Some Things to Think About: Growth & Value Presentation to Steel Manufacturers Association Washington DC May 15 th, 2007

2 The industry leadership challenge Find growth – defend value  In a dynamic environment it’s a hard balance to strike  Valuations continue to rise – can you keep up?  Relative consolidation levels require acceptance of new risks – offshore, union operations, different technologies, etc.  Once protected positions such as niches, divisions of larger companies, even private companies are not so safe  Conventional diversification strategies are strained by the opportunities & demands in steel  Relative strength of producers provides temptation to co-opt different parts of the value chain up and down  And China could – at any time – slow growth &/or ruin value

3 More buyers than sellers o/s China? Top 50 steel producers by “strategy” TypeAcquirersSellersEU IncJapan IncUndeclared? Number14 (7)33 (4)6 (6)24 (26) Volume MT (198)15MT17MT (23)94MT (92)207MT (198) % of Top 5046% (35%)2%3% (4%)15% (16%)33% (35%) CompaniesArcelorMittal CMC CSN Essar Evraz Gerdau Nucor SDI Severstal SSAB Tata Techint Thyssen US Steel AK Steel Erdemir Stelco Ruukki Salzgitter voestalpine JFE Kobe Nippon Nisshin Sumitomo Tokyo Stl CIS(8) Asia (4) Europe (4) MidEast (3) RoW (3) India(2) Source: MB, IISI, First River

4 Drives valuations… Companies purchased Source: Company reports, US Steel, Gerdau, UBS, First River = flat rolled

5 But how to m(c)atch Mittal? Top 15 producers* 2007 Pro-forma, 2006 crude steel, MT Source: MB, IISI, First River *Outside China

6 The focus defense Returns of focus will provide superior performance Product B Product A Differentiated SteelDiversified Steel Consolidation & restructuring moves aim to annex valuable ‘niches’ Digging into niches to avoid consolidators aims to raise the competitive level

7 Has the niche lost its cache?  Niches in low growth industries yielding better than average returns are prized  Where “niche” performance is no better than that of broader market positions – the niche has lost its value  Classic niches may only be viable where the owners of the niche occupier provide the defense: –e.g. voestAlpine, Salzgitter, ThyssenKrupp, etc.  But niche strategies not an excuse to indulge fears of the bigger opportunity  And note - close ownership is an important element in an offensive growth posture too: –Mittal, Tenaris, Evraz, Severstal

8 Returns of focus Not so special? Source: CapitalIQ, FRC *Averages calculated in US$ & exclude Mittal; Thyssen/Timken/CMC are steel only

9 Who let the dogs out? Steel divisions & their corporate owners Thyssen Corp Timken Corp CMC Steel CMC Corp Quanex Thyssen Steel TKR Steel Macsteel Source: CapitalIQ, FRC NB. Corporate performance includes steel Schnitzer Corp Cascade

10 Mill & SSC gross margin performance Selected companies, , by quarter Source: CapitalIQ, First River Mills include: X, NUE, STLD, CMC, IPS; SSC’s include: RS, RYI, ZEUS, RUS

11 Who claimed what? SSC HR coil price – drivers of increase, estimates $360 $730 +$124 +$118 +$56 +$57+$17 Source: First River estimates Mill: $280 Mill: $580

12 Shares of SSC hot roll price increase 2003 to 2006, estimates Source: First River estimates Combined $ margin & % of sales price Less about owning SSC’s for control than ensuring the efficiency of the supply chain

13 Scrap volatility asks for attention Pig iron versus scrap prices $/Ton, monthly Source: Metal Bulletin, AMM, Purchasing Magazine

14 China GDP growth Real annual growth rates, Average since % p.a. Source: National Bureau of Statistics

15 China steel production growth Outpacing GDP? Source: ABARE, CISA, IISI, National Bureau of Statistics

16 China steel exports China’s rise to net exporter, monthly (April)* *includes semi-finished Source: UBS

17 China development similar to others

18 Change & uncertainty Chinese urban employment changes Source: National Bureau of Statistics +140 M - 70 M 50 % Since 1996

19 Plenty of concerns to go round Managing China…  The “4 un’s” –“Unstable, Unbalanced, Uncoordinated & Unsustainable” Wen Jiabao describing macro conditions, March 2007 –Exports, fixed assets, output growth, lending increases –Income disparity, excess resource consumption, environment  Demographics –30M “surplus” males by 2020 –>65’s from 7-8% to 20% by 2025 as working population declines (US 12% to 18%)  17 th Congress & leadership change towards a new model? –Lawyers replacing engineers!

20 Finding growth – defending value What to do?  Do not stand still  Extend your view – timeline, breadth, depth  Maintain a growth posture focused on strategic goals –buy, invest, build are choices to the same ends  Actively evaluate acquisitions – real test of valuation perspective