1

North American Steel Industry

Recent Market Developments,

Future Prospects and Key Challenges

OECD Steel Committee

December 10-11, 2009

Paris, France

*American Iron and Steel Institute (AISI)

Steel Manufacturers Association (SMA)

Specialty Steel Industry of North America (SSINA)

Canadian Steel Producers Association (CSPA)

Mexican Steel Producers Association (CANACERO)

2

Presentation Summary

I. NAFTA Economic Conditions And Outlook

II. NAFTA Steel Trade Situation

III. Growing Concerns About NAFTA Manufacturing

2

3

I. NAFTA Economic Conditions And Outlook

4

N. America: -45.1

Canada: -51.9

U.S.: -47.0

Mexico: -29.5

S. America: -30.3

Brazil: -31.4

EU27: -39.3

Turkey: -13.5

Russia: -26.8

Ukraine: -31.9

Asia: -2.2

Japan: -34.0

S. Korea: -14.9

China: +7.5

India : +1.6

Global Production: -16.4

Excluding China: -30.9

NAFTA Production Declines More Than Other World Regions

Global Output Sharply Down, With Few Exceptions

Global Crude Steel Production

2009 YTD vs. 2008 % Change

Source: Worldsteel

3

5Source:Worldsteel

NAFTA Raw Steel Production - 2009 vs. 2008

0

5,000

10,000

15,000

20,000

JAN

UA

RY

FE

BR

UA

RY

MA

RC

H

AP

RIL

MA

Y

JUN

E

JUL

Y

AU

GU

ST

SE

PT

EM

BE

R

OC

TO

BE

R

NO

VE

MB

ER

DE

CE

MB

ER

JAN

UA

RY

FE

BR

UA

RY

MA

RC

H

AP

RIL

MA

Y

JUN

E

JUL

Y

AU

GU

ST

2008 2009

Mo

nth

ly T

on

na

ge (

MT

)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Uti

liza

tio

n p

ercen

tag

e

Production Tons - NAFTA NAFTA - Rate of Capability Utilization

China - Rate of Capability Utilization ROW ex China - Rate of Capability Utilization

• Several NAFTA

facilities have been

restarted, after having

been offline for close to

a year. Some facilities

have no future return

date.

• The NAFTA economic

recovery is still very

fragile, and a return to

pre-crisis steel

production levels

remains years away.

• The NAFTA and rest of

world (ROW) utilization

rates have stayed well

below China‟s rate.

While NAFTA Production Has Risen Recently,

Capacity Utilization Is 30% Below 2008 Levels

6

The Great Recession of 2008-2009

Affected the Entire NAFTA Region

NAFTA Real GDP Since 2007

2.8

0.3

-6.2

-12

-10

-8

-6

-4

-2

0

2

4

6

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2007 2008 2009

Qu

art

erl

y %

ch

an

ge

USA Canada Mexico

Sources: Bureau of Economic Analysis (US) , Statistics Canada, Canacero

4

7

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

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

Metr

ic T

on

s (

'000)

Source: World Steel Association, NAFTA Steel Trade Monitor

NAFTA Demand for Steel, Aug 2008 – August 2009

Steel Orders Collapsed After The Financial Meltdown

And Still Have Not Recovered

• In the U.S., steel

purchases were cut

in half within 7

months (Aug. ‟08 -

Mar. ‟09), and 50%

of U.S. output was

shuttered.

• In Canada, August

2009 shipments were

39% lower than a

year earlier. A

number of facilities

remain idled or

operating at reduced

rates.

•In Mexico, ASC for

2009 (Jan – Sept) is

25% below 2008

levels. The

September figure is

31% below the last

peak (June 2008).

8

Since the statistical start of the Great Recession in December 2007, the U.S. Department of Commerce reported negative GDP for

5 of 6 Quarters (with 1Q ‟09 being the worst, at -6.4%). Due to government stimulus funds, “cash for clunkers” and a first-time

home buyers‟ tax credit, 3Q U.S. GDP grew 2.8%. But consumer spending fell 0.5% in September, and the unemployment rate

now stands at 10.0%,in what many economists are calling a “jobless recovery.”

