Thomas A. Danjczek President Steel Manufacturers Association Pittsburgh, Pa. October 10, 2008 American Metal Market Conference Wire Rod and Wire Products.

Thomas A. DanjczekPresidentSteel Manufacturers AssociationPittsburgh, Pa.October 10, 2008

American Metal Market Conference

Wire Rod and Wire Products Conference

Is Enough Being Done?

•SMA

•Long Products and Wire Numbers

•Concerns

•Scrap

•Energy

•Trade

•China

•Free Trade versus Protectionism

•Need to fix US Economy

•Conclusions

OutlineAMM Wire Rod and Wire Products Conference

• 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

AMM Wire Rod and Wire Products Conference

SMA

• 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

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SMA

Product Name Total – 8 months 2008

2007 YTD – 8 months

% Change

1. Blooms & Billets for Rerolling 909,018 746,570 21.8%

2. Rebar 6,008,447 5,471,627 9.8%

3. Wire Rod 2,450,519 2,064,590 18.7%

4. Merchant Bars 1,655,013 1,539,777 7.5%

5. Light Shapes 1,277,048 1,294,595 -1.4%

6. Parallel Flange Sections 4,201,106 4,232,535 -0.7%

7. Structure Angles & Channels 1,418,474 1,413,027 0.4%

8. All Other Structural Shapes 162,441 158,783 2.3%

Subtotal of Products 6,7 and 8 5,782,020 5,804,346 -0.4%

Total Shipments 17,173,047 16,174,934 6.2%

Total Long Product ShipmentsJanuary - August 2008Quantity in Short Tons

SMA Long Products – TOTAL US IMPORTSAnnual 2005 – 2007, January – July 2008

Quantity in Short Tons Product name Annual 2005 Annual 2006 Annual 2007 Jan-Jul

2008

Blooms & Billets for Reroll 676,658 1,113,831 557,113 275,413

Rebar 1,424,649 2,587,889 1,861,192 752,747

Wire Rod 2,467,576 3,017,726 1,510,400 702,841

Merchant Bar 256,281 302,689 250,830 131,757

Light Shapes 235,678 291,322 229,255 110,751

Parallel Flange Sections 255,818 600,069 420,841 288,643

Structural Angles and Channels 195,874 284,734 265,981 121,137

All Other Structural Shapes 184,371 203,862 199,506 142,834

Total Imports 5,696,905 8,402,121 5,295,118 2,526,124

Product Name Total – 7 months 2008

2007 YTD – 7 months

% Change

1. Blooms & Billets for Rerolling 275,413 331,736 -17.0%

2. Rebar 752,747 1,435,773 -47.6%

3. Wire Rod 702,841 1,074,606 -34.6%

4. Merchant Bars 131,757 154,168 -14.5%

5. Light Shapes 110,751 148,427 -25.4%

6. Parallel Flange Sections 288,643 266,676 8.2%

7. Structure Angles & Channels 121,137 185,772 -34.8%

8. All Other Structural Shapes 142,834 132,809 7.5%

Subtotal of Products 6,7 and 8 552,615 585,258 -5.6%

Total Imports 2,526,124 3,729,969 -32.3%

Total Long Products ImportsJanuary – July 2008

Quantity in Short Tons

Product Name Total – 8 months 2008

2007 YTD – 8 Months

% Change

1. Blooms & Billets for Rerolling 208,697 55,268 277.6%

2. Rebar 290,271 189,215 53.4%

3. Wire Rod 19,671 10,578 86.0%

4. Merchant Bars 77,660 80,878 -5.2%

5. Light Shapes 40,212 44,803 -10.2%

6. Parallel Flange Sections 555,293 555,073 0.0%

7. Structure Angles & Channels 59,578 72,168 -17.4%

8. All Other Structural Shapes 27,814 27,165 2.4%

Subtotal of Products 6,7 and 8 642,685 654,405 -1.8%

Total Exports 1,279,196 1,036,148 23.5%

Total Long Products ExportsJanuary - August 2008Quantity Short Tons

Apparent Domestic Consumption January – July 2008

Quantity in Short TonsProduct Name Total – 7 months

20082007 YTD – 7 Months

% Change

1. Blooms & Billets for Rerolling 881,957 928,633 -5.0%

2. Rebar 5,906,831 6,090,244 -3.0%

3. Wire Rod 2,850,241 2,876,945 -0.9%

4. Merchant Bars 1,541,576 1,431,091 7.7%

5. Light Shapes 1,212,874 1,246,197 -2.7%

6. Parallel Flange Sections 3,515,477 3,456,310 1.7%

7. Structure Angles & Channels 1,333,213 1,380,539 -3.4%

8. All Other Structural Shapes 253,208 240,567 5.3%

Subtotal of Products 6,7 and 8 5,101,898 5,077,416 0.5%

Total 16,613,420 16,721,893 -0.6%

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Concerns- The Obvious

-US Recession and financial meltdown

-Recent market fluctuation

-Value of the RMB

-Energy shortfalls and pricing

-Federal Bailouts

-Attracting talent to the steel industry

-China, China, China

-Global Steel Overcapacity

-Subsidies and other trade distortions

