Thomas A. Danjczek President Steel Manufacturers Association May 16, 2013 TRI – Spring Membership Meeting The Refractories Institute

Outline About the SMA Safety Set the Tone - Economy Set the Tone - Steel US Steel Imports Expanding Future US Steel Production Changes/Challenges Impacting Steel What’s Happening in Washington, DC Final Thoughts TRI – Spring Meeting

About the SMA - Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 118 Associate Member steel industry suppliers - SMA Members account for approximately 75% of U.S. domestic steel capacity - Today, roughly two-thirds of North American steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s TRI – Spring Meeting SMA Approximately 2/3 of U.S. Steel Production

TRI – Spring Meeting Safety

TRI – Spring Meeting

Safety

Set the Tone - Economy GDP forecasts are “soft” – 3% first quarter 2013 jerked around by sentiment reaction Pace of U.S. growth in 2013 near stagnation; China 7.8% now Euro Zone is at negative growth first 2 months of 2013 While U.S. unemployment rate declined, still above pre- recession levels Rising energy production and housing rebounding are bright spots (“race to gas”) Capital spending is a downside risk U.S. trade deficit is unsustainable TRI – Spring Meeting

Global Economic Outlook Global GDP Forecasts – Global growth forecast for 2014 at 4.1% – Major uncertainties worldwide – Eurozone forecast for 2014 at 1.0% Global Outlook – USA Economy is growing at a slow pace with limitations created by weak exports and cautious business spending Credit conditions are easing and demand for vehicles and houses are gaining momentum – Asia Japan’s economy continues to struggle with weak export market and declining industrial production India’s GDP continues to grow, although problems remain with inflation and weak domestic and foreign investment China’s territorial disputes with neighboring Asian countries could result in severe economic disruptions, but growth still projected at over 8% – Europe The Eurozone is in recession. France and Germany show modest growth but are slowing A Eurozone breakup no longer seems imminent but serious concerns remain about Spain and Italy IMF Data GDP Jan 23rd, FORECAST WORLD+3.9%+3.2 %+3.5 % USA+1.8%+2.3 %+2.0 % China+9.3%+7.8%+8.2% Developing Asia+8.0%+6.6 %+7.1 % Eurozone+1.4% (0.4) %(0.2) % TRI – Spring Meeting

Source: US Census Bureau Total US Trade Deficit with China (in million US$) 2012 US trade deficit with China was a record $315.1 billion, accounting for 43.3% of overall $727.9 billion US trade deficit US steel imports from China were 1,505,751 metric tons, a 33.9% increase over 2011 levels, and a 92.8% increase over 2010 levels. Million US $ TRI – Spring Meeting

US GOOds Set the Tone - Economy Annual Deficit is the most significant barrier to U.S. economic recovery UNSUSTAINABLE TRI – Spring Meeting

Set the Tone - Steel Primary metal 4% growth YTD 2012 over 2011 in US U.S. capacity utilization approx. 74.4% in 2012 Y.T.D. capacity utilization approx.76.9% (w/reduced capacity) Scrap price volatility (75% of minimill costs) TRI – Spring Meeting Year World Steel Production (million metric tonnes) US Steel Production (million metric tonnes) US Steel Imports (million metric tonnes) 20071, , , , , , Sources: census.gov, worldsteel.org

U.S. Current Operating Environment Capacity Utilization – 2013 Capacity Utilization figures reflect a change in the overall capacity due to the closure of several facilities in 2012 and new facilities coming online – Flat Roll Mills – After peaking in 2Q, production rates for 3Q and 4Q were relatively flat. 1Q looks to be flat as well. – Pipe & Tube – Imported OCTG mostly from Asia, caused NAFTA production cuts in the 2 nd half. Rig counts stable. – Long Products – Automotive continued strong performance, but nonresidential construction feel again in – Note: Tonnage down Y.T.D through April 13 was 27.3 million tons, capacity utilization 76%; 7.7% decrease for Y.T.D at 29.6 million tons, capacity at 79.7% W/E 4/13/ %74.7%74.4%75.8% TRI – Spring Meeting

Despite Recent Gains in Apparent Finished Steel Use (AFSU), NAFTA Forecast AFSU Still Below Pre-Recession Levels United States Million MT chg (%) 2014 Crude Steel Use %116.9 Finished Steel Use %102.2 Canada Million MT chg (%) 2014 Crude Steel Use %16.9 Finished Steel Use %15.2 Mexico Million MT chg (%) 2014 Crude Steel Use %25.2 Finished Steel Use %21.6 Spring 2013 Outlook* For NAFTA Region Apparent Finished Steel Use (ASU) (Million MT) f2014f Finished Steel Source: worldsteel *From 2004 to 2007 (last 4 full years before the economic crisis began), AFSU in the NAFTA region averaged 146 million MT/year. The NAFTA Steel Market (forecast at 3% growth thru 2014) has not yet matched the pre-recession levels of steel demand and will not fully recover until at least TRI – Spring Meeting

