Steel Producers Issues in AWPA – Annual Meeting Steel Producers Issues in Today’s Economy Thomas A. Danjczek President Steel Manufacturers Association February - 2009

Today’s Deterioration China, China, China AWPA – Steel Producers Issues in Today’s Economy Outline SMA Today’s Concerns Today’s Deterioration China, China, China Other Issues (Energy, GHG, Infrastructure Spending, Mercury) Product Data 2008 Protectionism and Trade Issue Is Enough Being Done? Conclusion

The Steel Manufacturers Association (SMA) AWPA – Steel Producers Issues in Today’s Economy SMA The Steel Manufacturers Association (SMA) 36 North American companies: 31 U.S., 3 Canadian, and 2 Mexican 125 Associate members: Suppliers of goods and services to the steel industry SMA member companies Operate 125 steel recycling plants in North America Electric Arc Furnace (EAF) steelmakers using recycled steel

SMA AWPA – Steel Producers Issues in Today’s Economy Production capability EAF steel producers accounted for 60% of U.S. production in 2007 SMA represents over 70% of all U.S. steel production Recycling SMA members are the largest recyclers in the U.S. EAF steel producers are the largest recyclers in the world Last year, the U.S. recycled over 75 million tons of steel Growth of SMA member companies Highly efficient users of labor, energy, and materials Modern plants producing world class quality products

Steel-Wire Executive-4th Quarter 2008

AWPA – Steel Producers Issues in Today’s Economy The Obvious Concerns Our Jobs US Recession and financial meltdown Infrastructure Spending Value of the RMB Energy shortfalls and pricing Federal Bailouts China, China, China Global Steel Overcapacity Subsidies and other trade distortions US Legislation (111th Congress and the 44th President)

NAFTA Economic Growth Is Decelerating AWPA – Steel Producers Issues in Today’s Economy NAFTA Economic Growth Is Decelerating Sources: Bureau of Economic Analysis, Statistics Canada, Bloomberg

The United States Is in a Recession AWPA – Steel Producers Issues in Today’s Economy The United States Is in a Recession Source: Federal Reserve Board 8

U.S. Business Activity Has Fallen Sharply AWPA – Steel Producers Issues in Today’s Economy U.S. Business Activity Has Fallen Sharply EXPANDING CONTRACTING Lowest level since 1982 Source: ISM

The U.S. Housing Market Is Plummeting AWPA – Steel Producers Issues in Today’s Economy The U.S. Housing Market Is Plummeting Permits Starts Completions Residential Construction Market Source: US Dept of Commerce 10

North American Light Vehicle Production AWPA – Steel Producers Issues in Today’s Economy North American Light Vehicle Production US LV SALES 1.18 2007 0.74 2008 -37% NOV NOV Millions of Units Millions of Units AMRC Data Fall ‘08 Actual Actual In this chart, prepared by the Automotive Market Research Council, you can see that North American sales are forecast to drop by 2 million units between 2007 and 2008. The dramatic effects of a weak economy and rising oil prices are having a major effect on car and light truck sales. The forecast indicates that the slump will begin to recover in 2009 and will show steady growth thereafter. Actual 13.0 12.8 Source: Automotive Market Research Council, Fall 2008

Steel Production in the U.S. Has Fallen Dramatically AWPA – Steel Producers Issues in Today’s Economy Steel Production in the U.S. Has Fallen Dramatically Production (Thous. Metric Tons) Source: Dow Jones Industrial Index, AISI

Global Steel Consumption Has Fallen AWPA – Steel Producers Issues in Today’s Economy After Years of Growth, Global Steel Consumption Has Fallen Global Apparent Steel Consumption (Annualized) Source: World Steel Dynamics, “Global Alert # 31” (Oct. 1, 2008) at 12.

Global Steel Capacity Through 2008 AWPA – Steel Producers Issues in Today’s Economy Global Steel Capacity Through 2008 World Steel Capacity Grew by Over 50% in the Past Eight Years. 90* *Additions to Capacity Source: German Steel Federation and IISI verifications 14

Crude Steel Supply in China, 2005-2009 AWPA – Steel Producers Issues in Today’s Economy Crude Steel Supply in China, 2005-2009 (million metric tons) 2005 2006 2007 2008 2009 (e) Capacity 450.0 530.0 599.0 640.0 (e) 660.0 Production 352.0 416.0 489.0 498.0 470.0 Net Exports 0.5 29.7 41.7 51.0 49.0 Source: Growell Research, “China Steel Capacity Forecast for 2006-2010” and CISA Presentation at OECD, December 15, 2008.

