1. Stahl-Zentrum STAHL 2011 1 | 10.11.2011 · STAHL 2011 · © Stahlinstitut VDEh | Wirtschaftsvereinigung Stahl Competitive Conditions on Regional Steel Markets Thomas A. Danjczek President, Steel Manufacturers Association Changing Times in the North American Steel Industry Wissen, Werkstoff, Werte Knowledge, materials, values

2. Outline SMA Safety Changes Steel Demand Drivers & Forecasts Raw Materials Tone in Washington, DC & Regulations What the U.S. Needs to Do Final Thoughts STAHL 2011 2

3. About the SMA -Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 123 Associate Member steel industry suppliers -Today, roughly two-thirds of U.S. steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s -SMA Members account for approximately 80% of total domestic steel capacity STAHL 2011

4. Where SMA Member EAFs are located… STAHL 2011 4

5. SMA Safety Overview Key Drivers to the SMA Safety Committee Success Safety Committee Meetings Safety Statistics Benching Marking Fatality Prevention Initiative Workplace Specific Safety Surveys Site-Specific Sharing of Site-Specific Best Practices SMA Safety Website Upstream/Downstream Safety Awareness Education & Outreach First Hand Governmental Compliance Awareness SMA Safety Awards STAHL 2011

6. Fatality Prevention Initiative Addresses Six (6) critical areas: 1. Confined Space; 2. Fall Protection; Lockout-Tryout; 3. Mobile Equipment 4. Material Handling; and 5. Rail 6. Cranes (Completed in 2011)  Focusing on five priorities in addressing crane fatalities: ◦ operator visibility and attentiveness; ◦ maintenance; ◦ fall hazards; ◦ charging the EAF/ladle handling; and ◦ non-routine procedures  Videos to be completed by the end of summer and introduced to the SMA in October 2011 STAHL 2011Fatality Prevention

7. STAHL 2011SMA Safety Data – 2010-2011yoy

8.  SMA Board of Directors recognizes outstanding safety performance through the annual Don Daily SMA Achievement in Safety Award. ◦ 2011 recipient:  Chris Bullard and the Logistics Team Gerdau Ameristeel Midlothian STAHL 2011

9. 9 US Changes Deeper Recession Variable Cost Control Engineers Scrap Prices High Unemployment Labor Intensity Inventory Levels China Safety Consolidations Customer Requirements Environmental Regulations Foreign Ownership Transportation Costs Ore Prices Energy Costs Currency State-Owned Enterprises Other Factors…

10. 10 STAHL 2011Steel Changes

11. 11 In USA, raw steel capacity utilization may reach 75% in 2011 STAHL 2011

12. 12 Finished steel demand drivers in US ActualFitted Three variables drive demand: NA auto build Non-residential construction Appliance shipments R² = 85% Source: First River STAHL 2011

13. 13 U.S. finished steel demand forecast Actual ADC Forecast Source: CSM, FW Dodge, AHAM, First River STAHL 2011

14. Auto build & non-res construction expected to recover, but not to previous peak NA Auto Build (Million Units) 14 Source: CSM Worldwide, FW Dodge Forecast Non-Res Construction (Million Sq. Feet) Forecast STAHL 2011

16. U.S. net imports expected to remain lower US Imports & Exports (Million Tons) 16 Source: AISI, First River Net Imports & US Dollar Net Imports as % of demand (3 year rolling average) $ IndexImports (%) STAHL 2011

17. Underlying Weak Economy Recovery underway, but slow, last 4 weeks??? North American steel market under pressure with unused capacity Increased exports and percent imports (5mmt of semi’s imports) YOY Not normal cycle of recession, overcapacity; new supply coming on Relative strong demand in auto; construction lagging Raw material costs, and variable cost controls are major drivers Scrap prices expected to trend slightly lower next two months – too early to call a trend China, China, China Market cap values at historic lows Comments on Current N.A. Steel Industry STAHL 2011 17

19. 19 The Tone in Washington, DCSTAHL 2011 It’s the Economy, stupid… Dissatisfaction/Perception that US Government is not tackling right issues (More for Wall Street than Main Street during recession) (Growing deficit, skepticism about role of government) GRIDLOCK (Democratic President & Senate; Republican House) Trouble for Incumbents Lack of Coherent China Policy (Currency?) Recognition that China has flagrantly violated WTP Rules – i.e. Raw Materials

20. 20 RegulationsSTAHL 2011 Vigorous oversight of EPA, OSHA, Dept. of Labor, etc., is a general theme from the Administration Prospects for comprehensive climate change legislation are weak – will see continued Congressional efforts to slow down EPA’s regulation of carbon emissions Overwhelming burden of proposed regulations (Power Plant Emissions; EAF Mercury; Solid Waste, Boeing Case; Silica; Noise; Dust; Record Keeping, etc., etc., etc.)

