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Thomas A. Danjczek PresidentSteel Manufacturers AssociationSan Diego, CAJuly 8, 2010

History of American Steelmaking

• SMA• Early 20th century American steel• Transformation of steel making from Open Heart Furnace to BOF and later to EAF• EAF and evolution of minimill concept• Advantages of minimills• Dominant companies throughout 20th century• Mergers and Acquisitions among modern American steelmakers• American Steel Making in Crises: 1980’s, late 1990’s, early 2000’s• Various trade remedies - Trigger price mechanism / Section 201 Safeguards / 421 Safeguard• Antidumping and Countervailing Cases• Other trade issues: Fraud, NME’s, WTO, etc.• Largest North American steelmakers• Product mix: longs, flats, specialty steel• Current issues that American steelmakers are facing• Where do we go from here? • What are the trends?

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• 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

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Where SMA Member EAFs are located…

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U.S. Steel Industry, Then. . . . . . . . .and Now

Smoke pouring into the air from a Pittsburgh steel mill, 1890. Image by Corbis - Bettmann

Electric Arc Furnace facilityImage by SMA

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Early US Steelmaking

Source – Stubbles, J.R. The Original Steelmakers. Iron & Steel Society, Warrendale, PA, 1984. 5, 33.

SteelOrbis Training US Steel Production by Process

In 2009 64% EAF

SteelOrbis Training World Steel Production by Process

In 2009 37% EAF

SteelOrbis Training US Steel Production

Year US Raw Steel1 (Metric Tons)

1900 9,200,000

1910 23,700,000

1920 37,800,000

1930 36,000,000

1940 78,000,000

1950 87,800,000

1960 90,100,000

1970 119,000,000

1980 101,000,000

1990 89,700,000

2000 102,000,000

2010 70,000,000 (e)

1US Geological Survey

US Capacity; Production & % EAF & Integrated – 2000-2009

Source – U.S. Geological Survey – Iron & Steel Statistics and Information web page = http://minerals.usgs.gov/minerals/pubs/commodity/iron_&_steel/

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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%

2009 1st Half 25m (45% utilization)2nd Half 36m (62% utilization) Now 1.5m/week vs. 2.1m/week Year 63m (Minimills at 63% of production)

2010 (from November 2009) World Steel 78m (up 19% over 2009), optimistic Peter Marcus 68m (Back to 75m in 2012)

US Poll 69m (up 10% over 2009)

2010 – Today (Through March 30) Capacity Utilization (67.7%); or approximately 80 million tons annual rate

42.9% in 2009

Set the StageSteelOrbis Training

2009 in a long term contextUS steel industry production changes

Source: AISI, First River

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

1900

1905

1910

1915

1920

1925

1930

1935

1940

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

Ye

ar

on

Ye

ar

Ch

an

ge

in P

rod

uc

tio

n

World USA

Year Decline

1 1921 -53%

2 1932 -47%

3 1938 -44%

4 1908 -40%

5 1982 -38%

6 1931 -36%

7 2009F -30%

8 1930 -28%

9 1914 -25%

10 1958 -24%

11 1919 -22%

12 1954 -21%

13 1975 -20%

14 1980 -18%

15 1946 -16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Cap

acity

Util

izat

ion

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Cap

acity

Util

izat

ion

US raw steel capacity utilizationLong-term average is 78%, stable

level is 85%

Source: AISI, First River

63% 48% 65% 61%

Average Utilization RatesPeriods of adjustment (red bars): 60%Periods of relative stability: 85%

Steelmaking Flowlines

EAF Process Flow Diagram

Flat Rolled Breakdown

Long Product Breakdown

Top Global and North American Steel Producers - 2006

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Source – Adapted from Metal Bulletin (March 12, 2007) for data on tonnage and global rankings.

