1. Steel – 2005/2006/Beyond Thomas A. Danjczek, President Steel Manufacturers Association May 5, 2006 The Hot Briquetted Iron Association Spring Meeting

2. Steel – 2005/2006/Beyond I.SMA II.2005 - World Steel Production/Operating Rate; China; Prices; Consolidations III.2006 - China’s Challenges; Trade; Energy; Environment IV.Key Issues Beyond 2006 (Wild Cards) V.Conclusion HBIA – Spring Meeting

3. The Steel Manufacturers Association (SMA) –39 North American Companies: 33 U.S., 3 Canadian, and 3 Mexican –111 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 –Minimill Electric Arc Furnace (EAF) producers –Produce nearly 100% of structural, wire rod, rebar, minimill plate and hot rolled, and a high percentage of SBQ products –Also represent several integrated steel producers and rerollers

4. HBIA – Spring Meeting Production capability –SMA represents over two-thirds of U.S. steel production (app. 70%) 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 56% in 2005, and anticipated to be 60% by 2010, if not before!

5. 2005

6. WORLD CRUDE STEEL OPERATING RATE World Crude Steel Operating Rate % World Crude Steel Operating Rate % Operating rates recovered from 76 percent in 2000, to a peak of 87 percent in 2004, and have moved moderately downward since late 2004. Source: Metal Strategies

8. HBIA – Spring MeetingChina’s Impact After 4 Trips in a Year… Key Questions: - When will Chinese steel production significantly exceed its own domestic consumption – i.e. 50/60 MMT? - Will the Chinese government shut down inefficient, excess capacity? (Has not done so with polluting facilities despite strong policy) - How can North American Steel Industry compete against Chinese government - - - IT CAN’T!

9. HBIA – Spring Meeting

10. Chart 2: The Exploding Trade Deficit with China HBIA – Spring Meeting

11. Chart 3: China’s Foreign Exchange Reserves HBIA – Spring Meeting

12. STEEL CAPACITY

13. CONCERNS Steel ItemComment North American steel industry CANNOTCurrency, banks, land, environment, compete against Chinese steel companiesconsolidations, policies financed and controlled by their government In 2005, compared to 2004, China steelTrend worsens in 2006 with new imports are projected to drop by 6.1capacity on line, and China’s million tons, while exports are projectedslowdown to increase by 12.3 million tons North American steel industry loss of aGovernment de facto subsidies significant increment of its customer(industrial parks, infrastructure, base to relocation to Chinesefactory space, loans) production sites

14. Steel Making Raw Material Prices Prices of key steel making cost inputs have more than doubled in 2004 and 2005. The outlook for 2006 is for continuing cost pressures...

15. AMM – 4/24/06

16. Source: Iron and Steel Statistics Bureau

17. Rebar Prices, 1990-2005 (Midwest, $ per ton) Source: Purchasing Magazine June 2005 = $470 July 2005 = $450 Aug. 2005 = $435 Sept. 2005 = $485 Oct. 2005 = $494 Nov. 2005 = $486 Dec. 2005 = $481

18. Wide-Flange Beam Prices, 1990-2005 (Midwest, 8 x 8, $ per ton) Source: Purchasing Magazine June 2005 = $516 July 2005 = $506 Aug. 2005 = $496 Sept. 2005 = $545 Oct. 2005 = $560 Nov. 2005 = $574 Dec. 2005 = $587

19. U.S. Oil and Natural Gas Prices

20. Natural Gas Cost Impact …sharp gains in natural gas prices have more than doubled steel mill gas costs per ton since 2000. Costs for integrated mills have risen over $30 per ton…

22. U.S. STEEL INDUSTRY CONSOLIDATION (Percent Change, 2000 compared to 2005) Mittal Steel weighted average share of all markets served = ~33% (major product range-15-40%+) -FRP acquisition price ($/ton, going-concern basis) 2002= $110……..2003-’04=$170……2005=$225 Source: Metal Strategies

