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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|- | -----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 333-79587





CALIFORNIA STEEL INDUSTRIES,
INC.

(Exact name of registrant as specified in its charter)







|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 33-0051150                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|14000 San Bernardino Avenue Fontana, California               |  | 92335                              
|(Address of principal executive offices)                      |  | (Zip Code)                         

(909) 350-6300

(Registrants telephone number including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes     ̈  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files).     ̈  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                                              |  |                             
|-------------------------- |  | -------------------- |  | -------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer   ̈ |  | Non-accelerated filer  x                     |  | Smaller reporting company   ̈
|                           |  |                      |  | (Do not check if a smallerreporting company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.).     ̈  Yes    x   No

As of August 11, 2009, 4,000 shares of the Companys common stock, no par value, were outstanding.









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CALIFORNIA STEEL INDUSTRIES, INC.

Table of Contents



|                                                                                               |  |                                                                                       |  |     
|---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                                                                                               |  |                                                                                       |  | Page
|PART I FINANCIAL INFORMATION                                                                   |  | 1                                                                                    
|                                                                                               |  |                                                                                      
|ITEM 1.                                                                                        |  | FINANCIAL STATEMENTS                                                                  |  | 1   
|                                                                                               | 
|Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008                           |  | 1                                                                                    
|                                                                                               | 
|Statements of Operations for the three and six months ended June 30, 2009 and 2008
(unaudited) |  | 2                                                                                    
|                                                                                               | 
|Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited)           |  | 3                                                                                    
|                                                                                               | 
|Notes to Financial Statements (unaudited)                                                      |  | 4                                                                                    
|                                                                                               |  |                                                                                      
|ITEM 2.                                                                                        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 8   
|                                                                                               |  |                                                                                      
|ITEM 3.                                                                                        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 14  
|                                                                                               |  |                                                                                      
|ITEM 4.                                                                                        |  | CONTROLS AND PROCEDURES                                                               |  | 15  
|                                                                                               | 
|PART II OTHER INFORMATION                                                                      |  | 16                                                                                   
|                                                                                               |  |                                                                                      
|ITEM 6.                                                                                        |  | EXHIBITS                                                                              |  | 16  
|                                                                                               | 
|SIGNATURE                                                                                      |  | 17                                                                                   
|                                                                                               | 
|INDEX TO EXHIBITS                                                                              |  | 18                                                                                   
|                                                                                               | 
|EXHIBITS                                                                                       |  |                                                                                      



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PART I FINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

CALIFORNIA STEEL INDUSTRIES, INC.

Balance Sheets

($ in thousands except share and per share amounts)



|                                                                                                                               |  |              |         |                  |   |        
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ---------------- | - | -------
|                                                                                                                               |  | June 30,2009 |         | December 31,2008
|                                                                                                                               |  | (Unaudited)  |         |                 
|Assets                                                                                                                         |  |              |         |                  |   |        
|Current assets                                                                                                                 |  |              |         |                  |   |        
|Cash and cash equivalents                                                                                                      |  | $            | 91,819  |                  | $ | 10,880 
|Trade accounts receivable, less allowance for doubtful accounts of $1,550 at June 30, 2009 and December 31, 2008,
respectively |  |              | 36,591  |                  |   | 44,944 
|Inventories                                                                                                                    |  |              | 122,115 |                  |   | 224,146
|Prepaid income taxes                                                                                                           |  |              | 37,340  |                  |   | 75,515 
|Other receivables and prepaid expenses                                                                                         |  |              | 1,570   |                  |   | 2,894  
|                                                                                                                               |  |              |         |                  |   |        
|Total current assets                                                                                                           |  |              | 289,435 |                  |   | 358,379
|Other assets                                                                                                                   |  |              | 20,640  |                  |   | 21,423 
|Property, plant and equipment, net                                                                                             |  |              | 267,778 |                  |   | 261,027
|                                                                                                                               |  |              |         |                  |   |        
|Total assets                                                                                                                   |  | $            | 577,853 |                  | $ | 640,829
|                                                                                                                               |  |              |         |                  |   |        
|Liabilities and Stockholders Equity                                                                                           |  |              |         |                  |   |        
|Current liabilities                                                                                                            |  |              |         |                  |   |        
|Accounts payable                                                                                                               |  | $            | 22,306  |                  | $ | 66,009 
|Accrued interest expense                                                                                                       |  |              | 3,031   |                  |   | 3,074  
|Accrued utilities                                                                                                              |  |              | 2,616   |                  |   | 1,392  
|Deferred income taxes                                                                                                          |  |              | 4,815   |                  |   | 4,815  
|Other accrued expenses                                                                                                         |  |              | 8,497   |                  |   | 10,755 
|Current portion of long-term debt                                                                                              |  |              | 10,000  |                  |   | 5,000  
|                                                                                                                               |  |              |         |                  |   |        
|Total current liabilities                                                                                                      |  |              | 51,265  |                  |   | 91,045 
|                                                                                                                               |  |              |         |                  |   |        
|Other liabilities                                                                                                              |  |              | 2,459   |                  |   | 2,495  
|Long-term debt                                                                                                                 |  |              | 180,000 |                  |   | 185,000
|Deferred income taxes                                                                                                          |  |              | 48,517  |                  |   | 48,517 
|Commitments and contingencies                                                                                                  |  |              |         |                  |   |        
|Stockholders equity                                                                                                           |  |              |         |                  |   |        
|Class A preferred stock, $10,000 par value per share. Authorized 1,000 shares; none issued                                     |  |              |        |                  |   |       
|Class B preferred stock, $10,000 par value per share. Authorized 2,000 shares; none issued                                     |  |              |        |                  |   |       
|Class C preferred stock, $10,000 par value per share. Authorized 3,000 shares; none issued                                     |  |              |        |                  |   |       
|Common stock, no par value. Authorized 5,000 shares; 4,000 shares issued and outstanding                                       |  |              | 40,000  |                  |   | 40,000 
|Retained earnings                                                                                                              |  |              | 255,612 |                  |   | 273,772
|                                                                                                                               |  |              |         |                  |   |        
|Total stockholders equity                                                                                                     |  |              | 295,612 |                  |   | 313,772
|                                                                                                                               |  |              |         |                  |   |        
|Total liabilities and stockholders equity                                                                                     |  | $            | 577,853 |                  | $ | 640,829
|                                                                                                                               |  |              |         |                  |   |        

See accompanying notes to financial statements.



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CALIFORNIA STEEL INDUSTRIES, INC.

