Thomas A. Danjczek President Steel Manufacturers Association March 29, 2013 Guangzhou, China 11 th International Steel Market and Trade Conference Update CISA: China Iron and Steel Association Metallurgical Council of CCPIT (MC-CCPIT)

Outline About the SMA Set the Tone - Economy Set the Tone - Steel US Steel Imports Expanding Future US Steel Production Final Thoughts 11 th International Steel Market and Trade Conference

About the SMA - Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 118 Associate Member steel industry suppliers - SMA Members account for approximately 75% of U.S. domestic steel capacity - Today, roughly two-thirds of North American steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s 11 th International Steel Market and Trade Conference SMA Approximately 2/3 of U.S. Steel Production

Set the Tone - Economy The US “fiscal cliff“ poses the most immediate risk to the US economy Pace of US growth in 2013 estimated at 2%, near stagnation While US unemployment rate declined, still above pre- recession levels Rising energy production and housing rebounding are bright spots (“race to gas”) Capital spending is a downside risk US trade deficit is unsustainable 11 th International Steel Market and Trade Conference

Source: US Census Bureau Total US Trade Deficit with China (in million US$) 2012 US trade deficit with China was a record $315.1 billion, accounting for 43.3% of overall $727.9 billion US trade deficit US steel imports from China were 1,505,751 metric tons, a 33.9% increase over 2011 levels, and a 92.8% increase over 2010 levels. Million US $ 11 th International Steel Market and Trade Conference

US GOOds Set the Tone - Economy Annual Deficit is the most significant barrier to U.S. economic recovery UNSUSTAINABLE 11 th International Steel Market and Trade Conference

Set the Tone - Steel Primary metal 4% growth YTD 2012 over 2011 in US U.S. capacity utilization approx. 74.4% in 2012 Y.T.D. capacity utilization approx.76.9% (w/reduced capacity) Scrap price volatility (75% of minimill costs) 11 th International Steel Market and Trade Conference Year World Steel Production (million metric tonnes) US Steel Production (million metric tonnes) US Steel Imports (million metric tonnes) 20071, , , , , , Sources: census.gov, worldsteel.org

2012 Steel Shipments by Market Classification 11 th International Steel Market and Trade Conference

NAFTA Auto Production Source: Wards Automotive 11 th International Steel Market and Trade Conference

Construction Activity *Non-building structures (e.g., infrastructure) not included Source: McGraw-Hill (Dodge) 11 th International Steel Market and Trade Conference

Energy Production Source: Baker Hughes, U.S. Dept. of Energy 11 th International Steel Market and Trade Conference

Source: AISI Demand Forecast Finished Steel (mmt) ∆ YOY2013∆ YOY Industry Shipments %92.1+4% Finished Imports %22.91% Adjustments Exports %12.9+0% Apparent Steel Use (ASU)* % % Inventory Change Real Steel Use (RSU)** %99.1+4% 11 th International Steel Market and Trade Conference

US Imports of Total Steel Products Up 17% Source: U.S. Department of Commerce (Census Bureau) 11 th International Steel Market and Trade Conference US Steel Imports

Comparing 2012 to 2011 by product category: Semi-finished imports increased 14.2% to 6,772,056 metric tons; Flat product imports increased 16.4% to 9,550,032 metric tons; Pipe and tube imports increased 24.4% to 7,710,529 metric tons; Long product imports increased 14.6% to 5,191,504 metric tons; and stainless imports increased 13.5% to 1,143,515 metric tons. 11 th International Steel Market and Trade Conference US Steel Imports

Increase in Total Steel Imports is from Numerous Countries, Across the Globe Source: U.S. Department of Commerce (Census Bureau) +84%+24% +34% +74% +30% +27% 11 th International Steel Market and Trade Conference US Steel Imports

Surge in Steel Imports is Across Various Product Lines Source: U.S. Department of Commerce (Census Bureau) +49% +19% +37% +41% +25% 11 th International Steel Market and Trade Conference US Steel Imports

Factors in the Surge of Steel Imports Weakened global economy – Asian market downturn, large overcapacity of steel – European recession – U.S. market still weak Market interference by foreign governments: – Subsidies – Raw material export restrictions – Import restrictions on steel or steel containing products – Other interventions 11 th International Steel Market and Trade Conference US Steel Imports

The US is a net importer of steel, yet domestic capacity is utilization only at appox 75% The US is the world’s largest exporter of scrap The US is a low cost steel producer Expanding Future US Steel Production The United States is unique among major steel producing nations: 11 th International Steel Market and Trade Conference

Is self-sufficient in steelmaking raw materials, especially scrap (2011 – generated 84mmt of scrap, but consumed only 55mmt) (~ 75%of production costs) Since 2002, imports 26.2% of steel consumption, while capacity utilization only appox 80% Has relatively low energy prices Has high productivity to offset wage rates Has the world’s largest capital market Expanding US Steel Production Comparative Advantages in US The United States:

Need policies that encourage expanded domestic steel production to utilize domestic capacity Foreign export restrictions on steel scrap have many negative consequences Expanding US steel production through the conversion of scrap into steel would create high-paying jobs, increase GDP, reduce the trade deficit, and provide added tax revenues The expansion must occur without massive government investments, subsidies, and interventions; but needs to be based on comparative economics and market forces Significant amounts of imports should be replaced with domestically produced steel Expanding Future US Steel Production Conclusions

Final Thoughts Volatile and fragile times continue U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Gridlock continues Uncertainty will continue. Increasing steel capacity without regard to market forces or comparative advantage is wrong Reasons for optimism in steel in North America: – Favorable gains with reemerging manufacturing base, including benefits of shale gas – Scrap-based, 75% of cost – local supply – Low cost on global basis (energy is positive, labor less than 10%, others have higher transportation costs) – Relatively strong market and resiliency – Better & stronger company balance sheets 11 th International Steel Market and Trade Conference