Globalization and Consolidation Developments Have Dramatically Changed 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 PlateWeirton

Nelson SteelHarris Steel Severstal

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

WCI

Georgetown American Iron ReductionSicartsaBayou

LMP Steel & Wire

CSNHeartland

US Steel Gerdau AmeristeelLone Star Sheffield

EssarNational Chaparral AlgomaLTV 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.)Republic

Steel DynamicsTernium GalvPro-Jeffersonville

Hylsa The TechsIMSA Roanoke Steel

Steel of West Virginia

TenarisMaverick Tube (U.S.) Prudential Canada

Hydril Company

Wheeling Pitt

1/1/09

Bethlehem

The David J. Joseph Co. (Scrap)

Omnisource (Scrap)

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1970’s 2008

Production

Employment

Technology

Location

Imports

Profitability

Average Price

short tons

Approx. 700,00012 MH/ton(1978 – 449,000)

<20% casters<10% EAF

Primarily Rust Belt & a few scattered

Approx. 15%

Poor

$605

100 million tons

<120,000(Minimills @ 60% - approx. 40,000, <2MH/ton)

95% casters60% EAF

NW, SE, Rust Belt (near customers, and cheap power)

Approx. 25% (peak @ 35%)

Good

$1000???

100-140 million tons

2010

80 million tons, 63 in 2009

100,000

+

20%

Marginal

$600

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-U.S. has become one of the world’s low cost steel producers, due to metallics availability, transportation, labor and energy efficiencies, and high utilization

-China, which was approx. 70mmt in 1970’s, today over 500mmt

-Many large integrated producers eliminated legacy costs in 1998-2003 period through bankruptcies (30 companies)

-World demand for all raw materials has changed from excess to shortages

-Last integrated mill built, Burns Harbor, was 1964-1970

-Growth in U.S. lost to foreign producers (1970 – U.S. approx. 20% of world; today, less than 10%)

-U.S. steel capacity has been reduced from approx. 170 million tons in the 1970’s, to 130 million tons today, while production has been around 100 million tons

-Steel sales in 1970’s were less than $60 billion USD

-Profitability: net income as a % of sales was only .5 to 2.5% (1974) in the 1970’s. Insufficient to cover down cycles

-Significant quality improvements

-Metallics yields have improved from 75% in 1970 to over 90% today

-The next challenges are availability of scrap, scrap substitutes, energy, people, and customers

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Source – AISI, “The Steel Import Problem.” New York, NY. 1968. Page 6.

U.S. Foreign Trade In Steel Products (Million Net Tons)-Life in the ‘60

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Crude Simple Estimate – Long Products

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Employment in the U.S. Steel Industry

Source – U.S. Department of Labor. Bureau of Labor Statistics.

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1. Section 421 – Against Chinese Tires- When China joined WTO, part of agreement was a 421 Safeguard to avoid surges &

injuries- Filed by Unions only, case heard at ITC, 4-2 in favor, awaiting remedy recommendation by

ITC- Key is Presidential discretion; under Bush; won 6 cases, but no remedy- Positive from President, low cost legal approach only needs to show surge and harm, not

dumping, subsidies, etc.

2. WTO Complaint By US Government- 9 materials, some steelmaking raw materials- Seems counterintuitive - don’t want Chinese exports, but the complaint is against hoarding

of materials. But, quotas are illegal.- Chinese defense will be Article 20, preserve raw materials; Coke is a key.- Next steps: consultation between governments, followed by dispute resolution- Allows Chinese finished goods to be artificially cheaper

3. Antidumping/Countervailing Cases

4. 201 Safeguard (2001)

Trade CasesSteelOrbis Training

Trade UpdateItem Plus Minus SMA Action

OECD Only Global Forum No Measured Outcome Participate in China in October – Raw Materials

NASTC Hangtime w/NAFTA Officials; Governments see value

5 years = Bureaucratic Press NAFTA competitiveness Issues w/industry and Governments

ITAC 12 Influence to DOC & USTR

“Confidentiality”; needs more US producers

TAD Vice Chair

US China Dialogue Cards on the Table Even God does not know next meeting date

Participate w/members

Buy America Relatively unchanged since 1932

Negative Press Hold Course

ITC Support Members Lawyers Continue Support

China Steel Trade Elephant in Room Potential Threat Cases, Press U.S. Govt.

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Trade Update

Item Plus Minus SMA Action

Customs Fraud Big Deal in Circumvention, mislabeling, duty avoidance, etc.