Statements of Operations

(In
thousands)



|                                                            |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                            |  | Three months endedJune 30, |         |   | Six months endedJune 30, |  
|                                                            |  | (Unaudited)                |        
|                                                            |  | 2009                       |         |   | 2008                     |   |         | 2009 |  |   | 2008    |  
|Net sales                                                   |  | $                          | 104,195 |   |                          | $ | 431,118 |      |  | $ | 251,262 |   |  | $ | 800,315 |  
|Cost of sales:                                              |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Cost of sales, excluding lower of cost or market adjustment |  |                            | 101,867 |   |                          |   | 354,606 |      |  |   | 235,187 |   |  |   | 699,676 |  
|Lower of cost or market adjustment                          |  |                            | 4,800   |   |                          |   |        |      |  |   | 39,800  |   |  |   |        |  
|                                                            |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Gross (loss) profit                                         |  |                            | (2,472  | ) |                          |   | 76,512  |      |  |   | (23,725 | ) |  |   | 100,639 |  
|Selling, general and administrative expenses                |  |                            | 4,128   |   |                          |   | 5,570   |      |  |   | 8,534   |   |  |   | 10,575  |  
|Loss on disposition of property, plant and equipment        |  |                            |        |   |                          |   | 304     |      |  |   |        |   |  |   | 2,105   |  
|                                                            |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|(Loss) income from operations                               |  |                            | (6,600  | ) |                          |   | 70,638  |      |  |   | (32,259 | ) |  |   | 87,959  |  
|Other (expense) income:                                     |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Interest expense, net                                       |  |                            | (1,920  | ) |                          |   | (2,065  | )    |  |   | (4,241  | ) |  |   | (4,518  | )
|Other income, net                                           |  |                            | 2,113   |   |                          |   | 1,536   |      |  |   | 4,985   |   |  |   | 2,711   |  
|                                                            |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|(Loss) income before income tax (benefit) expense           |  |                            | (6,407  | ) |                          |   | 70,109  |      |  |   | (31,515 | ) |  |   | 86,152  |  
|Income tax (benefit) expense                                |  |                            | (3,580  | ) |                          |   | 25,868  |      |  |   | (13,355 | ) |  |   | 32,303  |  
|                                                            |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|Net (loss) income                                           |  |                            | (2,827  | ) |                          |   | 44,241  |      |  |   | (18,160 | ) |  |   | 53,849  |  
|                                                            |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  

See accompanying notes to financial statements.



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CALIFORNIA STEEL INDUSTRIES, INC.

Statements of Cash Flows

($ in
thousands)



|                                                                                        |  |                          |         |   |      |   |         |  
|--------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                        |  | Six months endedJune 30, |        
|                                                                                        |  | 2009                     |         |   | 2008 |  
|                                                                                        |  | (Unaudited)              |        
|Cash flows from operating activities:                                                   |  |                          |         |   |      |   |         |  
|Net (loss) income                                                                       |  | $                        | (18,160 | ) |      | $ | 53,849  |  
|Adjustments to reconcile net (loss) income to net cash provided by operating activities |  |                          |         |   |      |   |         |  
|Depreciation and amortization                                                           |  |                          | 16,565  |   |      |   | 16,379  |  
|Gain on disposition of environmental credits                                            |  |                          | (438    | ) |      |   |        |  
|Loss on disposition of property, plant and equipment                                    |  |                          |        |   |      |   | 2,105   |  
|Inventory write-down                                                                    |  |                          | 39,800  |   |      |   |        |  
|Change in assets and liabilities:                                                       |  |                          |         |   |      |   |         |  
|Trade accounts receivable, net                                                          |  |                          | 8,353   |   |      |   | (45,118 | )
|Inventories                                                                             |  |                          | 62,231  |   |      |   | 67,618  |  
|Other receivables and prepaid expenses                                                  |  |                          | 1,344   |   |      |   | 2,078   |  
|Accounts payable                                                                        |  |                          | (43,703 | ) |      |   | 26,675  |  
|Prepaid income taxes                                                                    |  |                          | 38,175  |   |      |   | 21,448  |  
|Accrued interest expense                                                                |  |                          | (43     | ) |      |   | 206     |  
|Other accrued expenses and liabilities                                                  |  |                          | (1,070  | ) |      |   | 3,303   |  
|                                                                                        |  |                          |         |   |      |   |         |  
|Net cash provided by operating activities                                               |  |                          | 103,054 |   |      |   | 148,543 |  
|                                                                                        |  |                          |         |   |      |   |         |  
|Cash flows from investing activities:                                                   |  |                          |         |   |      |   |         |  
|Additions to property, plant and equipment                                              |  |                          | (23,634 | ) |      |   | (13,459 | )
|Proceeds received for the sale of environmental credits                                 |  |                          | 1,519   |   |      |   |        |  
|Removal costs paid for the sale of property, plant and equipment                        |  |                          |        |   |      |   | (2,038  | )
|                                                                                        |  |                          |         |   |      |   |         |  
|Net cash used in investing activities                                                   |  |                          | (22,115 | ) |      |   | (15,497 | )
|                                                                                        |  |                          |         |   |      |   |         |  
|Cash flows from financing activities:                                                   |  |                          |         |   |      |   |         |  
|Net repayments under line-of-credit                                                     |  |                          |        |   |      |   | (26,500 | )
|Borrowings of long-term debt                                                            |  |                          |        |   |      |   | 40,000  |  
|                                                                                        |  |                          |         |   |      |   |         |  
|Net cash provided by financing activities                                               |  |                          |        |   |      |   | 13,500  |  
|                                                                                        |  |                          |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                               |  |                          | 80,939  |   |      |   | 146,546 |  
|Cash and cash equivalents at beginning of period                                        |  |                          | 10,880  |   |      |   | 13,630  |  
|                                                                                        |  |                          |         |   |      |   |         |  
|Cash and cash equivalents at end of period                                              |  | $                        | 91,819  |   |      | $ | 160,176 |  
|                                                                                        |  |                          |         |   |      |   |         |  
|Supplemental disclosures of cash flow information:                                      |  |                          |         |   |      |   |         |  
|Cash paid (received) during the period for:                                             |  |                          |         |   |      |   |         |  
|Interest (net of amount capitalized)                                                    |  | $                        | 4,323   |   |      | $ | 4,878   |  
|                                                                                        |  |                          |         |   |      |   |         |  
|Income taxes (net of amount refunded)                                                   |  | $                        | (51,427 | ) |      | $ | 12,498  |  
|                                                                                        |  |                          |         |   |      |   |         |  

See accompanying notes to financial statements.



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CALIFORNIA STEEL INDUSTRIES, INC.

Notes To Financial Statements

(Unaudited)

1. Basis of Presentation

Unless the context otherwise requires, the use of the terms California Steel, we, us, and our in these Notes to the Financial Statements refers to California Steel
Industries, Inc.

