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Thomas A. Danjczek President Steel Manufacturers Association March 1, 2010

2010 International Zinc Conference. From the Steelmaker’s Perspective. Thomas A. Danjczek President Steel Manufacturers Association March 1, 2010. 2010 International Zinc Conference: From the Steelmaker’s Perspective. Outline. SMA Today’s Concerns

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Thomas A. Danjczek President Steel Manufacturers Association March 1, 2010

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  1. 2010 International Zinc Conference From the Steelmaker’s Perspective Thomas A. Danjczek President Steel Manufacturers Association March 1, 2010

  2. 2010 International Zinc Conference: • From the Steelmaker’s Perspective Outline • SMA • Today’s Concerns • Today’s Deterioration – US Steel Production • (U.S. Construction, Automotive, Service Center) • China, China, China • Scrap • Energy • Climate Change • Infrastructure • Trade Issue • Is Enough Being Done? • What does the U.S. need to do? • Conclusion

  3. SMA • 2010 International Zinc Conference: • From the Steelmaker’s Perspective • 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

  4. SMA • 2010 International Zinc Conference: • From the Steelmaker’s Perspective • 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

  5. Steel Executive- 2009

  6. 2010 International Zinc Conference: • From the Steelmaker’s Perspective 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)

  7. US Steel Production (All in Million Net Tons)(Numbers are Approximate) Set the Stage • 2010 International Zinc Conference: • From the Steelmaker’s Perspective 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) (First 6 weeks 2010-68%) Year 63m (Minimills at 64% 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)

  8. 2010 International Zinc Conference: • From the Steelmaker’s Perspective

  9. 2010 International Zinc Conference: • From the Steelmaker’s Perspective

  10. 2009 in a long term contextUS steel industry production changes Source: AISI, First River

  11. 2010 International Zinc Conference: From the Steelmaker’s Perspective 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 Evraz Mittal Birmingham Ispat Inland Corus Tuscaloosa Oregon Steel Bethlehem ISG Worthington-Decatur Claymont Steel Marion Ipsco Canada LTV Nelson Steel US Steel Plate Weirton Severstal Harris Steel Auburn Steel Arcelor Mittal-Sp. Pt. Acme-Riverdale North Star Arizona Rouge WCI Georgetown American Iron Reduction Sicartsa Bayou LMP Steel & Wire Wheeling Pitt The David J. Joseph Co. (Scrap) CSN US Steel Gerdau Ameristeel Heartland Lone Star Sheffield Essar National Chaparral Algoma LTV Tin Co-Steel Minnesota Steel ISG IH#2 Pkl. North Star Stelco Sidetul Tultitlan Quanex Macsteel BlueScope Corsa IMSA Steelscape SSAB OAO TMK ICH/Grupo Simec Ipsco Plate (U.S.) Ipsco Tubular (U.S.) Republic Tenaris Steel Dynamics Ternium GalvPro-Jeffersonville Maverick Tube (U.S.) Hylsa The Techs Prudential Canada IMSA Roanoke Steel Hydril Company Steel of West Virginia Omnisource (Scrap) 1/1/09

  12. NAFTA Production Declines More Than Other World RegionsGlobal Output Sharply Down, With Few Exceptions Global Crude Steel Production 2009 YTD vs. 2008 % Change Turkey: -13.5 Russia: -26.8 Ukraine: -31.9 N. America:-45.1 Canada: -51.9 U.S.: -47.0 Mexico: -29.5 EU27:-39.3 Asia:-2.2 Japan: -34.0 S. Korea: -14.9 China: +7.5 India : +1.6 S. America:-30.3 Brazil: -31.4 Global Production: -16.4 Excluding China: -30.9 Source: Worldsteel

  13. The U.S. Construction Market Is Still Weak • 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.

  14. The NAFTA Automotive Production Remains Deeply Depressed 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.

  15. NAFTA Service Center Inventories At Multi-Year Lows, But Reduced Demand Delaying Restocking • Service center demand has fallen in line with overall steel demand. • NAFTA service center shipments are off 30% vs. 1 year ago. • As of October 2009, U.S. and Canadian service center inventories (2.3 months each) are at 5-year lows, but a lack of consumer confidence and low end-use demand are preventing restocking. Source: Metals Service Center Institute

  16. …While World Capacity Continues to Grow Source: Worldsteel Association

  17. NAFTA Exports During Crisis Period • NAFTA producers send only a small portion of steel produced outside the region. • During 4Q ‘08, intra-NAFTA steel trade declined sharply, more or less in line with the steep decline in market demand. Source: US Department of Commerce and World Trade Atlas

  18. 2010 International Zinc Conference: • From the Steelmaker’s Perspective China’s Trade Surplus with the U.S. YearChina’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 2000… imbalances cannot go on forever.

  19. 2010 International Zinc Conference: • From the Steelmaker’s Perspective U.S. Scrap Consumption and Exports

  20. 2010 International Zinc Conference: • From the Steelmaker’s Perspective RMDASTM Ferrous Scrap Price Index Effective 12/20/09

  21. 2010 International Zinc Conference: • From the Steelmaker’s Perspective Other Issues - Energy U.S. needs to address energy needs, availability, reliability, and competitive costs

  22. 2010 International Zinc Conference: • From the Steelmaker’s Perspective 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.

  23. The IncreasingCost of GeneratingCapacity

  24. Generation Sources: Energy Source: EEI Statistical Yearbook of the Electric Power Industry, 2006 & 2007 Data

  25. United States Canada Mexico Germany Australia Russia Japan • 2010 International Zinc Conference: • From the Steelmaker’s Perspective Other Issues - GHG

  26. 2010 International Zinc Conference: • From the Steelmaker’s Perspective • 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

  27. American Recovery and Reinvestment Act - 2009 • Passed by Congress – February 2009 • $787 Billion to • Create and save jobs • Fix our crumbling infrastructure • Modernize the transportation system • Promote long-term economic growth • Improve public transportation • Reduce energy dependence • Cut greenhouse gas emissions • Head off additional sprawl • Reduce commute times and congestion

  28. ARRA: Overall Breakdown • Infrastructure Investment $81B (10.2% of ARRA) Only $51.2 billion or 6.2%devoted to Core Investments (roads, bridges, railways, sewers, other transportation)

  29. Infrastructure Spending at a Slow Pace Award Progress • Only 7% of projects completed • 4 out of 5 projects are less than 50% complete or have not started Source: recovery.org

  30. Chinese Stimulus: Overall Breakdown • Approved in November 2008 • 4 trillion yuan = US $586 Billion $ 479 Billion – 82% - Devoted to Core Investments

  31. Bottom Line China did it better! • Approved stimulus funds faster • Committed 9 times more dollars to core infrastructure projects • Committing funds faster • Created jobs and got people back to work • Got their steel mills operating at efficient rates • Building infrastructure for long-term economic growth

  32. 2010 International Zinc Conference: • From the Steelmaker’s Perspective Is Enough Being Done? Raw Materials No Barriers continue Lack of policy continues Energy No Currency manipulation, Subsidies, Not playing by the rules No China 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.

  33. 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

  34. 2010 International Zinc Conference: • From the Steelmaker’s Perspective 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!

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