The “Great Recession” Has Technically Ended,

But The U.S. Economy Still Faces Major Challenges

Source: U.S. Department of Commerce, Bureau of Economic Analysis

Quarterly Change in U.S.

Gross Domestic Product,

1997-2009

-8

-6

-4

-2

0

2

4

6

8

10

19971998

19981999

19992000

20002001

20012002

20022003

20032004

20042005

20052006

20062007

20072008

20082009

Per

cen

t

5

9

30

35

40

45

50

55

60

65

70

Q3 2007 Q1 2009

From Q3 2007 to Q1 2009, U.S. Net Worth

Fell by Over $13 Trillion, Or 20 percent

Net Worth of U.S. Household and Nonprofit Organizations (Trillions of $)

Source: U.S. Federal Reserve, Flow of Funds Accounts of the United States (March 12, 2009 and Sept. 17, 2009).

10

U.S. Housing Permits, Starts and Completions

0.25

0.5

0.75

1

1.25

1.5

1.75

2

2.25

2.5

2001

2002

2003

2004

2005

2006

2007

2008

2009

Millio

n U

nit

s

Permits Starts Completions

• 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

6

11

0

500

1000

1500

2000

2500

tho

us

an

d u

nit

s p

rod

uc

ed

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.

NAFTA Light Vehicle Production 1999-2009

17.0

17.2

15.5 16.4

15.9

15.8

15.8

15.3

15.1

12.8

7.7

10.1

11.8

0

2

4

6

8

10

12

14

16

18

20

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f

Millio

ns o

f U

nit

s

The NAFTA Automotive Production Remains Deeply Depressed

12

MSCI Average Daily Shipments & Inventory

For U.S. & Canada Metric Tonnes (000)

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

2006

JAN

JUL 2007

JAN

JUL 2008

JAN

JUL 2009

JAN

JUL

Da

ily

Sh

ipp

ing

Ra

te

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.

7

13

Bank Of Canada Senior Loan Officer Survey: 3Q 2009

-40

-20

0

20

40

60

80

Easier

Tighter

Canada: Economic Indicators Moderating

From Extremely Low Levels

Ivey Canadian Purchasing Managers Index

Since January 2007

20

30

40

50

60

70

80

90

Jan-07 Sep-07 May-08 Jan-09 Sep-09

Expanding

Contracting

Canada: Manufacturing Inventories Through August 2009 Canada: Manufacturing Sales Through August 2009

Sources: Bank of Canada, Richard Ivey School of Business, Statistics Canada

14

Mexico Economic Indicators: Worst In Latin America

Mexico: Credit to consumers (June 2009 / Var %)

Mexico: Gross Fixed Investment (July 2009 / Var %)

- 29 %

-14 % 2Q (09): – 10.1 %

(The worst since 1930)

3Q(09): - 6.2 %

Mexico: Gross Domestic Product

Index Oct. 2009 (%)

January – September 2009

TOTAL EXPORTS - 23. 5 %

• To United States - 23.4 %

- Autos - 32.3 %

• To Rest of the World - 23.7 %

Non-Oil Exports (September 2009 / Var % (annual)

8

15

Mexico Economic Indicators: Strongly Related To U.S. Economy

Rate of growth Mexican Exports vs US Imports (July 2009Var %)

Source: Oxford Economic & CAPEM and INEGI

Mex Exports: % var

US Imports: % var

Mexico: Remittancess (July 2009Var %)

- 15 % Very sensible

16

(mil. MT) 2004 2005 2006 2007 2008 2009 f 2010 f

Finished Steel 149.0 138.3 155.7 141.2 129.7 82.7 97.0

Apparent Steel Use (ASU)

Survey of the Short Range Outlook

Fall 2009 NAFTA Region

United States

Forecast

Million MT2009 2010

% Ch.