In the opinion of management, the accompanying financial statements contain all adjustments necessary for a fair
presentation as prescribed by accounting principles generally accepted in the United States. All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Financial Statements. Our interim results are not
necessarily indicative of results for the entire fiscal year. The interim financial statements and the related notes in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and related notes included in our
Annual Report on Form 10-K for year ended December 31, 2008. Results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of results expected for the full year ending December 31, 2009.

We have evaluated subsequent events through August 11, 2009, the date the financial statements were issued.

Reclassifications

To maintain consistency and
comparability, certain prior-year amounts were reclassified to conform to the current-year presentation. We reclassified:



| |  |  | to cost of sales, excluding lower of cost or market adjustment, $2.5 million and $4.3 million in shipping expenses for the three months ended June 30, 2008,
respectively, which were previously reported in selling, general and administrative expenses on our statements of operations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to additions to property, plant and equipment, $993,000 for the six months ended June 30, 2008 for additions of spare parts, which was previously reported in
inventories within cash provided by operating activities on our statements of cash flows.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These reclassifications had no
affect on previously reported income from operations, net income or stockholders equity.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141 (revised 2007), Business Combinations (SFAS 141R) and SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS
160). These standards establish principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. We adopted SFAS 141R and SFAS 160 concurrently on January 1, 2009. There was no
impact upon adoption of these standards to our financial statements.

In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 establishes disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. We adopted SFAS 161 on January 1, 2009. There was no impact upon adoption of SFAS 161 to our financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS 162 will become effective 60 days
following the SECs approval of the Public



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Company Accounting Oversight Board amendments to AU 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. We do not expect the adoption of SFAS 162 to have a material effect on our results of operations and financial condition.

In April 2009, the FASB issued FASB Staff Position (FSP) SFAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly (FSP SFAS 157-4). FSP SFAS 157-4 provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on
identifying circumstances that indicate a transaction is not orderly. FSP SFAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009 on a prospective basis. There was no impact upon adoption of FSP SFAS 157-4 to
our financial statements.

In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (FSP SFAS 115-2 and SFAS 124-2). FSP SFAS 115-2 and FSP SFAS 124-2 amends the other-than-temporary impairment guidance in U.S. generally accepted accounting principles (GAAP) for
debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP SFAS 115-2 and SFAS 124-2 is effective for
interim and annual reporting periods ending after June 15, 2009. There was no impact upon adoption of FSP SFAS 115-2 and FSP SFAS 124-2 to our financial statements.

In April 2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP SFAS 107-1 and APB
28-1). This FSP amends FASB Statement No. 107, Disclosure about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require disclosures in summarized financial information at interim reporting periods. FSP SFAS
107-1 and APB 28-1 is effective for interim reporting periods ending after June 15, 2009. There was no impact upon adoption of FSP SFAS 107-1 and APB 28-1 to our financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 is intended to establish general
standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim or annual financial periods ending after
June 15, 2009. There was no impact upon adoption of SFAS 165 to our financial statements.

In June 2009, FASB issued SFAS
No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162 (SFAS 168). SFAS 168 establishes the source of
authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. Under SFAS 168, the FASB Accounting Standards Codification (Codification) will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting
literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for financial statements issued for fiscal years and interim periods beginning after September 15, 2009. We are currently evaluating the effect that
the adoption of SFAS 168 will have on our results of operation, financial position, and cash flows, but does not expect the adoption will have a material impact.



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2. Inventories

Inventories are stated at the lower of cost (determined under the first-in, first-out method of accounting) or market value and consist of the following ($ in thousands):



|                |  |              |         |                  |   |        
|--------------- |  | ------------ | ------- | ---------------- | - | -------
|                |  | June 30,2009 |         | December 31,2008
|                |  | (Unaudited)  |         |                 
|Finished goods  |  | $            | 14,278  |                  | $ | 16,160 
|Work in process |  |              | 20,774  |                  |   | 34,168 
|Raw materials   |  |              | 69,623  |                  |   | 160,096
|Supplies        |  |              | 17,440  |                  |   | 13,722 
|                |  |              |         |                  |   |        
|                |  | $            | 122,115 |                  | $ | 224,146
|                |  |              |         |                  |   |        

3. Credit Facility

In September 2005, we entered into a five year $110.0 million credit facility with a bank group led by Mizuho Corporate Bank, as administrative agent and a lender, The Bank of Tokyo-Mitsubishi, Ltd., Citibank (West),
FSB and Wells Fargo Bank. Subject to the satisfaction of customary conditions and a borrowing base, advances under this facility may be made at any time prior to the credit facility termination date. There were no outstanding borrowings under the
credit facility as of June 30, 2009. The credit facility is collateralized by accounts receivable and inventory. Advances under this facility may be used for letters of credit, working capital, capital expenditures, payment of dividends and
other lawful corporate purposes, including the refinancing of existing debt. The facility requires us to maintain certain financial ratios and other financial covenants. We were in compliance with all the covenants at June 30, 2009.

4. Commitments and Contingencies

At
June 30, 2009, we are committed in the form of open purchase orders, to purchase approximately $158.7 million in steel slabs, of which $55.7 million are from a related party, material commitments for capital expenditures of $18.3 million and
other assorted contractual commitments of $5.4 million.

When market conditions warrant, we enter into contracts to purchase certain
commodities used in the manufacturing of our products, such as electricity and natural gas. Some of these forward contracts do not require derivative accounting as we take possession of the commodities in the normal course of business whereas other
forward contracts are accounted for as derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, by us. None of our current contracts are designated as hedges. As of
June 30, 2009, the fair value of these contracts was a liability of approximately $2.3 million, which represents an increase in the liability by approximately $68,000 from December 31, 2008, and a decrease of approximately $1.3 million
from March 31, 2009. The changes in the fair value of these contracts are recorded in other income, net on the statement of operations.

We have been contacted by various governmental agencies regarding specified environmental matters at our operating facility in Fontana, California. During September 1990, we reached preliminary agreement with the California Regional
Department of Health Services, which allows us to draft our own remediation agreement and move forward with our own plan of action at our operating facility. In November 1992, we entered into a Voluntary and Enforceable Agreement (the
Agreement) with the California Department of Toxic Substances Control (DTSC) which sets forth certain terms and conditions related to the remediation of hazardous substances at our operating facility. The Agreement also
preserves our right as to future assignment and apportionment of costs to other parties.

We are addressing environmental concerns caused
by the former occupant at our Fontana site. We have engaged an environmental consultant to conduct a remedial investigation and develop a remediation plan and remediation cost projections based upon the plan. Utilizing the remediation plan developed
by the environmental consultant, we developed an estimate of future costs of the remediation plan. The total aggregate cost of remediation is estimated to be approximately $1.8 million, which is included in other liabilities at June 30, 2009
and December 31, 2008. The DTSC has not yet completed its review and approval of our remediation plan; however, preliminary discussions between the DTSC and us have not indicated the need for any significant changes to the remediation plan or
our estimate of related costs. The estimate of costs could change as a result of changes to the remediation plan required by the DTSC or unforeseen circumstances, including without limitations, unknown site conditions, changes to applicable
regulations or increased enforcement requirements by the regulators existing at the site.



