Thomas A. DanjczekPresidentSteel Manufacturers AssociationMarch 4, 2010

HBIA-IPIA Spring Meeting

From the Steelmaker’s Perspective

Outline

•SMA

•Today’s Concerns

•Today’s Deterioration – US Steel Production

•China, China, China

•Scrap

•Trade Issue

•Is Enough Being Done?

•What does the U.S. need to do?

•Conclusion

HBIA-IPIA Spring Meeting

• The Steel Manufacturers Association (SMA)– 34 North American companies:

29 U.S., 3 Canadian, and 2 Mexican

– 128 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

SMAHBIA-IPIA Spring Meeting

• Production capability– EAF steel producers accounted for 60% of U.S. production in 2008– 62% first half 2009– 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

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Alternative Iron Salesman - 2009

The Obvious Concerns

-Our Jobs

-US Recession and financial meltdown

-Infrastructure Spending

-Value of the RMB

-Energy shortfalls and pricing

-China, China, China

-Global Steel Overcapacity

-Subsidies and other trade distortions

-US Legislation (111th Congress and the 44th President)

HBIA-IPIA Spring Meeting

US Steel Production (All in Million Net Tons)

(Numbers are Approximate)

PAST – From 1986 through 2008, U.S. steel production has been around 100 m tons – up & down 10%

PRESENT – 2009 1st Half 25m (45% utilization)2nd Half 36m (62% utilization) Now 1.5m/week vs. 2.1m/week Year 63m (Minimills at 63% of production)

FUTURE – 2010 World Steel 78m (up 19% over 2009), optimistic

Peter Marcus 68m (Back to 75m in 2012)US Poll 69m (up 10% over 2009)

Set the StageHBIA-IPIA Spring Meeting

U.S.Raw Steel Production - 2008 & 2009

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HBIA-IPIA Spring Meeting

U.S. Raw Steel Capability Utilization - 2008 & 2009

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HBIA-IPIA Spring Meeting

Globalization and Consolidation Developments Have Dramatically Changed the NAFTA Steel Landscape

Acquiring Company Acquiring Company Acquiring CompanyAcquired Company Acquired Company Acquired Company

Arcelor Mittal Nucor Duferco/NLMKArcelor Connecticut Steel Winner Steel

Dofasco TricoMittal Birmingham Evraz

Ispat Inland Corus Tuscaloosa Oregon SteelISG Worthington-Decatur Claymont Steel

LTV Marion Ipsco CanadaUS Steel Plate

WeirtonNelson SteelHarris Steel Severstal

Acme-Riverdale Auburn Steel Arcelor Mittal-Sp. Pt.North Star Arizona Rouge

WCI

Georgetown American Iron ReductionSicartsaBayou

LMP Steel & Wire

CSNHeartland

US Steel Gerdau AmeristeelLone Star Sheffield

EssarNational Chaparral AlgomaLTV Tin Co-SteelMinnesota SteelISG IH#2 Pkl. North Star

Stelco Sidetul Tultitlan Quanex Macsteel

BlueScope CorsaIMSA Steelscape

OAO TMKSSAB

Ipsco Tubular (U.S.)ICH/Grupo Simec Ipsco Plate (U.S.)Republic

Steel DynamicsTernium GalvPro-Jeffersonville

Hylsa The TechsIMSA Roanoke Steel

Steel of West Virginia

TenarisMaverick Tube (U.S.) Prudential Canada Hydril Company

Wheeling Pitt

1/1/09

Bethlehem

The David J. Joseph Co. (Scrap)

Omnisource (Scrap)

HBIA-IPIA Spring Meeting

N. America: -45.1Canada: -51.9U.S.: -47.0Mexico: -29.5

S. America: -30.3Brazil: -31.4

EU27: -39.3Turkey: -13.5Russia: -26.8Ukraine: -31.9

Asia: -2.2Japan: -34.0S. Korea: -14.9China: +7.5India : +1.6

Global Production: -16.4Excluding China: -30.9

NAFTA Production Declines More Than Other World RegionsGlobal Output Sharply Down, With Few Exceptions

Global Crude Steel Production2009 YTD vs. 2008 % Change

Source: Worldsteel

• The residential housing market has bottomed in the past 6 months – to 40-year lows.

• Home foreclosures are continuing to rise.

Government incentives (e.g., a tax credit for first-time buyers)

are helping, but limited. Tighter credit standards are

reducing the pool of available new buyers.

• An uptick in the non-residential, commercial market is not expected until late next

year.

Source: U.S. Department of Commerce.

The U.S. Construction Market Is Still Weak

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2009 YTD 2008 YTD

Detroit 3 Production Jan-September 2009 vs. 2008

Chrysler

Ford

GM

While the “cash for clunkers” program has helped increase production and sales, “Detroit 3”

production has declined by over 50% YTD vs. 2008.