‟09/10

% Ch.

vs.1982*

Crude Steel

Use67.7 79.9 18.0% 4.9%

Finished

Steel Use60.3 71.7 18.8% 3.7%

Exports 8.8 9.9 12.5% 492%

Imports 12.9 15.5 20.2% 4.4%

CanadaForecast

Million MT2009 2010

%

Change

Crude Steel

Use12.2 13.7 12.8%

Finished Steel

Use10.3 11.7 13.6%

Exports 4.7 6.4 36.2%

Imports 6.1 6.6 8.2%

Mexico

Forecast

Million MT2009 2010 % Change

Crude Steel Use 17.5 19.7 12.7%

Finished Steel

Use12.1 13.6 12.3%

Exports 1.7 1.3 -23.6%

Imports 2.5 3.8 52.0%

While Global Insight is forecasting that U.S. ASU

will return to pre-crisis levels by 2012, key

metrics in the U.S. economy -- including

unemployment levels and manufacturing

production -- leave doubt that steel demand in the

United States will recover fully to pre-crisis levels

even in 3 years‟ time.

Source: Worldsteel Association Economic Studies Committee

2009-2010 NAFTA Region Steel Use

Expected To Remain Far Below 2004-2008 Levels

* The lowest annual steel demand in the U.S. in the post-WWII

period was recorded in 1982, at 68.6 million MT.

9

17

World Crude Steel Capacity 2000-2011

1,062 1,062 1,0951,170

1,245

1,356

1,453

1,583

1,816

1,9171,997

1,654

588

677

740

783804

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

Wo

rld

Ste

el

Cap

acit

y/D

em

an

d

(th

ou

san

d m

etr

ic t

on

nes)

0

100

200

300

400

500

600

700

800

900

Ch

inese C

ap

acit

y (

tho

usan

d m

etr

ic t

on

s)

World Crude Steel CapacityFinished steel useChinese Capacity

…While World Capacity Continues to Grow

Source: Worldsteel Association

18

NAFTA capacity growth slows due to reduced demand during economic crisis

75 million tons of underutilized capacity in 2009

Source: World Steel Association

… And NAFTA Capacity Additions Are on Hold

NAFTA Crude Steel Capacity and Demand 2005-2009

149156 155 158 160

0

25

50

75

100

125

150

175

200

2005 2006 2007 2008 2009

Ste

el

Cap

acit

y (

tho

usan

d m

etr

ic t

on

nes)

0

25

50

75

100

125

150

175

200

NA

FT

A S

teel

Dem

an

d

NAFTA Crude Steel Capacity

NAFTA APPARENT DEMAND

10

19

II. NAFTA Steel Trade Situation

20Source: NASTA Monitor, US Dept. of Commerce, Global Trade Atlas

NAFTA Steel Mill Products Trade Balance:

A Fundamentally Different Situation For The Medium Term

NAFTA Imports and Exports of Steel Mill Products

(27,775,535)(23,909,952)

(38,622,092)

(21,571,987) (18,296,095)(9,387,570)

(40,000,000)

(30,000,000)

(20,000,000)

(10,000,000)

-

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

2004- 2005- 2006- 2007- 2008- 2009*

Metr

ic T

on

nes

NAFTA Imports NAFTA Exports Balance of Trade

• The NAFTA market is

open to fairly traded steel,

and the NAFTA region

has historically been a net

steel importing region.

• YTD in 2009 -- given

the depressed market

conditions and the low

capacity utilization rate --

the NAFTA steel trade

deficit is the lowest it has

been for many years.

• For the medium term,

the NAFTA steel

industry has more than

ample capacity to meet

the needs of both

domestic and offshore

customers.

20

* 2009 Annualized based on 8 months.

11

21

Source: NAFTA Steel Trade Monitor, US Department of Commerce, Canacero and World Trade Atlas.

NAFTA Imports During Crisis Period

NAFTA Imports 2008 & 2009 - Monthly

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

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

Metr

ic T

on

nes

NAFTA External Imports NAFTA Internal Imports

• Steel imports from other

regions exceeded intra-

NAFTA steel trade when

the market collapsed.