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We are involved in legal actions and claims arising in the ordinary course of business. It is in our
opinion, based on advice of legal counsel, that this litigation will be resolved without material effect on our financial position, results of operations, or liquidity.

We are self-insured for workers compensation. The accrued liability associated with these programs is based on our estimate of the ultimate costs to settle known claims as well as claims incurred but not yet
reported (IBNR claims) as of the balance sheet date. The estimated liability is not discounted and is based on information provided by our insurance brokers and insurers, combined with our judgments regarding a number of assumptions and factors,
including the frequency and severity of claims, the our claims development history, case jurisdiction, related legislation, and our claim settlement practice. Significant judgment is required to estimate IBNR claims as parties have yet to assert
such claims. If actual trends, including the severity or frequency of claims, differ from our estimates, our financial results could be impacted.

5.
Fair Value Measurements

We adopted SFAS No. 157, Fair Value Measurements, subject to the deferral
provisions of FSP FAS 157-2, on January 1, 2008. This standard defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. SFAS No. 157 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The
fair value hierarchy prescribed by SFAS No. 157 contains three levels as follows:



| |  |  | Level 1  Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the
measurement date.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs
other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Inputs to the valuation that are unobservable inputs for the asset or liability.
| | - |  | ------------------------------------------------------------------------------------------

Our financial assets and liabilities measured at fair value on a recurring basis subject to the disclosure requirements of SFAS No. 157 at
June 30, 2009, were as follows (dollars in thousands):



|                          |  |                                                            |        |                                           |   |        |                                        |  |       |   |  |   |        |  
|------------------------- |  | ---------------------------------------------------------- | ------ | ----------------------------------------- | - | ------ | -------------------------------------- |  | ----- | - |  | - | ------ | -
|                          |  | Fair Value Measurement Using                               |       
|Description               |  | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |        | SignificantOtherObservableInputs(Level 2) |   |        | SignificantUnobservableInputs(Level 3) |  | Total |  
|Cash and cash equivalents |  | $                                                          | 91,819 |                                           | $ |       |                                        |  | $     |  |  | $ | 91,819 |  
|Forward contracts         |  |                                                            |       |                                           |   | (2,315 | )                                      |  |       |  |  |   | (2,315 | )
|                          |  |                                                            |        |                                           |   |        |                                        |  |       |   |  |   |        |  
|Total                     |  | $                                                          | 91,819 |                                           | $ | (2,315 | )                                      |  | $     |  |  | $ | 89,504 |  
|                          |  |                                                            |        |                                           |   |        |                                        |  |       |   |  |   |        |  

We have determined that our forward contracts are Level 2 in the fair value hierarchy. At
June 30, 2009, the fair value of our forward contracts were $2.3 million and are included in other accrued expenses on our balance sheets.

Our senior notes are reported at carrying value. The carrying value and fair value of our senior notes are $150.0 million and $129.0 million at June 30, 2009 and $150.0 million and $105.0 million at December 31, 2008,
respectively. The carrying value and fair value of our term loan is $40.0 million at June 30, 2009 and December 31, 2008, respectively.

6.
Fair Value of Financial Instruments

Our financial instruments are primarily comprised of cash and cash equivalents, receivables,
accounts payable, accrued liabilities and long-term debt. For cash and cash equivalents, receivables, accounts payable and accrued liabilities, the carrying amount approximates fair value because of the short maturity of these instruments. Forward
contracts are carried at fair value and are disclosed in Note 5 above. The estimated fair value of the senior notes due 2014 at June 30, 2009, based on quoted market prices, was $105.0 million. Management estimates that the carrying values of
our other financial instruments approximate their value since their realization or satisfaction is expected to occur in the short term or have been renegotiated at a date close to year end.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

Managements Discussion and Analysis of Financial Conditions and Results of Operations (MD&A) is intended to provide a reader of our
financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in six sections:



| |  |  | Overview
| | - |  | --------



| |  |  | Results of Operations
| | - |  | ---------------------



| |  |  | Liquidity and Capital Resources
| | - |  | -------------------------------



| |  |  | Contractual Obligations and Commitments
| | - |  | ---------------------------------------



| |  |  | Significant Accounting Policies and Estimates
| | - |  | ---------------------------------------------



| |  |  | Recent Accounting Pronouncements
| | - |  | --------------------------------

Overview

California Steel is the leading producer of flat rolled steel in the western United States based on tonnage billed. We produce the
widest range of flat rolled steel products in the region, including hot rolled, cold rolled and galvanized coil and sheet. We also produce electric resistance welded (referred to herein as ERW) pipe. Unlike integrated steel mills and mini-mills, we
do not manufacture steel. Rather, we process steel slab manufactured by third parties. Our principal market consists of the 11 states located west of the Rocky Mountains. We have two main competitors located in the western United States. Steel
products are also supplied to the western United States via imports from foreign companies and from domestic suppliers located outside the western United States. We believe our slab-based business model, breadth of products, non-union work
environment, southern California location and long-standing customer relationships provide us with significant advantages over our competition.

Financial Reporting Changes

To maintain consistency and comparability, certain prior-year amounts were
reclassified to conform to the current-year presentation as described in Note 1, Basis of Presentation, of the Notes to Financial Statements in this Quarterly Report on Form 10-Q.

Results of Operations

Financial Results

The following table represents unaudited selected financial data (amounts in thousands, excepted for billed tons):



|                                          |  |                            |         |   |                          |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------- |  | -------------------------- | ------- | - | ------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                          |  | Three months endedJune 30, |         |   | Six months endedJune 30, |  
|                                          |  | 2009                       |         |   | 2008                     |   |         | 2009 |  |   | 2008    |  
|Billed tons                               |  |                            | 176,832 |   |                          |   | 432,771 |      |  |   | 333,717 |   |  |   | 897,733 |  
|Net sales                                 |  | $                          | 104,195 |   |                          | $ | 431,118 |      |  | $ | 251,262 |   |  | $ | 800,315 |  
|Net sales (loss) gain %                   |  |                            | -76     | % |                          |   | 28      | %    |  |   | -69     | % |  |   | 23      | %
|Gross (loss) profit as % of net sales     |  |                            | -2.4    | % |                          |   | 17.7    | %    |  |   | -9.4    | % |  |   | 12.6    | %
|SG&A as % of net sales                    |  |                            | 4.0     | % |                          |   | 1.3     | %    |  |   | 3.4     | % |  |   | 1.3     | %
|Operating (loss) income                   |  | $                          | (6,600  | ) |                          | $ | 70,638  |      |  | $ | (32,259 | ) |  | $ | 87,959  |  
|Operating (loss) income as % of net sales |  |                            | -6.3    | % |                          |   | 16.4    | %    |  |   | -12.8   | % |  |   | 11.0    | %
|Net (loss) income                         |  | $                          | (2,827  | ) |                          | $ | 44,241  |      |  | $ | (18,160 | ) |  | $ | 53,849  |  

Net sales. Net sales in the second quarter of fiscal 2009 decreased 76% to
$104.2 million, compared with $431.1 million in the same period one year ago. The decrease resulted primarily from a decrease in sales volume and a lower average selling price. Sales volume decreased 59% and the average selling price decreased 40%
compared to the same period one year ago. The lower sales volume decreased net sales approximately $249.1 million and the lower average selling price decreased net sales approximately $67.9 million. The remaining decrease in net sales was primarily
from lower freight revenue in second quarter of fiscal 2009 compared to the same period one year ago.