Imports from China into NAFTA are Rising AWPA – Steel Producers Issues in Today’s Economy Imports from China into NAFTA are Rising Source: AISI

China’s Capacity Now Exceeds Chinese Demand AWPA – Steel Producers Issues in Today’s Economy China’s Capacity Now Exceeds Chinese Demand For Many Key Steel Products 2008 Difference Between Chinese Capacity and Chinese Demand 35 30 25 Million Metric Tons 20 15 10 5 Hot-rolled steel Plate OCTG Wire rod Rebar Cold-rolled steel Galvanized sheet Source: World Steel Dynamics, “Global Steel Alert # 31” (Oct. 1, 2008) at 17, 25.

AWPA – Steel Producers Issues in Today’s Economy China Steel Comments China has NOT become the world’s Largest steel producer by accident, or by operation of free markets, or comparative advantage China is NOT a low-cost steel producer China has reached its position through a combination of subsidies, mandates, and planned intervention In finished goods containing steel, China’s exports to absorb overproduction Chinese steel industry is overbuilt and under-demolished

Year China’s Trade Surplus 2001 $22 billion AWPA – Steel Producers Issues in Today’s Economy China’s Trade Surplus with the U.S. Year China’s Trade Surplus 2001 $22 billion (year China joined WTO) 2006 $177 billion 2007 $262 billion (up 47.7%) The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.

It’s About Competitiveness AWPA – Steel Producers Issues in Today’s Economy China Conclusions It’s About Competitiveness US producers have a competitive advantage in metallics due to US scrap and China’s need to import over half its ore; US producers are on par with China on availability and price of energy, while labor is much lower in China; China’s labor savings do not equal US efficiency and Transportation cost from China. US is competitive!!! North American steel industry CANNOT compete against Chinese steel companies that are financed and controlled by their government.

AWPA – Steel Issues in Today’s Economy Other Issues - Energy

AWPA – Steel Producers Issues in Today’s Economy Other Issues - Energy

AWPA – Steel Producers Issues in Today’s Economy Other Issues - Energy

Energy Summary AWPA – Steel Producers Issues in Today’s Economy Other Issues - Energy Energy Summary US power generation industry is at a critical juncture, with social pressures and pending legislation demanding massive changes. Competing demands for reliable, low-cost energy and climate change mitigation appear incongruent. Our Nation’s liquid fuel dependence on foreign resources continue to grow. Uncertainty of regulatory outcomes and rising costs impact industry’s willingness to commit capital investments, endangering near-term production capacity. The United States must foster new processes that address conflicting energy objectives simultaneously.

AWPA – Steel Producers Issues in Today’s Economy Other Issues - GHG

AWPA – Steel Producers Issues in Today’s Economy Other Issues - GHG

Climate Change Legislation AWPA – Steel Producers Issues in Today’s Economy Other Issues - GHG Climate Change Legislation Steel Manufacturers Association: Supports the safety valve concept for limiting allowance pricing, in any cap & trade program; Recognizes the international component of the climate change issue, and would support the the use of industrial offsets, regardless of locale, as one way to respond to greenhouse gas emissions; and Believes that the cost associated with any cap and trade program must avoid double charging emissions (ie- The electricity generator and EAF mill consumer each must only be counted once on emissions).

AWPA – Steel Producers Issues in Today’s Economy Globalization and Consolidation Developments Have Dramatically Changed the NAFTA Steel Landscape Acquiring Company Acquiring Company Acquiring Company Acquired Company Acquired Company Acquired Company Arcelor Mittal Nucor Duferco/NLMK Arcelor Connecticut Steel Winner Steel Dofasco Trico Mittal Birmingham Evraz Ispat Inland Corus Tuscaloosa Oregon Steel Bethlehem ISG Worthington-Decatur Claymont Steel LTV Marion Ipsco Canada US Steel Plate Weirton Nelson Steel Harris Steel Severstal Auburn Steel Arcelor Mittal-Sp. Pt. Acme-Riverdale North Star Arizona Georgetown Rouge WCI American Iron Reduction Sicartsa Bayou LMP Steel & Wire Wheeling Pitt The David J. Joseph Co. (Scrap) US Steel Gerdau Ameristeel CSN Heartland Lone Star Sheffield National Chaparral Essar Algoma LTV Tin Co-Steel ISG IH#2 Pkl. North Star Minnesota Steel Stelco Sidetul Tultitlan Quanex Macsteel BlueScope Corsa IMSA Steelscape SSAB OAO TMK ICH/Grupo Simec Ipsco Plate (U.S.) Ipsco Tubular (U.S.) Republic Steel Dynamics Tenaris Ternium GalvPro-Jeffersonville Maverick Tube (U.S.) Hylsa The Techs Prudential Canada IMSA Roanoke Steel Steel of West Virginia Hydril Company Omnisource (Scrap) 1/1/09

