Steel Orbis Economic and Trade Matters Thomas A. Danjczek President Steel Manufacturers Association San Diego, CA July 9, 2010

The Steel Manufacturers Association (SMA) –34 North American companies: 29 U.S., 3 Canadian, and 2 Mexican –Operate 125 steel recycling plants in North America –Electric Arc Furnace (EAF) steelmakers using recycled steel –EAF steel producers accounted for nearly 2/3 of U.S. production in 2009 –SMA represents approximately 90 million of U.S. 120 million ton capacity (75%) –128 Associate members - Suppliers of goods and services to the steel industry SMA Steel Orbis

Where SMA Member EAFs are located… Steel Orbis

US Steel Production (All in Million Net Tons) (Numbers are Approximate) PAST – From 1986 through 2008, U.S. steel production has been around 100 m tons – up & down 10% st Half25m(45% utilization) 2 nd Half36m(62% utilization) Now 1.5m/week vs. 2.1m/week Year63m(Minimills at 63% of production) 2010 (from November 2009) World Steel78m(up 19% over 2009), optimistic Peter Marcus68m(Back to 75m in 2012) US Poll69m(up 10% over 2009) 2010 – Today (Through June 30, 2010) Capacity Utilization (70.4%); or approximately 83 million tons annual rate Set the Stage Steel Orbis

North American Steel Production Remains Below Historic Norms Crude Steel Production Source: World Steel Association. After falling to below 50%, NAFTA capacity utilization has recovered to around 70%, but is still well below historic levels

In 2010, Apparent Steel Use in the NAFTA Region Will Be More than 30 Percent Below Pre-Crisis Levels Apparent Steel Use in NAFTA Region (millions of MT) Source: Worldsteel Even if apparent steel use in the NAFTA region recovers to 107 million MT by 2011, as currently projected by the World Steel Association, it would still only match the 1993 consumption level – and be only 76% of the level in 2007.

2009 Was Only the Second Year Since 1963 in Which North America Produced Fewer than 9 million Cars and Trucks North America Car & Truck Production, Source: Ward’s Automotive. 9 million cars and trucks produced 1982 Recent gains in North American car and truck production notwithstanding, it is projected that it will take up to five years to return to pre- crisis ”normal” levels.

United States Million MT 2009 (e)2010(f) Change (%) Crude Steel Use % Finished Steel Use % Exports % Imports % Canada Million MT 2009 (e)2010(f) Change (%) Crude Steel Use % Finished Steel Use % Exports % Imports % Mexico Million MT 2009 (e) 2010 (f) Change (%) Crude Steel Use % Finished Steel Use % Exports % Imports % Source: Worldsteel Economic Studies Committee, April 2010 The Worldsteel Short Range Outlook Steel Orbis

Source: Worldsteel World Crude Steel Capacity ,062 1,095 1,170 1,245 1,356 1,453 1,583 1,816 1,917 1,997 2,055 1, ,100 1,350 1,600 1,850 2, (e)2011(e) Steel Capacity (million metric tonnes) Current Average Growth Rate (CAGR) World Crude Steel CapacityCAGR 2012(e) Global Steel Capacity Continues to Increase Steel Orbis

Meanwhile, Foreign Government Subsidies to Steel and Steel-Related Industries Remain a Particular Concern… Foreign government subsidies are a major cause of overcapacity in the global steel industry and steel-related industries Subsidies to steel and steel-related industries that (1) support inefficient and excess capacity and/or (2) distort trade are continuing, and remain a particular concern Examples include: –Fundamental currency misalignment/undervalued currencies –Preferential financing to add new capacity –Loan forgiveness/equity infusions to prop up obsolete capacity Steel Orbis

Raw Material Export Restrictions are Continuing to Disadvantage NAFTA Steel and Other Manufacturers 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 Steel Orbis

Free Trade vs. Protectionism 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? Is “Protectionism” the enemy of “Free Trade” 1. Taken in part from C. Blum Steel Orbis-From 2009

Raw Materials Energy China Trade No Barriers continue Lack of policy continues Currency manipulation, Subsidies, Not playing by the rules Distortions continue, Who’s the protectionist No long term structural policy changes are being proposed in Washington for taxes, trade imbalance, and energy. Steel Orbis-From 2009 Is Enough Being Done?

What does the US 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 Steel Orbis