ANFACAL, Punta Mita, Feb 2016

Mexican Migration:Butterflies, Former Bosses, Steel

& Manufacturing

Presentation to:ANFACAL

Punta Mita, Mexico

by: Becky E. Hites, PresidentFebruary 26, 2016

Our New Challenging World

• Less homogeneous economic growth.• Commodity oversupply for the next decade will

impact pricing.• China’s attempt to shift back to a consumer

based economy has stalled growth in many trade partner countries.

• Currency instability has disrupted global trade.• Managing through tumultuous times requires

tenacity.

2

Steel Market Highlights

• Steel is oversupplied both globally and in the North American market.

• Pricing globally has been driven by falling raw material costs and “cheap” foreign offerings.

• Demand is “ok” but not superb.• Commodity cycle will likely have a

protracted price bottom, which will keep downward pressure on steel prices for longer than “usual”.

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Global GDP More Than Doubled from 2003 to 2015;Up 4% CAGR Past Half Decade

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Global GDP - 54 Years

Source: The World Bank

Global GDP Has Only Had 5 Down Years in the Past 55 Years – So 10% of the Cycle

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Global GDP Growth


Europe and North America Account forAlmost Half of the Global Economy

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North America25%

European Union24%

East Asia & Pacific (all income levels) less

China14%

China13%

Latin America & Caribbean (all income levels)

8%

Europe & Central Asia (all income levels)

6%

MENA5%

South Asia3%

Other2%

Global GDP by Region, 2014


Top 10 Economies Account for 65% of Total Global GDP – Includes 3 Developing Countries

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United States22%

China13% Japan

6%Germany

5%

United Kingdom4%

France4%Brazil

3%Italy3%India

3%Russian Federation

2%

Other35%

Top 10 Economies Percent of Global GDP, 201465% of Total Global GDP


Global GDP in Sync in 2003/2004 and 2011

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016eWorld 38.6 43.5 47.1 51.0 57.5 63.1 59.8 65.6 72.7 74.2 76.2 77.8 79.7 82.0North America 12.4 13.3 14.3 15.2 15.9 16.3 15.8 16.6 17.3 18.0 18.6 19.2 21.0 European Union 11.9 13.7 14.3 15.3 17.7 19.0 17.0 16.9 18.3 17.2 18.0 18.5 East Asia & Pacific (all income levels) less China 6.8 7.5 7.8 8.0 8.5 9.3 9.2 10.6 11.8 12.2 11.4 11.1 China 1.6 1.9 2.3 2.7 3.5 4.6 5.1 6.0 7.5 8.5 9.5 10.4 11.1 11.8 Latin America & Caribbean (all income levels) 2.0 2.4 2.9 3.4 4.0 4.6 4.3 5.4 6.1 6.1 6.3 6.2 Europe & Central Asia (all income levels) 1.5 1.9 2.3 2.7 3.4 4.1 3.3 3.9 4.6 4.8 5.0 4.7 MENA 1.1 1.3 1.5 1.8 2.1 2.6 2.4 2.7 3.3 3.5 3.6 3.5 South Asia 0.8 0.9 1.1 1.2 1.5 1.6 1.7 2.1 2.3 2.3 2.4 2.6 Other 0.5 0.6 0.7 0.8 0.9 1.0 1.0 1.3 1.5 1.5 1.6 1.7 Arab World 0.8 1.0 1.2 1.4 1.6 2.1 1.8 2.1 2.5 2.8 2.8 2.8

Growth RatesWorld 12.3% 12.7% 8.3% 8.3% 12.7% 9.6% -5.2% 9.7% 10.8% 2.1% 2.8% 2.1% 2.4% 2.9%North America 5.7% 7.2% 7.3% 6.4% 5.1% 2.0% -2.9% 5.0% 4.4% 4.0% 3.4% 3.2%European Union 21.9% 15.5% 4.6% 6.7% 15.6% 7.6% -10.6% -0.4% 8.1% -5.9% 4.3% 2.9%East Asia & Pacific (all income levels) less China 9.3% 10.8% 3.8% 2.1% 6.3% 9.5% -1.0% 15.2% 11.1% 3.4% -6.8% -2.3%China 12.9% 17.7% 16.8% 20.3% 29.1% 29.4% 11.0% 19.4% 24.1% 12.9% 12.2% 9.1% 6.9% 6.5%Latin America & Caribbean (all income levels) 3.0% 16.2% 21.1% 17.4% 18.1% 16.2% -6.0% 23.8% 13.3% 0.5% 2.4% -1.4%Europe & Central Asia (all income levels) 22.2% 25.0% 20.2% 18.0% 24.1% 21.3% -18.7% 17.5% 18.8% 3.2% 4.3% -5.9%MENA 12.6% 16.3% 20.5% 17.1% 18.8% 24.9% -10.8% 16.4% 19.9% 7.8% 0.7% -1.8%South Asia 16.7% 16.0% 14.6% 14.3% 26.7% 1.7% 9.9% 22.7% 9.1% 0.8% 2.6% 9.6%Arab World 12.9% 17.3% 23.0% 18.6% 17.2% 26.8% -13.6% 17.0% 18.7% 10.5% 2.7% 0.6%


GDP by Region($ in Trillions)

Two of the Top 10 Economies – Brazil and Russia - Were Down in 2015; USA Was Up 2.4% & Mexico Was Up 2.4%

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015eUnited States 11.5 12.3 13.1 13.9 14.5 14.7 14.4 15.0 15.5 16.2 16.8 17.4 17.8 China 1.6 1.9 2.3 2.7 3.5 4.6 5.1 6.0 7.5 8.5 9.5 10.4 11.1 Japan 4.3 4.7 4.6 4.4 4.4 4.8 5.0 5.5 5.9 6.0 4.9 4.6 4.6 Germany 2.5 2.8 2.9 3.0 3.4 3.8 3.4 3.4 3.8 3.5 3.7 3.9 3.9 United Kingdom 1.9 2.3 2.4 2.6 3.0 2.8 2.3 2.4 2.6 2.6 2.7 2.9 3.0 France 1.8 2.1 2.2 2.3 2.7 2.9 2.7 2.6 2.9 2.7 2.8 2.8 2.9 Brazil 0.6 0.7 0.9 1.1 1.4 1.7 1.7 2.2 2.6 2.4 2.4 2.3 2.3 Italy 1.6 1.8 1.9 1.9 2.2 2.4 2.2 2.1 2.3 2.1 2.1 2.1 2.2 India 0.6 0.7 0.8 0.9 1.2 1.2 1.4 1.7 1.8 1.8 1.9 2.1 2.2 Russian Federation 0.4 0.6 0.8 1.0 1.3 1.7 1.2 1.5 1.9 2.0 2.1 1.9 1.8 Other 11.7 13.6 15.3 17.2 20.0 22.5 20.4 23.0 25.9 26.4 27.4 27.4

Top 10 26.9 29.9 31.8 33.8 37.6 40.6 39.4 42.5 46.8 47.8 48.9 50.4 Percent of Total 70% 69% 67% 66% 65% 64% 66% 65% 64% 64% 64% 65%

Canada 0.9 1.0 1.2 1.3 1.5 1.5 1.4 1.6 1.8 1.8 1.8 1.8 1.8 Mexico 0.7 0.8 0.9 1.0 1.0 1.1 0.9 1.0 1.2 1.2 1.3 1.3 1.3