With the end of this incentive program and with unemployment likely to stay high for several years, automotive production and sales are unlikely to return to pre-crisis levels for the

medium term.Source: Ward’s Automotive. * 2009 Annualized based on September year-to-date.

The NAFTA Automotive Production Remains Deeply Depressed

China’s Trade Surplus with the U.S.

Year China’s Trade Surplus

2001 $22 billion(year China joined WTO)

2006 $177 billion

2007 $262 billion (up 47.7%)

2008 $290 billon

The U.S. has lost 3.3 million manufacturing jobs since The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.2000… imbalances cannot go on forever.

HBIA-IPIA Spring Meeting

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U.S. Consumption

U.S. Scrap Consumption and Exports

HBIA-IPIA Spring Meeting

RMDASTM Ferrous Scrap Price IndexEffective 2/20/10

HBIA-IPIA Spring Meeting

AMM “Exports of Ferrous Scrap”

“The full-year export tally of 22,393,975 [in 2009] tonnes set a new annual record, rising 4.3 percent from the then-record 21467,530 tonnes shipped to foreign scrap consumers in 2008.”

A Few Numbers…

2009 Exports 21.5M tonnes*

2009 Imports (E) 3.0M tonnes*

2009 Consumption 48.0M tonnes* (64/66 M 2005 to 2008)

2009 Shredded Exports 8.5M tonnes*

2009 HBI

DRI ?

Pig Iron

*USGS January 2010

HBIA-IPIA Spring Meeting

Is Enough Being Done?

Raw Materials

Energy

China

Trade

No

No

No

No

Barriers continue

Lack of policy continues

Currency manipulation, Subsidies, Not playing by the rules

Distortions continue, Who’s the protectionist

No long term structural policy changes are being proposed in Washington for taxes, trade imbalance, and energy.

HBIA-IPIA Spring Meeting

What does the US need to do

• Assume a Pro-Manufacturing Agenda– Business Tax Reform– Currency Adjustments– Energy– Reasonable regulatory measures (Environment/Labor)– Climate for investments

• Solve the structural problems that caused the recession- Real Foundation– Bad loans and securities on bank balance sheets– Huge trade deficits

• Policy incrementalism is not sufficient

Conclusion

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”;― 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!― Concerns with Scrap, Climate Change, Energy, U.S. Debt, Taxes, Currency, but especially Climate for Investment

― Still Challenging – But Reasons for Meaningful Long-Term Optimism!

HBIA-IPIA Spring Meeting

• How have you managed metallics supplies during the down cycle?

• Who is involved in the metallics purchasing decision? Describe the decision making process.

• How do you value the metallics you buy (i.e., cost per iron unit purchased or cost per ton liquid steel produced or some other way)?

• Rank in order of importance the following metallics purchasing factors:

– Price– Delivery schedule– Quality (conformity to specification)– Reliability (supplier reputation)– Other (specify)

• How do you value carbon content when buying metallics?

HBIA-IPIA Spring Meeting

Questions for SMA Panel at HBIA-IPIA/Cooper Consolidated Meeting

• What types of ore-based metallics (DRI, HBI, DRI Fines, pig iron, and iron nuggets) do you use and in what percentages? How often (percentage of heats)?

• What do you consider the maximum percentage of HBI in a total charge? Pig iron?

• What would be the ideal physical and chemical characteristics of HBI for your application? Pig iron?

• Do you have experience using HBI and pig iron in the same charge? Explain.

• Do you have experience using HBI chips (fraction 4 mm-25 mm)? How do value HBI chips as compared with HMS 1/2 and HBI?

• Do you have experience using HBI fines (fraction below 4 mm)? How do value HBI fines as compared with HMS 1/2 and HBI? What are the major difficulties of using HBI fines n the EAF? What do feel would be the most effective usage of HBI fines?

HBIA-IPIA Spring Meeting

Questions for SMA Panel at HBIA-IPIA/Cooper Consolidated Meeting

• (For SDI) What has been your experience using iron nuggets from the ITmk3 process? How do you value iron nuggets as compared with HMS 1/2, HBI, and pig iron? What are the principal differences between using iron nuggets and HBI? Pig iron?

• (For Tom) Do you see the North American market having room for additional high quality EAF capacity (i.e., flats, SBQ, fine wire, and forging bar)? If so, where?

• (For Tom) Do you have a feel for the volume of HBI and pig iron imports in 2010? Could HBI be used in the induction furnace?

• Will EAF steel production levels return to first half 2008 levels? If so, when?

Specialized questions:• What value would you place on reducing SiO2 in HBI from 4

percent to 2 percent? • Can HBI be applied in induction furnaces?

HBIA-IPIA Spring Meeting

Questions for SMA Panel at HBIA-IPIA/Cooper Consolidated Meeting