1

Steel Founders’ Society of America

Steel – A Year Later

Thomas A. DanjczekPresident

Steel Manufacturers AssociationCharleston, SCSeptember 9, 2008

• The Steel Manufacturers Association (SMA)

– 35 North American companies:

30 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

SFSA Annual Meeting SMA

2

• 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

SFSA Annual Meeting SMA

SFSA Annual Meeting

• SMA

• Conclusions from 2007

• What’s the same? – 1 year later

• What’s different? – 1 year later

• Raw Material Story

• Scrap Story

• Energy Issues

• GGG Issues

• Global Steel Capacity

• Consolidations

• U.S. Steel Market Projections

• China Bashing

• Unknowns

• Conclusions

Outline

3

SFSA Annual Meeting Conclusions From 2007

-Need aggressive policy measures to prevent China from causing amajor crisis. To date, only trade cases have had an impact.

-It’s still a cyclical business with demand, scrap, inventories, etc.

-U.S. EAF growth will continue

-Massive subsidized growth continues

-Consolidations will continue

-China, China, China… everything else is only an embellishment

-Unknowns (interest rates, economic growth, imports, etc.)

-Between foundries and steel, similar issues in environment, energy,and trade

SFSA Annual Meeting What’s the Same? – 1 Year Later

• Weak U.S. dollar

• Steel company consolidations continue

• No greenhouse gas legislation

• Strong U.S. steel industry profitability & stock values

• Low steel inventories

• Worldwide steel capacity growing faster than consumption

• No significant energy supply developments

• China, China, China

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SFSA Annual Meeting What’s Different? – 1 Year Later

• U.S. economic conditions down

• China’s steel exports down – prices higher elsewhere

• Steel companies buying scrap companies

• Steel imports down

• Exploding raw material prices (ore, scrap, coal, etc.)

• Flat rolled slowing down (automotive, outages ,etc.)

U.S. Raw Steel Production: Largest Recyclers in the Nation~ 100 million tons of steel produced each year

SFSA Annual Meeting U.S. Steel Production

U.S Raw Steel Production

0

20

40

60

80

100

120

140

160

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Year

To

ns

EAF

BOF

Total

5

Raw Materials and Competitiveness

• Raw material prices are soaring

• Higher raw material prices have placed substantial cost pressures onNAFTA steel producers

• At the same time, unfairly-traded imports make it more difficult to raiseprices, creating a harmful cost-price squeeze

• China (and other foreign) interference in raw material markets is unfairlyhelping their steel industries while driving up the cost of steel productionworldwide

SFSA Annual Meeting

Since Last Year, Prices for Key Raw Materials Have Soared

0

50

100

150

200

250

300

350

Iron Ore Coking Coal Scrap (automotive bundle)

20

07

= 1

00

2007 2008

Source: World Steel Dynamics and JP Morgan

SFSA Annual Meeting

6

Copper Sales Prices

0

50

100

150

200

250

300

350

400

450

2004 2005 2006 2007 2008

Years

Pri

ce

Ferrochrome (Low Carbon) Sales Price

0

50

100

150

200

250

300

350

400

2004 2005 2006 2007 2008

Years

Pri

ce

Ferromanganese (Medium Carbon) Sales Price

0

20

40

60

80

100

120

140

160

180

200

2004 2005 2006 2007 2008

Years

Pri

ce

Ferrosilicon Sales Price

0

10

20

30

40

50

60

70

80

90

2004 2005 2006 2007 2008

Years

Pri

ce

*Information obtained from the American Metal Market website

Other Metal Prices Are SoaringSFSA Annual Meeting

Nickel (Melting Material) Sales Price

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2004 2005 2006 2007 2008

Years

Pri

ce

Siliconmanganese Sales Pricce

0

20

40

60

80

100

120

2004 2005 2006 2007 2008

Years

Price

Zinc Sales Price

0

20

40

60

80

100

120

140

160

180

2004 2005 2006 2007 2008

Years

Pric

e

*Information obtained from the American Metal Market website

Other Metal Prices Are Soaring (cont.)SFSA Annual Meeting

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Raw Materials: Governments Still Intervening

• Governments (e.g. China, India) Continue to Intervene in Key RawMaterials Markets For Steel:

– Iron Ore

– Coke

– Ferroalloys

– Refractory Materials

• Export Tax Manipulations / Restrictions

• Distortions Created; NAFTA Competitiveness Negatively Impacted

SFSA Annual Meeting

SFSA Annual Meeting

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SFSA Annual Meeting

SFSA Annual Meeting

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SFSA Annual Meeting Energy Issues List

Energy – Availability and Cost

• Utility Infrastructure (Generation & Transmission) Needs to MatchGrowth in Consumer Demand

• Diversity of Generation (Alternative Fuels – Climate Change) – Excess Reliance on Natural Gas

• NRC Expects up to 30 Applications for New Nuclear GeneratorsOver Next Two Years- Cost was estimated in a range of $2500-3500/KW; Now

Moody’s estimates are above $5000/KW- Florida’s Progress Energy filed for twin 1,100 MW generation units for 2016, at $14 Billion + over $3 Billion oftransmission upgrades = $6,400/KW of generation

Electrical Energy Costs - Generation

Typical US Mill uses an average of 500-700KW per ton of steel produced

5,000- 7,0002,000- 4,000Nuclear

3,500- 4,000n/aAdvanced Coal

Gasification

2,5001,000Pulverized Coal

700500Natural Gas Combined

Cycle

Current Estimates($-kw.)Historic cost ($-kw.)Generation Technology

. .

10

H e nry H ub Pr ic e Q uotes

$0. 000

$2. 000

$4. 000

$6. 000

$8. 000

$10. 000

$12. 000

$14. 000

1/2

/08

1/9

/08

1/1

6/0

8

1/2

3/0

8

1/3

0/0

8

2/6

/08

2/1

3/0

8

2/2

0/0

8

2/2

7/0

8

3/5

/08

3/1

2/0

8

3/1

9/0

8

3/2

6/0

8

4/2

/08

4/9

/08

4/1

6/0

8

4/2

3/0

8

4/3

0/0

8

5/7

/08

5/1

4/0

8

5/2

1/0

8

5/2

8/0

8

6/4

/08

6/1

1/0

8

6/1

8/0

8

6/2

5/0

8

7/2

/08

7/9

/08

7/1

6/0

8

7/2

3/0

8

7/3

0/0

8

T ran sa ctio n D ate

$/M

MB

tu

Typical N.A. Long Product producers use approximately 2MMBTU per ton of steel shipped.

- Natural Gas

. .

SFSA Annual Meeting Climate Change Issues

The Issue of Climate Change is one that the North American EAF SteelIndustry have been engaged in

Issues to Address:

• Need a Domestic Coherent Energy Policy Which Will Provide forNew Generation of Energy by Alternative Sources (wind; nuclear;ethanol; hydrogen)

• Associated New Transmission Infrastructure Will Be Needed

• New Research, Development, and Implementation for Climate Change Capture Technologies – Domestic and International

• Need to Engage Developing Nations to Commit to BindingAgreements on Greenhouse Gas Emissions – Post-Kyoto

• Recognition for Industry Commitments to Address ClimateChange Early – Recycling of Raw Materials; Process GasesRecapture

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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 use of industrial offsets, regardless of locale,

as one way to respond to greenhouse gas emissions; and

• Believes that the costs associated with any cap and trade program

must avoid double charging emissions (i.e. The electricity generator and

EAF mill consumer each must only be counted once on emissions).

. .

Growth in EAF steelmaking has allowed the steel industry toreduce energy usage:

Lower energy usage equals lower greenhouse gas emissions

Energy Intensity - Steel Industry in the U.S.

8

9

10

11

12

13

14

15

16

17

1990 1995 2000 2002 2003 2004 2005

Year

Millio

ns o

f B

tu

/T

on

o

f S

te

el

Steel Made in EAFs in the U.S.

30%

40%

50%

60%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Year

SFSA Annual Meeting GHG Emissions

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Scrap-based Steelmaking(EAF-recycling)

Ore-based Steelmaking

8.4 million Btu of Energy perton of steel produced

EAF Steelmaking Is Energy Efficient

Steel Info – US Dept. of Energy

19.1 million Btu of Energyper ton of steel produced

SFSA Annual Meeting GGG Emissions

Global Steel Capacity 2001-2007

During 2001-2007, world crude steel capacity increases by499 mmt to 1,564 mmt (46.9% over 2000)

World Crude Steel Capacity 2000~07

Source: German Steel Federation and IISI verifications

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During 2008-2010, world steel capacity will grow by 322mmt, a 21% increase over 2007, with a CAGR of 6.4%

