North American Steel Industry:Regional Steel Market Conditions and

Perspectives in a New Trade Environment

OECD Steel CommitteeDecember 2-3, 2010

Paris, France*

American Iron and Steel Institute (AISI)Committee on Pipe and Tube Imports (CPTI)

Steel Manufacturers Association (SMA)Specialty Steel Industry of North America (SSINA)

Canadian Steel Producers Association (CSPA)Mexican Steel Producers Association (CANACERO)

2

I. NAFTA Steel Market Developments

3

NAFTA Steel Industry: Slow, Weak Recovery and Uncertainty about 2011

• NAFTA apparent finished steel use (AFSU) in 2009 was down 43% from the 2004-07 average, and anticipated “large” gains in NAFTA AFSU in 2010 and 2011 will still leave NAFTA AFSU far short of the 2004-07 average. Recovery will be long, weak and slow.

• North America has significant underutilized steel capacity – NAFTA AFSU and crude steel production remain far below the region’s steel capacity.

• Weak construction (especially non-residential) and other capital and consumer markets are continuing to limit steel’s recovery.

• Direct steel imports from offshore have maintained a substantial NAFTA market share, and the NAFTA region has remained a net steel importer -- in spite of significant unused NAFTA steel industry capacity.

• The NAFTA region also continues to have a large indirect steel trade deficit with the rest of the world – in particular, with China.

NAFTA Apparent Finished Steel Use and Crude Steel Capacity

-

5

10

15

20

25

30

35

40

45

1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND

2008 2009 2010

ME

TR

IC T

ON

S (

milli

ons) MEXICO

CANADA

U.S.

-- Capacity

NAFTA Raw Steel Production and Capacity

-

5

10

15

20

25

30

35

40

45

1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND

2008 2009 2010

ME

TR

IC T

ON

S (

milli

ons) MEXICO

CANADA

U.S.

-- Capacity

Apparent finished steel use (AFSU) in the NAFTA region in Q2 2010 was 54% higher than in Q2 2009, but current AFSU is 25% below the pre-recession peak. Full recovery will be long and slow, amid significant economic and political uncertainty.

NAFTA steel production has risen each quarter since Q1 2009. But steel production is slowing in Q4 2010. There are roughly 40 million MT of unused steel capacity in the NAFTA region.

Source: AISI, Statistics Canada, Canacero, Worldsteel

5Source: AISI, Statistics Canada, Canacero, Worldsteel

NAFTA Steel Imports

13%

18%

16%

18%13%14%

11%15%

23%

28%

-123456789

1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND

2008 2009 2010

Met

ric Ton

s (m

illion

)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%Import

Market

ShareNAFTA External Imports

Import Market Share

NAFTA Steel Exports

5%7% 6% 7% 6%

7% 7%6%

4%6%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND

2008 2009 2010

Met

ric

Ton

s (m

illion

)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0% Exports

% of

ShipmentsNAFTA External Exports

% of Shipments

The NAFTA region has experienced rising steel imports since the start of the technical recovery in mid-2009. Imports from outside the regions have increased from an 11% market share in Q3 2009 to an 18% market share in Q2 2010.

While NAFTA countries have increased their steel exports in recent years as a percent of total shipments, the vast majority of these exports go to other NAFTA countries. Only 6% of total shipments go to other world regions.

6

(Million MT) 2005 2006 2007 2008 2009 2010 e 2011 f

Finished Steel 138.3 155.7 141.2 129.7 82.7 108.6 118.0

Apparent Steel Use (ASU)

Survey of the Short Range OutlookFall 2010 NAFTA Region

United StatesMillion MT

2009 2010 2011chg (%)

Crude Steel Use 66.4 87.6 93.1 6.3%

Finished Steel Use 59.2 78.7 86.1 9.4%

Exports 8.4 11.2 11.7 4.5%

Imports 12.9 16.4 17.5 6.7%

From 2004 to 2007 (last 4 full years before the economic crisis began), apparent steel use in the NAFTA region averaged 146 million MT/year. The 2010 and 2011forecasts of 109 and 118 million MT are 26% and 19% below that average.

