1. Steel Producers Issues in
AWPA – Annual Meeting
Steel Producers Issues in
Today’s Economy
Thomas A. Danjczek
President
Steel Manufacturers Association
February

2. Today’s Deterioration China, China, China
AWPA – Steel Producers Issues in Today’s Economy
Outline
SMA
Today’s Concerns
Today’s Deterioration
China, China, China
Other Issues (Energy, GHG, Infrastructure Spending, Mercury)
Product Data 2008
Protectionism and Trade Issue
Is Enough Being Done?
Conclusion

3. The Steel Manufacturers Association (SMA)
AWPA – Steel Producers Issues in Today’s Economy
SMA
The Steel Manufacturers Association (SMA)
36 North American companies:
31 U.S., 3 Canadian, and 2 Mexican
125 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

4. SMA AWPA – Steel Producers Issues in Today’s Economy
Production capability
EAF steel producers accounted for 60% of U.S. production in 2007
SMA represents over 70% of all U.S. steel production
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

5. Steel-Wire Executive-4th Quarter 2008

6. AWPA – Steel Producers Issues in Today’s Economy
The Obvious Concerns
Our Jobs
US Recession and financial meltdown
Infrastructure Spending
Value of the RMB
Energy shortfalls and pricing
Federal Bailouts
China, China, China
Global Steel Overcapacity
Subsidies and other trade distortions
US Legislation (111th Congress and the 44th President)

7. NAFTA Economic Growth Is Decelerating
AWPA – Steel Producers Issues in Today’s Economy
NAFTA Economic Growth Is Decelerating
Sources: Bureau of Economic Analysis, Statistics Canada, Bloomberg

8. The United States Is in a Recession
AWPA – Steel Producers Issues in Today’s Economy
The United States Is in a Recession
Source: Federal Reserve Board 8

9. U.S. Business Activity Has Fallen Sharply
AWPA – Steel Producers Issues in Today’s Economy
U.S. Business Activity Has Fallen Sharply
EXPANDING
CONTRACTING
Lowest level since 1982
Source: ISM

10. The U.S. Housing Market Is Plummeting
AWPA – Steel Producers Issues in Today’s Economy
The U.S. Housing Market Is Plummeting
Permits Starts Completions
Residential Construction Market
Source: US Dept of Commerce 10

11. North American Light Vehicle Production
AWPA – Steel Producers Issues in Today’s Economy
North American Light Vehicle Production
US LV SALES
1.18
2007
0.74
2008
-37%
NOV
NOV
Millions of Units
Millions of Units
AMRC Data Fall ‘08
Actual
Actual
In this chart, prepared by the Automotive Market Research Council, you can see that North American sales are forecast to drop by 2 million units between 2007 and The dramatic effects of a weak economy and rising oil prices are having a major effect on car and light truck sales.
The forecast indicates that the slump will begin to recover in 2009 and will show steady growth thereafter.
Actual
13.0
12.8
Source: Automotive Market Research Council, Fall 2008

12. Steel Production in the U.S. Has Fallen Dramatically
AWPA – Steel Producers Issues in Today’s Economy
Steel Production in the U.S. Has Fallen Dramatically
Production
(Thous. Metric Tons)
Source: Dow Jones Industrial Index, AISI

13. Global Steel Consumption Has Fallen
AWPA – Steel Producers Issues in Today’s Economy
After Years of Growth,
Global Steel Consumption Has Fallen
Global Apparent Steel Consumption (Annualized)
Source: World Steel Dynamics, “Global Alert # 31” (Oct. 1, 2008) at 12.

14. Global Steel Capacity Through 2008
AWPA – Steel Producers Issues in Today’s Economy
Global Steel Capacity Through 2008
World Steel Capacity Grew by Over 50% in the Past Eight Years.
90*
*Additions to Capacity
Source: German Steel Federation and IISI verifications 14

15. Crude Steel Supply in China, 2005-2009
AWPA – Steel Producers Issues in Today’s Economy
Crude Steel Supply in China,
(million metric tons)
2005
2006
2007
2008
2009 (e)
Capacity
450.0
530.0
599.0
640.0 (e)
660.0
Production
352.0
416.0
489.0
498.0
470.0
Net Exports
0.5
29.7
41.7
51.0
49.0
Source: Growell Research, “China Steel Capacity Forecast for ” and CISA Presentation at OECD, December 15, 2008.

