Steel – A Year Later

1. National Fluid Power Association Economic Outlook Conference Steel – A Year Later Thomas A. Danjczek, President Steel Manufacturers Association August 16, 2005 Rev. 8/2/05

2. NFPA – Economic Outlook Conference Steel – A Year Later • SMA • Review 2004 Presentation Highlights/Conclusions • 2005 • • World Steel Production/Operating Rate • • China • • Scrap, Ore, Steel Prices • • Consolidations • Expert Views • Conclusion

3. NFPA – Economic Outlook Conference • The Steel Manufacturers Association (SMA) • 38 North American companies: • 31 U.S., 5 Canadian, and 2 Mexican • 103 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. NFPA – Economic Outlook 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 53% in 2004, and anticipated to be 60% by 2010

5. Last Year (2004) NFPA –Economic Outlook Conference August 17, 2004 Current Drivers Impacting Steel Competitiveness I. Trade •201 Real World Impact •World Steel Production (up 7.1%) •China, China, China… (up 21.1%) (Its Impact) II. Steel Production Costs •Key Issues (Scrap $100 to $285) •Asset Values •Exchange Rates •Steel Imports – Value of U.S. $ •Bankruptcy/Restarts III. Other Costs •Restrictive Scrap Exports •Freights •Coke •Energy IV. Market •Overview •Public Works Construction V. Conclusion •Uncertainty •Optimistic

6. Some things are the same… Courtesy – IMF

7. Courtesy – IMF

8. Courtesy – IMF

9. Some things are different…

10. Some things got worse… IRON ORE PRICES - ANNUALThe 2004 iron ore price-increase benchmark of 18.5% was established in early-January by CVRD, following a 9% gain in 2003. China now accounts for over 25% (110 MT) of world sea-borne demand, while three producers (CVRD, RTZ and BHP) now control over 80% of the supply. Pellets Lump Fines Prices shown are from CVRD (Brazil) to Western European steel customers (fob) Courtesy – Metal Strategies

11. Technical Read on Crude Oil Prices Courtesy – JP Morgan

12. NFPA – Economic Outlook Conference 2004 Conclusions • Uncertainty – Cycle has Changed (Shorter Term & Greater Peaks & Valleys) • Revenue vs. Costs – Not the Same Business Model • Bankruptcy Laws Unfair to Competitors • Investments – Earn Cost of Capital • Minimills 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

13. 2005

14. WORLD STEEL PRODUCTIONWorld steel production was up 6.5 percent through March, following increases of 8.9 percent and 6.8 percent in 2004 and 2003, respectively. China accounted for 92 percent of the y-t-d worldwide net gain and 25 percent of total world production. World Total Steel Production: March 2005 Percent Change, Year Ago Month: 6.5% Year-to-Date: 6.5% World Excluding China In the five years from 1998 to 2003, China and the former-USSR states increased production by a cumulative 140 MT, equal to 70 percent of the combined total output in 2003 of both the U.S. or Japan. Source: Metal Strategies

15. 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. World Crude Steel Operating Rate % Source: Metal Strategies

16. NFPA – Economic Outlook Conference China’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!

19. Source: Iron and Steel Statistics Bureau

20. Hot-Rolled Sheet Prices, 1990-2005 (Midwest, $ per ton) June 2005 = $495 July 2005 = $460 Source: Purchasing Magazine

21. Wide-Flange Beam Prices, 1990-2005 (Midwest, 8 x 8, $ per ton) June 2005 = $516 July 2005 = $506 Source: Purchasing Magazine

22. Rebar Prices, 1990-2005 (Midwest, $ per ton) June 2005 = $470 July 2005 = $450 Source: Purchasing Magazine

23. Wire Rod Prices, 1990-2005 (Midwest, $ per ton) June 2005 = $505 July 2005 = $472 Source: Purchasing Magazine

24. 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

25. NFPA –Economic Outlook Conference Expert Views Plummer – Metal Strategies - May 18, 2005 - Eight months of downward market correction, focused in sheet - Auto market under pressure, especially SUV’s - Positive outlook despite current conditions (Supply moving in balance with demand; imports are down; inventories coming down by inventory liquidation and mill shutdown) - Demand still healthy (industrial equipment up by 7 percent; now residential recovering; auto transplants are strong

26. NFPA –Economic Outlook Conference Expert Views Michelle Applebaum – June 26, 2005 - Inventories decline modestly - Sheet prices showed decline reflecting automotive - Plate and long products sideways (Cut to length plate unchanged in May 2005; rebar unchanged) - Minimills more disciplined

27. NFPA –Economic Outlook Conference Expert Views SBB Global Market Outlook – May, 2005 - Production cuts too little, too late - Buyers holding back - Inventory draw down ends in the third quarter (For long products, some products are potentially in short supply due to de-stocking) - Plate is still strong

28. NFPA –Economic Outlook Conference Expert Views Peter Marcus – World Steel Dynamics – 5/27 & 7/7/05 - Bottom of the “V” pricing for hot-rolled on the world export market may occur in third quarter - “Prime” U.S. automotive scrap plummeted another $60 to about $170 in May (vs. high of $450 in November, 2004) - Steel shipments in USA 5-10 percent projected below 2004 - Chinese steel production is likely to decline sharply in months ahead - Lower freight rates ($70 to $55 per ton)

29. NFPA –Economic Outlook Conference Expert Views MEPS Steel News – June 1, 2005 - Flat products fell by 5.5 percent in May - Long product price held up Charles A. Bradford – Soleil – July 13, 2005 - Improvement in inventories - Oil country, rail & light shapes strong - Sheet products weak

30. NFPA –Economic Outlook Conference Conclusions • Hell, it’s still a cyclical business • Fundamental shift in both demand and supply due to China and its appetite for raw materials – China is still the “wild card” • Consolidations have had an impact to reduce volatility • Role of inventories affecting pricing and production • Unknowns (Oil, Interest rate, Auto sector, Energy, China, China, China) • Still reasons for meaningful optimism