1. The U.S. Steel Industry Where We Have Been and Where We Are Going Keith Busse President and CEO Steel Dynamics, Inc. National Association of Pipe Distributors Las Vegas, February 26, 2005

2. The U.S. Steel Industry Historical Perspective: 1950-2000 Global Perspective The 1990s The Recent Past: 2000-2004 The Future –2005 –Longer term

3. Domestic Steel Production by Type of Steel Structural 6% Plate 8% Rebar 7% Other Bar 10% Pipe 5% Hot Rolled 21% Cold Rolled 14% Coated Sheet 19% Rod & Wire 4% Other 5% Semi-finished 1% Flat-rolled sheet 54% Source: American Iron and Steel Institute

4. High concentration of large, integrated producers, but many regional and specialty players emerged Very little growth in domestic steel production over the period Domination by large integrated producers finally gave way to EAF-based mini-mills Periods of intense competition from offshore 1950 through 2000

5. Large integrated producers dominated through the 1970s U.S. Steel Bethlehem Steel National Steel LTV Wheeling-Pittsburgh Steel

6. 0 20 40 60 80 100 120 140 160 195019601970198019902000 peak about 150 million tons 110 million tons Source: American Iron and Steel Institute Very little growth in domestic steel production… Domestic Steel Production, 1950-2000

7. 0 20 40 60 80 100 120 140 160 195019601970198019902000 Open Hearth Electric Total U.S Production Basic Oxygen Millions of Tons Source: American Iron and Steel Institute Domestic Steel Production by Furnace Type Changes in steel production technology …

8. 0 10 20 30 40 50 60 70 80 90 100 195019601970198019902000 Percent of U.S. Steel Production Electric Integrated 50% Source: American Iron and Steel Institute Electric-arc furnace production gained parity… Integrated and EAF Production

9. From 1980 to 2000, the new EAF producers gained substantially Nucor Birmingham Steel Commercial Metals Ipsco Steel Dynamics Gerdau Ameristeel … and the U.S. began to see intense competition from offshore

10. Global Perspective, 1950-1980s Post WW II, U.S. steel industry was strong, but complacent. Japan and Germany rebuilt. The U.S. became an attractive steel market. Around the world, governments invested in national steel companies. Imported steel became a big issue in the U.S.

11. Global Perspective, 1980-2000 Japan and Western Europe became more industrialized, like the U.S. The U.S. became a very attractive market to an increasing number of the world’s steel producers. Imported steel became a bigger issue in the U.S. Nationalized steel companies did not work out– governments started privatizing them. (Examples: Great Britain, USSR, Eastern Europe, India– China is the exception, but moving strongly to privatize)

12. In the 1990s Global factors and past management “sins” converged on the U.S. steel industry. U.S. producers were dramatically affected by currency manipulation. The U.S. became the world’s steel “dumping ground.”

13. U.S. Annual Apparent Steel Supply -20 0 20 40 60 80 100 120 140 160 Exports Imports Apparent “Consumption” U.S. Domestic Shipments 19902000199520041986 Millions of Tons (Use of steel in the U.S.) 1998: Peak Imports of 40+ million tons Source: American Iron and Steel Institute

14. Domestic Steel Production 1950-2000 0 20 40 60 80 100 120 140 160 195019601970198019902000 peak about 150 million tons 1990s 100 million tons Source: American Iron and Steel Institute Millions of Tons

15. During the 1990s U.S. integrated steel producers fell on hard times They had not adapted well to lower-cost technologies. They carried extremely high employee obligations They required strong steel prices to stay afloat They were increasingly vulnerable to economic downturn Leading into 2000…

16. Recession causes decline in domestic demand for steel 0 20 40 60 80 100 120 140 160 19902000-2001199520041986 Millions of Tons Source: American Iron and Steel Institute 2000-2001 recession hits steel markets… Apparent “Consumption”

17. Percent 50% 60% 70% 80% 90% 100% 20002001200320022004 Source: American Iron and Steel Institute U.S. Raw Steel Capacity Utilization Capacity utilization sinks…

18. Source: Purchasing Magazine $200 $300 $400 $500 $600 $700 $800 Dollars per Ton 19801988199420002001 $450 $390 $225 Hot-rolled Sheet Selling Price Steel prices drop to a 20-year low…

19. More than 35 steel companies filed for bankruptcy from 1998 to 2002 Bethlehem Steel National Steel LTV Wheeling-Pittsburgh Steel Geneva Gulf States Northwestern Wire and Steel Birmingham Steel Republic Technologies GS Industries Acme Metals Trico Qualitech Steel J&L Structural Steel Laclede Steel Erie Forge & Steel CSC Ltd. Freedom Forge Corp. Sheffield Steel Calumet Steel Edgewater Steel Ltd. Galvpro Metals USA Action Steel … and others

20. Steel prices recover in 2002 under supply constraints Prices recover sharply from their 2001 lows, improving the health of remaining steelmakers. Some mills are shut down permanently, but capacity utilization rebounds in the second half. –International Steel Group, begins restarting idled LTV mills. –Nucor buys and restarts Trico. With the return of capacity, prices moderate by year-end 2002 Most integrated mills continue to lose money.