Top 10 Economies Growth RatesUnited States 4.9% 6.6% 6.7% 5.8% 4.5% 1.7% -2.0% 3.8% 3.7% 4.2% 3.7% 3.9% 2.4%China 12.9% 17.7% 16.8% 20.3% 29.1% 29.4% 11.0% 19.4% 24.1% 12.9% 12.2% 9.1% 6.9%Japan 8.1% 8.2% -1.8% -4.7% 0.0% 11.3% 3.8% 9.1% 7.5% 0.8% -17.4% -6.5% 0.6%Germany 20.5% 12.5% 1.5% 4.9% 14.6% 9.1% -8.9% 0.0% 10.0% -5.8% 5.8% 3.3% 1.5%United Kingdom 16.1% 18.2% 5.0% 7.1% 14.7% -5.8% -17.3% 4.3% 7.6% 0.9% 2.4% 9.8% 2.2%France 23.2% 14.9% 3.7% 5.5% 14.5% 9.8% -7.9% -1.7% 8.1% -6.3% 4.8% 0.7% 1.1%Brazil 9.9% 19.8% 33.2% 24.2% 26.0% 21.4% -1.8% 32.7% 18.4% -7.7% -0.9% -1.9% -3.7%Italy 23.9% 14.6% 3.0% 4.9% 13.4% 8.5% -8.6% -2.7% 7.1% -8.9% 2.8% 0.4% 0.7%India 18.0% 16.7% 15.6% 13.8% 30.5% -1.2% 11.5% 25.1% 7.5% -0.2% 1.6% 11.0% 7.2%Russian Federation 24.7% 37.3% 29.3% 29.6% 31.3% 27.8% -26.4% 24.7% 24.9% 5.8% 3.1% -10.5% -3.8%Other 16.1% 16.6% 12.7% 12.0% 16.2% 12.7% -9.3% 13.0% 12.4% 2.0% 3.6% 0.2%

Top 10 10.8% 11.0% 6.2% 6.6% 11.0% 8.0% -2.9% 8.0% 9.9% 2.1% 2.4% 3.2%

Canada 18.0% 14.7% 14.3% 12.6% 11.2% 5.8% -11.1% 17.7% 10.8% 2.5% 0.3% -2.8% 1.2%Mexico -3.8% 8.0% 12.5% 11.4% 8.1% 5.6% -18.9% 17.5% 11.4% 1.3% 6.3% 2.9% 2.4%


Top 10 GDP Economies($ in Trillions)

Not Only Are the Global Economies “Out of Phase”; The Long Cycle of Growth Has Likely Peaked

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• As early as the 1920s-1930s, theories emerged about a long cycle in the global economies. The Kondratiev Wave (or K-Wave) postulated that economies modulate between high and low growth over a 50-55 year cycle as measured by prices and the inflation rates.

• Over the years, theories about the length of the cycle have proliferated, generally ranging from 20-40 years, and have been tied to some new evolutionary change that refueled the growth engine.

The Information Revolution & China Drove the Last AccelerationWhat Will Drive the Next One?

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China Embracing Some Aspects of Capitalism Filled The Global Economic Sails in the First Half of the Decade

• During this author’s professional life, I personally have witnessed 3 periods when the world’s economies aligned, resulting in higher global growth and driving commodity prices to new highs as all of the geographic markets competed for limited supply.

• Led by the strong growth in China’s economy starting in 2003, we experienced such a period from 2003-2004, and continued strong growth (Japan’s economy was in recession) until 2008 when the Lehman Crisis triggered a dramatic economic disruption in most countries.

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These Growth Periods Are Typically Accompanied by Price Surges Driven by Commodity Supply Shortages

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Chart is dated, but shows the

theory overlaying the change

in wholesale

pricing.

Global Economic Growth of 2%-3% Feels “Lousy” When You’re Used to 4%-5%

• Most economies had recovered by 2010 and the world was in positive sync again in 2011.

• In 2012, half of the top 10 economies contracted and the economies have been out of sync since.

• Global GDP growth for the past 3 years ranged from 2.0-2.8%.

• The world is still vulnerable to a slowdown which would approach a flat performance.

• Banking system has been shored up since the 2008 meltdown, but is still not resilient.

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Macro Economic Events Creating Headwinds in 2015 The USA Fed, Greece, Migrant Crisis & USA Trade Bank Defunded

• The USA Federal Reserve Bank raised rates December 2015 despite multiple global objections. There are now fears of a USA recession.

• Greece’s debt issues have been seemingly resolved in the near term, but the region isn’t stable. The risk from the West’s perspective is that if Russia or China or Iran step up to provide a financial bridge, that would be a significant shift in the power balance of the region.

• EU remains in turmoil with Brexit replacing Grexit as the latest crisis, provoked in part by the migrant crisis

• EXIM Bank in the USA was defunded mid-2015, but was refunded with the new Highway Bill in December 2015.

• More than one voice prophesying a global economic recession. For sure, no one is predicting a strong global economy.

• Oil. The Saudi’s dropped the price to stem funding of new projects. The USA is now energy self sufficient, and there’s a tug-of-war for market share between OPEC, Russia, and now Iran.

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Higher Cost Energy – Could be Low Cost, But Opting for a Cleaner Environment

• Oil has now been in global oversupply for 6 quarters starting Q3 2014 – the longest period in my adult lifetime. Bloomberg, June 16, 2015

• Pope Francis has entered the clean environment fray with an “encyclical” calling for more action to halt climate change.

• Renewable energy generation could overtake coal in 15 year. Financial Times, June 14, 2015

• Between now and 2040, expecting $3.7 trillion in solar energy capital investments. Bloomberg Business, June 23, 2015

• My former boss/partner, Mr. Mitch Hecht, CEO of International Recycling Group, has taken an apartment in Mexico City to work with programs focused on capturing the entirety of the waste stream for re-use.

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Global Dislocation & Other “Scandals” Disrupting Economics

• Russia Ukrainian border – Has seriously impacted steel production from Ukraine, which was low cost production, and has somewhat impacted raw material costs into Russia. Russia has rattled its saber about restricting scrap outflows due to shortages in the country.

• Asylum seekers are creating an immigration crisis in Europe. Will the fragile economies be able to absorb the impact, or will it cause them to falter?

• Migrant Crisis has disrupted Europe on multiple levels: humanitarian, diplomatic, financial, security, religion, business

• ISIS – Disrupting Turkey and Russia, Paris and London, and the USA and Mexico. The USA has spent $6 billion on the anti-ISIS campaign.

• VW diesel emissions scandal could further derail Germany’s economic performance. Feb 2016 Germany Q4 growth 0.3%.

• FIFA corruption could impact the next two World Cups. Soccer is big business globally.

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Commodities Have a Non-Linear Supply Curve

• Classic economic theory quite accurately predicts that as prices rise with increased demand, supply will be developed to meet that demand.

• Regarding many, if not all, of the raw materials supplying the steel industry and basic industry in general, additional new supply is not linear, but rather choppy in that it takes a period of years to identify the new resource to be developed, obtain the required environmental licenses, establish funding and then develop the mine.

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Demand Goes Undersupplied, And Prices Rise

• Thus, the demand goes undersupplied for an extended period until supply catches up.

• And often then supply exceeds demand, pushing the cycle into the over-supply phase.

• Where marginal projects that should not have been completed, but were caught up in the exuberance of the shortage, now get terminated.

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China – The Evil Empire? The All Encompassing Destructive Wave?

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12th 5-Year Plan (2011-2015) made it a priority to shift back to a consumer based economy. Was industrial and trade based.