Time Lag Participate in Customs Training and CSUSTL

Chinese Currency Now National Issue 7 years Continue Raise Money

FTZ – Alabama 2nd Filing Duty Avoidance including raw materials

Oppose Partial Approval

Retrospective / Prospective AD/CVD Duty System

Support Retrospective Prospective Less Accurate

SMA Testified

VAT Taxes Some Noise Not Tax Increase Reduce Personal and Corporate Tax accordingly

Trade Legislation Noise Not Today Support Activity; No Action

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Trade Update

Item Plus Minus SMA Action

Trade Statistics SIMA Helpful AIIS Comments Continue Comments, press surge component;Jobs, Jobs, Jobs

WTO Raw Materials Case

International Support Negotiated Solution? Principle is important

Doha Negotiations No Progress It’ll be back Through ITAC

Climate Change Not 2010 Waxman, etc. Press no Global Exceptions

American Scrap Coalition

Not just steel % scrap exports White Paper underway

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Mill

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Uni

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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, 1963-2009

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.

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The U.S. Construction Market Remains Weak

U.S. Single-Family Housing Starts, Q1 2004 through Q4 2009

Source: U.S. Census Bureau.

•Foreclosures remain a problem for both residential and non-residential construction.

•While residential construction is projected to increase, it is not expected to regain its 2008 level until 2013.

•The value of non-residential construction put in place fell by 9% from 2008 to 2009, and is projected to continue falling through 2011.

Source: Worldsteel

World Crude Steel Capacity 2000-2012

1,062 1,062 1,0951,170

1,2451,356

1,453

1,583

1,8161,917

1,9972,055

1,654

100

350

600

850

1,100

1,350

1,600

1,850

2,100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(e) 2011(e)

Ste

el

Cap

ac

ity

(m

illio

n m

etr

ic t

on

ne

s)

0

5

10

15

20

Cu

rre

nt

Av

era

ge

Gro

wth

Ra

te (

CA

GR

)

World Crude Steel Capacity CAGR

2012(e)

Global Steel Capacity Continues to Increase

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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 352.0 416.0 489.0 498.0 500.0

Net Exports 0.5 29.7 41.7 51.0 40.0

Source: Growell Research, “China Steel Capacity Forecast for 2006-2010” and CISA Presentation at OECD, December 15, 2008.

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Sources: US Department of Commerce for trade $ balances; AISI estimates for indirect steel trade

China as Percent of Total External U.S. Indirect Steel Trade Deficit 2000 - 2008

23.8 25.228.5 27.2

39.3

20.517.6

0

5

10

15

20

25

30

35

40

45

50

2001 2002 2003 2004 2005 2006 2007 2008

Per

cent

of E

xter

nal N

AFT

A In

dire

ct

Trad

e

53.5

In 2008 China Was Responsible for Over Half of the U.S. Indirect Steel Trade Deficit

Source: Data for China taken from World Steel Dynamics, Inside Track # 102 (Jan. 15, 2010). Data for Japan and NAFTA taken from the World Steel Association web page.

Over the Last Three Years, China’s Increase In Steel Production Far Exceeded Total 2009 Steel Production In Both Japan And The United States

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NAFTA Crude Steel Production in2009

Japanese Crude Steel Production in2009

Chinese Crude Steel Production in2009

Increase in Chinese Crude Steel Production 2006-2009

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perc

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China’s crude steel productionChinese crude steel production as a percentage of total world production

Source: World Steel Dynamics, Inside Track # 77 (May 30, 2007); World Steel Dynamics, Inside Track # 102 (Jan 15, 2010).

Last Year, China Accounted for Almost Half of Total World Crude Steel Production

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

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To

ns

Exports

U.S. Consumption

U.S. Scrap Consumption and Exports

2009 – Exports 22.3mtImports (e) 3.0mtU.S. Consumption 48.0mt

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United States

Million MT2009 (e) 2010(f)

Change (%)

Crude Steel Use

65.1 81.8 25.5%

Finished Steel Use

57.4 72.7 26.5%

Exports 8.5 11.3 32.9%

Imports 12.9 13.7 6.2%

Canada

Million MT2009 (e) 2010(f)

Change (%)

Crude Steel Use 10.6 13.1 23.9%

Finished Steel Use 9.5 11.8 23.9%

Exports 4.9 6.4 29.6%

Imports 6.0 7.7 28.3%

Mexico

Million MT2009 (e) 2010 (f)

Change (%)

Crude Steel Use 17.7 22.1 24.5%

Finished Steel Use

13.9 15.5 10.9%

Exports 2.0 2.4 20.0%

Imports 3.2 3.6 12.5%

Source: Worldsteel Economic Studies Committee, April 2010

The Worldsteel Short Range Outlook

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