Changes, Drivers, and Challenges in the North American Steel Industry Thomas A. Danjczek President Steel Manufacturers Association November 8, 2012 Scottsdale, Arizona CHAIN LINK FENCE MANUFACTURERS INSTITUTE ANNUAL MEETING Update

Outline About the SMA Set the Tone - Economy Set the Tone - Steel Changes Impacting Steel Drivers Impacting Steel Challenges Impacting Steel Final Thoughts CLFMI – Annual Meeting

About the SMA - Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 123 Associate Member steel industry suppliers - SMA Members account for approximately 80% 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 CLFMI – Annual Meeting 3 SMA Approximately 2/3 of U.S. Steel Production

4 CLFMI – Annual Meeting Set the Tone - Economy U.S. & Canada GDP Growth Around 2% NEAR STAGNATION U.S. Manufacturing Production Rebounding STILL 6% BELOW PEAK & MAY BE DROPPING Global Slowdown Weakens Demand, Poor Earnings ARE WE LOSING MOMENTUM? U.S. Auto, Aerospace, Machinery Strong WILL IT CONTINUE? MAY BE DROPPING… “Trimming Profits” Second Recession in U.S.???

US GOOds CLFMI – Annual Meeting Set the Tone - Economy $620 Billion Annual Deficit projected in 2012 is most significant barrier to U.S. economic recovery UNSUSTAINABLE

6 Set the Tone - Steel CLFMI – Annual Meeting Primary metal 4% growth YTD 2012 over 2011 in US U.S. capacity utilization approx. 76.5% through October 2012 Up 6.4% over 2011, but…Recent weeks around 70%, now 69% Scrap price volatility (75% of minimill costs) $100/150 drop in 45 days – half back; maybe $20 down in September, maybe $50 in October??? U.S. may hit 97ms tons in 2012 Inventories remains LOW Changes in mill orders lead time from 6 weeks to 2.5 weeks, back to 5 weeks…all in 2 months – VOLATILE Iron ore prices down 36% YTD

7 CLFMI – Annual Meeting Source: Gerdau NA, US Census Bureau & AISI

NAFTA Auto Production Source: Wards Automotive CLFMI – Annual Meeting

Construction Activity *Non-building structures (e.g., infrastructure) not included Source: McGraw-Hill (Dodge) CLFMI – Annual Meeting

10 CLFMI – Annual Meeting

Energy Production Source: Baker Hughes, U.S. Dept. of Energy CLFMI – Annual Meeting

World Steel Association Global Overview NAFTA Apparent Steel Use, finished steel (SRO October 2012) 2011 Actual million tonnes 6.2% growth % growth 2012 forecast million tonnes2.1% growth % growth 2013 forecast million tonnes3.2% growth % growth 2013 As PCT % growth95.3% growth CLFMI – Annual Meeting

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% CLFMI – Annual Meeting

Imports – % CLFMI – Annual Meeting Source: DOC

15 CLFMI – Annual Meeting U.S. Steel Imports YearM-Metric Tons (e)32.0 U.S. steel imports are a growing problem.

CLFMI – Annual Meeting Changes Impacting Steel Variable Cost Control Engineers Scrap Availability High Unemployment Labor Intensity Inventory Levels Safety Consolidations Customer Requirements Foreign Ownership Transportation Costs Ore Availability Energy Costs Currency State-Owned Enterprises Other Factors… Skilled Jobs Shortages Union Contracts

Underlying Weak Economy, with less than 3% GDP growth and estimates downward. Recovery underway, but very slow – “Fragile” North American steel market under pressure with unused capacity Increased import percentages YOY, Impact of currency changes Not normal cycle of recession, overcapacity; new supply coming on Relative strong demand in auto; construction lagging Raw material costs, energy, and variable cost controls are major drivers Ore price evolution and recent developments-Platts graph Scrap price impact, growth of EAFs, developing world slowing down Economic growth turning point is always two quarters away Company market cap values at historic lows Drivers Impacting Steel CLFMI – Annual Meeting

18 CLFMI – Annual Meeting Iron Ore Market

CLFMI – Annual Meeting Challenges Impacting Steel SOEs Capital Scrap Price Volatility Trained Workforce WTO Disputes Health Care Costs Tax Manipulation & Reforms Indirect Steel % Labor Regulations

Final Thoughts Volatile times continue, May be between recessions U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Don’t look to Washington, DC for help. Gridlock continues Uncertainty will continue especially in U.S. industry until economic fundamentals are in equilibrium. Limited visibility… Other countries increasing steel capacity without regard to market forces or comparative advantage. Current status of scrap restrictions is unsustainable Reasons for optimism in steel in North America: – Favorable gains with reemerging manufacturing base – 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 CLFMI – Annual Meeting