2012 Steel Shipments by Market Classification TRI – Spring Meeting

NAFTA Auto Production Source: Wards Automotive TRI – Spring Meeting

Construction Activity *Non-building structures (e.g., infrastructure) not included Source: McGraw-Hill (Dodge) TRI – Spring Meeting

Energy Production Source: Baker Hughes, U.S. Dept. of Energy TRI – Spring Meeting

Source: AISI Demand Forecast Finished Steel (mmt) ∆ YOY2013∆ YOY Industry Shipments %92.1+4% Finished Imports %22.91% Adjustments Exports %12.9+0% Apparent Steel Use (ASU)* % % Inventory Change Real Steel Use (RSU)** %99.1+4% TRI – Spring Meeting

US Imports of Total Steel Products Up 17% Source: U.S. Department of Commerce (Census Bureau) TRI – Spring Meeting US Steel Imports

Comparing 2012 to 2011 by product category: Semi-finished imports increased 14.2% to 6,772,056 metric tons; Flat product imports increased 16.4% to 9,550,032 metric tons; Pipe and tube imports increased 24.4% to 7,710,529 metric tons; Long product imports increased 14.6% to 5,191,504 metric tons; and stainless imports increased 13.5% to 1,143,515 metric tons. TRI – Spring Meeting US Steel Imports

Increase in Total Steel Imports is from Numerous Countries, Across the Globe Source: U.S. Department of Commerce (Census Bureau) +84%+24% +34% +74% +30% +27% TRI – Spring Meeting US Steel Imports

Surge in Steel Imports is Across Various Product Lines Source: U.S. Department of Commerce (Census Bureau) +49% +19% +37% +41% +25% TRI – Spring Meeting US Steel Imports

Factors in the Surge of Steel Imports Weakened global economy – Asian market downturn, large overcapacity of steel – European recession – U.S. market still weak Market interference by foreign governments: – Subsidies – Raw material export restrictions – Import restrictions on steel or steel containing products – Other interventions TRI – Spring Meeting US Steel Imports

The US is a net importer of steel, yet domestic capacity is utilization only at appox 75% The US is the world’s largest exporter of scrap The US is a low cost steel producer Expanding Future US Steel Production The United States is unique among major steel producing nations: TRI – Spring Meeting

Is self-sufficient in steelmaking raw materials, especially scrap (2011 – generated 84mmt of scrap, but consumed only 55mmt) (~ 75%of production costs) Since 2002, imports 26.2% of steel consumption, while capacity utilization only appox 80% Has relatively low energy prices Has high productivity to offset wage rates Has the world’s largest capital market TRI – Spring Meeting Comparative Advantages in US The United States:

Need policies that encourage expanded domestic steel production to utilize domestic capacity Foreign export restrictions on steel scrap have many negative consequences Expanding US steel production through the conversion of scrap into steel would create high-paying jobs, increase GDP, reduce the trade deficit, and provide added tax revenues The expansion must occur without massive government investments, subsidies, and interventions; but needs to be based on comparative economics and market forces Significant amounts of imports should be replaced with domestically produced steel TRI – Spring Meeting Key Points

TRI – Spring Meeting Changes Impacting Steel Variable Cost Control Engineers Scrap Availability High Unemployment Labor Intensity Inventory Levels Safety Consolidations Customer Requirements Foreign Ownership Transportation Costs Shale Gas Energy Costs Currency State-Owned Enterprises Other Factors… Skilled Jobs Shortages DRI

TRI – Spring Meeting Challenges Impacting Steel SOEs Capital Scrap Price Volatility Trained Workforce WTO Disputes Health Care Costs Tax Manipulation & Reforms Indirect Steel % Labor Regulations EAF Growth

Political Climate/Tone Budget Issues – Impact? Bipartisanship versus Gridlock? Benefits of expanded US steel production? What’s Happening in Washington? TRI – Spring Meeting

Trade Administration Leadership Changes? Legislation? Buy America? TPP, Conflict Minerals, Trade Agreement? Environment/Energy Leadership? Specifics – Mercury; PM 2.5 ; Keystone XL; Renewables; Radioactive Scrap? Safety OSHA shift from cooperative engagement to enforcement? Specifics – Silica; Combustible Dust; I2P2? Workforce NLRB Changes? Employee Free Choice; binding arbitration; ambush elections? Taxes Corporate Rates? Infrastructure? What’s Happening in Washington? TRI – Spring Meeting

Final Thoughts Volatile and fragile times continue. There is a “steel cycle.” U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Gridlock continues Uncertainty will continue. Increasing steel capacity without regard to market forces or comparative advantage is wrong Reasons for optimism in steel in North America: – Favorable gains with reemerging manufacturing base, including benefits of shale gas – Scrap-based, 75% of cost – local supply – Low cost on global basis (energy is positive, labor less than 10%, others have higher transportation costs) – Relatively strong market and resiliency – Better & stronger company balance sheets TRI – Spring Meeting