1. AMM Mexican Steel Conference Monterrey, Mexico January 29, 2008 Thomas A.Danjczek Steel Manufacturers Association NAFTA Steel Roundtable

2. Outline SMA Consolidations China NAFTA Policy Implications Unknowns Conclusion AMM Mexican Steel Conference

3. The Steel Manufacturers Association (SMA) –35 North American member companies: 30 U.S., 3 Canadian, and 2 Mexican –126 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 AMM Mexican Steel Conference SMA

4. Production capability –EAF steel producers accounted for over 60% of U.S. production in 2007 –SMA represented over 70% of all U.S. steel production in 2007 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 AMM Mexican Steel Conference SMA

5. Steel Consolidating, But Still Fragmented TOP 15 Represent 36% of Global Production Source: IISB AMM Mexican Steel Conference

6. Active Consolidation Within NAFTA Recent Key NAFTA Announcements: –ArcelorMittal-Dofasco –USS-Stelco, USS-LoneStar –Gerdau-Chaparral, Gerdau-MacSteel –Ternium-Grupo Imsa –SSAB-IPSCO –Essar-Algoma, Essar-Minnesota, Evarz-Claymont Emerging Downstream Focus: –Nucor-Harris, Nucor-Barker, Gerdau-Enco Extending to Scrap: –Sims-Metal Management, Steel Dynamics-OmniSource AMM Mexican Steel Conference

7. Consolidation: Opportunities & Risks Potential Benefits: –Access to Capital, Technology –Deeper Customer Relationships –Facility Optimization / Strategic Fit –Industry Sustainability But Benefits Are Undermined By Prevailing Risks: –Global Overcapacity –Subsidies and Other Trade Distortions AMM Mexican Steel Conference

8. New Capacity Outpaces Consumption Growth Capacity – Multiple Sources; Nucor Analysis Demand – IISI projections thru ’08; 6% increase “09 – ‘10 Announced Steel Capacity Increases By Region (2006 – 2012) Announced Steel Capacity Vs. Projected Consumption 2007 – 2010 (Million Metric Tonnes) Compound Annual Growth Rates: Capacity: 6.83% Demand: 4.65% AMM Mexican Steel Conference

9. China: World’s Most Subsidized Industry More than $50 billion in subsidies $7.5 billion in debt-to-equity swaps in 2000 An additional $6 billion in announced subsidies during 2000 2005 steel policy commits China to further subsidies, micromanagement Support from local and provincial governments uncontrolled by central government Chinese steel producers enjoy government assistance with energy and other input costs Inadequate protection of workers’ rights and enforcement of environmental standards Manipulation of key raw materials markets, including coke and ferroalloys Chinese steelmakers regularly obtain preferential loans from state-owned banks State-owned enterprises account for 91 percent of China’s largest steel groups AMM Mexican Steel Conference

10. China: World’s No. 1 Is Government Directed Top 20 Chinese Steel Producers: Government Control Vs. Private Ownership Top 20 Capacity: 210 Million Tons 2007 Projected Global Production Australian Government Predicting China Will Reach 1B Tons by 2015, CISA says 2020. AMM Mexican Steel Conference

11. China Is the World’s Largest Exporter China Finished Steel Exports By Destination 2005 – 2007 (000 MT) Country / Region200520062007 EU 25/271,3677,39312,650 S. Korea5,5268,81711,844 NAFTA3,0927,0475,970 Iran1855,1803,096 Vietnam8651,7212,994 United Arab Emirates 2118852,773 India4171,5742,447 Others8,861 15,05 2 25,848 TOTAL 20,52 4 43,00 7 67,622 Source: CISA, 2007 Data Annualized China Finished Steel Trade Balance 2006 – 2007 (000 MT) Imports Exports Trade Balanc e 2006 16,76 1 43,00 7 26,246 2007 15,40 0 67,62 2 52,222 % Change -8.1+57.2+98.9 Source: China Customs, 2007 Data Annualized AMM Mexican Steel Conference

12. China “Bashing” -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 are expanding by approximately 30 percent per year -Imbalance cannot go on forever -Chinese steel market is still reliant on exports to absorb overproduction -Chinese steel industry is overbuilt and underdemolished

