The U.S. Steel Industry Where We Have Been and Where We Are Going

1. The U.S. Steel Industry Where We Have Been and Where We Are Going Keith Busse President and CEO Steel Dynamics, Inc. National Association of Pipe Distributors Las Vegas, February 26, 2005

2. The U.S. Steel Industry • Historical Perspective: 1950-2000 • Global Perspective • The 1990s • The Recent Past: 2000-2004 • The Future • 2005 • Longer term

3. Domestic Steel Production by Type of Steel 4% Rod & Wire Semi-finished 1% Other 5% 6% Structural Flat-rolled sheet 54% Plate 8% Coated Sheet Rebar 7% 19% Other Bar 10% Cold Rolled 14% 5% Pipe Hot Rolled 21% Source: American Iron and Steel Institute

4. 1950 through 2000 • High concentration of large, integrated producers, but many regional and specialty players emerged • Very little growth in domestic steel production over the period • Domination by large integrated producers finally gave way to EAF-based mini-mills • Periods of intense competition from offshore

5. Large integrated producers dominated through the 1970s • U.S. Steel • Bethlehem Steel • National Steel • LTV • Wheeling-Pittsburgh Steel

6. Domestic Steel Production, 1950-2000 Very little growth in domestic steel production… 160 peak about 150 million tons 140 120 100 80 60 110 million tons 40 20 0 1950 1960 1970 1980 1990 2000 Source: American Iron and Steel Institute

7. Changes in steel production technology … Domestic Steel Production by Furnace Type Millions of Tons Total U.S Production 160 140 120 100 80 Basic Oxygen Open Hearth 60 40 Electric 20 0 1950 1960 1970 1980 1990 2000 Source: American Iron and Steel Institute

8. Electric-arc furnace production gained parity… Integrated and EAF Production Percent of U.S. Steel Production 100 90 Integrated 80 70 60 50% 50 40 Electric 30 20 10 0 1950 1960 1970 1980 1990 2000 Source: American Iron and Steel Institute

9. From 1980 to 2000, the new EAF producers gained substantially • Nucor • Birmingham Steel • Commercial Metals • Ipsco • Steel Dynamics • Gerdau Ameristeel … and the U.S. began to see intense competition from offshore

10. Global Perspective, 1950-1980s • Post WW II, U.S. steel industry was strong, but complacent. • Japan and Germany rebuilt. • The U.S. became an attractive steel market. • Around the world, governments invested in national steel companies. • Imported steel became a big issue in the U.S.

11. Global Perspective, 1980-2000 • Japan and Western Europe became more industrialized, like the U.S. • The U.S. became a very attractive market to an increasing number of the world’s steel producers. • Imported steel became a bigger issue in the U.S. • Nationalized steel companies did not work out– governments started privatizing them. (Examples: Great Britain, USSR, Eastern Europe, India– China is the exception, but moving strongly to privatize)

12. In the 1990s • Global factors and past management “sins” converged on the U.S. steel industry. • U.S. producers were dramatically affected by currency manipulation. • The U.S. became the world’s steel “dumping ground.”

13. 1998: Peak Imports of 40+ million tons U.S. Annual Apparent Steel Supply (Use of steel in the U.S.) Millions of Tons Apparent “Consumption” 160 140 120 100 U.S. Domestic Shipments 80 60 Imports 40 20 0 Exports -20 1986 1990 1995 2000 2004 Source: American Iron and Steel Institute

14. Domestic Steel Production 1950-2000 peak about 150 million tons Millions of Tons 160 140 100 million tons 120 100 80 1990s 60 40 20 0 1950 1960 1970 1980 1990 2000 Source: American Iron and Steel Institute

15. During the 1990s U.S. integrated steel producers fell on hard times • They had not adapted well to lower-cost technologies. • They carried extremely high employee obligations • They required strong steel prices to stay afloat • They were increasingly vulnerable to economic downturn Leading into 2000…

16. 2000-2001 recession hits steel markets… Recession causes decline in domestic demand for steel Apparent “Consumption” Millions of Tons 160 140 120 100 80 60 40 20 0 1986 1990 1995 2000-2001 2004 Source: American Iron and Steel Institute

17. Capacity utilization sinks… U.S. Raw Steel Capacity Utilization Percent 100% 90% 80% 70% 60% 50% 2000 2001 2002 2003 2004 Source: American Iron and Steel Institute

18. Steel prices drop to a 20-year low… Hot-rolled Sheet Selling Price Dollars per Ton $800 $700 $600 $450 $500 $390 $400 $300 $225 $200 1980 1988 1994 2000 2001 Source: Purchasing Magazine

19. More than 35 steel companies filed for bankruptcy from 1998 to 2002 • Qualitech Steel • J&L Structural Steel • Laclede Steel • Erie Forge & Steel • CSC Ltd. • Freedom Forge Corp. • Sheffield Steel • Calumet Steel • Edgewater Steel Ltd. • Galvpro • Metals USA • Action Steel … andothers • Bethlehem Steel • National Steel • LTV • Wheeling-Pittsburgh Steel • Geneva • Gulf States • Northwestern Wire and Steel • Birmingham Steel • Republic Technologies • GS Industries • Acme Metals • Trico

20. Steel prices recover in 2002 under supply constraints • Prices recover sharply from their 2001 lows, improving the health of remaining steelmakers. • Some mills are shut down permanently, but capacity utilization rebounds in the second half. • International Steel Group, begins restarting idled LTV mills. • Nucor buys and restarts Trico. • With the return of capacity, prices moderate by year-end 2002 • Most integrated mills continue to lose money.

