Inventories

The components of inventories were as follows:



	June 30, 2012			December 31, 2011
Inventories, net:
Manufacturing supplies	$	69.3		$	65.6
Raw materials	131.6			129.8
Work in process	324.1			327.4
Finished products	455.1			472.4
Subtotal	980.1			995.2
Allowance for obsolete and surplus inventory	(36.8		)	(30.8		)
Total Inventories, net	$	943.3		$	964.4

Inventories are valued at the lower of cost or market, with approximately 55% valued by the last-in, first-out (LIFO) method and the remaining 45% valued by the first-in, first-out (FIFO) method. The majority of the Company's domestic inventories are valued by the LIFO method and all of the Company's international (outside the United States) inventories are valued by the FIFO method.

An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.

The LIFO reserve at June 30, 2012 and December 31, 2011 was $296.9 million and $287.7 million, respectively. The Company recognized an increase in its LIFO reserve of $0.1 million and $9.2 million during the second quarter and first six months of 2012, respectively, compared to an increase in its LIFO reserve of $9.7 million and $15.7 million during the second quarter and first six months of 2011, respectively.

Based on current expectations of inventory levels and costs, the Company expects to recognize approximately $17.6 million in LIFO expense for the year ended December 31, 2012. The expected increase in the LIFO reserve for 2012 reflects anticipated higher costs, especially scrap steel costs, as well as higher quantities. A 1.0% increase in costs would increase the current LIFO expense estimate for 2012 by $8.7 million. A 1.0% increase in inventory quantities would have no effect on the current LIFO expense estimate for 2012.