23. 2006

24. CHINA’S CHALLENGES Area Comment EnvironmentTrade policy and laws are not enforced regarding emissions and effluents; Province versus Beijing; employment rules, not environment ConsolidationsState-owned facilities; only non-controlling foreign ownership allowed; antiquated facilities; policy is 20 large producers, push small producers out Technology/QualityQuality in flat rolled will affect export capabilities. Switch from long to flat not easy InventoriesRun full out. Not always market-oriented CapitalWill not always be free; could lose state credit PersonnelSome “unrest” expressed toward elite class. Internet is politically uncontrollable HBIA – Spring Meeting2006 China

25. China’s Steel Trade Balance Year200420052006 Imports33.127.022.0 Exports20.232.536.0 (Semi’s)6.29.05.0 Steel Trade Balance-12.9+5.5+14 2006 ChinaHBIA – Spring Meeting

26. China’s Steel Trade Balance Year200420052006 Imports33.127.022.0 Exports20.232.536.0 (Semi’s)6.29.05.0 Steel Trade Balance-12.9+5.5+14 2006 ChinaHBIA – Spring Meeting

27. The National Association of Manufacturers (NAM) recently reviewed China’s compliance with its WTO commitments in the accession protocol. While progress has been made in certain areas, there are serious concerns and problems with effective compliance relating to: 1. Huge U.S. trade imbalance 2. Continued currency manipulation 3. Arbitrary VAT taxes and rebates 4. Massive counterfeiting and piracy 5. Discriminatory standards 6. Inadequate regulatory transparency COMPLIANCE WITH THE WTO 2006 ChinaHBIA – Spring Meeting

28. Chinese steel industry expansion continues in a region that is deficient in resources (supply and quality) and environmental compliance… 2006 China

29. 2006 Prices HBIA – Spring Meeting

30. Section 421 Disappointment – No Relief Wire Rod Case – No Import Injury Solicit Congressional Assistance & Action - Ryan/Hunter - Graham/Schumer - Other??? Doha Agenda “only lose?” 2006 Trade HBIA – Spring Meeting

31. No National Energy Policy For EAFs, Demand Response is “Perfect Peaker” Need for Nuclear After Metallic Exports, Number One Threat for Competitiveness 2006 Energy HBIA – Spring Meeting

32. Mercury “End of Pipeline” Regulation Risk (Area Source Rule vs. Negotiated Settlement) TOSCA – Not Recognizing Benefits of Recycling i.e. Automotive Scrap, Fluff, & Slag Trend Toward “Measure – Monitor – Control”, vs. “Under the Bar” Compliance Continued Risk With Lost Radioactive Sources, TRI Reporting, and GGG 2006 Environment HBIA – Spring Meeting

33. Metallics Exports Concerns Transportation Challenges Congressional “Gridlock” TEA 21 $$$ - Finally U.S. Government Financial Policies (Trade & Budget Deficit) Need for Border Adjustable Tax 2006 Other HBIA – Spring Meeting

34. Key Issues Beyond 2006 (Wild Cards – Competitiveness) Rough EAF Cost Model @ $400 Product Item Impacts -Metallics 55%-Ore Cartel, Scrap Exports, Global Demand -Energy 15%-Lack of Generation, Transmission, Limited Nuclear, Offshore Gas, Off-Peak Future??? -Labor 10%-Health Care, USWA, Mittal Contract, Gerdau Ameristeel -Transportation 10%-Congestion, Lack of Investment -Other Inc. Financial 10% 100%

35. HBIA – Spring Meeting Other Key Issues Beyond 2006 ItemImpact -Capital Costs-Coke, Blast Furnaces, China@40%, New Facilities & Capacity -Market-China, India, Brazil, Russia Automotive Situations -Consolidations-Current Prices -Environmental-Greenhouse Global Gases -Role of Governments-U.S. Financial Situation, Role of Currencies, Trade Flows

36. HBIA – Spring Meeting Conclusions Hell, it’s still a cyclical business, but enjoy today! Fundamental shift in both demand and supply due to China & its appetite for raw materials – China is still the “wild card”. Risk near term is auto’s; long term is China Consolidations and discipline have had an impact to reduce volatility Role of inventories affecting pricing and production Demand still healthy, construction solid Unknowns (Oil, interest rates, auto sector, energy, freight rates, federal spending, China, China, China) Significant changes ahead in trade, metallics, energy, and consolidation Still reasons for meaningful optimism