The Age P R O F I OF Presentation by: Karlis M. Kirsis Managing Partner World Steel Dynamics Inc. T S

The Age

PROF I

OF

Presentation by:

Karlis M. Kirsis

Managing Partner

World Steel Dynamics Inc.

www.worldsteeldynamics.com

TS

WORLD STEEL DYNAMICS

Volcanic Activity: The Steel Market


Death Spirals and Volcanoes(HRB -- $ per tonne, Tier I mills, FOB the port)

$300June ’94

VolcanoMay’95

$475

“The Sna ke”

--

$270May ’98

Dea th Valley $ 185

Dec. 1998

$333April 2000

$305Oct. ‘95

$345April ‘97 $325

Jan. ‘98$355

Sept. ‘94

---- The “V” ----

$275May ‘96

$290Dec. ‘96

$225Feb. ‘96

MassiveEruptio n

$625 Sept. 2004

$480May 2005

Rock Bottom$ 175

Dec. 2 00 1

$350Feb. 2003

Death Sp iral Threat

$250, June 2003

MiniVolcano

MiniVolcano

$600Dec. 2004

$475Oct. 2005

$390July 2005

$300June ’94

VolcanoMay’95

$475

“The Sna ke”

--

$270May ’98

Dea th Valley $ 185

Dec. 1998

$333April 2000

$305Oct. ‘95

$345April ‘97 $325

Jan. ‘98$355

Sept. ‘94

---- The “V” ----

$275May ‘96

$290Dec. ‘96

$225Feb. ‘96

MassiveEruptio n

$625 Sept. 2004

$480May 2005

Rock Bottom$ 175

Dec. 2 00 1

$350Feb. 2003

Death Sp iral Threat

$250, June 2003

MiniVolcano

MiniVolcano

$600Dec. 2004

$475Oct. 2005

$390July 2005

$420Jan

2006

$450Mar. 2006


HRB Pricing Troika: USA, China and World HRB Prices: Chinese Home Market, USA Spot and World Export(dollars per tonne)

150

250

350

450

550

650

750

850Ja

n-97

Apr

-97

Jul-9

7

Oct

-97

Jan-

98

Apr

-98

Jul-9

8

Oct

-98

Jan-

99

Apr

-99

Jul-9

9

Oct

-99

Jan-

00

Apr

-00

Jul-0

0

Oct

-00

Jan-

01

Apr

-01

Jul-0

1

Oct

-01

Jan-

02

Apr

-02

Jul-0

2

Oct

-02

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

$ p

er m

etri

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nn

e

USAHRB Spot Price

ChinaDomestic Price

World SpotExport Price


Dollars-per-Euro drives World HRB Price

100

200

300

400

500

600

700Ja

n-00

Mar

-00

May

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Jul-

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$ p

er M

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ort

0.80

0.90

1.00

1.10

1.20

1.30

1.40

Do

llar

s p

er E

uro

Dollars per EuroExchange rate(right scale)

World Export Price(left scale)

Age of Steelmakers’Metallics


50

100

150

200

250

300

350

400

450

500Ja

n-9

7M

ar-9

7M

ay-9

7Ju

l-97

Sep

-97

No

v-97

Jan

-98

Mar

-98

May

-98

Jul-

98S

ep-9

8N

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98Ja

n-9

9M

ar-9

9M

ay-9

9Ju

l-99

Sep

-99

No

v-99

Jan

-00

Mar

-00

May

-00

Jul-

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ep-0

0N

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n-0

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1M

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l-01

Sep

-01

No

v-01

Jan

-02

Mar

-02

May

-02

Jul-

02S

ep-0

2N

ov-

02Ja

n-0

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ar-0

3M

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3Ju

l-03

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-03

No

v-03

Jan

-04

Mar

-04

May

-04

Jul-

04S

ep-0

4N

ov-

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n-0

5M

ar-0

5M

ay-0

5Ju

l-05

Sep

-05

No

v-05

Jan

-06

Mar

-06

$ p

er

me

tric

to

nn

e

USA Autobundles

Far East No. 1,Heavy Melt

USA No. 1Heavy Melt


Spread: USA Autobundle lessUSA #1 Heavy Melting

0

50

100

150

200Ja

n-00

Mar

-00

May

-00

Jul-

00

Sep

-00

Nov

-00

Jan-

01

Mar

-01

May

-01

Jul-

01

Sep

-01

Nov

-01

Jan-

02

Mar

-02

May

-02

Jul-

02

Sep

-02

Nov

-02

Jan-

03

Mar

-03

May

-03

Jul-

03

Sep

-03

Nov

-03

Jan-

04

Mar

-04

May

-04

Jul-

04

Sep

-04

Nov

-04

Jan-

05

Mar

-05

May

-05

Jul-

05

Sep

-05

Nov

-05

Jan-

06

Mar

-06

Do

llar

s p

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ross

To

n,

Del

iver

ed


Return of the Steel Phoenix “Profitability”

