Solving the China Puzzle Session VI – China Trade and its Impact on North American Manufacturing Thomas A. Danjczek President Steel Manufacturers Association September 29, 2006 Rev. 9/1/06 AMERICAN METAL MARKET CONFERENCE:

China Trade and its Impact on North American Manufacturing AMM – Solving the China Puzzle 1.Capacity (World, region, China by product, China’s announcements) 2.Subsidies (SMA statement, examples, comment re: AIIS 3.Environmental impact 4.Unknown 5.Conclusions

Projected Worldwide Crude Steel Capacity vs. Demand (2006 – 2010) Million Metric Tons *Demand growth estimated at 6%/yr

Worldwide Announced Steel Capacity Additions By Region Million Metric Tons

China Announced Steel Capacity By Product Million Metric Tons

AMM – Solving the China Puzzle Notable China Capacity Announcements -Baosteel planning construction of a 20mt/yr mill -Wuhan plans 10mt/yr steelworks in southern China -Anshan ready to start 10mt/yr steel mill -Maanshan orders 5.5mt/yr hot strip mill -Hangzhou to resume previously suspended project to build 6mt/yr plate mill -POSCO in talks on 12mt/yr steel plant in China’s Fujian province

AMM – Solving the China Puzzle China’s Subsidies SMA statement RE: WRF report, entitled: “The China Syndrome: How Subsidies and Government Intervention Created the World’s Largest Steel Industry”

AMM – Solving the China Puzzle China’s Subsidies -Export subsidies -Import substitution subsidies -Grants (land, cash, energy, raw materials -Tax incentives & reductions -Debt to equity conversion -Debt forgiveness -Environmental non-enforcement & weak regulation -Non-performing loans at state banks -Preferential loans -RMB manipulation -Barriers to foreign investment WHO IN THE ROOM IS RECEIVING ANY OF THE ABOVE???

AMM – Solving the China Puzzle China’s Subsidies Comments on AIIS report: “Integrating the Chinese Steel Industry and Trade Policy into the 21 st Century” -AIIS’ attack on U.S. trade laws so that some importers can obtain illegally subsidized steel is not news for AIIS. -AIIS contradicts itself by acknowledging that tens of billions of dollars of investments by Chinese banks are directly controlled by the Chinese government. How does AIIS explain the 80% ownership of the Chinese steel industry by the Chinese government? -AIIS’ “not to worry” attitude regarding the potential for excess steel making capacity to choke world export markets is consistent with their view that China’s capacity growth is market-drive, rather than government subsidized. This is a prime example of distortion of the facts.

AMM – Solving the China Puzzle Environmental Impact -U.S. EPA estimates that approximately 20% of the particulate matter in the skies above Los Angeles can be traced to China. -China’s environmental problems are severe, and getting worse. -The World Bank estimates that 16 of the world’s 20 most polluted cities are in China

AMM – Solving the China Puzzle Unknown -JCCT Steel Dialogue – where goal is to promote transparency with better decisions??? -European Union antidumping investigation & targets??? -Energy cost & interest rate impacts??? -China’s restrictive policy of foreign ownership participation??? -U.S. legislation??? -Trade actions??? -When will China play by market rules???

AMM – Solving the China Puzzle Conclusion -Continued North American steel industry resiliency. North American steel mills, for the most part, are technologically advanced, highly competitive, environmentally acceptable, and a key component of the North American economic infrastructure -U.S. Congress is very disappointed in the lack of China’s progress correcting currency manipulation -China has more government-financed steel making capacity than it can use -The growth of the Chinese steel industry has been at the expense of its international competitors -Concern with the displacement of steel consuming industries -China’s trade and environmental policies and laws are not enforced -North American steel industry CANNOT compete against the Chinese government -Still, reasons for meaningful optimism -It’s still a cyclical business, but enjoy today