SteelOrbis A LL A BOUT S TEEL T RAINING W ORKSHOP Thomas A. Danjczek President Steel Manufacturers Association San Diego, CA July 8, 2010

History of American Steelmaking SMA Early 20 th 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 20 th century Mergers and Acquisitions among modern American steelmakers American Steel Making in Crises: 1980s, late 1990s, early 2000s Various trade remedies - Trigger price mechanism / Section 201 Safeguards / 421 Safeguard Antidumping and Countervailing Cases Other trade issues: Fraud, NMEs, 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? SteelOrbis Training

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 SMA SteelOrbis Training

Where SMA Member EAFs are located… SteelOrbis Training

U.S. Steel Industry, Then and Now Smoke pouring into the air from a Pittsburgh steel mill, Image by Corbis - Bettmann Electric Arc Furnace facility Image by SMA

SteelOrbis Training Early US Steelmaking Source – Stubbles, J.R. The Original Steelmakers. Iron & Steel Society, Warrendale, PA, , 33.

SteelOrbis Training US Steel Production by Process In % EAF

SteelOrbis Training World Steel Production by Process In % EAF

SteelOrbis Training US Steel Production YearUS Raw Steel 1 (Metric Tons) 19009,200, ,700, ,800, ,000, ,000, ,800, ,100, ,000, ,000, ,700, ,000, ,000,000 (e) 1 US Geological Survey

US Capacity; Production & % EAF & Integrated – Year Total Capacity (mt) % Capacity Total Raw Steel Production (mt) Total Shipments (mt) EAF Based- Share (mt) % EAF Share Integrated Ore-Based Share (mt) % Integrated Ore-Based Share Source – U.S. Geological Survey – Iron & Steel Statistics and Information web page = SteelOrbis Training

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% st Half25m(45% utilization) 2 nd Half36m(62% utilization) Now 1.5m/week vs. 2.1m/week Year63m(Minimills at 63% of production) 2010 (from November 2009) World Steel78m(up 19% over 2009), optimistic Peter Marcus68m(Back to 75m in 2012) US Poll69m(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 Stage SteelOrbis Training

2009 in a long term context US steel industry production changes Source: AISI, First River YearDecline % % % % % % 72009F-30% % % % % % % % %

US raw steel capacity utilization Long-term average is 78%, stable level is 85% Source: AISI, First River 63% 48% 65% 61% Average Utilization Rates Periods 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 SteelOrbis Training 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 Acquired Company Arcelor MittalNucorDuferco/NLMK ArcelorConnecticut SteelWinner Steel DofascoTrico MittalBirmingham Evraz Ispat InlandCorus TuscaloosaOregon Steel ISGWorthington-DecaturClaymont Steel LTV MarionIpsco Canada US Steel Plate Weirton Nelson Steel Harris Steel Severstal Acme-Riverdale Auburn SteelArcelor Mittal-Sp. Pt. North Star Arizona Rouge WCI Georgetown American Iron Reduction Sicartsa Bayou LMP Steel & Wire CSN Heartland US SteelGerdau Ameristeel Lone StarSheffield Essar NationalChaparral Algoma LTV TinCo-Steel Minnesota Steel ISG IH#2 Pkl.North Star StelcoSidetul Tultitlan Quanex Macsteel BlueScope Corsa IMSA Steelscape OAO TMK SSAB Ipsco Tubular (U.S.) ICH/Grupo Simec Ipsco Plate (U.S.) Republic Steel Dynamics Ternium GalvPro-Jeffersonville HylsaThe Techs IMSARoanoke Steel Steel of West Virginia Tenaris Maverick Tube (U.S.) Prudential Canada Hydril Company Wheeling Pitt 1/1/09 Bethlehem The David J. Joseph Co. (Scrap) Omnisource (Scrap) SteelOrbis Training

1970s2008 Production Employment Technology Location Imports Profitability Average Price short tons Approx. 700, MH/ton (1978 – 449,000) <20% casters <10% EAF Primarily Rust Belt & a few scattered Approx. 15% Poor $ million tons <120,000 60% - approx. 40,000, <2MH/ton) 95% casters 60% EAF NW, SE, Rust Belt (near customers, and cheap power) Approx. 25% 35%) Good $1000??? million tons million tons, 63 in , % Marginal $600 SteelOrbis Training

