Thomas A. Danjczek President Steel Manufacturers Association July 30, 2009 Steel Orbis – Steel Trade Conference Steel Producers Issues in Today’s Economy.

Thomas A. DanjczekPresidentSteel Manufacturers AssociationJuly 30, 2009

Steel Orbis – Steel Trade Conference

Steel Producers Issues in Today’s Economy

• The Steel Manufacturers Association (SMA)– 36 North American companies:

31 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

SMASteel Orbis – Steel Trade Conference

• Production capability– EAF steel producers accounted for 60% of U.S. production in 2008– 62% first half 2009– 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

SMASteel Orbis – Steel Trade Conference

Outline

•SMA

•Today’s Concerns

•Today’s Deterioration

•China, China, China

•Other Issues (Energy, GHG, Infrastructure Spending)

•Consolidation

•Scrap

•Protectionism and Trade Issue

•Legislative Items (Cap & Trade, Infrastructure, Trade)

•Is Enough Being Done?

•Conclusion


Steel Executive- 1st Half 2009

The Obvious Concerns

-Our Jobs

-US Recession and financial meltdown

-Infrastructure Spending

-Value of the RMB

-Energy shortfalls and pricing

-Federal Bailouts

-China, China, China

-Global Steel Overcapacity

-Subsidies and other trade distortions

-US Legislation (111th Congress and the 44th President)


2009 in a long term contextGlobal steel annual production changes

Source: worldsteel, First River

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

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

Year Decline

1 1921 -38%

2 1932 -27%

3 1931 -27%

4 1945 -25%

5 1919 -24%

6 1908 -22%

7 1930 -21%

8 1914 -21%

9 1938 -19%

10 2009F -15%

11 1982 -9%

12 1975 -9%

13 1958 -7%

14 1918 -6%

15 1944 -5%

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%

World Steel Capacity Grew by Over 50% in the Past Eight Years.

Source: German Steel Federation and IISI verifications

Global Steel Capacity Through 2008

World Crude Steel Capacity 2000-2008

1,065 1,065 1,0981,173

1,2491,361

1,4561,564

1,654

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Ste

el C

ap

ac

ity

(th

ou

sa

nd

me

tric

to

ns

)

0

5

10

15

20

Cu

rre

nt

Av

era

ge

Gro

wth

Ra

te (

CA

GR

)

World Crude Steel Capacity CAGR

90*

*Additions to Capacity


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 352.0 416.0 489.0 498.0 520.0

Net Exports 0.5 29.7 41.7 51.0 38.0

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


China Steel Comments

•China has NOT become the world’s Largest steel producer by accident, or by operation of free markets, or comparative advantage

•China is NOT a low-cost steel producer

•China has reached its position through a combination of subsidies, mandates, and planned intervention

•In finished goods containing steel, China’s exports to absorb overproduction

•Chinese steel industry is overbuilt and under-demolished


China’s Trade Surplus with the U.S.

Year China’s Trade Surplus

2001 $22 billion(year China joined WTO)

2006 $177 billion

2007 $262 billion (up 47.7%)

2008 $290 billon

The U.S. has lost 3.3 million manufacturing jobs The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.since 2000… imbalances cannot go on forever.


Other Issues - EnergySteel Orbis – Steel Trade Conference

Energy Summary

• US power generation industry is at a critical juncture, with social pressures and pending legislation demanding massive changes.

•Competing demands for reliable, low-cost energy and climate change mitigation appear incongruent.

•Our Nation’s liquid fuel dependence on foreign resources continue to grow.

•Uncertainty of regulatory outcomes and rising costs impact industry’s willingness to commit capital investments, endangering near-term production capacity.

• The United States must foster new processes that address conflicting energy objectives simultaneously.