Net sales for the first six months
of fiscal 2009 decreased 69% to $251.3 million, compared with $800.3 million in the same period one year ago. The decrease resulted primarily from a decrease in sales volume and a lower average selling price. Sales volume decreased 63% and the
average selling price decreased 14% compared to the same period one year ago. The lower sales volume decreased net sales approximately $487.5 million and the lower average selling price decreased net sales



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approximately $41.4 million. The remaining decrease in net sales was primarily from lower freight revenue during the first six months of fiscal 2009 compared
to the same period one year ago.

Gross (loss) profit. Our gross profit rate in the second quarter of fiscal 2009
decreased by 20.1% to a negative 2.4% of net sales, compared with a gross profit of 17.7% of net sales in the same period one year ago. Our gross profit rate for the first six months of fiscal 2009 decreased by 22.0% to a negative 9.4% of net sales,
compared with a gross profit of 12.6% of net sales in the same period one year ago. The decrease was due to lower sales volume, lower average selling price and a write-down of inventory to the lower of cost or market of $4.8 million and $39.8
million for the three and six months ended June 30, 2009, respectively. The write-down of inventory to the lower of cost or market represents 4.6% and 15.8% of net sales for the three and six months ended June 30, 2009, respectively.

Selling, general and administrative (SG&A) expenses. Our SG&A expense rate in the second quarter of fiscal
2009 increased by 2.7% to 4.0% of net sales, compared with 1.3% of net sales in the same period one year ago. Our SG&A expense rate for the first six months of fiscal 2009 increased by 2.1% to 3.4% of net sales, compared with 1.3% of net sales
in the same period one year ago. The increase in our SG&A expense rate is largely attributable to a decrease of our net sales since the majority of our SG&A expenses are fixed costs. The decrease in our SG&A expense for the second
quarter and the first six months of 2009 is due to less salaries and benefit costs compared to the same period one year ago. This is attributable to fewer employees and less profit sharing in 2009 compared to 2008. Our SG&A expenses consist
primarily of sales and labor, and various administrative expenses. Labor costs comprised of approximately 60% and 61% of our SG&A expenses for the second quarter of fiscal 2009 and 2008, respectively, and approximately 59% and 57% of our
SG&A expenses for the first six months of fiscal 2009 and 2008, respectively.

Net interest expense. Net interest
expense in the second quarter of fiscal 2009 decreased $145,000, or 7.0%, to $1.9 million compared with $2.1 million in the same period one year ago. Net interest expense for the first six months of fiscal 2009 decreased $277,000, or 6.1%, to $4.2
million compared with $4.5 million in the same period one year ago. The decrease in net interest expense was attributable to a decrease in the average interest rate on our outstanding debt and an increase in capitalized interest of $555,000 and
$919,000 when compared to the three and six months ended June 30, 2008. The increased in capitalized interest is largely attributable to the construction of our second reheat furnace. The decrease in interest expense was partially offset by a
decrease in interest income of $463,000 and $527,000 when compared to the interest income for the three and six months ended June 30, 2008.

Other income, net. Other income, net was $2.1 million for the second quarter of fiscal 2009, compared with $1.5 million in the same period one year ago. Other income, net for the first six months of fiscal 2009 was $5.0
million compared to $2.7 million in the same period one year ago. Other income is comprised of miscellaneous income items such as rental income, proceeds from legal settlements, gain on sale of environmental credits, refund from anti dumping
subsidy, refund of property taxes, etc. As many of these items occur infrequently or result in a one-time recognition of income, this category is subject to significant fluctuation from period to period.

Income tax (benefit) expense. Our income tax benefit was $3.6 million for the second quarter of fiscal 2009 compared with an income
tax expense of $25.9 million in the same period one year ago. Income tax benefit was $13.4 million for the first six months of fiscal 2009 compared with an income tax expense of $32.3 million in the same period one year ago. Our effective income tax
rate benefit was 55.9% and 42.4% for the three and six months ended June 30, 2009 compared to 36.9% and 37.5% in the same period one year ago. The increase in our effective tax rate benefit for the three and six months ended June 30, 2009
is attributable to carrying back of a foreign tax credit and a hiring credit.

Net (loss) income. Our net loss for the
three and six months ended June 30, 2009 was $2.8 million and $18.2 million, respectively, compared to net income of $44.2 million and $53.8 million in the same period one year ago.

Liquidity and Capital Resources

We ended the second quarter of fiscal year 2009 with $91.8
million of cash and cash equivalents compared with $10.9 million at the end of fiscal 2008. Working capital, the excess of current assets over current liabilities, was $238.4 million at the end of the second quarter of fiscal 2009, down from $267.3
million at the end of fiscal 2008. We ended the second quarter of fiscal 2009 with over $88.6 million in financing available under our revolving credit facility.



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Cash Flows

The following table summarizes our cash flows in the first six months of the current and prior fiscal years ($ in thousands):



|                                      |  |                          |         |   |      |   |         |  
|------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                      |  | Six months endedJune 30, |        
|                                      |  | 2009                     |         |   | 2008 |  
|Total cash provided by (used in):     |  |                          |         |   |      |   |         |  
|Operating activities                  |  | $                        | 103,054 |   |      | $ | 148,543 |  
|Investing activities                  |  |                          | (22,115 | ) |      |   | (15,497 | )
|Financing activities                  |  |                          |        |   |      |   | 13,500  |  
|                                      |  |                          |         |   |      |   |         |  
|Increase in cash and cash equivalents |  | $                        | 80,939  |   |      | $ | 146,546 |  
|                                      |  |                          |         |   |      |   |         |  

Operating Activities

Cash provided by operating activities was $103.1 million for the first six months of fiscal 2009 compared with $148.5 million in first six months of fiscal 2008. The changes were due primarily to a decrease in cash
provided by net income and the change in operating assets and liabilities. The changes in operating assets and liabilities were due primarily to changes in trade accounts receivable, inventories, accounts payable and prepaid income taxes. The
increase in cash provided for prepaid income taxes resulted mainly from an income tax refund and lower estimated taxable income. The increase in cash provided for trade accounts receivable was primarily due to decreased sales volume and lower
average selling price. The increase in cash used for accounts payable was due primarily to a decrease in the average slab price, monitoring our expenses and timing of vendor payments. The increase in cash provided for inventories was due to lower
inventory levels, decrease in the average cost and the write-down of inventory to the lower or cost or market.