-U.S. has become one of the worlds low cost steel producers, due to metallics availability, transportation, labor and energy efficiencies, and high utilization -China, which was approx. 70mmt in 1970s, today over 500mmt -Many large integrated producers eliminated legacy costs in period through bankruptcies (30 companies) -World demand for all raw materials has changed from excess to shortages -Last integrated mill built, Burns Harbor, was 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 1970s, to 130 million tons today, while production has been around 100 million tons -Steel sales in 1970s were less than $60 billion USD -Profitability: net income as a % of sales was only.5 to 2.5% (1974) in the 1970s. 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 SteelOrbis Training

Source – AISI, The Steel Import Problem. New York, NY Page 6. U.S. Foreign Trade In Steel Products (Million Net Tons)- Life in the 60 SteelOrbis Training

Crude Simple Estimate – Long Products SteelOrbis Training

Employment in the U.S. Steel Industry Source – U.S. Department of Labor. Bureau of Labor Statistics. SteelOrbis Training

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 - dont 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 Safeguard (2001) Trade Cases SteelOrbis Training

Trade Update ItemPlusMinusSMA Action OECDOnly Global ForumNo Measured OutcomeParticipate in China in October – Raw Materials NASTCHangtime w/NAFTA Officials; Governments see value 5 years = BureaucraticPress NAFTA competitiveness Issues w/industry and Governments ITAC 12Influence to DOC & USTR Confidentiality; needs more US producers TAD Vice Chair US China DialogueCards on the TableEven God does not know next meeting date Participate w/members Buy AmericaRelatively unchanged since 1932 Negative PressHold Course ITCSupport MembersLawyersContinue Support China Steel TradeElephant in RoomPotential ThreatCases, Press U.S. Govt. SteelOrbis Training

Trade Update ItemPlusMinusSMA Action Customs FraudBig Deal in Circumvention, mislabeling, duty avoidance, etc. Time LagParticipate in Customs Training and CSUSTL Chinese CurrencyNow National Issue7 yearsContinue Raise Money FTZ – Alabama2 nd FilingDuty Avoidance including raw materials Oppose Partial Approval Retrospective / Prospective AD/CVD Duty System Support RetrospectiveProspective Less Accurate SMA Testified VAT TaxesSome NoiseNot Tax IncreaseReduce Personal and Corporate Tax accordingly Trade LegislationNoiseNot TodaySupport Activity; No Action SteelOrbis Training

Trade Update ItemPlusMinusSMA Action Trade StatisticsSIMA HelpfulAIIS CommentsContinue Comments, press surge component; Jobs, Jobs, Jobs WTO Raw Materials Case International SupportNegotiated Solution?Principle is important Doha NegotiationsNo ProgressItll be backThrough ITAC Climate ChangeNot 2010Waxman, etc.Press no Global Exceptions American Scrap Coalition Not just steel% scrap exportsWhite Paper underway SteelOrbis Training

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, Source: Wards 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.

The U.S. Construction Market Remains Weak U.S. Single-Family Housing Starts, Q through Q 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 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 ,062 1,095 1,170 1,245 1,356 1,453 1,583 1,816 1,917 1,997 2,055 1, ,100 1,350 1,600 1,850 2, (e)2011(e) Steel Capacity (million metric tonnes) Current Average Growth Rate (CAGR) World Crude Steel CapacityCAGR 2012(e) Global Steel Capacity Continues to Increase SteelOrbis Training

Crude Steel Supply in China, (million metric tons) (e) Capacity (e)660.0 Production Net Exports Source: Growell Research, China Steel Capacity Forecast for and CISA Presentation at OECD, December 15, SteelOrbis Training

Sources: US Department of Commerce for trade $ balances; AISI estimates for indirect steel trade 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, Chinas Increase In Steel Production Far Exceeded Total 2009 Steel Production In Both Japan And The United States Increase in Chinese Crude Steel Production

Chinas crude steel production Chinese 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

U.S. Scrap Consumption and Exports 2009 – Exports 22.3mt Imports (e)3.0mt U.S. Consumption48.0mt SteelOrbis Training

United States Million MT 2009 (e)2010(f) Change (%) Crude Steel Use % Finished Steel Use % Exports % Imports % Canada Million MT 2009 (e)2010(f) Change (%) Crude Steel Use % Finished Steel Use % Exports % Imports % Mexico Million MT 2009 (e) 2010 (f) Change (%) Crude Steel Use % Finished Steel Use % Exports % Imports % Source: Worldsteel Economic Studies Committee, April 2010 The Worldsteel Short Range Outlook SteelOrbis Training