Gas tax at 18.54/gallon generates app. $40 billion AWPA – Steel Producers Issues in Today’s Economy Infrastructure Stimulus US aging infrastructure is functionally obsolete and structurally deficient FHWA estimates $78.8 billion per year for the next 20 years to maintain infrastructure, $131.7 billion to improve Gas tax at 18.54/gallon generates app. $40 billion Current gas tax woefully insufficient, only half of maintenance

U.S. Steel Scrap AWPA – Steel Producers Issues in Today’s Economy 17 (Data in million metric tons) Salient Statistics—United States: 2003 2004 2005 2006 2007(e) 2008(e)1 Production Home Scrap 17 14 15 13 12 Purchased Scrap 56 59 58 52 Imports for Consumption 4 5 Exports 11 23 Consumption, reported 65 67 66 Source: US Geologic Survey, January 2008 1. 2008 is a rough estimate based on 3 normal quarters; 4th Quarter @ 60% steel production

AWPA – Steel Producers Issues in Today’s Economy US Long Product Data 2008 For rebar, wire rod, merchant bar, light shapes, parallel flange sections, structural products1 Through September 2008, domestic shipments plus exports were 4.1% higher than 2007, at 18,918,329 short tons, or roughly 2.1 mmt per month. Data shows domestic shipment decline of 16% in October from September’s level. Data shows domestic shipment decline of another 27% in November from October’s level. Total domestic produced shipments have fallen approximately 50% in the 4th quarter, compared to the first 9 months of 2008. 1 December 2008 SMA Market Report (Moss/Taccone)

AWPA – Steel Producers Issues in Today’s Economy Wire Rod Product Data 2008 Total Mill Shipments of Wire Rod were unchanged YOY (2008 – 3,182,008 tons; 2007 – 3,178,027 tons) First 9 months of 2008, mill shipments – Quarterly Rate – 903,604 tons/qtr Last Quarter of 2008 mill shipments – Quarterly Rate – 471,196 tons/qtr Off 47.8% in 4th Quarter 2008, compared to 1st Quarter 2008 December 2008 SMA Market Report (Moss/Taccone)

AWPA – Steel Producers Issues in Today’s Economy

Is “Protectionism” the enemy of “Free Trade” AWPA – Steel Producers Issues in Today’s Economy Free Trade vs. Protectionism Is “Protectionism” the enemy of “Free Trade” Protectionism Predatory Pricing Trade distorting subsidies Government Ownership National power by protecting our industries and state Piling up currency measures One way trade Need “Balanced” Trade over “Mercantilism” Who’s the Protectionist? 1. Taken in part from C. Blum

Is Enough Being Done? Raw Materials No Energy No China No Trade No AWPA – Steel Producers Issues in Today’s Economy Is Enough Being Done? Raw Materials No Barriers continue Lack of policy continues Energy No Currency manipulation, Subsidies, Not playing by the rules China No Distortions continue, Who’s the protectionist Trade No No long term structural policy changes are being proposed in Washington for taxes, trade imbalance, and energy.

Conclusion AWPA – Steel Producers Issues in Today’s Economy U.S. Steel Industry in Better Position Today to Manage the Down Cycle (but what a down cycle!) Improved Economics From Consolidations, i.e. “Reacted Quicker in October”; Improved Control of Variable Costs Scrap-Based Metallics (In 2009, U.S. will be nearly 2/3 EAF-based Energy Costs Transportation Costs Labor Efficiency (U.S. at Below 2MH/Ton; Minimills Often Below 1MH/Ton) Improved Inventory Control (Inbound Materials, Steel, and Customer Products). NOT THE OLD INVENTORY OVERHANG! Improved Debt and Equity; Balance Sheet Position Still Challenging – But Reasons for Meaningful Long-Term Optimism!