Other Issues - Energy


D R A F T8

T h e U . S . S t e e l I n d u s t r y H a s O n e o f t h e L o w e s t P r o c e s s E m is s io n s I n t e n s i t i e s

in t h e W o r ld

0 .4 9 0 .4 6

0 .9 3 0 .9 6

1 .0 51 .1 2

1 .3 6

0 .0 0

0 .2 0

0 .4 0

0 .6 0

0 .8 0

1 .0 0

1 .2 0

1 .4 0

1 .6 0

Un ite d S ta te s Ca n a d a Me x ic o G e rma n y A u s tr a lia Ru s s ia Ja p a n

Met

ric T

ons

CO

2/M

etric

Ton

of S

teel

Other Issues - GHGSteel Orbis – Steel Trade Conference

D R A F T

7

P ro ce ss G H G E m iss io n s P e r T o n H a ve F a lle n B y 4 8 % S in ce 1 9 9 0

0 .0 0

0 .2 0

0 .4 0

0 .6 0

0 .8 0

1 .0 0

1 .2 0

1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6

To

ns

CO

2/T

on

Ste

el

Other Issues - GHGSteel Orbis – Steel Trade Conference

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 Plate

WeirtonNelson 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)


• US aging infrastructure is functionally obsolete and structurally deficient

• FHWA estimates $78.8 billion per year for the next 20 years to maintain infrastructure, $131.7 billion to improve

• Gas tax at 18.54/gallon generates app. $40 billion

• Current gas tax woefully insufficient, only half of maintenance

Infrastructure Stimulus


U.S. Steel Scrap(Data in million metric tons)

Source: US Geologic Survey, January 20081. 2008 is a rough estimate based on 3 normal quarters; 4 th Quarter @ 60% steel production

Salient Statistics—

United States:2003 2004 2005 2006 2007(e) 2008(e)1

Production

Home Scrap17 14 15 13 13 12

Production

Purchased Scrap

56 59 58 58 58 52

Imports for Consumption 4 5 4 5 5 4

Exports 11 12 13 15 15 23

Consumption, reported 65 67 66 66 66 59


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


HR 2998, “the American Clean Energy & Security Act”; or the Waxman-Markey bill

U.S. House of Representatives passed bill – June 26, 2009 -House passed bill in vote on Friday June 26-219-212 vote (1 in 5 Democrats did NOT vote for the bill)-White House called for a vote on bill, but did not endorse it-President Obama indicated that tariff concept included by Ways & Means Committee may have to be removed from final bill

No Equivalent Bill introduced in Senate-Senate has been surprised by quick movement of House billExpect Senate to move much more slowly in dealing with aspects of any climate change legislation – could be 2010 before something is voted on and conferenced with House version of bill

U.S. Cap & Trade Climate Legislation


-Current six-year, $286 billion plan expires at end of September

-House working to produce $500 billion bill that would create new fund for road repairs, increase funding for rail and public transit, and include reforms to reduce fossil fuel reliance; estimated to create or sustain six million family-wage jobs

-Administration has requested 18-month $20 billion extension of current bill – contention over how to fund increased spending

-Immediate patch required to address current insolvency in Highway Trust Fund – expected to run dry in July 2009

Highway Bill Reauthorization


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- If positive from President (probably quotas), 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

Trade Cases Against China


Is Enough Being Done?

Raw Materials

Energy

China

Trade

No

No

No

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.


Conclusion

U.S. Steel Industry in Better Position Today to Manage the Down Cycle (but what a down cycle!)

― Improved Economics From Consolidations, i.e. “Reacted Quicker in October”;― Improved Control of Variable Costs

― Scrap-Based Metallics (In 2009, U.S. will be nearly 2/3 EAF-based― Energy Costs― Transportation Costs― Labor Efficiency (U.S. at Below 2MH/Ton; Minimills Often Below 1MH/Ton)

― Improved Inventory Control (Inbound Materials, Steel, and Customer Products). NOT THE OLD INVENTORY OVERHANG!― Improved Debt and Equity; Balance Sheet Position

― Still Challenging – But Reasons for Meaningful Long-Term Optimism!


Thomas A. Danjczek President Steel Manufacturers Association July 30, 2009 Steel Orbis – Steel Trade Conference Steel Producers Issues in Today’s Economy.

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