Investing Activities

Cash used in investing activities was $22.1 million for the first six months of fiscal 2009 compared with $15.5 million in the
first six months of fiscal 2008. The increase in cash used by investing activities was primarily due to the construction of the second reheat furnace. The primary purposes of our capital expenditures were to support our expansion plans and improve
our operational efficiency.

Financing Activities

We had no financing activities for the first six of fiscal 2009 compared with cash provided of $13.5 million in the first six months of fiscal 2008. The changes in financing activities were due to net repayments on
our line-of-credit and additional borrowings of long-term debt.

Sources of Liquidity

Our most significant sources of liquidity continue to be funds generated by operating activities and cash and cash equivalents. We believe funds generated
from the expected results of operations and available cash and cash equivalents will be sufficient to finance anticipated expansion plans for the next fiscal year. In addition, our revolving credit facility is available for additional working
capital needs. There can be no assurance, however, that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our revolving credit facility.

On March 28, 2008, we entered into a Term Loan Agreement with The Bank of Tokyo-Mitsubishi, Ltd. for a $40.0 million unsecured five-year term loan
maturing April 2013 to finance construction of our second reheat furnace and other working capital needs. The Term Loan Agreement provided for a single loan disbursement of the entire principal amount on April 1, 2008. Interest on the principal
balance of the loan shall accrue at a rate of 3.38% for the first two years of the loan and a rate of 3.58% for the remaining three years of the loan and is payable quarterly commencing July 2008. Quarterly principal payments commence in July 2009.

In September 2005, we entered into a five year $110.0 million credit facility with a bank group led by Mizuho Corporate Bank, as
administrative agent and a lender, The Bank of Tokyo-Mitsubishi, Ltd., Citibank (West), FSB and Wells Fargo Bank. Subject to the satisfaction of customary conditions and a borrowing base, advances under this credit facility may be made at any time
prior to the credit facility termination date. As of June 30, 2009, there were no outstanding borrowings under this facility. The credit facility is collateralized by accounts receivable and inventory. Advances under this facility may be used
for letters of credit, working capital, capital expenditures, payment of dividends and other lawful corporate purposes, including the refinancing of existing debt.

On March 22, 2004, we issued an aggregate of $150.0 million of ten-year, 6.125% senior unsecured notes due in March



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2014. With the proceeds of this issuance and cash on hand, we retired our 8.50% senior notes due in 2009. Interest on our 6.125% senior notes is payable on
March 15 and September 15 of each year. The notes are senior in right of payment to all of our subordinated indebtedness and equal in right of payment to all of our existing and future indebtedness that is not by its terms subordinated to
the notes. We may redeem the notes in whole or in part at any time after March 15, 2009. The redemption price is based on a percentage premium in excess of the face value of the notes which decreases over time. We periodically evaluate the cost
of alternative forms of financing in the market versus the cost of redeeming and retiring the notes. Depending on the current market value of the notes, we further periodically evaluate whether to acquire notes in the market as a means to lower our
financing costs. The indenture governing the notes contains covenants that limit our ability to incur additional indebtedness, pay dividends, redeem or repurchase capital stock and make investments, create liens, sell assets, sell capital stock of
certain subsidiaries, engage in transactions with affiliates and consolidate, merge or transfer all or substantially all of our assets and the assets of certain subsidiaries on a consolidated basis. We were in compliance with all covenants and
restrictions at June 30, 2009.

We currently have $18.3 million in material commitments for capital expenditures expected to be
completed during fiscal 2009. These represent signed purchase orders for various production facility upgrades including the construction of our second reheat furnace. Our total revised budget for capital improvements in 2009 is $53.8 million of
which $42.3 million relates to the second reheat furnace project. We are committed, in the form of open purchase orders, to purchase $158.7 million in steel slabs, of which $55.7 million is from a related party.

We anticipate that our primary liquidity requirements will be for working capital, capital expenditures, debt service and the payment of dividends. We
believe that cash generated from operations and available borrowings under our bank facility will be sufficient to meet our liquidity requirements for fiscal 2009.

Contractual Obligations and Commitments

The following table represents a comprehensive list of our contractual
obligations and commitments as of June 30, 2009 ($ in thousands):



|                                                                                   |  |       |         |                |   |          |  |          |        |                 |   |         |  |   |    
|---------------------------------------------------------------------------------- |  | ----- | ------- | -------------- | - | -------- |  | -------- | ------ | --------------- | - | ------- |  | - | ---
|                                                                                   |  | Total |         | LessThan 1Year |   | 1-3Years |  | 3-5Years |        | MoreThan 5Years
|Long Term Debt                                                                     |  | $     | 190,000 |                | $ | 10,000   |  | $        | 20,000 |                 | $ | 160,000 |  | $ |   
|Capital Lease Obligations                                                          |  |       |        |                |   |         |  |          |       |                 |   |        |  |   |   
|Operating Leases                                                                   |  |       | 931     |                |   | 566      |  |          | 271    |                 |   | 94      |  |   |   
|Purchase Obligations (1)                                                           |  |       | 182,406 |                |   | 182,406  |  |          |       |                 |   |        |  |   |   
|Estimated Interest Payments on Debt (2)                                            |  |       | 45,934  |                |   | 10,360   |  |          | 19,742 |                 |   | 15,832  |  |   |   
|Planned Expenditures on Environmental Matters (3)                                  |  |       | 3,067   |                |   | 1,267    |  |          | 1,000  |                 |   | 800     |  |   |   
|Other Long Term Liabilities Reflected on the Registrants Balance Sheet under GAAP |  |       | 731     |                |   | 72       |  |          | 145    |                 |   | 145     |  |   | 369
|                                                                                   |  |       |         |                |   |          |  |          |        |                 |   |         |  |   |    
|Total                                                                              |  | $     | 423,069 |                | $ | 204,671  |  | $        | 41,158 |                 | $ | 176,871 |  | $ | 369
|                                                                                   |  |       |         |                |   |          |  |          |        |                 |   |         |  |   |    



|(1) | Amounts relate to contractual commitments to purchase $158.7 million of steel slabs, of which $55.7 million is from a related party, material commitments for capital expenditures of
$18.3 million, and the remaining $5.4 million in assorted other contractual commitments.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Amounts represent the annual accrued interest on our $150.0 million ten-year, 6.125% senior unsecured notes, which are due and payable in March 2014 and the interest on our $40.0
million five-year unsecured term loan maturing in April 2013.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Amounts reflect $1.3 million of self assessed environmental clean-up of our facility and $1.8 million of anticipated expenditures on environmental matters pursuant to a proposed
remediation plan submitted to the California Department of Toxic Substances Control. See discussion in Note 4 to the Financial Statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

We describe our significant accounting policies in Item 7, Managements
Discussion and Analysis of Financial Condition and Results ofOperations, in our Annual Report on Form 10-K for the year ended December 31, 2008. There has been no change in our significant accounting policies since the end of 2008.



