Thomas A. DanjczekPresidentSteel Manufacturers AssociationMarch 1, 2010

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

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

SMA2010 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

SMA2010 International Zinc Conference:From the Steelmaker’s Perspective

Steel Executive- 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)

2010 International Zinc Conference:From the Steelmaker’s Perspective

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) (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)

Set the Stage2010 International Zinc Conference:From the Steelmaker’s Perspective

U.S.Raw Steel Production - 2008 & 2009

3

4

5

6

7

8

9

10

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

2008 2009

2008-2009 Monthly

Mil

lion

Ton

s

Production Tons

2010 International Zinc Conference:From the Steelmaker’s Perspective

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

30

40

50

60

70

80

90

100

JAN FEB M AR APR M AY JUN JUL AUG SEP OCT NOV DEC JAN FEB M AR APR M AY JUN JUL AUG SEP OCT NOV DEC

2008 2009

2008-2009 Monthly

Util

izat

in P

erce

ntag

e

Monthly Utilization Percentage

2010 International Zinc Conference:From the Steelmaker’s Perspective

2009 in a long term contextUS steel industry production changes

Source: AISI, First River

Year Decline

1 1921 -53%

2 1932 -47%

3 1938 -44%

4 1908 -40%

5 1982 -38%

6 1931 -36%

7 2009F -30%

8 1930 -28%

9 1914 -25%

10 1958 -24%

11 1919 -22%

12 1954 -21%

13 1975 -20%

14 1980 -18%

15 1946 -16%

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)

2010 International Zinc Conference: From the Steelmaker’s Perspective

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

0

750

1500

2250

3000

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

MSCI Average Daily Shipments & InventoryFor U.S. & Canada Metric Tonnes (000)

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

2006JAN

JUL 2007JAN

JUL 2008JAN

JUL 2009JAN

JUL

Da

ily S

hip

pin

g R

ate

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Inven

tory

Daily Shipping Rate Inventory

Source: Metals Service Center Institute

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.

World Crude Steel Capacity 2000-2011

1,062 1,062 1,0951,170

1,245

1,3561,453

1,583

1,8161,917

1,997

1,654

588

677

740783

804

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Wor

ld S

teel

Cap

acity

/Dem

and

(thou

sand

met

ric to

nnes

)

0

100

200

300

400

500

600

700

800

900

Chin

ese

Capa

city

(tho

usan

d m

etric

tons

)

World Crude Steel CapacityFinished steel useChinese Capacity

…While World Capacity Continues to Grow

Source: Worldsteel Association

Source: US Department of Commerce and World Trade Atlas

NAFTA Exports During Crisis Period

NAFTA Exports 2008 & 2009 - Monthly

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

JAN2008

FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN2009

FEB MAR APR MAY JUN JUL AUG

Met

ric

Tonn

es

NAFTA External Exports NAFTA Internal Exports • 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.

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.

2010 International Zinc Conference:From the Steelmaker’s Perspective

0

10

20

30

40

50

60

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80

90

2000 2001 2002 2003 2004 2005 2006 2007 2008

Milli

on T

ons

Exports

U.S. Consumption

U.S. Scrap Consumption and Exports

2010 International Zinc Conference:From the Steelmaker’s Perspective

RMDASTM Ferrous Scrap Price IndexEffective 12/20/09

2010 International Zinc Conference:From the Steelmaker’s Perspective

2010 International Zinc Conference:From the Steelmaker’s Perspective

Other Issues - Energy

U.S. needs to address energy needs, availability, reliability, and competitive costs

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.

Other Issues - Energy

2010 International Zinc Conference:From the Steelmaker’s Perspective

The Increasing Cost of Generating Capacity

Generation Technology Historic cost ($-kw.)Current Estimates

($-kw.)

Natural Gas Combined Cycle 500 500-600

Pulverized Coal 1,000 1,500- 2,000

Advanced Coal Gasification n/a 2,500- 3,000

Nuclear 2,000- 4,000 3,500-5,500

Generation Sources: Energy

Forecast of Electricity Source in the U.S.Electric Power Sector Generation

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2010 2015 2020 2025 2030

Gig

awat

thou

rs in

Tho

usan

ds

Coal Natural Gas Nuclear Power Renewable Sources

Source: EEI Statistical Yearbook of the Electric Power Industry, 2006 & 2007 Data

Other Issues - GHG2010 International Zinc Conference:

From the Steelmaker’s Perspective

JapanRussiaAustraliaGermanyMexicoCanadaUnited States

• 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

2010 International Zinc Conference:From the Steelmaker’s Perspective

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

ARRA: Overall Breakdown

{ Infrastructure Investment $81B (10.2% of ARRA)

Tax Relief $288

State Local Fiscal Relief 144

Infrastructure & Science 111

Protecting the Vulnerable 81

Health Care 59

Education & Training 53

Energy 43

Other 8

Total $787

Only $51.2 billion or 6.2% devoted to Core Investments (roads, bridges, railways, sewers, other transportation)

Infrastructure Spending at a Slow Pace

• Only 7% of projects completed

• 4 out of 5 projects are less than 50% complete or have not started

Award Progress

Source: recovery.org

Infrastructure Award Progress

More than 50% Completed

9%

Less than 50% Completed

46%

Not started38%

Completed7%

Chinese Stimulus: Overall Breakdown• Approved in November 2008

• 4 trillion yuan = US $586 Billion

Infrastructure $220

Rural Civilian Projects 54

Civilian Projects 59

Post Earthquake Reconstruction 146

Technology Adv. & Industry Restructuring 54

Stainable Environment 31

Social Welfare 22

Total $586

$ 479 Billion – 82% - Devoted to Core Investments

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

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.

2010 International Zinc Conference:From the Steelmaker’s Perspective

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!

2010 International Zinc Conference:From the Steelmaker’s Perspective