Thomas A. Danjczek President Steel Manufacturers Association November 12, 2008 AIST – Baltimore Chapter Steel Issues in Washington

Outline AIST – Steel Issues in Washington SMA Today’s Concerns Today’s Financial Deterioration Scrap Issue Energy Issue GHG Issue China Issue Protectionism and Trade Issue Conclusion – Is Enough Being Done?

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 AIST – Steel Issues in Washington 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 AIST – Steel Issues in Washington SMA

AIST – Steel Issues in Washington Concerns- The Obvious -Our Jobs -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 (111 th Congress and the 44 th President)

AIST – Steel Issues in Washington Concerns Discussed Today Market Volatility 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.

Steel Executive-4 th Quarter 2008

Stock Markets Worldwide Have Plunged in Recent Months Percentage Change in Key Stock Markets Since the Beginning of May Source: Yahoo! Finance. Russia Brazil ShanghaiHong Kong Tokyo London S&P 500 Frankfurt AIST – Steel Issues in Washington

After Years of Growth, Global Steel Consumption Appears to Be Falling Global Apparent Steel Consumption (Annualized) Source: World Steel Dynamics, “Global Alert # 31” (Oct. 1, 2008) at 12. AIST – Steel Issues in Washington

The Fall 2008 Short Range Outlook historically Provided by IISI (“Worldsteel”) was not issued due to the Unprecedented Level of Market Uncertainty PRESS RELEASE World Steel Association Revised Short Range Outlook (SRO) Washington DC, 6 October 2008 – The World Steel Association Executive Committee reviewed its original Short Range Forecast issued in April The Executive recognized that the market is demonstrating rapidly changing circumstances but noted that 2008 will be another year of growth for the steel industry. Ku-Taek Lee, Chairman of the World Steel Association and Chairman & CEO of POSCO said, “We are in a period of high economic uncertainty. The impact on steel markets is becoming more apparent as we move into the later part of this year. We are currently reviewing our forecasts for 2009, which had been prepared this summer before current events. However, we continue to expect growth in steel demand in 2009 and for the medium term, above the world GDP growth rate.” The next World Steel Association Short Range Outlook (SRO) will be issued in April “A Confluence of a rapid economic deterioration in the US and Europe, a slowdown in emerging markets like China, and increasing difficulty in financing new projects in both industrial and construction sectors has taken the steam out of the steel sector. Accordingly, we are revising our shipment volumes and earnings estimates as well as significantly reducing price targets for the entire sector.” Sal Tharani – Goldman Sachs (Comments made in recent Steel Market analysis report)

AIST – Steel Issues in Washington U.S. Exports of Steel Scrap

AIST – Steel Issues in Washington

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. AIST – Steel Issues in Washington

Climate Change Legislation Steel Manufacturers Association: Supports the safety valve concept for limiting allowance pricing, in any cap & trade program; Recognizes the international component of the climate change issue, and would support the the use of industrial offsets, regardless of locale, as one way to respond to greenhouse gas emissions; and Believes that the cost associated with any cap and trade program must avoid double charging emissions (ie- The electricity generator and EAF mill consumer each must only be counted once on emissions).

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 imbalance 2. Continued currency manipulation 3. Arbitrary VAT taxes and rebates 4. Massive counterfeiting and piracy 5. Discriminatory standards 6. Inadequate regulatory transparency AIST – Steel Issues in Washington

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

AIST – Steel Issues in Washington China’s Trade Surplus with the U.S. YearChina’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 since 2000… imbalances cannot go on forever.

AIST – Steel Issues in Washington 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

AIST – Steel Issues in Washington China Conclusions It’s About Competitiveness US 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!!!

AIST – Steel Issues in WashingtonFree 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

AIST – Steel Issues in Washington Is Enough Being Done? Conclusions Raw Materials Energy China Trade 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 ?