Private Consumption Was 50% of GDP in 1980 –New Plan is Seeking to “Catch Up” That Segment

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“China Needs to Keep Employment High” is the Ubiquitous Comment When the Topic of the China’s Steel Production Overcapacity is Raised

• 1.4 billion people in China compared to the world at 7.3 billion – about 19% of the total.

• In the 1970s, capitalist reforms put in place by Deng Xiaoping started a migration to cities.

• In 2012, for the first time more people lived in cities than in rural areas – 691 million. As a point of reference, the entire Mexican population is 122 million.

• Young people in China are leaving government jobs and heavy industry in favor of finance.

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China Will Be Shifting Jobs Out of the Steel Industry Into Other Areas

• The incentives have been, and will continue to be diverted away from the steel industry.

• September 2013 President ordered “self-criticism”.

• January 2015 steel export rebate removed.

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Pangang Chengdu Steel & Vanadium Company Closed in April 2015, Cutting 16,000 Jobs

• China’s Shift Away From Industry Drains Life From a Steel Town. Company towns dependent on closed factories are being uprooted, reminiscent of Rust Belt America. WSJ, September 8, 2015

• Has China Finally Started Curtailing Steel Production? MarketRealist, August 27, 2015

• It won’t be a quick, or easy process, but it has started to happen.

• China is still a “controlled economy” so the regulators have additional tools to affect change. (Comment: At the recent NABE annual conference in DC, it was discussed that it seems like China is repeating some of the mistakes the USA Fed made in the 1960s, so there will be a learning curve as they make the decisions regarding management of their banking system.)

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Process Won’t Be Without Challenges

• China was the latest, largest incremental demand of most resources.

• The recent attempt to bring their currency back to “parity” continues to caused a disruption in the financial markets and people are taping money under their clothes to smuggle it out of the country.

• Business gets transacted in stable environments. We’re in a period with a lot of instability with parties trying to figure out how to adjust their business practices to “not get hurt”.

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RMB Is On Track to Become a Reserve Currency

• China Knocks on the Reserve-Currency Door, The Economist, August 5, 2015

• China’s RMB Set to Become the World’s Greatest Currency, Live Trading News, October 19, 2015

• The Yuan as a Reserve Currency? Not So Fast, Forbes, September 14, 2015

• How the Yuan Could Achieve Reserve Currency Even if the USA Objects, Wall Street Journal, April 28, 2015

• IMF Signals Yuan Won’t Become Reserve Currency For At Least a Year, Wall Street Journal, August 19, 2015

• China’s Central Bank Announced It Has Issued 5-Billion Yuan Denominated Notes in London, the First Offshore Issuance of Such Debts Outside of China, Xinhuanet, October 22, 2015

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One Criteria Has Been Met, Working on the Second

• Currency must be a significant participant in global trade – China accounted for 12.4% of global exports last year according to JP Morgan.

• Currency must be “stable” and freely used. Recent devaluation and bond offering seem to be steps to fulfil this requirement.

• If a currency meets these two criteria, then just needs a 70% vote to be included. The USA doesn’t have enough votes to block it.

• The UK seems to be supporting the Chinese efforts.• IMF has said it’s more a matter of “when” rather than

“if”.• IMF voted in November 2015 to include the RMB in the

global trade bundle. Will be effective October 2016.

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China – Capitalistic, Except When It Isn’t; The Country Will Enact Policies to Eliminate Steelmaking Overcapacity

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13th 5-Year Plan (2016-2020) makes it a priority to improve the environment and have the RMB included as a reserve currency.

The Steel Industry and improving the environment are conflicting priorities.

“Your turn to give back.”

“Steel production capacity will be cut by 100 million to 150 million tons, China’s State Council announced Sunday without specifying a time frame. That will translate into as many as 400,000 lost jobs, said Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, according to a report by the official Xinhua News Agency Monday. China will raise funds to help dismissed workers, Xinhua said.

China’s leaders have vowed to reduce excess industrial capacity and labor in state enterprises even as they battle the slowest growth in a quarter of a century. They are grappling with a delicate balancing act as they strive to restructure the economy away from investment-led growth without tipping it into a deeper slump.” Bloomberg Business, January 25, 2016

USA Trade Weighted Dollar Index Has Appreciated 25% from the Most Recent May 2014 Low

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US Trade Weighted Dollar Index

Source: Board of Governors of the Federal Reserve System

Trailing Twelve Month MovingAverage

U.S. Dollar is the Safest Haven – But Not Strong Enough to Perpetuate Global Trade

• The dollar isn’t strong because the USA economy is strong, but rather because the rest of the world is weak.

• It’s been said that the USA is the “cleanest shirt in the laundry”.

• Global trade needs a stable currency for all parties to measure value.

• World trade is in decline for the first time since WWII, when currencies displaced barter as the basis for trade.

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A Secondary Strong Dollar Impact is on the Regional Steelmaking Costs

• Most commodities are priced in US dollars, which has stayed high.

• Most commodity costs are in local currencies, which have declined in “cost” relative to the dollar.

• In a market that is over supplied, classic economic theory dictates that the price will drop until the higher priced supply is removed from the market and a new lower equilibrium price is reached.

• Thus, the lowest cost market will set the price, and the higher dollar value will, by definition, prohibit any strong currency countries from being the low cost producer country.

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What’s Needed for the Cyclical Rebound

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Adjustment to the New Normal

Stronger Global Economies

Global Crude Steel Consolidation – Natural Evolution – Darwin’s Survival of the Fittest.

Bottoming of the Commodity Price Cycle – Prices Are Likely to Stay Low for an Extended Period

Embracing & Navigating Disruption

Reduction of the Cash Cost to Produce

Continued Development of New Steels

Steel Around the Globe

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World Crude Production Reported Down 2.8% for 2015 at 1.6 Billion Tonnes; S-I Estimates Down 3.2% for 2016

Including Smaller Non-Reporting Countries

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1995 2000 2005 2010 2011 2012 2013 2014 2015e 2016e 2013-14 2014-15 2015-16

China 95.4 128.5 355.8 638.7 702.0 731.0 822.0 822.8 803.8 799.0 0.1% -2.3% -0.6%Japan 101.6 106.4 112.5 109.6 107.6 107.2 110.6 110.7 105.2 101.5 0.1% -5.0% -3.5%India 22.0 26.9 45.8 69.0 73.5 77.3 81.3 87.3 89.6 92.7 7.4% 2.6% 3.5%South Korea 36.8 43.1 47.8 58.9 68.5 69.1 66.1 71.0 69.7 68.4 7.5% -1.9% -1.8%Other Asia 23.8 26.9 37.3 42.2 43.9 42.2 43.7 47.4 41.3 39.4 8.5% -12.9% -4.6%EU-28 189.7 192.3 195.7 172.9 177.8 168.6 166.4 169.3 166.2 165.4 1.8% -1.8% -0.5%Russia 51.6 59.1 66.1 66.9 68.9 70.2 69.0 71.5 71.1 70.4 3.6% -0.5% -1.0%Ukraine 22.3 31.8 38.6 33.4 35.3 33.0 32.8 27.2 22.9 21.8 -17.1% -15.6% -5.0%Other CIS 0.0 7.6 8.5 7.8 8.5 7.6 6.6 7.4 7.4 7.5 12.4% -0.2% 0.3%Turkey 13.2 14.3 21.0 29.1 34.1 35.9 34.7 34.0 31.5 32.3 -1.8% -7.4% 2.5%Other Europe 94.5 110.3 129.7 134.0 143.2 143.0 140.3 136.7 129.7 128.3 -2.5% -5.1% -1.0%NAFTA 122.7 135.4 127.6 111.6 118.7 121.6 119.0 121.2 110.7 111.3 1.8% -8.6% 0.5%USA 101.8 94.9 80.5 86.4 88.7 86.9 88.2 78.9 80.7 1.5% -10.5% 2.2%South America 34.6 39.1 45.5 43.9 48.2 46.4 45.8 45.0 43.7 42.6 -1.7% -2.9% -2.5%Middle East 8.1 10.8 15.3 20.0 23.2 25.0 27.0 30.0 29.0 28.5 11.2% -3.2% -1.9%Africa 13.7 13.8 18.0 16.6 15.7 15.3 16.0 15.0 14.6 13.9 -5.9% -2.7% -4.8%Oceania 9.3 7.8 8.6 8.1 7.2 5.8 5.6 5.5 5.7 5.8 -2.2% 4.6% 2.0%