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Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141 (revised 2007), Business Combinations (SFAS 141R) and SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS
160). These standards establish principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. We adopted SFAS 141R and SFAS 160 concurrently on January 1, 2009. There was no
impact upon adoption of these standards to our financial statements.

In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 establishes disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. We adopted SFAS 161 on January 1, 2009. There was no impact upon adoption of SFAS 161 to our financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS 162 will become effective 60 days
following the SECs approval of the Public Company Accounting Oversight Board amendments to AU 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We do not expect the adoption of
SFAS 162 to have a material effect on our results of operations and financial condition.

In April 2009, the FASB issued FASB Staff
Position (FSP) SFAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP SFAS
157-4). FSP SFAS 157-4 provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a
transaction is not orderly. FSP SFAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009 on a prospective basis. There was no impact upon adoption of FSP SFAS 157-4 to our financial statements.

In April 2009, the FASB issued FSP SFAS 115-2 and SFAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments
(FSP SFAS 115-2 and SFAS 124-2). FSP SFAS 115-2 and FSP SFAS 124-2 amends the other-than-temporary impairment guidance in U.S. generally accepted accounting principles (GAAP) for debt securities to make the guidance more
operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP SFAS 115-2 and SFAS 124-2 is effective for interim and annual reporting periods ending
after June 15, 2009. There was no impact upon adoption of FSP SFAS 115-2 and FSP SFAS 124-2 to our financial statements.

In April
2009, the FASB issued FSP SFAS 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP SFAS 107-1 and APB 28-1). This FSP amends FASB Statement
No. 107, Disclosure about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial
statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require disclosures in summarized financial information at interim reporting periods. FSP SFAS 107-1 and APB 28-1 is effective for interim
reporting periods ending after June 15, 2009. There was no impact upon adoption of FSP SFAS 107-1 and APB 28-1 to our financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date
represents the date the financial statements were issued or were available to be issued. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. There was no impact upon adoption of SFAS 165 to our financial
statements.

In June 2009, FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162 (SFAS 168). SFAS 168



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establishes the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Under SFAS 168, the FASB
Accounting Standards Codification (Codification) will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become
nonauthoritative. SFAS 168 is effective for financial statements issued for fiscal years and interim periods beginning after September 15, 2009. We are currently evaluating the effect that the adoption of SFAS 168 will have on our results of
operation, financial position, and cash flows, but does not expect the adoption will have a material impact.

Safe Harbor Statement Under the Private
Securities Litigation Reform Act

Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the Act), provide a safe harbor for forward-looking statements to encourage companies to provide prospective information about their companies. With the exception of historical information,
the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements and may be identified by the use of words such as anticipate, estimate, expect, intend, plan,
project, and other words and terms of similar meaning. Such statements reflect our current view with respect to future events and are subject to certain risks, uncertainties and assumptions. A variety of factors could cause our future
results to differ materially from the anticipated results expressed in such forward-looking statements. Readers should review Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2008, for a
description of important factors that could cause future results to differ materially from those contemplated by the forward-looking statements made in this Quarterly Report on Form 10-Q.

The following risk factors may affect our operating results and the environment within which we conduct our business:



| |  |  | Industry-wide market factors and general economic and business conditions, including the current global economic downturn, which has significantly suppressed demand
for products which use our goods;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fluctuations in raw materials and freight prices as a result of changes in industry dynamics, increased oil prices and global steel consumption;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our substantial indebtedness, interest expense and principal repayment obligations under our credit facility, when drawn upon, and 6.125% senior notes, which could
limit its ability to use operating cash flow in our business other than for debt-servicing obligations, obtain additional financing and react to changing market and general conditions, and which increase our vulnerability to interest rate increases;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The possibility of deadlocks among our board of directors that could result in delays in making important business decisions which could result in a competitive
disadvantage due to the size of the board currently consisting of four members as elected by our two stockholders, each of whom holds 50% of our stock;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fluctuations in commodity prices for our electricity and natural gas requirements, as well as the viability of the electrical power distribution system within the
State of California;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Possible adverse effects resulting from new U.S. trade measures or increases in tariffs on imported steel slab;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Competitive factors and pricing pressures;
| | - |  | ------------------------------------------



| |  |  | The ability to control costs and maintain quality;
| | - |  | --------------------------------------------------



| |  |  | Future expenditures for capital projects;
| | - |  | -----------------------------------------



| |  |  | Fluctuations in the cost of management and hourly labor or other resources necessary to successfully operate our manufacturing plant;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to raise prices sufficiently to offset cost increases, including increased costs for minimum wages, employee benefits and insurance arrangements;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Legal claims and litigation against us;
| | - |  | ---------------------------------------



| |  |  | Changes in, or any failure to comply with, governmental regulations;
| | - |  | --------------------------------------------------------------------



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| |  |  | Changes in general economic, demographic, geopolitical or public safety conditions which affect consumer behavior and spending for the products which use our goods,
including the impact of the ongoing lack of liquidity in the financial system, making it difficult for consumers and customers to borrow, and the ongoing armed conflict in Iraq and security concerns related to the continuing response of governments
to the threat of terrorism and instability in certain regions of the world; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in accounting standards or interpretations of existing standards adopted by the Financial Accounting Standards Board, the Securities and Exchange
Commission, and the American Institute of Certified Public Accountants that could impact our reported financial results.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

In addition to the risks inherent in our operations, we are exposed to market risks, including interest rates and utility consumption rates.

Interest Rate Risk

Floating rate credit facility

At June 30, 2009, there were no borrowings on our $110.0 million floating rate credit facility. The carrying value of the floating rate credit facility approximates fair value as the interest rate is variable and
resets frequently. Changes in interest rates generally do not affect the fair value of our credit facility, but do affect earnings and cash flow. The credit facility bears interest at the Eurodollar rate or the prime rate, which was approximately
0.96% (one month rate) (including margin) and 3.25%, respectively, at June 30, 2009. We do not expect to borrow any money under the facility for the remainder of fiscal 2009, however, if we had to borrow and our estimated average amount of debt
under the facility for the remainder of fiscal 2009 was approximately $10.0 million, a one-percentage point increase in interest rates would result in an increase in interest expense of $100,000 for the year. We do not manage the interest rate risk
on our credit facility through the use of derivative instruments.

