Thomas A. Danjczek President Steel Manufacturers Association September 27, 2011 Steel Industry Update NSA Annual Meeting

Outline SMA Safety Changes Steel Demand Drivers & Forecasts Raw Materials What the U.S. Needs to Do Final Thoughts NSA Annual Meeting 2

About the SMA -Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 123 Associate Member steel industry suppliers -Today, roughly two-thirds of U.S. steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s -SMA Members account for approximately 80% of total domestic steel capacity NSA Annual Meeting

SMA Safety Overview Safety Committee Meetings Safety Statistics Benching Marking Fatality Prevention Initiative Workplace Specific Safety Surveys Site-Specific Sharing of Site-Specific Best Practices SMA Safety Website Upstream/Downstream Safety Awareness Education & Outreach First Hand Governmental Compliance Awareness SMA Safety Awards NSA Annual Meeting

Key Drivers Need within our industry (2003) – 14 fatalities… Strong initial leadership (at every meeting) Board top down directives (at every meeting) (i.e. 4 leaders plus 6 additional) Involved core industry members (i.e. 4 leaders plus 6 additional) in planning, soliciting, “boots on the ground” Inclusive – Union and non-union – Companies and suppliers – Safety professionals, safety committees, production managers, and “hourly” employees Awards and Recognitions OSHA involvement More focus on industry specific process and procedures versus governmental regulations Costs -None additional to SMA -Modest hotels -Cohesive and full schedule, all work… NSA Annual Meeting

SMA Members voluntarily report monthly data on number of recordable cases, lost workday cases, days lost, and hours worked. Compiled year-to-date data is circulated to members as a spreadsheet each month.

NSA Annual MeetingSMA Safety Data –

Addresses Six (6) critical areas: 1. Confined Space; 2. Fall Protection; Lockout- Tryout; 3. Mobile Equipment 4. Material Handling; and 5. Rail 6. Cranes (Completed in 2011)  Focusing on five priorities in addressing crane fatalities: ◦ operator visibility and attentiveness; ◦ maintenance; ◦ fall hazards; ◦ charging the EAF/ladle handling; and ◦ non-routine procedures  Videos to be completed by the end of summer and introduced to the SMA in October 2011 Fatality Prevention InitiativeNSA Annual Meeting

Safety Conclusions SMA members have made great strides, and will be relentless in pursuit of continuous improvement until we achieve zero injuries in our workplaces SMA members have benefited from relationship with OSHA, including speakers at meetings, training resources, and cooperative programs The SMA, through its members, has been a driving force in improving safety performance NSA Annual Meeting

10 NSA Annual MeetingChanges Deeper Recession Variable Cost Control Engineers Scrap Prices High Unemployment Labor Intensity Inventory Levels China Safety Consolidations Customer Requirements Environmental Regulations Foreign Ownership Transportation Costs Ore Prices Energy Costs Currency State-Owned Enterprises Other Factors…

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12 Raw steel capacity utilization may reach 75% in 2011 NSA Annual Meeting

13 Finished steel demand drivers in US ActualFitted Three variables drive demand: NA auto build Non-residential construction Appliance shipments R² = 85% Source: First River NSA Annual Meeting

14 U.S. finished steel demand forecast Actual ADC Forecast Source: CSM, FW Dodge, AHAM, First River NSA Annual Meeting

Auto build & non-res construction expected to recover, but not to previous peak NA Auto Build (Million Units) 15 Source: CSM Worldwide, FW Dodge Forecast Non-Res Construction (Million Sq. Feet) Forecast NSA Annual Meeting

U.S. net imports expected to remain lower US Imports & Exports (Million Tons) 17 Source: AISI, First River Net Imports & US Dollar Net Imports as % of demand (3 year rolling average) $ IndexImports (%) NSA Annual Meeting

Underlying weak economy Recovery underway, but slow Increased exports and imports (5mmt of semi’s imports) YOY Not normal cycle of recession, overcapacity; New supply coming on Raw materials costs are a major driver CHINA, CHINA, CHINA Relative strong demand in auto; construction lagging Comments on Current U.S. Production NSA Annual Meeting 18

Raw Material Cost and Availability is #1 Issue for NAFTA Producers Many countries continue to impose a variety of restrictions on exports of vital raw materials – Export prohibitions – Export duties – Export quotas – Other measures Trade-distorting restrictions on exports of raw materials – Give domestic producers in the exporting country an unfair advantage – Increase worldwide costs of production – Place a heavy burden on steel industries in developing countries that do not have substantial iron ore reserves or steel scrap supplies Raw Materials NSA Annual Meeting 20

21 World Scrap Supply and Consumption, By Region Source: World Steel Association NSA Annual Meeting

While China Restricts Exports of Scrap, U.S. Exports to China Have Surged 22 NSA Annual Meeting

23 NSA Annual Meeting China Can only hope next 5 year plan which calls for 8% growth is WRONG!.08 x 600mmt x 5 years = 240mmt… WOW! Actual Production

What does the U.S. need to do? Assume a Pro-Manufacturing Agenda – Business Tax Reform – Border Adjustable Taxes – Currency Adjustments – Energy Independence – Reasonable regulatory measures (Environment/Labor) – Climate for investments (Jobs, Jobs, Jobs) and Infrastructure Solve the structural problems that caused the recession - Real Foundation – Bad loans and securities on bank balance sheets – Reduce huge trade deficits Policy incrementalism is not sufficient NSA Annual Meeting 24

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Final Thoughts Ultimately, the world needs greater total supply of scrap and steel U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Don’t look to Washington, DC for help Environment of uncertainty and volatility will continue in U.S. industry until economic fundamentals are in equilibrium In U.S., dissatisfaction/perception that U.S. Government is not tackling the right issues (i.e. “It’s the economy, stupid.”) Reasons for optimism in steel in U.S.: – Scrap-based, 70% of cost – local supply – Low cost on global basis (energy is neutral, labor less than 10%, others have higher transportation costs) – Relatively strong U.S. market and U.S. resiliency – Better U.S. company balance sheets NSA Annual Meeting 26