Total Global 752 849 1,148 1,433 1,538 1,560 1,650 1,669 1,617 1,604 1.2% -3.2% -0.8%Developed World 509 544 565 528 547 540 536 538 512 506 0.3% -4.9% -1.0%Developing World 244 305 583 905 991 1,020 1,114 1,131 1,105 1,098 1.6% -2.3% -0.6%

Developed % of Total 68% 64% 49% 37% 36% 35% 32% 32% 32% 32%Developing % of Total 32% 36% 51% 63% 64% 65% 68% 68% 68% 68%

Source: World Steel Association, China Iron and Steel Association & Steel-Insights, LLC estimates

Crude Steel Production by Region(Million Metric Tonnes)

Global Crude Steelmaking Has Moved Into a Period of Consolidation After 15 Years of Unusually Strong Growth

Driven by Development in China

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Global Crude Steel Production

Source: World Steel Association

Period ofConsolidation

The Steel Industry is Highly Cyclical and Closely Correlated to the Commodity Cycle – The Current Correction is Moderate

Compared to Past Cycles – BUT BIG CHANGES IN STRUCTURE

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Global Crude Steel Production Year-Over-Year Change


China Added 900 Million Tonnes of Crude Steelmaking Capacity Over the Past 15 Years

And Now Accounts for 50% of Global Capacity

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Colonial Model of Supply No Longer Holds True as Two-Thirds of Global Crude Steel Production is in the Developing World Countries

38

The OECD Estimates the Global Crude Steelmaking Overcapacity at 600 Million Tonnes, or 30% of Demand.

The Big Question is Which Countries Will Reduce Assets?

39

Global & USA Steel Production Heat Map Turned Decidedly Negative In November 2015

40

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct NovWorld Monthly Crude Steel ProductionChina Monthly Crude Steel ProductionWorld ex China Monthly Crude Steel ProductionEU (28) Monthly Crude Steel ProductionUSA Monthly Crude Steel ProductionWorld Annualized Monthly Crude Steel ProductionChina Annualized Monthly Crude Steel ProductionWorld ex China Annualized Monthly Crude Steel Production\EU (28) Annualized Monthly Crude Steel ProductionUSA Annualized Monthly Crude Steel ProductionWorld TTMMA Monthly Crude Steel ProductionChina TTMMA Monthly Crude Steel ProductionWorld ex China TTMMA Monthly Crude Steel ProductionEU (28) TTMMA Monthly Crude Steel ProductionUSA TTMMA Monthly Crude Steel ProductionUSA Weekly Crude Steel Production-Month-to-MonthUSA TTMMA Monthly Annualized Weekly Crude Steel ProductionUSA Month-to Month Steel Production Utilization RateUSA TTMMA Monthly Steel Production Utilization RateUSA Monthly Steel ShipmentsUSA Year-to-Year Change Monthly Steel ShipmentsUSA Monthly ImportsUSA Monthly ExportsUSA Imports as a Percent of Apparent Steel Consumption (down is green)

Positive 21 12 22 7 19 13 11 12 12 9 11 14 11 4 10 7 13 8 3 6 5 11 2Neutral 0 4 0 2 0 1 2 3 3 3 1 1 2 2 2 1 2 1 1 1 2 0 0Negative 3 8 2 15 5 10 11 9 9 12 12 9 11 18 12 16 9 15 20 17 17 13 22

% Positive 88% 50% 92% 29% 79% 54% 46% 50% 50% 38% 46% 58% 46% 17% 42% 29% 54% 33% 13% 25% 21% 46% 8%

Code: red=down; green=up; grey=sideways; white=no new data yetSource: Industry Sources & Steel-Insights, LLC analysis

2014

Steel Production Heat Map-Month to Month Change

2015

Turning Our Attention to Mexico

41

Mexico’s GDP Has Posted53% Growth Over the Past Decade

42

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

$ in

Tri

llion

s

Mexican GDP


Compared to USA GDP Growth of 36% Over the Past Decade

43

0

2

4

6

8

10

12

14

16

18

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

$ in

Tri

llion

s

USA GDP


Mexican GDP Growth 6.3% in 2013, 2.9% in 2014 & 2.4% in 2015

44

-36%-34%-32%-30%-28%-26%-24%-22%-20%-18%-16%-14%-12%-10%-8%-6%-4%-2%0%2%4%6%8%

10%12%14%16%18%20%22%24%26%28%30%32%34%36%38%40%42%44%46%

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Perc

ent C

hang

e

Mexican GDP Growth


USA GDP Growth Around 4% For the Past Half Decade

45

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Perc

ent C

hang

e

USA GDP Growth


Mexico Now Accounts For 17% of North American Crude Steel Production

46

Canada11%

Mexico17%

United States72%

North American Crude Steel Production by Country - 2015


And Has Achieved the Most Consistent Crude Steel Production Growth In North America

1967-2015 1995-2015 2005-2015 2010-2015 2014-201548 Years 20 Years 10 Years 5 Years 1 Year

Canada 0.7% -0.7% -2.1% -0.9% -2.2%Mexico 3.8% 2.1% 1.2% 1.6% -3.9%United States -0.8% -0.9% -1.8% -0.4% -10.5%Total - North America -0.3% -0.5% -1.4% -0.1% -8.6%


North American Crude Steel Production Compound Annual Growth Rates

47

Crude Steel Production Down 8.6% in 2015 and Down In All Three Major North American Countries

48

0

20

40

60

80

100

120

140

160

180

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Mill

ion

Net

Ton

s

North American Crude Steel Production

USA Canada Mexico


Crude Steel Production in Mexico Dropped 3.9%to 18.3 Million Tonnes in 2015

49

0

2

4

6

8

10

12

14

16

18

20

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Mill

ion

Tonn

es

Mexico Crude Steel Production


Mexican Steelmaking Has Been Growing In Both the BOF and EAF Route; But More in EAF

50

0

2

4

6

8

10

12

14

16

Mill

ion

Net

Ton

s

Mexican BOF and EAF Annualized MonthlyCrude Steel Production

BOF

EAF

Source: AISI & CANACERO

In 2014, BOF Steelmaking Up 0.5 Million Tons From 1999 Peak, EAF Up 0.3 Million Tons From 2007 Peak

51

0

5

10

15

20

25

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Mill

ion

Net

Ton

s

Mexican Crude Steel Production by Type

BF/BOF EAF


Electric Arc Furnace Steelmaking Dominates at 70% of the Production

52

0%

10%

20%

30%

40%

50%

60%

70%

80%

Perc

ent o

f Tot

al

Mexican EAF Percent of Total Crude Steel Production


Apparent Steel Consumption in Mexico Has Grown at a 3.45% Compound Annual Rate (CAGR) Over the Past Decade Through