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

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Concerns Discussed Today

• Scrap- Global barriers and restriction

• Energy- Foreign dependency and lack of growth

•Trade- Free trade verses Protectionism

• China- North American Steel Industry CANNOT compete against Chinese steel companies that are financed and controlled by their government.

AMM Wire Rod and Wire Products Conference

AMM Wire Rod and Wire Products Conference

AMM Wire Rod and Wire Products Conference

Energy

Energy – Availability and Cost

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

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

• NRC Expects up to 30 Applications for New Nuclear Generators Over 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 of transmission upgrades = $6,400/KW of generation

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.

COMPLIANCE WITH THE WTO

The National Association of Manufacturers (NAM) recently reviewed China’s compliance with its WTO commitments in the accession protocol. While progress has been made in certain areas, there are serious concerns and problems with effective compliance relating to: 

1. Huge U.S. trade imbalance2. Continued currency manipulation3. Arbitrary VAT taxes and rebates4. Massive counterfeiting and piracy5. Discriminatory standards6. Inadequate regulatory transparency

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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

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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%)

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.

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China Interferes with Raw Materials Markets

• China’s steel policy mandates such interference - Article 28: “Mineral resources belong to the state”- Article 30: The state will encourage large Chinese producers to “construct

production supply bases of iron ores, chrome ores, manganese ores, nickel ores, scrap steel, and coking coal in foreign countries”

- Article 30: The state will use its power to prevent “cut-throat competition” among Chinese mills for raw materials

- Article 30: The export of “coke, iron alloy, cast iron, scrap steel, {and} steel billet…shall be restricted’

• Examples of how China restricts critical exports:- Metallurgical coke- Ferroalloys and other nonferrous metals

• China has subsidized domestic iron ore production, as well as foreign ventures created to obtain iron ore from abroad

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China Conclusions

It’s About Competitiveness US wire rod producers have a competitive advantage in metallics

due to US scrap and China’s need to import over half its ore; US producers are on par with China on availability and price of energy, while labor is much lower in China; China’s labor savings do not equal US efficiency and Transportation cost from China.

US is competitive!!!

AMM Wire Rod and Wire Products Conference

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

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Need to fix US Economy

Trade deficit is a major cause of US financial crisis

To reduce the trade deficit and create jobs we need to:

1. Support policies that promote American interest by requiring full reciprocityfairness, and transparency in all US trade agreements.

2. Support actions to combat the illegal, mercantilist practice of prolonged currency misalignment, including legislation to make it actionable under US trade law.

3. Support Aggressive enforcement of US laws to halt foreign illegal tradeactivities such as dumping, subsidies and intellectual property theft. Inaddition, US policy must ensure that all goods sold here meet US food and product safety standards.

4. Support the elimination of tax disadvantages which undermine the competitiveness of US producers both at home and abroad or which discourage investment in America.

5. Support reduced US dependence on imported energy.

AMM Wire Rod and Wire Products Conference

Is Enough Being Done?

Answer to Questions

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

What part of “no” don’t you understand ?