21. Hot-rolled sheet selling price climbs Dollars per Ton 2002 $800 $700 $600 $400 $500 $400 $300 $200 1980 1988 1994 2000 2004 Source: Purchasing Magazine

22. 2003 presents new challenges • The U.S. economy begins to rebound, but pace of steel demand is slow. • With some shut-down mills coming back on line, industry capacity recovers and capacity utilization falls. • In the second half, signs of raw material shortages appear, causing steel scrap prices to rise at a rapid rate. • Steel producers bump up selling prices to recover increased costs. • Most integrated steel companies continue to lose money.

23. In 2004 the steel markets “Kick it up a notch” • Steel scrap costs (and now coke and iron ore costs) accelerate to historical highs. • Due to historically high input costs, steelmakers institute raw-materials surcharges. • Inflation-adjusted steel prices reach historical highs.

24. Steel Scrap Pricing 2004 2003 $450/ton Dollars per Ton $250/ton 2004: Scrap costs reach historical highs $500 $400 $300 Auto-Bundles $200 $100 No. 1 Heavy Melt 1980 1988 1994 2000 2004 Source: Purchasing Magazine

25. Steel prices reach historical highs Hot-Rolled Sheet Selling Price 2004 $760/ton Dollars per Ton $800 $700 $600 $400 $450 $500 $390 $400 $300 $200 1980 1988 1994 2000 2004 Source: Purchasing Magazine

26. Steel mills again run near full capacity U.S. Raw Steel Capacity Utilization Percent 100% 90% 80% 70% 60% 50% 2000 2001 2002 2003 2004 Source: American Iron and Steel Institute

27. Reflections on the 2004 Steel Market • Mini-mills vs. integrated steelmakers– Who’s winning? • Concerns about higher steel prices • As a result of consolidation, the health of the U.S. steel industry vastly improved • Is it sustainable?

28. “Where do we go from here?” – 2005 • Raw materials costs, while lower than 2004 peak levels, will not likely fall back to previous levels. • Selling prices likewise are not expected to fall precipitously. • The “steel short” supply-demand imbalance is likely to recur in much of 2005, assuming steel demand stays firm and imports continue at a moderate pace.

29. Imports surged in 2004, but are now slowing Monthly Steel Imports (thousands of tons) 4,500 2004 4,000 3,500 3,000 2,924 2,500 2,000 Average = 2,747 tons 1,500 96 97 98 99 00 01 02 03 04 Source: US Census Bureau, graphic courtesy of Goldman Sachs Global Investment Research

30. “Where do we go from here?” – 2005 • Moderately strong world steel demand and higher global steel prices, a weak dollar, high ocean freight rates– all act as a disincentive for excessive imports. • Continued economic expansion suggests demand will remain strong and possibly improve in some steel markets. • Another good year is likely for steel companies.

31. “Where do we go from here?” – Beyond • Consolidation of the U.S. steel industry has been good for the industry, and may continue. • It has closed down antiquated production capacity, improving the cost competitiveness of the industry. • It has resulted in better workplace practices and better union agreements for the unionized companies. • By eliminating weak companies, it has increased steel-company managements’ focus on profitability. (continued)

32. “Where do we go from here?” – Beyond • Our competitiveness globally is essential to keeping our domestic industry strong • We CAN BE the lowest cost steel producers in the world. • U.S. competitiveness will depend on currencies, with a weaker dollar helping the steel industry • China will continue to be the 800-pound gorilla, in terms of its market size, its growing steel industry, and how it deals with its currency valuation.

33. China’s steel production has surged 31 Monthly Production (millions of metric tons) China (300 Mt/yr) 26 21 US (85 Mt/yr) EU (150 Mt/yr) Japan (120 Mt/yr) 16 11 6 1994 1996 1998 2000 2002 2004 Source: II&SI, graphic courtesy of Goldman Sachs Global Investment Research

34. “Where do we go from here?” – Beyond • Overall, we are optimistic about the U.S. steel industry over the next ten years. • Demand for steel in the U.S. will remain strong, with some cyclical variability. • Domestic supply will grow slowly as “new steel management” is more cautious than in the past about adding capacity. • U.S. likely will continue to require imports of 25-30% to meet demand. • Excessive imports remain a risk, but can be dealt with.

35. The U.S. Steel Industry Where We Have Been and Where We Are Going Keith Busse President and CEO Steel Dynamics, Inc. National Association of Pipe Distributors Las Vegas, February 26, 2005