World Crude Steel Capacity 2000~10

Global Steel Capacity 2008-2010

Source: German Steel Federation and IISI verifications

2010

2007

China

559

715

20102007

EU-27

247 254

20102007

CIS

137180

20102007

C&S

America

60 74

20102007

NAFTA

154 159

20102007

Africa

29 42

20102007

MiddleEast

26 48

2010

2007

Asia (excl.ME&CIS)

864

1071

Capacity by Region

2007 vs 2010

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• BRIC capacity will grow29%, by over 200 milliontonnes, in the next threeyears, with Chinadominating.

• These four countrieswill represent 50% ofworld capacity by 2010.

Source: IISI members

Highlights - BRIC

1624 28

20

4048

87

62

8465

70

60

50

-7

46

39

-30

0

30

60

90

120

150

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

mmt

Rest of world

China

Brazil

RussiaIndia

Capacity Additions

Brazil, Russia, India, China Will Have ~70% of CapacityAdditions Through 2010

New Capacity Outpaces Consumption Growth

Capacity – Multiple Sources; Nucor Analysis

Demand – IISI projections thru ’08; 6% increase “09 – ‘10

EU-25

1%

India

23%

NAFTA

2%Other Asia

15%

Other Europe

3%

CIS

6%

Africa & Middle East

5%

Central & South

America

12%

China

33%

Announced Steel CapacityIncreases By Region

(2006 – 2012)

Announced Steel Capacity Vs.

Projected Consumption 2007 – 2010(Million Metric Tonnes)

Compound Annual Growth Rates:

Capacity: 6.83% Demand: 4.65%

SFSA Annual Meeting

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• U.S. steel producers have identified at least $52 billion in subsidiesthat have been provided to Chinese steel producers

• China’s 2005 steel policy commits the government to furthersubsidies and micromanagement

• Chinese steel producers enjoy government assistance withenergy costs

• Chinese steel producers regularly obtain preferential loans fromstate-owned banks

• Most steel production in China is carried out by state-ownedenterprises

• NAFTA steel representatives recently raised the issue of Chinasubsidies in a March 7, 2008 letter to NAFTA Ministers

Chinese Steel Producers Benefit from Massive Subsidies

Globalization and Consolidation Developments Have DramaticallyChanged the NAFTA Steel Landscape

Acquiring Company Acquiring Company Acquiring CompanyAcquired Company Acquired Company Acquired Company

Arcelor Mittal Nucor Duferco/NLMKArcelor Connecticut Steel Winner Steel

Dofasco TricoMittal Birmingham Evraz

Ispat Inland Corus Tuscaloosa Oregon SteelISG Worthington-Decatur Claymont Steel

LTV Marion Ipsco CanadaUS Steel Plate

Weirton

Nelson SteelHarris Steel Severstal

Acme-RiverdaleAuburn Steel Arcelor Mittal-Sp. Pt.North Star Arizona Rouge

WCI (announced)Georgetown American Iron Reduction

SicartsaLMP Steel & Wire

CSNHeartland

US Steel Gerdau AmeristeelLone Star Sheffield

EssarNational ChaparralAlgomaLTV Tin Co-SteelMinnesota SteelISG IH#2 Pkl. North Star

Stelco Sidetul Tultitlan Quanex Macsteel

BlueScope CorsaIMSA Steelscape

OAO TMKSSAB

Ipsco Tubular (U.S.)ICH/Grupo Simec Ipsco Plate (U.S.)

RepublicSteel Dynamics

Ternium GalvPro-JeffersonvilleHylsa The TechsIMSA Roanoke Steel

Steel of West Virginia

Tenaris

Maverick Tube (U.S.)

