Current Drivers Impacting Steel Competitiveness UPDATE – January 2007

Current Drivers Impacting

Steel Competitiveness

UPDATE – January 2007

Thomas A. Danjczek, PresidentSteel Manufacturers AssociationJanuary 23, 2007

Valve Manufacturers Association of AmericaLeadership Forum

From October 15, 2004VMAA – Annual Meeting

1. SMA

2. Changes– August 2003– Scrap Impact– World Steel Production

3. China, China, China…– Key Statistics– Steel Production– SMA Mission– Lessons Learned– Currency

4. Steel Production Costs– Key Issues– Energy & Raw Material Costs– Asset Values– Exchange Rates– Bankruptcy/Restarts– Scrap Costs

5. Other Costs– Restrictive Scrap Exports– Freights– Coke– Energy

6. Market– Overview– Public Works Construction

7. Conclusion

Current Drivers ImpactingSteel Competitiveness

In August 2003, The Times they were a’changing…


Steel DemandWeakening

201 Tariffs/ExclusionsIncreasing

Imports

Bankruptcies

Semi-Finished Imports

N.A. Economy

Plant Closures/Restarts

Perennial Problems

Consolidations

US PBGC

Mini-mill IndustryCondition

Pricing Volatility

ISG’s Labor Contract

Exchange RateShifts

Public Policy

Legacy Costs

Operating Costs Benefits& Energy

Capital Constraints


Up $130 since June 2004!

CHINA STEEL PRODUCTIONChina produced 220 MT of crude steel in 2003 – double the next largest producer Japan at 110.5 MT and 2.4 times the U.S. (92.2 MT, shown) – and will produce as much as 275 MT, 350 MT, and 425 MT by 2005, 2010, and 2015, respectively.

0

50

100

150

200

250

300

350

400

Mil

lion

Ton

nes

1980 1985 1990 1995 2000 2005 2010 2015

China

United States

Courtesy – Metal Strategies

From October 15, 2004


Conclusion

•Uncertainty – Cycle has Changed (Shorter Term & Greater Peaks & Valleys)

•Revenue vs. Costs – Not the Same Business Model

•CHINA, CHINA, CHINA…

•Bankruptcy Laws Unfair to Competitors

•Investments – Earn Cost of Capital

•Mini-Mills 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

VMAA Leadership Forum

2006/2007

In January 2007, The Times they are still a’changing…


Steel DemandWeakening

EnergyCostsWorld Steel

Growth

FreightCosts

China’sSubsidies

U.S. GovernmentDebt Perennial

Problems

Consolidations

Ore/CoalCosts

DemocraticCongress

59% EAF in U.S.

Labor Contracts

China’s SteelGrowth

Trade Imbalance

Operating Costs Benefits& Energy


A Few Facts

-Steel prices through August 2006 were at historic high levels

-Steel producer mergers continue – top 3 U.S. companies (Mittal, U.S. Steel, Nucor) now approximately 70%

-ITC cases not favoring U.S. producers (Wire Rod, Corrosion Resistant, Pipe 421, etc.)

-WTO cases also unfavorable (“Zeroing” & “Bratsk”)

-Cost pressures continue (ore up 70% in 2005, 20% in 2006; natural gas in 2005 double 2004, etc.)


China Facts

-China trade surplus swelled to $177 billion in 2006 – up 74% over 2005

-China trade surplus in 2001 (WTO joining year) was $22 billion

-China currency has only changed by 5.9% since July 2005


China Facts, cont.


Steel Production


Imports by Year


Steel Scrap Prices


Price Forecasts

Source: AMM Research

Forecast Prices


Imports & Inventory


Conclusion

-It’s still a cyclical business (percent utilization, scrap, inventories, etc.)

-Still no Global Subsidies Agreement – massive subsidized growth continues

-No trade help from U.S. Government (421, antidumping, countervailing duties, etc.)

-When will inventories return to normal levels?

-Consolidation will continue

-China! China! China! (everything else is only an embellishment)

-Unknowns (interest rates, housing starts, economic growth, imports, customer base, pricing???)

Current Drivers Impacting Steel Competitiveness UPDATE – January 2007

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