Steel – 2005/2006 Thomas A. Danjczek, President Steel Manufacturers Association March 20, 2006 National Slag Association 89 th Spring Meeting Clearwater, FL

Steel – 2005/2006 I.SMA II.2005 World Steel Production/Operating Rate China Scrap, Ore, Steel, Gas Prices Consolidations III.2006 China’s Challenges Trade Energy & Environment Other IV.Slag Issues V.Conclusion NSA – Spring Meeting

The Steel Manufacturers Association (SMA) –39 North American Companies: 33 U.S., 3 Canadian, and 3 Mexican –109 Associate Members: Suppliers of goods and services to the steel industry SMA member companies –Operate 120 Steel plants in North America –Employ about 40,000 people –Minimill Electric Arc Furnace (EAF) producers –Produce nearly 100% of structural, wire rod, rebar, minimill plate and hot rolled, and a high percentage of SBQ products –Also represent several integrated steel producers and rerollers

NSA – Spring Meeting Production capability –SMA represents over two-thirds of U.S. steel production (app. 70%) Recycling –SMA members are the largest recyclers in the U.S. –Last year, the U.S. recycled over 70 million tons of ferrous scrap Growth of SMA members –Efficiency and quality due to low cost –Flexible organizations –EAF growth surpassed 53% in 2004, and anticipated to be 60% by 2010

2005

WORLD CRUDE STEEL OPERATING RATE World Crude Steel Operating Rate % World Crude Steel Operating Rate % Operating rates recovered from 76 percent in 2000, to a peak of 87 percent in 2004, and have moved moderately downward since late Source: Metal Strategies

NSA – Spring MeetingChina’s Impact After 4 Trips in a Year… Key Questions: - When will Chinese steel production significantly exceed its own domestic consumption – i.e. 50/60 MMT? - Will the Chinese government shut down inefficient, excess capacity? (Has not done so with polluting facilities despite strong policy) - How can North American Steel Industry compete against Chinese government IT CAN’T!

Chart 2: The Exploding Trade Deficit With China

Chart 3: China’s Foreign Exchange Reserves

CONCERNS Steel ItemComment North American steel industry CANNOTCurrency, banks, land, environment, compete against Chinese steel companiesconsolidations, policies financed and controlled by their government In 2005, compared to 2004, China steelTrend worsens in 2006 with new imports are projected to drop by 6.1capacity on line, and China’s million tons, while exports are projectedslowdown to increase by 12.3 million tons North American steel industry loss of aGovernment de facto subsidies significant increment of its customer(industrial parks, infrastructure, base to relocation to Chinesefactory space, loans) production sites

Steel Making Raw Material Prices Prices of key steel making cost inputs have more than doubled in 2004 and The outlook for 2006 is for continuing cost pressures...

Source: Iron and Steel Statistics Bureau

Rebar Prices, (Midwest, $ per ton) Source: Purchasing Magazine June 2005 = $470 July 2005 = $450 Aug = $435 Sept = $485 Oct = $494 Nov = $486 Dec = $481

Wire Rod Prices, (Midwest, $ per ton) Source: Purchasing Magazine June 2005 = $505 July 2005 = $472 Aug = $469 Sept = $523 Oct = $492 Nov = $503 Dec = $503

Wide-Flange Beam Prices, (Midwest, 8 x 8, $ per ton) Source: Purchasing Magazine June 2005 = $516 July 2005 = $506 Aug = $496 Sept = $545 Oct = $560 Nov = $574 Dec = $587

U.S. Oil and Natural Gas Prices …oil prices are the major uncertainty in the outlook for 2006, with forecasts ranging from thirty-five to seventy-five US$ per bbl…

Natural Gas Cost Impact …sharp gains in natural gas prices have more than doubled steel mill gas costs per ton since Costs for integrated mills have risen over $30 per ton…

U.S. STEEL INDUSTRY CONSOLIDATION (Percent Change, 2000 compared to 2005) Mittal Steel weighted average share of all markets served = ~33% (major product range-15-40%+) -FRP acquisition price ($/ton, going-concern basis) 2002= $110…… ’04=$170……2005=$225 Source: Metal Strategies

2006

CHINA’S CHALLENGES Area Comment EnvironmentTrade policy and laws are not enforced regarding emissions and effluents; Province versus Beijing; employment rules, not environment ConsolidationsState-owned facilities; only non-controlling foreign ownership allowed; antiquated facilities; policy is 20 large producers, push small producers out Technology/QualityQuality in flat rolled will affect export capabilities. Switch from long to flat not easy InventoriesRun full out. Not always market-oriented CapitalWill not always be free; could lose state credit PersonnelSome “unrest” expressed toward elite class. Internet is politically uncontrollable NSA – Spring Meeting2006 China

China’s Steel Trade Balance Year Imports Exports (Semi’s) Steel Trade Balance China

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 COMPLIANCE WITH THE WTO 2006 China

Chinese steel industry expansion continues in a region that is deficient in resources (supply and quality) and environmental compliance… 2006 China

2006 Prices

Section 421 Disappointment – No Relief Wire Rod Case – No Import Injury Solicit Congressional Assistance & Action - Ryan/Hunter - Graham/Schumer - Other??? Doha Agenda “only lose?” 2006 Trade

No National Energy Policy For EAFs, Demand Response is “Perfect Peaker” Need for Nuclear After Metallic Exports, Number One Threat for Competitiveness 2006 Energy

Mercury “End of Pipeline” Regulation Risk (Area Source Rule vs. Negotiated Settlement) TOSCA – Not Recognizing Benefits of Recycling i.e. Automotive Scrap, Fluff, & Slag Trend Toward “Measure – Monitor – Control”, vs. “Under the Bar” Compliance Continued Risk With Lost Radioactive Sources, TRI Reporting, and GGG 2006 Environment

Metallics Exports Concerns Transportation Challenges Congressional “Gridlock” TEA 21 $$$ - Finally U.S. Government Financial Policies (Trade & Budget Deficit) Need for Border Adjustable Tax 2006 Other

NSA – Spring Meeting SLAG ISSUES Two Primary Issues: 1.Revision of the Slag Risk Assessment 2.Regulatory Status of Slag as a Product

NSA – Spring Meeting SLAG RISK ASSESSMENT PROJECT Conducted by Steel Slag Coalition Anticipate completion, Spring 2006 Updated to reflect current toxicological data, standards, and risk methodology Work completed, now doing human health portion Ecological report will be valuable in responding to potential impact on the environment

NSA – Spring Meeting REGULATORY STATUS OF SLAG SMA is engaged with EPA and various state agencies that EAF SLAG IS NOT A WASTE MATERIAL, BUT IS A USEFUL PRODUCT Regulations in Iowa are attempting to classify EAF slag as a waste under “beneficial reuse” regulations SMA is coordinating a federal effort to prompt the EPA to clarify the status of EAF slag under federal solid waste regulations

NSA – Spring Meeting Conclusions Hell, it’s still a cyclical business We need to continue to work together on slag issues Fundamental shift in both demand and supply due to China & its appetite for raw materials – China is still the “wild card”. Risk near term is auto’s; long term is China Consolidations and discipline have had an impact to reduce volatility Role of inventories affecting pricing and production Demand still healthy, construction solid Unknowns (Oil, interest rates, auto sector, energy, freight rates, federal spending, China, China, China) Still reasons for meaningful optimism