• Non-NAFTA imports at

first surged, and then

declined but have

maintained a relatively

high market share.

• Imports from China

peaked in October 2008.

22Source: 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

JAN

2008

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

2009

FEB MAR APR MAY JUN JUL AUG

Metr

ic T

on

nes

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.

12

23

III. Growing Concerns About NAFTA Manufacturing

24

NAFTA Manufacturing Capacity Utilization

Remains Significantly Below Pre-Crisis Levels

Source: U.S. Federal Reserve Board, Statistics Canada

Canada & U.S. Manufacturing Utilizaton

50

55

60

65

70

75

80

85

1st 2nd 3rd 4th 1st 2nd 3rd

2008 2009

Uti

lizati

on

%

US Manufacturing Utilization Canada Manufacturing Utilization

13

25

NAFTA Manufacturing Employment Since 2007

13

13.5

14

14.5

15

15.5

16

16.5

2007 2008 2009

Millio

ns

Source: U.S. Bureau of Labor Statistics, Statistics Canada

Nearly 3 Million More Lost NAFTA Manufacturing Jobs

During the Economic Crisis (2007-2009)

26Source: US Department of Commerce

Mexico Manufacturing: 13 Months With Negative Growth

México: Industrial Activity Index

(August 2009 / Annual % rate of growth)

México: Manufacturing Activity Index

(August 2009 / Annual % rate of growth)

México: Manufacturing Employment Index

(August 2009 / Index: 2003 = 100)

• Main affected sectors:

. Transport equipment: -23.8%

. Machinery -16.3%

. Furniture: -14.5 %

. Metal products: -13.1%

. Steel: - 7.7 %

- 10.8 %

14

27Source: US Department of Commerce

US Trade Deficit - Manufacturing

166 206 240 267 279

277

297289 237 178

-

100

200

300

400

500

600

2004 2005 2006 2007 2008

$ B

ILL

ION

CHINA NON-NAFTA (excl. China)

U.S. Trade Deficit - Manufacturing

2009

108124

33

95

-

50

100

150

200

250

6 MO. 2009 6 MO. 2008

$ (B

illi

on

)

CHINA NON-NAFTA (excl. China)

• While the U.S. manufacturing trade

deficit has declined during the 2008-

09 recession, China‟s share has

increased and, through the 1st 6

months of 2009, China accounted for

78% of this deficit.

China Accounts For A Growing Share

Of The U.S. Manufacturing Trade Deficit

28

Source: AISI estimates (2009 annualized), based on U.S. Department of Commerce and

Global Trade Atlas value data

NAFTA Indirect Steel Trade Deficit Down

But Remains Significant Area of Concern

NAFTA Indirect Steel Trade Balance With The Rest Of The World

(excluding intra-NAFTA trade) 2000 - 2009

-9.9 -11.2 -12.8-10.8 -11.5 -12.6 -13.9

-11.8

-1.4-1.4

-1.7-1.9

-2.2-2.6

-3.1

-2.8-2.94

-3.5

-1.6-2

-2.2-2.2

-3.2-3.7

-4.2

-4.4 -4.18

-3.52

-8.0-11.0

-25

-20

-15

-10

-5

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Millio

ns o

f M

etr

ic S

teel T

on

s E

qu

ivale

nt United States Canada Mexico

15

29

Given the fundamental changes that have occurred in the NAFTA and global economies, North America‟s steel producers support:

• Restoring a policy commitment to North American manufacturing as a foundation for renewed economic growth and sustainable employment in the near and longer term

• Expanding trade based on internationally accepted rules and comparative advantage –not government-supported mercantilism

• Ensuring strong and effective trade laws throughout the NAFTA region to deal with market-distorting practices

• Addressing currency misalignments that create artificial competitive advantages

• Ensuring that climate change policies are both environmentally and economically effective, and do not generate new trade and investment distortions due to regulatory differences

Key Policy Messages