16. Imports from China into NAFTA are Rising
AWPA – Steel Producers Issues in Today’s Economy
Imports from China into NAFTA are Rising
Source: AISI

17. China’s Capacity Now Exceeds Chinese Demand
AWPA – Steel Producers Issues in Today’s Economy
China’s Capacity Now Exceeds Chinese Demand
For Many Key Steel Products
2008 Difference Between Chinese Capacity and Chinese Demand 35 30 25
Million Metric Tons 20 15 10 5
Hot-rolled
steel
Plate
OCTG
Wire rod
Rebar
Cold-rolled
steel
Galvanized sheet
Source: World Steel Dynamics, “Global Steel Alert # 31” (Oct. 1, 2008) at 17, 25.

18. AWPA – Steel Producers Issues in Today’s Economy China Steel Comments
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 to absorb overproduction
Chinese steel industry is overbuilt and under-demolished

19. Year China’s Trade Surplus 2001 $22 billion
AWPA – Steel Producers Issues in Today’s Economy
China’s Trade Surplus with the U.S.
Year China’s Trade Surplus
$22 billion
(year China joined WTO)
$177 billion
$262 billion (up 47.7%)
The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.

20. It’s About Competitiveness
AWPA – Steel Producers Issues in Today’s Economy
China Conclusions
It’s About Competitiveness
US producers have a competitive advantage in metallics due to US
scrap and China’s need to import over half its ore; US producers are on par
with China on availability and price of energy, while labor is much lower in
China; China’s labor savings do not equal US efficiency and Transportation
cost from China.
US is competitive!!!
North American steel industry CANNOT compete against Chinese steel companies that are financed and controlled by their government.

21. AWPA – Steel Issues in Today’s Economy
Other Issues - Energy

22. AWPA – Steel Producers Issues in Today’s Economy
Other Issues - Energy

23. AWPA – Steel Producers Issues in Today’s Economy
Other Issues - Energy

24. Energy Summary AWPA – Steel Producers Issues in Today’s Economy
Other Issues - Energy
Energy Summary
US power generation industry is at a critical juncture, with social
pressures and pending legislation demanding massive changes.
Competing demands for reliable, low-cost energy and climate change
mitigation appear incongruent.
Our Nation’s liquid fuel dependence on foreign resources continue to
grow.
Uncertainty of regulatory outcomes and rising costs impact industry’s
willingness to commit capital investments, endangering near-term
production capacity.
The United States must foster new processes that address conflicting
energy objectives simultaneously.

25. AWPA – Steel Producers Issues in Today’s Economy
Other Issues - GHG

26. AWPA – Steel Producers Issues in Today’s Economy
Other Issues - GHG

27. Climate Change Legislation
AWPA – Steel Producers Issues in Today’s Economy
Other Issues - GHG
Climate Change Legislation
Steel Manufacturers Association:
Supports the safety valve concept for limiting allowance pricing, in any cap & trade program;
Recognizes the international component of the climate change issue, and would support the the use of industrial offsets, regardless of locale, as one way to respond to greenhouse gas emissions; and
Believes that the cost associated with any cap and trade program must avoid double charging emissions (ie- The electricity generator and EAF mill consumer each must only be counted once on emissions).

28. AWPA – Steel Producers Issues in Today’s Economy
Globalization and Consolidation Developments Have Dramatically Changed the NAFTA Steel Landscape
Acquiring Company
Acquiring Company
Acquiring Company
Acquired Company
Acquired Company
Acquired Company
Arcelor Mittal
Nucor
Duferco/NLMK
Arcelor
Connecticut Steel
Winner Steel
Dofasco
Trico
Mittal
Birmingham
Evraz
Ispat Inland
Corus Tuscaloosa
Oregon Steel
Bethlehem
ISG
Worthington-Decatur
Claymont Steel
LTV
Marion
Ipsco Canada
US Steel Plate
Weirton
Nelson Steel
Harris Steel
Severstal
Auburn Steel
Arcelor Mittal-Sp. Pt.
Acme-Riverdale
North Star Arizona
Georgetown
Rouge
WCI
American Iron Reduction
Sicartsa
Bayou
LMP Steel & Wire
Wheeling Pitt
The David J. Joseph Co. (Scrap)
US Steel
Gerdau Ameristeel
CSN
Heartland
Lone Star
Sheffield
National
Chaparral
Essar
Algoma
LTV Tin
Co-Steel
ISG IH#2 Pkl.
North Star
Minnesota Steel
Stelco
Sidetul Tultitlan
Quanex Macsteel
BlueScope
Corsa
IMSA Steelscape
SSAB
OAO TMK
ICH/Grupo Simec
Ipsco Plate (U.S.)
Ipsco Tubular (U.S.)
Republic
Steel Dynamics
Tenaris
Ternium
GalvPro-Jeffersonville
Maverick Tube (U.S.)
Hylsa
The Techs
Prudential Canada
IMSA
Roanoke Steel
Steel of West Virginia
Hydril Company
Omnisource (Scrap)
1/1/09