2014

53

0

5

10

15

20

25

30

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Mill

ion

Tonn

es

Mexico Steel Production, Imports and Exports

Production Imports Apparent Steel Use


Mexico Exports About One-Third of Its Steel Production

54

0

2

4

6

8

10

12

14

16

18

20

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Mill

ion

Tonn

es

Mexico Steel Production and Exports

Production Exports


Mexican Steel Production Has Been Split About Equally Between Long and Flat Products

55

0

1

2

3

4

5

6

7

8

9

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Mill

ion

Tonn

es

Mexico Steel Production by Type

Longs Flats


Mexican Steel Mill Shipments Approached 22 Million Net Tons in 2014, Reaching a New Peak

56

0

2

4

6

8

10

12

14

16

18

20

22

2420

01

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Mill

ion

Net

Ton

s

Mexican Steel Mill Shipments by Product Type

Sheet Bar Semi-Finished Wire Plate Shapes Tubes


Mexican Shipments 31% Sheet, 22% Bar, 12% Semi-Finished, 12% Wire, 12% Plate

57

Sheet31%

Bar Products22%

Semi-Finished12%

Wire Products12% Plate

12% Seamless Tubes

6%

Structural Shapes

3%

Commercial Shapes

2%

Mexican Steel Shipments by Product 201421.8 Million Tons Including Semi-Finished Products

S

Source: AISI & CANCERO

Imports Account for Half of the Mexican Steel Sheet Supply

58

Hot Rolled 3.372 Cold Rolled 3.454 Subtotal Through HSM 6.826

Galvanized 2.167 Other Coated 0.056 Derivative Products 2.223

ImportsHRB, CRC, Alloy & Coated Sheet 5.425

Source: AISI, CANACERO and Steel-Insights, LLC analysis

Mexican Flat Rolled Sheet Shipments & Imports by Key Products, 2014(Million Net Tons)

Imports Surged In 2014 Led By 2.3 Million Tons of Semi-Finished Steel;

Several Categories Sheet & Plate Were Over 1.0 Million Tons

59

0

2

4

6

8

10

12

14

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Mill

ion

Net

Ton

s

Mexican Steel Imports

Semi-Finished Hot-Rolled Carbon & Alloy

Galvanized Alloy Sheet

Cold Rolled Carbon & Alloy Plate


Exports Were Around 6 Million Tons In 2013/14, Up From 5.5 Million Tons In 2011/12; With 1.4 Million Tons of Semi-Finished

and 800K Tons of Seamless Tubes

60

0

1

2

3

4

5

6

7

8

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Mill

ion

Net

Ton

s

Mexican Steel Exports

Semi-Finished Seamless Tubes Reinforcing Bar

Commerical Shapes Welded Tubes Wire Rod


Mexican Steel Producer ProfilesIncluding A Two Million Ton Finishing Operation

61

Year Age of Slab/BilletMill State Started Mill Products

Altos Hornos de Mexico (AHMSA) Monclova, Coahuila 1942 73 BOF/EAF Long/Flat 5,005 Plate, Sheet, Tin, Structural Shapes (W, C, L)ArcelorMittal Mēxico Lázaro Cárdenas, Michoacan 1988 27 EAF Semis 5,300 SlabArcelorMittal La Truchas (Sicartsa) Lázaro Cárdenas, Michoacan 1976 39 BOF Long 2,700 Billet, Rebar, Wire RodDeAcero S.A. de C.V. Celaya Villagran, Guanajuato 1998 17 EAF Long 1,120 Bar, Rebar, Wire RodDeAcero S.A. de C.V. Saltillo Ramos Arizpe, Saltillo, Coahuila 1986 29 EAF Long 480 Wire RodGerdau Sidertul Mexico City 1985 30 EAF Long 200 Rebar, Structural ShapesGerdau Corsa Sahagún, Hidalgo 2015 0 EAF Long 1,000 Rebar, Structural ShapesGrupo Simec, Aceros DM San Luis Potosi 1993 22 EAF Long 700 Rebar, Wire Rod, Mesh, NailsGrupo Simec, Aceros San Luis San Luis Potosi 1973 42 EAF Long 310 Corrugated RebarGrupo Simec, Atlax S.A. (Apizaco) Xalastoc, Tlaxcala 1998 17 EAF Long 500 SBQ, Rebar, Bar Shapes, Corrugated Rebar Grupo Simec, Puebla (Cholula) Puebla 1998 17 Re-Roll Long Cold Finished BarGrupo Simec, Mexicali Baja California 1993 22 EAF Long 400 Bar, Angles, Channels, Rounds, Rebar, SquaresGrupo Simec, Guadalajara Jalisco 1969 46 EAF Long 350 Structurals, Shapes, SBQTalleres y Aceros (TYASA) Ixtaczoquitlan, Veracruz 1993 22 EAF Long 1,700 Billet, Wire, Bar, Merchants, RebarTenarisTamsa Veracruz, Veracruz 2012 3 EAF Long 800 OCTGTernium Largos Apodaca Apodaca, Nuevo Leon 1993 22 EAF Long 600 Bar, RodTernium Puebla Puebla 1998 17 EAF Long 1,330 Bar, RodTernium Monterrey Monterrey, Nuevo Leon 1998 17 EAF Flat 825 SheetTernium Monterrey Monterrey, Nuevo Leon 1995 20 EAF Flat 825 Sheet

Subtotal Mill Capacity 19,140 Semi-Finished Imports POSCO Altamira 1.9 mm tpy 2,304 Subtotal 21,444

2015 Reported Shipments 21,800 % Represented 98%

(Note: Information contained in this table has been collected from industry and public sources and is believed to be accuratebut is not guaranteed to be all-inclusive.)

Capacity

(Thousand Tons)

Major Mexican Steel Mills

Mexican Mill Locations

62

Increased Imports and Global Price Drop Has Resulted In the Loss of Steelmaking Jobs in Mexico

• Altos Hornos de Mexico (AHMSA) suspending $250 million of planned investments and cutting workforce by 20% or around 4,500 jobs. June 2015

• ArcelorMittal will cut 2,800 jobs at its Mexico unit as global prices slump, it said in a joint statement with local competitors. June 2015

• DeAcero said it had fired 2,500 workers and suspended operations at one plant. June 2015

63

But New Mills Are Still Being Built

• Talleres y Aceros (TYASA) built a new 1.2 million ton per year mini-mill utilizing a new “quantum” EAF that started up in early 2015.

• Grupo Simec ordered new $600 million SBQ mill for greenfield site in Apizaco, Tiaxcalawith planned start-up in Q4 2017. November 2015

• TYASA to build Castrip® facility near Orizaba, Veracruz with planned start-up in Q1 2017. December 2015

64

Not Your Father’s Downturn; It’s Really Dire Circumstances – USA as a Proxy for Mexico

• USA steel mill shipments were down 10% in 2015 to 88 million tons.

• USA apparent steel consumption was down 9% in 2015 to 109 million tons.

• Integrated mills have shuttered 10 million tons of capacity, or 19% of their total steelmaking ability. If this capacity had been off-line for all of 2015, their collective utilization rate would have been 87% versus the 74% reported.

• EAF based mills are operating on reduced turns and in some cases as low as 50% of capacity.