-$40

-$20

$0

$20

$40

$60

$80

$100

$120

$140Q

1 00

Q2

00

Q3

00

Q4

00

Q1

01

Q2

01

Q3

01

Q4

01

Q1

02

Q2

02

Q3

02

Q4

02

Q1

03

Q2

03

Q3

03

Q4

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04

Q2

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06f

Q2

06f

Q3

06f

Q4

06f

Do

llar

s p

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et T

on

Sh

ipp

ed

USMajor Mills

USMini Mills

USProcessors

Forecast

China Dominates Steel Growth


Sep-04Oct-04Nov-04Dec-04Jan-05Feb-05Mar-05Apr-05

May-05Jun-05Jul-05

Aug-05Sep-05Oct-05Nov-05Dec-05Jan-06Feb-06Mar-06Apr-06

China Crude Steel Production

100

150

200

250

300

350

400

Jan-

00M

ar-0

0M

ay-0

0Ju

l-00

Sep

-00

Nov

-00

Jan-

01M

ar-0

1M

ay-0

1Ju

l-01

Sep

-01

Nov

-01

Jan-

02M

ar-0

2M

ay-0

2Ju

l-02

Sep

-02

Nov

-02

Jan-

03M

ar-0

3M

ay-0

3Ju

l-03

Sep

-03

Nov

-03

Jan-

04M

ar-0

4M

ay-0

4Ju

l-04

Sep

-04

Nov

-04

Jan-

05M

ar-0

5M

ay-0

5Ju

l-05

Sep

-05

Nov

-05

Jan-

06M

ar-0

6

Mill

ion

To

nn

es

An

nu

aliz

ed

All but China Crude Steel Production

660

700

740

780

820

Jan-

00M

ar-0

0M

ay-0

0

Jul-

00

Sep

-00

Nov

-00

Jan-

01M

ar-0

1M

ay-0

1

Jul-

01S

ep-0

1

Nov

-01

Jan-

02

Mar

-02

May

-02

Jul-

02

Sep

-02

Nov

-02

Jan-

03M

ar-0

3M

ay-0

3

Jul-

03

Sep

-03

Nov

-03

Jan-

04

Mar

-04

May

-04

Jul-

04S

ep-0

4

Nov

-04

Jan-

05M

ar-0

5M

ay-0

5

Jul-

05

Sep

-05

Nov

-05

Jan-

06M

ar-0

6

Mill

ion

To

nn

es

SA

AR


Chinese Fixed Asset Investment Bubble

0%

10%

20%

30%

40%

50%

China Japan South Korea USA

FAI as Share of GDP

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40


FAI Steel Intensity

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07


Household Spending Steel Intensity


Global Steelmaking Metallics Requirements

Global Steelmaking Metallics Requirements

0

100

200

300

400

500

600

700

800

900

1,000

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

MIL

LIO

N T

ON

NE

S Pig Iron

SSS+HMSNew Scrap

Home Scrap

Obsolete Scrap

Forecast

China Region Metallics Requirement


China Region Metallics Requirement

0

100

200

300

400

500

600

700

80019

75

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

MIL

LIO

N T

ON

NE

S

Note: Includes North Korea and Vietnam.

Pig Iron

Home Scrap

Obsolete Scrap

New Scrap

SSS/HMS

Forecast


Global Metallics Requirements excluding China

Global Metallics Requirements Excluding China

0

200

400

600

800

1,000

1,200

1,40019

75

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

MIL

LIO

N T

ON

NE

S

Pig Iron

Home Scrap

SSS Needs

HMS Needs

New Scrap

Obsolete Scrap

Forecast


2006Outlook


Big Picture Global economic news appears favorable. Economic activity continues to expand notwithstanding oil prices in the mid-high $60s.

In China, the economy has shifted to an even faster growth rate in the past six months.

In the USA, the economy is strong, with signs that non-residential construction may rise 10% or more this year.

In Germany, business confidence is up sharply.

In Japan, confidence is also up and capital spending by manufacturers is rising.


The Odds for Non-Chinese Mills

Steel shortage – 50% odds.

High operating rate – 45% odds.

Sizable oversupply outside of China – 5% odds.


The Odds for Chinese Mills

Steel shortage – 5% odds.

High operating rate – 35% odds.

Reduced operating rate in China – 60% odds.


The USA mills are benefiting from a favorable supply/demand balance reflecting lagging steel production, relatively low imports of both steel products and semi-finished steel and good underlying demand.

Based on the recent annualized steel production rate and the imports of semis, the USA mills at present have a shipment capability of only about 104 million net tons versus the shipment forecast requirement of 109+ million tons.

This shortfall of steel deliveries is why hot-rolled band in the USA spot market is priced at the high level of about $615 per metric tonne, FOB the steel mill.