29. Gas tax at 18.54/gallon generates app. $40 billion
AWPA – Steel Producers Issues in Today’s Economy
Infrastructure Stimulus
US aging infrastructure is functionally obsolete and structurally deficient
FHWA estimates $78.8 billion per year for the next 20 years to maintain infrastructure, $131.7 billion to improve
Gas tax at 18.54/gallon generates app. $40 billion
Current gas tax woefully insufficient, only half of maintenance

30. U.S. Steel Scrap AWPA – Steel Producers Issues in Today’s Economy 17
(Data in million metric tons)
Salient Statistics—United States:
2003
2004
2005
2006
2007(e)
2008(e)1
Production
Home Scrap 17 14 15 13 12
Purchased Scrap 56 59 58 52
Imports for Consumption 4 5
Exports 11 23
Consumption, reported 65 67 66
Source: US Geologic Survey, January 2008
is a rough estimate based on 3 normal quarters; 4th 60% steel production

31. AWPA – Steel Producers Issues in Today’s Economy
US Long Product Data 2008
For rebar, wire rod, merchant bar, light shapes, parallel flange sections, structural products1
Through September 2008, domestic shipments plus exports were 4.1% higher than 2007, at 18,918,329 short tons, or roughly 2.1 mmt per month.
Data shows domestic shipment decline of 16% in October from September’s level.
Data shows domestic shipment decline of another 27% in November from October’s level.
Total domestic produced shipments have fallen approximately 50% in the 4th quarter, compared to the first 9 months of 2008.
1 December 2008 SMA Market Report (Moss/Taccone)

32. AWPA – Steel Producers Issues in Today’s Economy
Wire Rod Product Data 2008
Total Mill Shipments of Wire Rod were unchanged YOY
(2008 – 3,182,008 tons; 2007 – 3,178,027 tons)
First 9 months of 2008, mill shipments – Quarterly Rate – 903,604 tons/qtr
Last Quarter of 2008 mill shipments – Quarterly Rate – 471,196 tons/qtr
Off 47.8% in 4th Quarter 2008, compared to 1st Quarter 2008
December 2008 SMA Market Report (Moss/Taccone)

33. AWPA – Steel Producers Issues in Today’s Economy

34. Is “Protectionism” the enemy of “Free Trade”
AWPA – Steel Producers Issues in Today’s Economy
Free Trade vs. Protectionism
Is “Protectionism” the enemy of “Free Trade”
Protectionism
Predatory Pricing
Trade distorting subsidies
Government Ownership
National power by protecting our industries and state
Piling up currency measures
One way trade
Need “Balanced” Trade over “Mercantilism”
Who’s the Protectionist?
1. Taken in part from C. Blum

35. Is Enough Being Done? Raw Materials No Energy No China No Trade No
AWPA – Steel Producers Issues in Today’s Economy
Is Enough Being Done?
Raw Materials No
Barriers continue
Lack of policy
continues
Energy No
Currency manipulation,
Subsidies, Not playing by
the rules
China No
Distortions continue,
Who’s the protectionist
Trade No
No long term structural policy changes are being proposed in Washington for taxes, trade imbalance, and energy.

36. Conclusion AWPA – Steel Producers Issues in Today’s Economy
U.S. Steel Industry in Better Position Today to Manage the Down Cycle
(but what a down cycle!)
Improved Economics From Consolidations, i.e. “Reacted Quicker in October”;
Improved Control of Variable Costs
Scrap-Based Metallics (In 2009, U.S. will be nearly 2/3 EAF-based
Energy Costs
Transportation Costs
Labor Efficiency (U.S. at Below 2MH/Ton; Minimills Often Below 1MH/Ton)
Improved Inventory Control (Inbound Materials, Steel, and Customer Products). NOT THE OLD INVENTORY OVERHANG!
Improved Debt and Equity; Balance Sheet Position
Still Challenging – But Reasons for Meaningful Long-Term Optimism!