65

2015 Apparent Steel Consumption of 108.1 Million Tons –Tied For Third Best Year in the Past Eight – But Down 9.9% from

2014 – 2016 Vulnerable And Could Be Down 4%

66

LessPlus Imported Less Apparent

Q1 Q2 Q3 Q4 Total % Chg Imports Semis Exports Consumption % Chg

1983 15.1 17.0 16.7 18.4 67.2 17.2 0.0 1.2 83.21984 19.4 20.1 17.2 16.3 72.9 26.2 1.3 1.0 96.8 16.4%2005 26.7 25.2 25.3 26.0 103.2 -7.0% 31.8 6.9 9.4 118.8 -9.7%2006 27.7 28.8 27.8 24.3 108.6 5.2% 45.3 9.3 9.7 134.9 13.5%2007 26.3 26.9 26.5 26.4 106.1 -2.3% 33.2 6.6 11.1 121.7 -9.8%2008 27.6 27.5 26.0 16.9 98.0 -7.7% 31.9 5.9 13.5 110.5 -9.2%2009 13.0 13.1 16.6 17.6 60.3 -38.4% 15.8 2.0 9.3 64.8 -41.3%2010 20.5 21.7 20.8 20.3 83.4 38.2% 23.9 5.0 11.9 90.4 39.4%2011 22.5 22.3 23.7 23.4 91.9 10.2% 28.5 6.6 13.5 100.3 11.0%2012 25.4 24.7 23.5 22.3 95.9 4.4% 33.5 7.6 13.7 108.1 7.7%2013 23.6 23.8 24.5 23.5 95.4 -0.5% 32.2 7.3 12.7 107.6 -0.4%2014 23.9 24.9 25.3 24.1 98.2 3.0% 44.3 10.5 12.0 120.0 11.5%2015 22.0 22.0 22.2 20.4 86.5 -11.9% 38.8 7.3 10.0 108.1 -9.9%2016e 20.8 22.2 22.9 22.5 88.4 2.2% 32.4 8.0 9.0 103.8 -4.0%

Source: AISI & Steel-Insights, LLC estimates

USA Steel Consumption / Shipment Outlook(Million Net Tons)

Shipments

Manufacturing in Mexico Has Grown 5% Per Year For the Past Half Decade

67

Source: OECD

Notices of Steel and Non-Steel Related Manufacturing Moving From the USA to Mexico Continue to Appear Regularly

68

• Mondelez International (Nabisco) will lay off half of its 1,200 employees in its bakery on Chicago’s Southwest Side after deciding to make a major investment in a Mexico plant rather than its long-standing facility here given the $46 million gap between the cost of operating in Chicago versus in Mexico. July 31, 2015

• Carrier plans to relocate its Indianapolis operations to Mexico over the next three years, a move that will affect about 1,400 jobs. Jobs will begin transitioning to Monterrey, Mexico, in 2017, with completion estimated in 2019. The company manufactures heating, ventilating, air conditioning and refrigeration systems at its plant located on West Morris Street. Fox59, February 10, 2016

• Cardone Industries’ two brake caliper plants in NE Philadelphia will shed more than 1,000 workers as the company transitions those positions to Matamoros, Mexico, near the company’s Texas warehouses. The company was founded in 1970 and employees 6,000. The relocated operations will

settle in Matamoros, Mexico. www.Philly.com February 16, 2016

Mexican Automotive Build Continues To Increase

• Mexican automakers produced 3.2 million vehicles in 2014 and 3.4 million vehicles in 2015

• 2.6 million (or 82%) of the autos produced in 2014 were exported to over 100 countries.

• The USA & Canada accounted for 2.3 million (or 88%) of the exported vehicles in 2014.

• 2015 exports increased 5% to 2.76 million vehicles.• The auto sector makes up 30% of Mexico’s total

exports.• Nissan accounts for 25% of Mexico’s auto production.• Honda & Mazda brought up new plants in 2014.• Kia & Audi brought up new plants in 2015

69

Turning To Pricing

70

USA Steel Market Prices Firming, Likely Due to Trade Actions, But Still Well Above Global Prices And Vulnerable

71

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan FebUSA #1 Heavy Melt Scrap Spot PriceUSA Shredded Scrap Spot PriceUSA Busheling Scrap Spot PriceUSA Spread Shredded to #1HM Scrap Spot PriceIron Ore Spot Iodex 62% Fe Price, CFR Tianjin PortCoking Coal Spot Price, FOB AustraliaMet Coke Spot Price, FOB ChinaScrap Metallic Comp - BF/BOF Raw Material CostRatio Scrap to BF/BOF MetallicsHBI Spot Price, FOB South AmericaPig Iron Spot Price, FOB N. BrazilSlab Spot Price, FOB Port of ExportBillet Spot Price, FOB Port of ExportWorld Export Price, Hot-Rolled BandUSA Price, Hot-Rolled BandSpread USA Price to World Export Price, Hot-Rolled BandSpread USA HRB to #1 HMChina Price, Hot-Rolled BandSpread World Export HRB to China HRB PriceUSA Plate PriceUSA Rebar Price

Code: red=down; green=up; grey=sideways; white=no new data yetSource: Market reports & Steel-Insights, LLC estimates

2014

Raw Material Cost & Finished Steel Prices Heat Map-Month to Month Change

2015 2016

USA Hot-Rolled Band Prices Have Firmed Around $400 Per Net Ton; Global Prices Remain Around $250 Per Metric Tonne

72

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

$ pe

r Met

ric T

onne

World Export and USA Hot-Rolled Band Spot Prices

World HRB Price, FOB the port of export

USA HRB Spot Price

Source: WSD's SteelBenchmarker & Steel-Insights, LLC estimates

USA Steel Scrap Prices Have Rebounded To $165 Per Ton;Still Well Above The Three Decade Historic Average

73

0

100

200

300

400

500

600

Jan-

69Ja

n-70

Jan-

71Ja

n-72

Jan-

73Ja

n-74

Jan-

75Ja

n-76

Jan-

77Ja

n-78

Jan-

79Ja

n-80

Jan-

81Ja

n-82

Jan-

83Ja

n-84

Jan-

85Ja

n-86

Jan-

87Ja

n-88

Jan-

89Ja

n-90

Jan-

91Ja

n-92

Jan-

93Ja

n-94

Jan-

95Ja

n-96

Jan-

97Ja

n-98

Jan-

99Ja

n-00

Jan-

01Ja

n-02

Jan-

03Ja

n-04

Jan-

05Ja

n-06

Jan-

07Ja

n-08

Jan-

09Ja

n-10

Jan-

11Ja

n-12

Jan-

13Ja

n-14

Jan-

15Ja

n-16

$ pe

r Gro

ss T

on

USA #1 Heavy Melt Scrap Spot Price

Source: AMM, WSD's SteelBenchmarker & Marley's Heavy Melt, Shredded Power

Metal Margin of Hot-Rolled Band to Scrap Has Contracted Back to the $250 Per Ton Range

74

0

100

200

300

400

500

600

700

800

Jan-

74

Jan-

76

Jan-

78

Jan-

80

Jan-

82

Jan-

84

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

Jan-

10

Jan-

12

Jan-

14

Jan-

16

$ pe

r Net

Ton

Metal Margin: Spread USA Hot-Rolled Band versus #1 Heavy Melt Scrap Prices

Source: WSD's SteelBenchmarker & Steel-Insights, LLC estimates

Integrated Raw Material Costs Down Dramatically As Well Due to the Correction in the Commodity Cycle; This Will Keep Steel Scrap Prices