USA – Sole Strong Region


USA Crude Steel Production Difficulties?

1,200

1,400

1,600

1,800

2,000

2,200

2,400Ja

n-00

Feb

-00

Mar

-00

Apr

-00

May

-00

Jun-

00Ju

l-00

Aug

-00

Sep

-00

Oct

-00

Nov

-00

Dec

-00

Jan-

01F

eb-0

1M

ar-0

1A

pr-0

1M

ay-0

1Ju

n-01

Jul-0

1A

ug-0

1S

ep-0

1O

ct-0

1N

ov-0

1D

ec-0

1Ja

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Feb

-02

Mar

-02

Apr

-02

May

-02

Jun-

02Ju

l-02

Aug

-02

Sep

-02

Oct

-02

Nov

-02

Dec

-02

Jan-

03F

eb-0

3M

ar-0

3A

pr-0

3M

ay-0

3Ju

n-03

Jul-0

3A

ug-0

3S

ep-0

3O

ct-0

3N

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3D

ec-0

3Ja

n-04

Feb

-04

Mar

-04

Apr

-04

May

-04

Jun-

04Ju

l-04

Aug

-04

Sep

-04

Oct

-04

Nov

-04

Dec

-04

Jan-

05F

eb-0

5M

ar-0

5A

pr-0

5M

ay-0

5Ju

n-05

Jul-0

5A

ug-0

5S

ep-0

5O

ct-0

5N

ov-0

5D

ec-0

5Ja

n-06

Feb

-06

Mar

-06

Th

ou

san

d N

et T

on

s P

er W

eek


USA Steel Consumption/Shipment Outlook(million short tons)

1995 2000 2001 2002 2003 2004 2005E 2006F

Shipments 97.5 109.1 98.9 100.0 106.0 111.4 104.1 109.4

Plus: Imports 24.4 38.0 30.1 32.7 23.1 35.8 32.7 34.0

Less: Imported semis converted to finished 5.0 8.6 6.4 8.8 4.8 7.4 6.7 6.9products by AISI-reporting companies

Less: Exports 7.1 6.5 6.1 6.0 8.2 7.9 8.6 7.0

Subtotal: Apparent steel demand 109.8 131.9 116.4 117.8 116.1 131.9 121.5 129.5

Less: Est. user/buyer inventory build -2.0 -2.0 -4.4 0.0 0.5 5.0 -5.5 0.0

Equals: Actual steel consumption 111.8 133.9 120.8 117.8 115.6 126.9 127.0 129.5Year-to-Year % change 2.0% 3.1% -9.8% -2.5% -1.9% 9.8% 0.1% 2.0%

Index of activity in 15 steel consuming industries (1975 = 100) 99 116 105 98 94 100 101 102Year-to-Year % change 4.3% 5.8% -9.9% -6.7% -3.3% 5.8% 1.0% 1.0%

Steel consumption per point of activity index (million tons) 1.134 1.152 1.154 1.206 1.223 1.269 1.257 1.270


HRB and Other Items: Price Forecast

04 peak 1Q 05 2Q 05 3Q 05 4Q 05 Shakeout Good Times Shortage

Hot-Rolled Band:

USA, FOB the mill $830 $655 $555 $530 $595 $400 $610 $680

EU, FOB the mill 720 660 527 490 465 350 540 600

China, FOB the mill 505 522 463 400 350 270 350 400

World export, Tier I FOB port of export 625 575 473 435 425 330 470 600

World export, Tier IV FOB port of export 575 500 413 350 350 290 420 550

Steel slab, FOB the port of export 540 500 415 320 330 260 380 480

Rebar – world export price FOB theport of export 530 424 400 365 400 310 420 490

Scrap: ($ per gross ton)

No. 1 Heavy Melt, USA, delivered 285 215 188 207 210 130 225 270USA Autobundles, delivered 465 323 231 315 285 155 315 370No. 1 HM to Far East ($ per tonne) 312 280 240 275 230 150 270 300

2005 2006


The profit performance of the steel’s sheet-producing group, will probably be better than that for the long-products group.

One reason is that the steel sheet segment of the industry has grown far more concentrated in recent years.

Age of Profits

Improved Steel Cycle

Portion of the Steel CycleFor World Spot Export Pricing

Past 25 years Next 10 years

Shake-out 21% 5%Bad times 25 25Average times 25 30Good times 12 30Boom times 17 10



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WORLD STEEL DYNAMICSRegister Now

Steel’s New Game : Bigger Bets – Bigger JackpotsSSS XXI – United States

Co-sponsored by World Steel Dynamics and AMM

June 19-21, 2006Sheraton Towers New York

New York City, USA

www.worldsteeldynamics.com

Documents

The Age P R O F I OF Presentation by: Karlis M. Kirsis Managing Partner World Steel Dynamics Inc. T S