13. AMM Mexican Steel ConferenceWhat Harm U.S. Imports of Auto Parts and Vehicle Bodies from China, Value and Share

14. Raw Materials: Governments Still Intervening Governments (e.g. China, India) Continue to Intervene in Key Raw Materials Markets For Steel: –Iron Ore –Coke –Ferroalloys –Refractory Materials Export Tax Manipulations / Restrictions Distortions Created; NAFTA Competitiveness Negatively Impacted AMM Mexican Steel Conference

15. China Central To Current NAFTA Cases Key NAFTA Steel Trade Cases (Ch. 72 & Ch. 73) May–November 2007 Country New CasesCurrent Sunsets Canada Seamless OCTGPlate United States Pipe x 2 Nails Wire Hangers Hot-Rolled* Mexico Plate Seamless OCTG Nails Wire Hangers Wire Mesh *Finding renewed against China on October 10, 2007 AMM Mexican Steel Conference

16. Example - Canada: China Growing Value, Market Share APPLIANCES Source 2005 Imports (CDN$ Millions) Import Share(%) 2007 Imports (CDN$ Millions) Import Share (%) % Value Change 05 / 07 1. United States1579.753.751560.948.6-2.2 2. China605.020.59764.223.8+26.3 3. Mexico146.64.99226.97.1+54.7 CONSTRUCTION PRODUCTS / FURNISHINGS Source 2005 Imports (CDN$ Millions) Import Share (%) 2007 Imports (CDN$ Millions) Import Share (%) % Value Change 05 / 07 1. United States3677.9365.123860.8861.11+5.0 2. China509.049.01776.4712.29+52.5 3. Mexico212.03.75212.783.37+0.03 Source: World Trade Atlas / AISI. DOMESTIC & COMMERCIAL EQUIPMENT Source 2005 Imports (CDN$ Millions) Import Share (%) 2007 Imports (CDN$ Millions) Import Share (%) % Value Change 05 / 07 1. United States1493.350.341467.145.49-1.8 2. China619.1320.87802.4224.88+29.6 3. Mexico351.6811.86377.1611.69+7.24 AMM Mexican Steel Conference

17. NAFTA AMM Mexican Steel Conference -Came into effect on Jan. 1, 1994 -One of the most significant trade events of the 90’s -A trade agreement between three nations -United States, Canada, and Mexico -Population: 426 million -Total GDP: $13 trillion -Total Trade: $700 billion

18. Potential Effects of NAFTA AMM Mexican Steel Conference -Prices and wages -Labor markets and jobs -Imports and exports -State and the local economy

19. NAFTA Conclusion -General consensus that NAFTA had negligible effect on U.S. employment -Trade may lead to wage inequality through an increase in earnings gap between skilled and the unskilled -Little evidence that NAFTA-induced trade liberalization -Evidence more in favor of net trade correction due to NAFTA AMM Mexican Steel Conference

20. Role of NAFTA Governments Defending the Market From Abuse: –Eliminating market interventions and distortions by all governments –Enforcing compliance with trade agreements and competition law –Maintaining and enforcing trade remedy laws –Assisting trading partners with understanding / adopting best practices AMM Mexican Steel Conference

21. Immediate Focus: Treat China as NME in AD Cases, and Fully Apply CVD Law to NMEs Promote NAFTA Manufacturing in FTAs Enhanced Government Information Sharing Across Jurisdictions on Trade Remedy Practice and Experience AMM Mexican Steel Conference

22. Unknowns -Value of the RMB??? -JCCT Steel Dialogue – where goal is to promote transparency with better decisions??? -European Union antidumping investigation and targets??? -Energy cost and interest rate impacts??? -Rising freight costs??? -China’s restrictive policy of foreign ownership participation??? -China’s enforcement of environmental regulations??? -U.S. legislation??? -Trade actions??? -When will China play by market rules???

23. AMM Mexican Steel ConferenceConclusion -Consolidations helping,overcapacity still a risk -Trade distortion still a problem, U.S. Congress disappointed -Need aggressive policy measures to prevent China from causing a major crisis. To date, only trade cases have had an impact. -It’s still a cyclical business with demand, scrap, freight, inventories, etc. -Finished goods containing steel are a major concern -China, China, China… everything else is still only an embellishment -Still reasons for meaningful optimism due to North American steel industry resiliency. North American steel facilities, for the most part, are technologically advanced, cost competitive, environmentally acceptable, and are a key component of the North American infrastructure.