1. US Steel Industry Labor Changes Impact on Competitiveness Thomas A. Danjczek, President Steel Manufacturers Association October 11, 2004 CUE, Fall 2004 Conference

2. US Steel Industry Labor Changes Impact on Competitiveness CUE, Fall 2004 Conference 7. Changing Labor Contracts 2. Growth of Minimills 5. Labor’s Free Fall 4. Bankruptcies 9.Conclusions 3. Organized Labor In Steel 8. Other Factors 6. Draining the PBGC 1. SMA

3. CUE, Fall 2004 Conference The Steel Manufacturers Association (SMA) –36 North American companies: 30 U.S., 4 Canadian, and 2 Mexican –107 Associate members: Suppliers of goods and services to the steel industry SMA member companies –Operate 120 Steel plants in North America –Employ about 40,000 people –Mini-mill Electric Arc Furnace (EAF) producers

4. CUE, Fall 2004 Conference Production capability –SMA represents over half of U.S. steel production Recycling –SMA members are the largest recyclers in the U.S. –Last year, the U.S. recycled over 70 million tons of ferrous scrap Growth of SMA members –Efficiency and quality due to low cost –Flexible organizations –EAF growth surpassed 50% in 2002 & 2003, and anticipated to be 60% by 2010

5. Mills started up after 1980 Mills started up 1970-1980 Mills operating prior to 1970 ( Flat roll) ( No longer operating) Growth of the U.S. Mini-mill Industry 1970-Present 1975198019851990199520001970 Estimated Mini-mill Share of US Steel Industry Shipments 10.0014.00 5.51 21.9225.88 32.50 49.76 CUE, Fall 2004 Conference

6. Organized Labor In Steel, % Rough Estimates – US Only Minimills OnlyUS Steel Industry % Production50%100% Number of Employees (Union + Non-Union) 40,000120,000 % Union, by employees  50%  75% % Union, by company56% (20/36)52% (22/42) % Union, Capacity36% (21/58.5)67% (76/113)

7. Company Bankruptcy Filing Capacity mntEmploys States w/FacilitiesStatus Stelco1/29/041.05780CanadianChapter 11 – ceased operations WCI9/16/032.041,800OHChapter 11 – reorganization plan Georgetown Steel, LLC10/20/031.0615SCChapter 11 – ceased operations Weirton Steel Corp.5/12/033.03,000WVChapter 11 - Bayou Steel Corporation1/03.62425LA, TNChapter 11 - Calumet Steel Co.3/18/02.15225ILFiled Chapter 7 – Ceased Operations Sheffield Steel Corp.1/1/02.58375OK, MO, ILOperating Geneva Steel LLC1/25/022.62600UTCeased Operations. Bethlehem Steel Corp.10/15/016.113,000 IN, MD, PA, NY Operating. Republic Technologies International LLC4/2/012.93500 OH,MD,PA,AL IN,CT,NY Operating. Closing CT plant. Idled one BF at Lorain, OH plant. Trico Steel Co.3/23/012.2319ALCeased operations. GS Industries, Inc.2/7/011.43,000 MO,SC,MN, AZ Operating at SC, MN and AZ facilities. Closed GST Steel facility in Kansas City (capacity: 750,000 nt). Heartland Steel, Inc.1/26/011.1175INOperating. CSC Ltd.1/12/010.41,225OHCeased operations. Bankruptcies in Steel – (1 of 2 Slides) CUE, Fall 2004 Conference

8. Company Bankruptcy Filing Capacity mntEmploys States w/FacilitiesStatus LTV Corp.12/29/007.618,000 OH,IN,IL,PA, MI,TN,GAOperating. Erie Forge & SteelDec. 20000.1300PAOperating. Northwestern Steel & Wire12/20/002.41,600ILCeased operations 5/20/01. Wheeling-Pittsburgh Steel Corp.11/16/002.24,800WV,PA,OHOperating. Vision Metals Inc.11/13/00-610MI,TXOperating. J&L Structural Steel Inc.6/30/00n.a.275PAOperating. Gulf States Steel7/1/991.11,906ALCeased operations. Qualitech Steel SBQ LLC3/24/990.6350IN,TX Sold August 1999. Ceased operations. 1/26/01. Being purchased by SDI, 7/02 Worldclass Processing, Inc.3/24/990.480PASold and emerged from bankruptcy 5/26/00. Geneva Steel Co.2/1/992.62,600UTEmerged from bankruptcy 11/21/00. Laclede Steel Co.11/30/9811,475MO,IL,PA Emerged from bankruptcy 1/2/01. Ceased operations, 2001 Acme Metals9/29/981.21,700ILOperating. Al Tech Specialty Steel12/31/970.1790NYEmerged from bankruptcy 11/5/99. Total 27 firms Bankruptcies in Steel – (2 of 2 Slides) CUE, Fall 2004 Conference