Fixed rate debt

At June 30, 2009, our short-term and long-term fixed rate debt comprised of our $150.0 million senior notes and $40.0 million term loan. Changes in
interest rates generally affect the fair value of our fixed rate debt instruments. We do not have an obligation to repay our senior notes prior to maturity and, as a result, interest rate risk and changes in fair value should not have a significant
impact on us. We believe that the interest rate on our term loan approximates the current rate available for similar types of financing and as a result the carrying amount approximates the fair value. We do not manage the interest rate risk on our
fixed rate debt through the use of derivative instruments.

We do not believe that the future market rate risk related to our floating rate
credit facility and fixed rate debt will have a material impact on our financial position, results of operations or liquidity.

Other Market Risks

Utility consumption rates

Our daily
average electrical demand is approximately 35 megawatts to operate production equipment in manufacturing our products. We are currently a full-service bundled utility customer of Southern California Edison. Due to lower projected production in 2009,
our electricity costs are expected to be lower than 2008 levels. Our electricity costs accounted for 3.7% and 2.7% of our cost of goods sold for the three and six months ended June 30, 2009 compared to 1.8% and 1.9% in the same period one year
ago.

We generally utilize a daily average of approximately 12,000 million British thermal units, or MMBTUs, of natural gas to produce
our products. To stabilize price volatility, we regularly use a risk management approach to fix the price on portions of our natural gas requirements up to two years ahead through financial and/or physical hedging arrangements. These arrangements
include fixed-price contracts for the New York Mercantile Exchange (NYMEX), and/or the Southern California border basis (basis represents the difference between the NYMEX price at Henry Hub, Louisiana and the price at the Southern California
border).

We currently have in place fixed price purchase agreements for approximately 28% of our natural gas commodity requirements for
2009, and 0% of basis. We continue to monitor the near and long term price trends of natural gas and may enter into additional purchase agreements when we deem it appropriate or when opportunities present themselves. Our natural gas costs accounted
for 2.9% and 2.2% of our cost of goods sold for the three and six months ended June 30, 2009 compared to 2.4% and 2.5% in the same period one year ago.



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|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

For the period ending
June 30, 2009 (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of our management, including the President and Chief Executive Officer and the Chief Financial Officer (the
principal finance and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the Exchange
Act). Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that, as of June 30, 2009, our disclosure controls and procedures were effective.

Additionally, the President and Chief Executive Officer and the Chief Financial Officer determined, as of June 30, 2009, that there were no changes
in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that could significantly affect our internal controls over financial reporting.



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PART II OTHER INFORMATION



|ITEM 6. | EXHIBITS
|------- | --------

The Exhibits required to be filed with
this Quarterly Report on Form 10-Q are listed in the Exhibit Index included herein immediately following the Signature Page.



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



| |  |                 |  |  |  |                                   |  |                                      
| |  | --------------- |  |  |  | --------------------------------- |  | -------------------------------------
| |  |                 |  |  |  | CALIFORNIA STEEL INDUSTRIES, INC.
| |  |                 |  | 
| |  | August 11, 2009 |  |  |  | By:                               |  | /s/ VICENTE WRIGHT                   
| |  |                 |  |  |  |                                   |  | Vicente Wright                       
| |  |                 |  |  |  |                                   |  | President and Chief Executive Officer



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INDEX OF EXHIBITS



|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|               | 
|3.1            |  | Certificate of Incorporation of the Registrant, as amended by Amendment to the Certificate of Incorporation filed June 6, 1984 with the Delaware Secretary of State, as amended by the
Certificate of Amendment to the Certificate of Incorporation filed on August 2, 1984 with the Delaware Secretary of State, as amended by the Certificate of Amendment to the Certificate of Incorporation file on January 12, 1988 with the
Delaware Secretary of State, and, as amended by the Certificate of Ownership merging CSI Tubular Products, Inc. into the Registrant filed with the Delaware Secretary of State on December 20, 1993. (1)
|               | 
|3.2            |  | Certificate of Amendment to the Certificate of Incorporation filed July 27, 1999, with the Delaware Secretary of State. (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|               | 
|3.3            |  | Certificate of Amendment to the Certificate of Incorporation filed July 24, 2006, with the Delaware Secretary of State. (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|               | 
|3.4            |  | Restated Bylaws of the Registrant dated as of April 1, 2008. (7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|               | 
|4.1            |  | Indenture, dated as of March 22, 2004, between the Registrant and U.S. Bank National Association, Trustee. (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|               | 
|4.2            |  | Specimen Series A note  6.125% Senior Notes due 2014 (included in Exhibit 4.4). (4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|               | 
|4.3            |  | Shareholders Agreement, dated April 1, 2008, by and among Rio Doce Limited, Vale (Companhia Vale do Rio Doce), JFE Steel Corporation. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|               | 
|10.1           |  | Senior Secured Revolving Credit Agreement dated as of September 29, 2005 by and among California Steel Industries, Inc., Mizuho Corporate Bank, The Bank of Tokyo-Mitsubishi, Ltd., Citibank
(West), FSB and Wells Fargo Bank. (5)                                                                                                                                                                                                                                                                                                                                                                                                         
|               | 
|10.2           |  | Term Loan Agreement dated March 28, 2008 by and among California Steel Industries, Inc., and The Bank of Tokyo-Mitsubishi, Ltd. (6)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|               | 
|31.1           |  | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|               | 
|31.2           |  | Certification of Executive Vice President, Finance and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|               | 
|32.1           |  | Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|               | 
|32.2           |  | Certification of Executive Vice President, Finance and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



|(1) | Incorporated by reference to the Registrants Registration Statement on Form S-4, File No. 333-79587, as filed with the Securities and Exchange Commission on May 28,
1999, as amended.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to the Registrants Annual Report on Form 10-K, for the year ended December 31, 2001, as filed with the Securities and Exchange Commission on
March 28, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q, for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission
on October 27, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q, for the quarter ended March 31, 2004, as filed with the Securities and Exchange Commission on
April 28, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q, for the quarter ended September 30, 2005, as filed with the Securities and Exchange Commission
on October 28, 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q, for the quarter ended March 31, 2008, as file with the Securities and Exchange Commission on
April 25, 2008.
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|(7) | Incorporated by reference to the Registrants Quarterly Report on Form 10-Q, for the quarter ended June 30, 2008, as filed with the Securities and Exchange Commission on
July 28, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference to the Registrants Annual Report on Form 10-K, for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on
March 13, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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