Copyright ©2003 Global Insight, Inc. GLOBAL INSIGHT STEEL OUTLOOK May 2006 John Anton Director Global Insight Steel Service (202)

Copyright ©2003 Global Insight, Inc. 2 BOTTOM LINE  Demand is growing, but only China is booming  Supply is taut but loosening in the United States, ample everywhere else  Prices in the U.S are far above world, so look for higher imports to restrict upward price movement  China is the story, the rest is embellishment

Copyright ©2003 Global Insight, Inc. 3 China is the Key In 1995 China’s steel production was equivalent to the U.S. slightly less than Japan For 2005, China made 3.7 times more steel than the U.S., 3.1 times the output of Japan Since 2001, annual growth of 14%, 24%, 22%, 26%, and 26%

Copyright ©2003 Global Insight, Inc. 4 Why Chinese Growth Is Certain to Slow

Copyright ©2003 Global Insight, Inc. 5 Global Industrial Production Growth

Copyright ©2003 Global Insight, Inc. 6 Individual Domestic Demand Sectors  Automotive is high but dipping slightly  Residential construction is falling, but still high  Industrial machinery production rising  Non-residential growing but not back to 2000 level  Heavy machinery is strong  Energy is the best sector  Plate, pipe, and specialty

Copyright ©2003 Global Insight, Inc. 7 Demand in the U.S. Needs Until 2008 to Regain Peak Rising from 2003q2 trough But below 2000q2 peak Demand fell 14%, has risen only 10% through 2006q1 Without consumer goods (autos and appliances), there would have been a complete rout Now business investment is strong, and consumer side is starting to weaken

Copyright ©2003 Global Insight, Inc. 8 Supply  China production had slowed to “only” 20% y-o-y, but likely to rise again  Pressure on raw materials continues, look for easing in 2007  Domestic shipments are rising, but modestly  Imports  Inventory  Imports are up, and will rise further  Inventory does not explode, but tightness dissipates

Copyright ©2003 Global Insight, Inc. 9 Price – Outlook  Carbon prices gain through remainder of 2006Q2  Imports have not yet been incorporated  Inventory still relatively thin  Q3 is the unsettled quarter  Announced increases, but also recissions  No clear up or down trend  Prices decline late in 2006, and across The decline is mild  Lower ore costs  Most likely alternative is flat to barely down

Copyright ©2003 Global Insight, Inc. 10 USA Prices Are Far Above Rest of the World (Source: Metal Bulletin, all rights reserved)

Copyright ©2003 Global Insight, Inc. 11 Price – the Exceptions  Plate  Extremely strong endmarkets  Traditional link with HRCS has been severed  Galvanized  Zinc is one of the strongest of non ferrous metals  Price should barely decline, gap over cold rolled widens  Specialty steels

Copyright ©2003 Global Insight, Inc. 12 Specialty Steel  Demand is spectacularly strong  Power plants and refineries  Pipelines  Aerospace and defense  Supply cannot keep up  Mills are sold out  Anecdotes of lead times through 2007 and even into 2008  Little or no relief until new mills are built  Prices will rise  Not driven by input costs  But when demand exceeds supply, mills first ration thru allocation and lead time, but eventually through price