9. RECENT U.S. STEEL ASSET TRANSACTION VALUES Acquisition range has been $60 to $90/ton shipped for shuttered operations and $160 to $260/ton for ongoing businesses. Liquidated Companies Ongoing Businesses CSN disclosed in October 2003 that its acquisition price for Heartland was actually $175 million instead of the previously-report $69 million. Acquisition prices include all assumed liabilities. Courtesy – Metal Strategies

10. CUE, Fall 2004 ConferenceLabor’s Free Fall From BusinessWeek (9/13/04) Cover Story – Labor’s Free Fall Labor’s Share of the Workforce continues to slide… Union Members as a share of the U.S. Workforce 197324% 198320% 199316% 200313%

11. CUE, Fall 2004 ConferenceLabor’s Free Fall Cont. …and other Union-Resistance Tactics. % of Employers that Used Union-Avoidance Tactics in Representation Elections in 1998-1999 Tactic% of Employers Hold mandatory antiunion meetings for employees92% Have supervisors meet individually with employees to disparage the union 78% Hire antiunion management consultants75% Distribute antiunion leaflets to employees70% Mail antiunion letters to employees’ homes70% Show antiunion videos to employees55% Data: BusinessWeek, 9/13/04 UNION AVOIDANCE OR POSITIVE EMPLOYEE RELATIONS?

12. CUE, Fall 2004 ConferenceDraining the PBGC The five largest claims on the government-sponsored pension insurance pool: Data: PBGC CompanyTotal Plan Underfunding (billions) Cost to the PBGC (billions) Year of Termination Number of Participants Bethlehem Steel $4.300$3.650200295,000 LTV Steel2.2001.849200282,950 National Steel1.5001.216200235,000 Pan American Airlines.914.841199137,500 US Airways Pilots Plan 2.500.75420037,100

13. CUE, Fall 2004 ConferenceDraining the PBGC Cont. “These companies have been pummelled by cheaper international competition as well as lower cost U.S. mini- mills…” “…ISG predecessor companies shed $12 billion of legacy health care costs and another $9 billion of pension obligations.” Source: BusinessWeek, 7/19/04

14. CUE, Fall 2004 ConferenceTop 10 Labor Contract Changes (ISG Restructuring) 1.Shed Pension Legacy Costs 2.Shed Health Care & Medical Retiree Costs 3.Eliminated Significant Number Hourly Jobs (i.e. 35%) 4.Eliminated Greater Number of Salaried Jobs (i.e. 40 to 50%) with Reduction in Management Layers [ ISG (LTV; Bethlehem; Acme; Weirton; and Georgetown) reduced from approximately 29,000 to 15,000 employees with same output ] 5.Negotiated Huge Job Combinations, Down to FIVE

15. CUE, Fall 2004 ConferenceTop 10 Labor Contract Changes ISG Restructuring Cont. 6.Negotiated Simplified Incentive Plans ( i.e. entire mill daily). 7.Adjusted Future Medical Benefits. 8.Altered Work Rules ( i.e. Maintenance Assistance). 9.Allowed Scheduling Flexibility in Workforce & Vacations. 10.Partnered with Union to Build Morale & Change Culture on Premise of Open Communications.

16. CUE, Fall 2004 ConferenceOther Factors Labor Represents Approximately 10% of Minimill Cost and 30% of Integrated. Other Pressing Factors:  CHINA, CHINA, CHINA (Growth, Currency, and Customer Base Loss)  Scrap & Coke Costs – Double Since Last Year  Iron Ore – Up Significantly  Freight & Energy – Up, Up, and Away!

17. CUE, Fall 2004 Conference Conclusion Uncertainty – Cycle has Changed (Shorter Term & Greater Peaks & Valleys) Uncertainty for Other Major Integrated Unionized Companies (USS & Ispat & AK) - $40/ton Uncertainty – Health Care. Uncertainty with Insolvency of the PBGC – Airlines, Autos, etc. Revenue vs. Costs – Not the Same Business Model Due to Consolidations. China, Scrap, Raw Materials, Coke, Freight, Energy Impacts. Bankruptcy Laws Unfair to Competitors Will the Steel/Labor “Honeymoon” last??? Mini-Mills Must Compete in the World, as it is, and We Can! Meaningful Optimism with Good Long Term Consumption, Relative Value, and Excellent Recyclability for Steel