“Too Low” To Attract Sufficient Supply

75

150

200

250

300

350

400

450

500

550

600

Jan-

09M

ar-0

9M

ay-0

9Ju

l-09

Sep-

09N

ov-0

9Ja

n-10

Mar

-10

May

-10

Jul-1

0Se

p-10

Nov

-10

Jan-

11M

ar-1

1M

ay-1

1Ju

l-11

Sep-

11N

ov-1

1Ja

n-12

Mar

-12

May

-12

Jul-1

2Se

p-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Sep-

13N

ov-1

3Ja

n-14

Mar

-14

May

-14

Jul-1

4Se

p-14

Nov

-14

Jan-

15M

ar-1

5M

ay-1

5Ju

l-15

Sep-

15N

ov-1

5Ja

n-16

$ pe

r Met

ric T

onne

Cost of BF/BOF Metallics - Iron Ore/.62 + Coal x (1.5*0.50)+50

Source: Vale, The Steel Index, Steel Market Update & Steel-Insights, LLC analysis

Rebar Prices Perhaps Have Bottomed

76

0

200

400

600

800

1,000

1,200

1,400

1,600

Jan-

82Ja

n-83

Jan-

84Ja

n-85

Jan-

86Ja

n-87

Jan-

88Ja

n-89

Jan-

90Ja

n-91

Jan-

92Ja

n-93

Jan-

94Ja

n-95

Jan-

96Ja

n-97

Jan-

98Ja

n-99

Jan-

00Ja

n-01

Jan-

02Ja

n-03

Jan-

04Ja

n-05

Jan-

06Ja

n-07

Jan-

08Ja

n-09

Jan-

10Ja

n-11

Jan-

12Ja

n-13

Jan-

14Ja

n-15

Jan-

16

$ pe

r Met

ric T

onne

Rebar Spot Prices, World Export Versus USA

USA World Export

Source: WSD's SteelBenchmarker, MetalPrices.com, SBB Platts, Market Sources & Steel-Insights, LLC estimates

Rebar Metal Margins Have Stabilized Above $300 Per Ton

77

285

305

325

345

365

385

405

425

Jan-

13Fe

b-13

Mar

-13

Apr

-13

May

-13

Jun-

13Ju

l-13

Aug

-13

Sep-

13O

ct-1

3N

ov-1

3D

ec-1

3Ja

n-14

Feb-

14M

ar-1

4A

pr-1

4M

ay-1

4Ju

n-14

Jul-1

4A

ug-1

4Se

p-14

Oct

-14

Nov

-14

Dec

-14

Jan-

15Fe

b-15

Mar

-15

Apr

-15

May

-15

Jun-

15Ju

l-15

Aug

-15

Sep-

15O

ct-1

5N

ov-1

5D

ec-1

5Ja

n-16

Feb-

16

$ pe

r Net

Ton

USA Rebar Metal Margin

Source: WSD's SteelBenchmarker, MetalPrices.com, AMM, SBB Platts, Market Sources & Steel-Insights, LLC estimates

Plate Prices Have Firmed Around $500 Per Ton

78

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

$ pe

r Net

Ton

USA Plate Spot Price

Source: WSD's SteelBenchmarker, MetalPrices.com, SBB Platts, Market Sources & Steel-Insights, LLC estimates

The World Changes; The Only Way to “Win” Is To Anticipate and Adapt – Critical Resources of the Past Can

Become Irrelevant to the Future

79

Integrated steelmaking has not become obsolete and is evolving to incorporate technological innovation. EAF steelmaking has volume flexibility, but blast furnace steelmaking remains competitive.

Ingot CastingContinuous Casting

Coke Plant

SunCoke Plant

USA Select Leading Economic Indicators Heat Map Showing Half of the Series Have Been Positive Since October 2015

80

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecAIA Architecture Billings Index (ABI)Auto Light Vehicle SalesAuto Light Vehicle Sales-TTMMAAuto ProductionAuto Production-TTMMA

Consumer Confidence Index®, The Conference BoardConsumer Confidence Index®, The Conference Board, TTMMAHousing StartsHousing Starts-TTMMAIndustrial Production, Seasonally Adjusted (INDPRO)Industrial Production, Manufacturing, Not-Seasonally AdjustedInterest Rates, 10-Year TreasuriesMachine Tool OrdersMachine Tool Orders-TTMMAManufacurers SalesManufacurers Sales-TTMMANatural Gas Prices, Henry Hub

New Orders, Durable Goods, Electrican & ApplianceNew Orders, Durable Goods, Electrican & Appliance-TTMMANon-Defence Capital Goods Orders, Excluding AircraftNon-Defence Capital Goods Orders, Excluding Aircraft-TTMMANon-Residential Construction (SAAR)Non-Residential Construction (SAAR)-TTMMAOil Prices, Brent Crude, EuropeOil Prices, West Texas Intermediate, OklahomaPersonal Consumption Expenditures Durable GoodsPersonal Consumption Expenditures Durable Goods-TTMMAThe University of Michican Index of Consumer SentimentThe University of Michican Index of Consumer Sentiment, TTMMAUS Trade Weighted Dollar IndexUS Trade Weighted Dollar Index-TTMMA


% Positive 37% 63% 69% 63% 60% 83% 54% 60% 66% 63% 51% 60% 40% 46% 60% 49% 51% 63% 51% 40% 40% 51% 54%Partial Results


2014 2015

Select Leading & Other Economic Indicators Heat Map-Month to Month Change

USA Select Macro Indicator Heat Map Back to 50% Positive But Still In Vulnerable Territory

81

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec JanGDPCivilian Unemployment Rate (green is down)Civilian Unemployment Rate, TTMMA (green is down)Unemployment Rate With Discouraged Workers (green is down)Unemployment Rate With Discouraged Workers, TTMMAUnemployment Insurance Claims Filed (green is down)Unemployment Insurance Claims Filed, 52 Week Moving AverageUnemployed (green is down)Unemployed, TTMMA (green is down)Total Non-Farm Payroll EmploymentTotal Non-Farm Payroll Employment, Month-to-Month ChangeWagesCPICPI, Trailing 3 Month Moving AveragePPIPPI, Trailing 3 Month Moving AveragePersonal Disposable Income Per CapitaPersonal Disposable Income Per Capita, TTMMARevolving Consumer Credit OutstandingRevolving Consumer Credit Outstanding, TTMMAMortgage DebtRetail SalesRetail Sales, TTMMAExisting Home SalesExisting Home Sales, TTMMAExisting Home Inventories (green is down)Existing Home Inventories, TTMMA (green is down)Existing Home Months Supply (green is down)New Home SalesNew Home Sales, TTMMANew Home Inventories (green is down)New Home Inventories, TTMMA (green is down)New Home Months Supply (green is down)

Positive 20 17 21 21 20 21 17 19 20 25 17 22 15 21 20 23 22 22 29 21 20 20 14 16 10Neutral 1 2 3 3 2 3 0 3 3 0 3 2 2 2 3 0 4 3 2 2 3 3 6 7 2Negative 12 14 9 9 11 9 16 11 10 8 13 9 16 10 10 9 7 8 2 10 10 10 13 10 8

% Positive 61% 52% 64% 64% 61% 64% 52% 58% 61% 76% 52% 67% 45% 64% 61% 72% 67% 67% 88% 64% 61% 61% 42% 48% 50%Partial Results

Code: red=down; green=up; grey=sideways; white=no new data yetSource: Steel-Insights, LLC analysis