21. Hot-rolled sheet selling price climbs Source: Purchasing Magazine $200 $300 $400 $500 $600 $700 $800 Dollars per Ton 19801988199420002004 $400 2002

22. 2003 presents new challenges The U.S. economy begins to rebound, but pace of steel demand is slow. With some shut-down mills coming back on line, industry capacity recovers and capacity utilization falls. In the second half, signs of raw material shortages appear, causing steel scrap prices to rise at a rapid rate. Steel producers bump up selling prices to recover increased costs. Most integrated steel companies continue to lose money.

23. In 2004 the steel markets “Kick it up a notch” Steel scrap costs (and now coke and iron ore costs) accelerate to historical highs. Due to historically high input costs, steelmakers institute raw-materials surcharges. Inflation-adjusted steel prices reach historical highs.

24. Steel Scrap Pricing Source: Purchasing Magazine Dollars per Ton 2004 2003 $100 $200 $300 $400 $500 1980198819942000 Auto-Bundles No. 1 Heavy Melt $450/ton $250/ton 2004 2004: Scrap costs reach historical highs

25. Hot-Rolled Sheet Selling Price Source: Purchasing Magazine $200 $300 $400 $500 $600 $700 $800 Dollars per Ton 19801988199420002004 $450 $390 $400 $760/ton 2004 Steel prices reach historical highs

26. Percent 50% 60% 70% 80% 90% 100% 20002001200320022004 Source: American Iron and Steel Institute Steel mills again run near full capacity U.S. Raw Steel Capacity Utilization

27. Reflections on the 2004 Steel Market Mini-mills vs. integrated steelmakers– Who’s winning? Concerns about higher steel prices As a result of consolidation, the health of the U.S. steel industry vastly improved Is it sustainable?

28. “Where do we go from here?” – 2005 Raw materials costs, while lower than 2004 peak levels, will not likely fall back to previous levels. Selling prices likewise are not expected to fall precipitously. The “steel short” supply-demand imbalance is likely to recur in much of 2005, assuming steel demand stays firm and imports continue at a moderate pace.

29. Source: US Census Bureau, graphic courtesy of Goldman Sachs Global Investment Research Imports surged in 2004, but are now slowing 2,924 1,500 2,000 2,500 3,000 3,500 4,000 4,500 969798990001020304 Average = 2,747 tons Monthly Steel Imports (thousands of tons) 2004

30. “Where do we go from here?” – 2005 Moderately strong world steel demand and higher global steel prices, a weak dollar, high ocean freight rates– all act as a disincentive for excessive imports. Continued economic expansion suggests demand will remain strong and possibly improve in some steel markets. Another good year is likely for steel companies.

31. “Where do we go from here?” – Beyond Consolidation of the U.S. steel industry has been good for the industry, and may continue. –It has closed down antiquated production capacity, improving the cost competitiveness of the industry. –It has resulted in better workplace practices and better union agreements for the unionized companies. –By eliminating weak companies, it has increased steel-company managements’ focus on profitability. (continued)

32. “Where do we go from here?” – Beyond Our competitiveness globally is essential to keeping our domestic industry strong –We CAN BE the lowest cost steel producers in the world. –U.S. competitiveness will depend on currencies, with a weaker dollar helping the steel industry –China will continue to be the 800-pound gorilla, in terms of its market size, its growing steel industry, and how it deals with its currency valuation.

33. Source: II&SI, graphic courtesy of Goldman Sachs Global Investment Research China’s steel production has surged 6 11 16 21 26 31 199419961998200020022004 EU (150 Mt/yr) US (85 Mt/yr) Monthly Production (millions of metric tons) China (300 Mt/yr) Japan (120 Mt/yr)

34. “Where do we go from here?” – Beyond Overall, we are optimistic about the U.S. steel industry over the next ten years. –Demand for steel in the U.S. will remain strong, with some cyclical variability. –Domestic supply will grow slowly as “new steel management” is more cautious than in the past about adding capacity. –U.S. likely will continue to require imports of 25-30% to meet demand. –Excessive imports remain a risk, but can be dealt with.

35. The U.S. Steel Industry Where We Have Been and Where We Are Going Keith Busse President and CEO Steel Dynamics, Inc. National Association of Pipe Distributors Las Vegas, February 26, 2005