Source: Worldsteel

Despite Gains in Apparent Finished Steel Use (AFSU) in 2010 and 2011, NAFTA AFSU Remains Far Below Pre-Crisis Levels

CanadaMillion MT

2009 2010 2011chg (%)

Crude Steel Use 10.6 15.5 16.7 7.7%

Finished Steel Use 9.5 14.0 15.0 7.1%

Exports 4.9 6.4 6.8 6.3%

Imports 5.9 8.6 9.4 9.3%

MexicoMillion MT

2009 2010 2011chg (%)

Crude Steel Use 17.7 19.3 20.6 6.6%

Finished Steel Use 14.0. 15.9 16.9 6.3%

Exports 2.0 2.4 2.7 12.5%

Imports 3.2 3.8 4.1 7.9%

NAFTA INDIRECT STEEL TRADENAFTA market has 13.3 million MT steel trade deficit in manufactured goods

NAFTA INDIRECT STEEL TRADE DEFICIT

(5.1) (5.9) (6.4) (6.5) (5.6) (6.3)

(11.8) (11.8) (9.4) (7.3)(5.3)

(7.0)

(25)

(20)

(15)

(10)

(5)

-

Steel Content M illion M T

Indirect Deficit (16,842,810) (17,664,699) (15,737,008) (13,830,424) (10,904,544) (13,294,248)

ROW - ex. China (11,767,443) (11,757,697) (9,384,120) (7,294,916) (5,347,318) (6,966,806)

China (5,075,367) (5,907,002) (6,352,889) (6,535,508) (5,557,226) (6,327,442)

2005 2006 2007 2008 2009 2010

North America’s indirect steel trade deficit (trade deficit with the rest of the world, expressed in tons of steel) has increased by 22 % on an annualized basis vs. 2009. So far in 2010, the region’s direct steel trade deficit with the rest of the world is running at an annual rate of 11.8 million MT, vs. an indirect steel trade deficit of 13.3 million MT. While the NAFTA region’s indirect steel trade deficit with the rest of the world excluding China has declined by 45% since 2005, this indirect deficit with China has been rising and now accounts for nearly half of this total deficit.

Source: AISI, Global Trade Atlas

7

8

II. NAFTA Industry Perspectives in a New Trade Environment

9

• Overall steel demand in North America remains far below pre-crisis levels. It will take years for the region to return to pre-crisis levels. A slow, weak U.S. recovery is creating increased economic uncertainty throughout North America.

• Global steel consumption is growing again, but so is world capacity.

• In an era of world overcapacity, weak regional demand and uncertain North American economic conditions, NAFTA steel producers are in no position to deal with significant volumes of dumped and subsidized imports.

• Trade-distorting government market interventions (to maintain undervalued currencies, subsidize steel and steel-related capacity and limit vital raw material exports) are proliferating, not ending.

• Manufacturers in the NAFTA region are world class but cannot compete with offshore governments. This sector is critical to the NAFTA steel industry and economies. Manufacturing in North America remains a growing concern.

Great Recession Has Exacerbated NAFTA Industry Concerns

10

World Steel Demand Has Recovered – But Not in OECD Countries,

While World Steel Capacity Continues to Grow, Especially in Asia

Source: Worldsteel

85%86% 85%

77%

67%

79%

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2005 2006 2007 2008 2009 2010 2011 2012

World Capacity - Million MT

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

105%

Capacity Utilizaton %

World Crude Steel Capacity

Capacity Utilzation - World

1,145

1,222 1,204

1,120

1,2581,320

481 483 457

304358 375

0

250

500

750

1,000

1,250

1,500

1,750

2006 2007 2008 2009 2010 2011

Mil. MT

World Apparent Finished Steel Use

OECD Steel Use

Key Legacies of Great Recession

• Key legacies of the Great Recession are:

• Long-lasting, significant global overcapacity in steel and steel-related products;

• Greater focus by policy makers on “national manufacturing strategies”; and

• Increasing use of steel-distorting policies and practices.

12

Market Conditions and Government Policies Making Trade Remedies More Important than Ever

• NAFTA steel industry associations cannot comment on “changing corporate strategies” in the wake of the Great Recession other than to note that national manufacturing strategies are becoming a priority in many countries, and government-directed industrial policies can cause harm to others when they involve:

• Subsidies and other market interventions that distort trade, prop up inefficient

capacity and keep national currencies seriously undervalued; • Protectionist barriers against imports, raw material exports and private foreign

investment;• Intellectual property rights violations; and• Technology transfer requirements as a condition for market entry.

• Now is the time to enhance, not weaken, the rules against unfair trade.

• All governments have a right to the legitimate use of WTO-consistent trade remedy laws.

13

Key NAFTA Industry Messages for Steel Committee

With the recovery still fragile throughout the developed world -- and market conditions uncertain in North America -- the NAFTA steel industry reiterates the following key policy messages for the proposed 2011-12 Steel Committee budget and work program:

• We remain especially concerned about subsidies that contribute to excess and

inefficient capacity and/or distort trade, and believe the issue of government supports for steel should stay a part of any future Steel Committee work program.

• Two other trade-distorting practices that we would like to see remain on the Committee agenda are (1) enhanced work with the OECD Trade Committee on approaches to trade restrictions on raw materials and (2) differential or discriminatory fiscal policies.

• We believe it could be useful for the Committee to continue to analyze steel and technology and the steel trade dimensions of steel and the environment.

• Additional engagement and analysis of developments in non-OECD countries are essential due to their importance to the global economy and the world steel industry.