitions in these areas could likely beeither major stand-alone operations or complements to existing operations.

In the future, we believe that the length of the steel-based economic cycle will continue to shorten and a management structureand philosophy that allows the fastest reaction to the changes will be the most successful.  The Company will continue toinvest in business systems to enable faster reaction times to changing business conditions.  In addition, management believesthe high level of service and flexibility provided by service centers will enable this distribution channel to capture anincreasing percentage of total steel revenues to end users, allowing for increased growth within the sector.

***Outlook***

****

The Company looks forward to 2004 in a positive fashion although we are going through a difficult period with the onslaught ofsurcharges that have been added to our costs by our suppliers, ostensibly to cover their higher cost for such items as energy andmetallics.  Much of what has driven these additional costs has been the strength of the metals market in China.  Theanticipation is that once that market becomes saturated, pricing will drop to more normal levels.

With the acquisition of Acier Leroux, we have strengthened an area of the Company that has hereto not provided satisfactoryresults, and our anticipation is that there will be a general improvement in our overall results based on the Acier Lerouxacquisition.

We are seeing stronger results from our energy sector companies and we anticipate that the results for 2004 should finallyreflect the high oil and gas prices we have seen in the past two years.

The import/export sector is an area of concern due to the continuing strength in China and the weakening of the U.S. dollar,which causes materials that have normally flowed to North America to be diverted to satisfy the market in China.

We are optimistic that 2004 will be an improvement upon 2003 and that the Company is well situated to remain one of the moststable and consistently profitable financial performers in the metals distribution industry.

***Subsequent Events***

Subsequent to year-end, the Company issued 5,750,000 common shares at an issue price of $9.00 per share for net proceeds of$49.2 million.  In addition, the Company made an offer to purchase and a consent solicitation to its holders of the 10% SeniorNotes due June 1, 2009 whereby in addition to a consent fee of US $20.00 per US $1,000 Note, the Company would repurchase the bondsfor a price of US $1,052.50 per US $1,000 Note.  The Company sold on a private placement basis US $175 million of Senior Notesand is using these proceeds to repurchase or redeem its US $115.6 million 10% Senior Notes, $30 million 8% Debentures and its $30million Class II preferred shares.  Deferred financing costs of $2.6 million will be charged to income as a result of thisrefinancing.  In addition, the consent fee and redemption premium will result in a one-time charge estimated to be $10.5million.