Prudential Canada

Hydril Company

Wheeling Pitt

8/1/08

Bethlehe

m

Bayou (announced) The David J. Joseph Co. (Scrap)

Omnisource (Scrap)

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Steel Consolidating, But Still Fragmented

Top 15 Global Steel Producers - September 2007Based on 2006 Production: 1240 Million MT

Baosteel (26 mt)

Tata (incl. Corus) (24 mt)

USS (incl. Stelco)

(26 mt)

POSCO (31 mt)

JFE (32 mt)

Anben

(23 mt)

Shandong

(22 mt)

Nucor

(20 mt)

Wuhan

(19 mt)

Tangshan

(19 mt)

Evraz

(19 mt)Riva (18 mt)

Severstal

(18 mt)

Nippon (34 mt)

Rest of

World 64%

(794 mt)Arcelor Mittal - 9.5%

(118 mt)

Automotive OEM Global Market Share

(Based on 2006 Production)

Top 10

68%

All

Others

32%

Iron Ore Supplier Market Share

Top 3

75%

All Others

25%

TOP 15 Represent 36% of Global Production

Source: IISB

SFSA Annual Meeting

SFSA Annual Meeting Consolidations

Steel Industry Consolidations

• Raw steel capacity in U.S. is approximately 110-120 million tonnes

• Due to a number of consolidations, the top 10 companies areapprox. 90 million tonnes; top 3 companies are approx. 60 milliontonnes

• Worldwide, the top company is only 10 percent

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Consolidation: Opportunities & Risks

• Potential Benefits:

– Access to Capital, Technology

– Deeper Customer Relationships

– Facility Optimization / Strategic Fit

– Industry Sustainability

• But Benefits Are Undermined By PrevailingRisks:

– Global Overcapacity

– Subsidies and Other Trade Distortions

SFSA Annual Meeting

110.96055.00056.000110.76055.00055.540108.230Apparent steel use

2.7201.0001.0002.7201.3301.3802.720Steel industryreceipts

10.2505.0005.0009.5304.8404.68010.160Exports

22.23011.00011.00021.68011.16010.52024.490Imports

101.70050.00051.000101.33050.25051.08096.620Deliveries

TotalJuly-Dec

Jan-JuneTotal

July-Dec

Jan-JuneTotal

2009200920092008200820082007

SFSA Annual Meeting U.S. Steel Market Projections

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SFSA Annual Meeting China’s Trade Surpluswith 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 jobsThe U.S. has lost 3.3 million manufacturing jobs

since 2000since 2000…… imbalances cannot go on forever. imbalances cannot go on forever.

SFSA Annual Meeting Impact of AD/CVD

Percent of the value of Chineseimports covered by AD/CVD

duties?

2004 – 0.13%

2006 – 0.10%

(TAD comment – What Protectionism?)

International Trade Commission, based on U.S. DOC and Customs official statistics

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SFSA Annual Meeting Competitiveness

U.S. - China Steel Future Competitiveness Drivers

Driver U.S. China Comment

1. Metallics •Weak $ •1/2 imported •Technological

(Availability/Price) •Scrap exports •Freight developments

+ to U.S.

2. Energy •Gas/electricity + to China •Climate change

(Availability/Price) constraints policy

•Limited nuclear

3. Labor •Lack of technical + to China

•Health care costs

4. Transportation + to U.S.

5. Trade + to China •Growth of steel-

intensive goods

6. Environment + to U.S. •Enforcement?

SFSA Annual Meeting China Comments

-China has NOT become the world’s largest steel producer byaccident, or by operation of free markets, or comparativeadvantage

-China is NOT a low-cost steel producer

-China has reached its position through a combination ofsubsidies, mandates, and planned intervention

-In finished goods containing steel, China’s exports areexpanding by approximately 30 percent per year

-Chinese steel market is still reliant on exports to absorboverproduction

-Chinese steel industry is overbuilt and under-demolished

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SFSA Annual Meeting Unknowns

-Raw material price impact???

-Impact of recession???

-Value of the RMB???

-JCCT Steel Dialogue – where goal is to promote transparency withbetter decisions???

-European Union antidumping investigation and targets???

-Energy cost and interest rate impacts???

-Rising freight costs???

-China’s restrictive policy of foreign ownership participation???

-China’s enforcement of environmental regulations???

-U.S. legislation (111th Congress) and 44th President???

-Trade actions – impact of CVD’s on China???

-When will China play by market rules???

SFSA Annual Meeting Conclusions

(Same as 2007)

•Need aggressive policy measures to prevent China from causing amajor crisis. To date, only trade cases have had an impact.

• It’s still a cyclical business with demand, scrap, inventories, etc.

• U.S. EAF growth will continue

• Massive subsidized growth continues

• Consolidations will continue

• China, China, China… everything else is only an embellishment

• Unknowns (interest rates, economic growth, imports, etc.)

• Between foundries and steel, similar issues in environment, energy,and trade