21. Raw Material Cost and Availability is #1 Issue for NAFTA Producers Many countries continue to impose a variety of restrictions on exports of vital raw materials – Export prohibitions – Export duties – Export quotas – Other measures Trade-distorting restrictions on exports of raw materials – Give domestic producers in the exporting country an unfair advantage – Increase worldwide costs of production – Place a heavy burden on steel industries in developing countries that do not have substantial iron ore reserves or steel scrap supplies Raw Materials STAHL 2011 21

22. 22 Export Bans Quotas Export Taxes Elimination of VAT Export Rebates Non-automatic (discretionary) Licensing Agreements Other Administrative Barriers (i.e. –Port Restrictions) National Export Restrictions On Ferrous Scrap Trade STAHL 2011

23. 23 STAHL 2011

24. 24 STAHL 2011

25. 25 Country2010 2009 Turkey19.20 15.7 Korea8.7 7.8 China5.8 13.7 India4.7 5.1 Taiwan4.2 3.9 USA3.8 3.0 EU-273.6 3.3 Major Scrap Importers, 2010 and 2009 STAHL 2011

26. 26 World Scrap Supply and Consumption, By Region Source: World Steel Association STAHL 2011

27. While China Restricts Exports of Scrap, U.S. Exports to China Have Surged 27 STAHL 2011

28. 28 STAHL 2011 China Can only hope next 5 year plan which calls for 8% growth is WRONG!.08 x 600mmt x 5 years = 240mmt… 281mmt compounded WOW! Actual Production

29. 29 Scrap demand (mt) – 2017 Scrap Demand Forecasts STAHL 2011

30. 30 World Demand For Steel Scrap World demand for steel scrap is likely to continue to increase Increased Steel Production In China, India and Brazil Economic Recovery Limited Growth of Alternative Iron Units But A Large Number of Countries Still Impose Restrictions On Exports of Scrap and Other Raw Materials Steel Scrap Is Subject To More Export Restrictions Than Any Other Raw Material There Is A Significant Problem With Transparency Because Export Restrictions Change Frequently, Making Supply Even More Problematic STAHL 2011

31. What does the U.S. need to do? Assume a Pro-Manufacturing Agenda – Business Tax Reform – Border Adjustable Taxes – Currency Adjustments – Energy Independence – Reasonable regulatory measures (Environment/Labor) – Climate for investments (Jobs, Jobs, Jobs) and Infrastructure Solve the structural problems that caused the recession - Real Foundation – Bad loans and securities on bank balance sheets – Reduce huge trade deficits Stop the trade distorting restrictions in raw materials or ensure prompt reciprocity (SOEs?) Policy incrementalism is not sufficient STAHL 2011 31

32. Final Thoughts In steel, the world has changed (Developing world, not about USA, getting tougher, ownership) U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Don’t look to Washington, DC for help Environment of uncertainty and volatility will continue in U.S. industry until economic fundamentals are in equilibrium, last 4 weeks??? In U.S., dissatisfaction/perception that U.S. Government is not tackling the right issues (i.e. “It’s the economy, stupid.”) Reasons for optimism in steel in U.S.: – Scrap-based, 75% of cost – local supply – Low cost on global basis (energy is neutral, labor less than 10%, others have higher transportation costs) – Relatively strong U.S. market and U.S. resiliency – Better U.S. company balance sheets STAHL 2011 32

33. Stahl-Zentrum STAHL 2011 33 | 10.11.2011 · STAHL 2011 · © Stahlinstitut VDEh | Wirtschaftsvereinigung Stahl Competitive Conditions on Regional Steel Markets Thomas A. Danjczek President, Steel Manufacturers Association THANK YOU FOR YOUR ATTENTION Wissen, Werkstoff, Werte Knowledge, materials, values