Select USA Macro Economic Indicators Heat Map-Month to Month Change

2014 2015 2016

End Market Economic Indicators Broke Down In October/November 2015

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecAppliances & Electronics, Retail Trade $Appliances & Electronics, Retail Trade $, TTMMAAuto Light Vehicle SalesAuto Light Vehicle Sales-TTMMAHousing StartsHousing Starts-TTMMANon-Residential Construction (SAAR)Non-Residential Construction (SAAR)-TTMMAPublic ConstructionPublic Construction, TTMMAHighways & Streets ConstructionHighways & Streets Construction, TTMMAPower ConstructionPower Construction, TTMMAIndustrial Production, Seasonally Adjusted (INDPRO)Industrial Production, Seasonally Adjusted (INDPRO), TTMMAIndustrial Production, AerospaceIndustrial Production, Aerospace, TTMMAIndustrial Production, Business EquipmentIndustrial Production, Business Equipment, TTMMAManufacturers' Shipments, Construction MachineryManufacturers' Shipments, Construction Machinery, TTMMAManufacturers' Shipments, Defense Capital GoodsManufacturers' Shipments, Defense Capital Goods, TTMMAManufacturers' Shipments, Electrical EquipmentManufacturers' Shipments, Electrical Equipment, TTMMAIndustrial Production, Fabricated Metal ProductsIndustrial Production, Fabricated Metal Products, TTMMAIndustrial Production, Farm EquipmentIndustrial Production, Farm Equipment, TTMMAManufacturers' Shipments, HVACManufacturers' Shipments, HVAC, TTMMAIndustrial Production, Mining Crude OilIndustrial Production, Mining Crude Oil, TTMMAIndustrial Production, Mining Natural GasIndustrial Production, Mining Natural Gas, TTMMAIndustrial Production, Drilling Oil & Gas WellsIndustrial Production, Drilling Oil & Gas Wells, TTMMAManufacturers' Shipments, Heavy Duty TrucksManufacturers' Shipments, Heavy Duty Trucks, TTMMARail Freight CarloadsRail Freight Carloads, TTMMATruck TonnageTruck Tonnage, TTMMA


% Positive 59% 50% 80% 73% 77% 64% 86% 82% 66% 91% 68% 75% 50% 52% 66% 63% 55% 64% 70% 68% 55% 41% 32%


Select USA Economic End Market Indicators Heat Map-Month to Month Change

2014 2015

82

Market Momentum Through 2014 Has Stalled Quite Dramatically Across Many Markets in 2015

83

1 2 3 4 5 6 7 8 9 10

Service Centers-25.4 Million Tons in 20141 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Momentum Increasing 3%===>

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Oil & Gas-3.7 Million Tons in 20141 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Source: AISI & Steel-Insights, LLC Analysis

Momentum Increasing 4%===>

Automotive-14.4 Million Tons in 2014

<=== Momentum Decreasing 3%

Construction-23.0 Million Tons in 2014



CODE KEYSteel Use End Markets Momentum Through Q3 2015

With 1 being the weakest and 10 the strongest

Appliances-1.7 Million Tons in 2014


Converting-8.7 Million Tons in 2014



Containers-2.1 Million Tons in 2014

Machinery-1.4 Million Tons in 2014

Economic End Market Trailing Twelve Month Trends Turned Decidedly Negative in Q4 2015

84

Month-to-MonthConsumer SpendingAppliances & Electronics 3 down months 10 down monthsAutomotive 2 down months 22 up monthsHousing 1 up month 1 up month

ConstructionNon-Residential 1 down month 28 up monthsPublic 3 down months 21 up monthsHighway & Streets 3 down months 8 up monthsPower 3 down months 2 down months

Manufacturing/Durable GoodsIndustrial Production 3 down months 1 down monthAerospace 3 up months 2 down monthsBusiness Equipment 1 up month 3 down monthsConstruction Machinery 4 down months 2 down monthsDefense 1 up month 1 down monthElectrical Equipment 4 down months 7 down monthsFabricated Metal Product 1 up month 5 down monthsFarm Equipment 4 down months 3 down monthsHVAC 1 up month 6 up monthsMining Crude Oil 1 up month 2 down monthsMining Natural Gas 1 down month 33 up monthsOil & Gas Wells 4 down months 12 down monthsHeavy Duty Trucks 1 down month 1 down monthRail Freight Carloads 1 down month 10 down monthsTruck Tonnage 1 down month 1 down month

Source: FRED, US Census Bureau, the Federal Reserve System & the US Bureau of Transportation Statistics

TTMMA

USA Economic End Market Momentum - Jan 2016

Sheet Products Account for 54% of the Market or About 53 Million Tons; Bar Accounts for 17% & Plate Accounts for 11%

85

USA Steel Shipments Are About ¼ to Service Centers, ¼ to Construction & 15% to the Automotive Markets

86

Service Centers26%

Construction23%

Automotive15%

Export8% Converting

9% Non Classified7%

Oil & Gas4%

Containers2%

Appliances2%Machinery & Electric

2%All Others2%

USA Steel Shipments by Market 2014

Source: AISI

Steel-Insights, LLC – “Seeing” What Others Don’t

87

In WWII, American submarine commanders endured despite being outclassed by superior equipment and outgunned (fully functioning torpedoes weren’t available to them for the first 21 months of the Pacific War). In the fog of war, as often is the case in business, decisions with long impacting outcomes have to be made without the luxury of complete or definitive information.

Steel-Insights was formed to assist executive management teams navigate the “noise of battle” by more effectively managing the abundant resources available today and

harnessing those resources to explore thought provoking and penetrating issues in order to magnify the pivotal decisions required for the long-term success of their companies in arguably tough industries that must survive challenging cycles, i.e. training and empowering submarine commanders.

This document and all content hereof are intended for informational purposes only and none of the information contained herein or opinions expressed herein should be viewed as an offer or solicitation to buy, sell or otherwise trade futures, options-on-futures, commodities, options, securities or any other investments mentioned herein. All opinions and information contained herein constitute the judgments of Steel-Insights, LLC or its affiliates (collectively “Steel-Insights”) as of the date of this document and are subject to change without notice. Steel-Insights and its directors, members, officers and employees may, directly or indirectly, effect or have effected a transaction for Steel-Insights’ own account in any investment referred to herein, either before or after the material is published, or may give advice to customers which may differ from or be inconsistent with the information and opinions contained herein or may from time to time hold long or short positions in, buy or sell (on a principal basis or otherwise), or act as market maker in, securities, derivatives, futures or other financial instruments or products related to matters discussed herein and may make trading decisions that are different from or contrary to any of those which may be discussed.. The information contained herein is based on data obtained from recognized statistical services and other sources believed to be reliable. However, such information has not necessarily been verified by Steel-Insights, and Steel-Insights does not make any representations as to its accuracy, currency, reliability, effectiveness or completeness. Steel-Insights may from time to time issue futures reports based on fundamentals, such as expected trends in supply and demand, as well as reports based on technical factors, such as price and volume movements. Since such reports rely upon different criteria, there may be instances when Steel-Insights’ conclusions in individual reports are not in concert. Additional information on futures and options-on-futures is available upon request. Trading in futures and options on futures is not appropriate for all persons, as the risk of loss is substantial. Therefore only risk capital should be used in futures trading. Information contained herein was prepared without regard to the specific investment objectives, financial situation or needs of any particular participant. 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Disclaimer & Copyright

Conclusion & Questions

89

[email protected]

ArcelorMittal LázaroCárdenas

March 2007

ANFACAL, Punta Mita, Feb 2016

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