Metal Building Manufacturers Association

1
2005 Annual Dinner and Conference
Monday, November 28, 2005 New York, NY.
2
Steel Outlook

• An Economic Outlook
• for
• The Service Center Industry

ESMARK, Incorporated James P. Bouchard, CEO
3
The Economy is Solid Global Steel Industry
Prospering
Positives

• GDP trending lower but still healthy at 3
• Consumer Confidence trending lower but still
  above average
• Unemployment in excellent shape at 5
• Housing Starts trending lower but still good
• Appliances at record levels
• Vehicle Sales north of 16 million units
• Capital and RD trending lower but still positive
• Service Center Sheet Inventories in excellent
  position
• U.S. Domestic steel consumption and shipment at
  record levels

4
Gross Domestic Product Annual
8
6.8
6
4.5
4.4
4.3
4.0
3.8
3.7
3.7
3.5
4
3.0
2.9
4.1
2.5
2.3
2.3
Annual Change
3.7
2
3.7
1.3
3.4
Soft Landing
0
0.8
Soft Landing
-0.3
-1.0
-2
-2.1
-4
1980
1985
1990
1995
2000
2005
5
Consumer Confidence
150.0
140.0
130.0
120.0
110.0
100.0
90.0
80.0
70.0
U. Michigan
Conf. Board
60.0
50.0
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
6
Unemployment - Monthly
Good Shape Expected to level off in 2006 and
increase as the economy slows.
7
Housing Starts
2.5
2.36
2.04
1.99
2.02
2
1.85
1.83
1.81
1.75
1.64
1.64
1.53
1.48
1.43
1.7
1.5
1.57
1.29
Units x Millions
1.35
1.16
1
1.06
1.01
0.5
0
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
8
Appliances
9
Lt. Vehicle Sales - Monthly SAAR
22
Monthly SAAR Sales
21
6 per. Mov. Avg. (Monthly SAAR
Sales)
20
19
18.0
18
SAAR Million Sales
17
16
15
14
Interest rate increase expected to Slow
Automotive sales, 5 drop .8 million
vehicles 800,000 tons
13
12
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
10
NAFTA Lt. Vehicle Production
18,000
16,000
14,000
12,000
Units x 000
10,000
8,000
6,000
Mexican Lt.V.
4,000
Canada
2,000
U.S.
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
11
Capital Spending
15.0
12.5
10.6
9.9
8.7
8.9
10.0
8.5
5.0
3.3
Chg Yr / Yr
5.4
0.0
-5.0
-4.2
-10.0
-8.9
1970
1975
1980
1985
1990
1995
2000
2005
12
MSCI Sheet Inventory Trends
Prices up
Inventories are now back to a 2.7 months supply
level Industry can not afford a traditional
year-end increase while economy is slowing
13
U.S. Domestic Steel Consumption
128.6
130.0
116.2
110.0
118.4
90.0
Tons x Millions
70.0
50.0
30.0
10.0
1925
1935
1945
1955
1965
1975
1985
1995
2005
14
Domestic Steel Shipments
112.1
106.2
109.1
110.1
111.4
105.9
100.0
109.5
104
102.1
105.6
104.7
80.0
98.9
60.0
Tons x Millions
61.6
40.0
20.0
0.0
1970
1975
1980
1985
1990
1995
2000
2005
15

• This Trend is not our Friend

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Service Center Economic Trends2006 - 2007

• Average American has less money to spend/save and
  will make adjustments Consumer spending slows
  Negative
• Rising interest rates Inflation fears
  Negative
• GDP slowing Steel consumption will drop
  Negative
• High oil, gas, and electricity prices Raw
  materials Negative
• Shift to smaller more fuel efficient vehicles
  Less steel Negative
• Housing market is cooling Interest rate impact
  Appliance Construction markets plus reduction
  in second home sales / upgrades Negative
• Dollar is getting stronger while interest rates
  rising ! Negative

17
Steel Market Capacity Trends 2006 2007 2008

• Economy is slowing Steel consumption will drop
  Negative
• Global capacity additions expected to continue

Global Capacity

• China

• India

• North America

• Eastern Europe

Question Will global consumption keep pace with
capacity additions ?
18
Service Center Leadership

• Cause Effect

Short Term Effects

• Traditional price/inventory manipulation
• Sales decline
• Capacity utilization decline
• Variable operating costs increase

Results in Unwanted Actions

• Aggressive moves to capture market share
  Usually unsuccessful Prices drop No industry
  leadership Market fragmented No additional
  consumption !!!
• Head count and SGA impact
• Compensation impact
• Infrastructure and Capital Spending impact

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Service Center LeadershipCause Effect (Cont)
Long Term Effects

• Service Centers counter mill consolidation effort
• Increase cycle volatility
• General steel market producer, Service Center,
  OEM relationship strained
• Negative impact on Service Center, Company, and
  Industry profitability

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Service Center OutlookPrepare for 2007 - 2008
Financial

• Stronger balance sheets 2004 2005
• Continue to aggressively reduce debt 2006
• Companies with excellent balance sheets will be
  well positioned for an economic slowdown 2007
• This will create long term opportunities for
  strong financial companies to consolidate 2007
  2008

Operational

• Prepare business plan and respective operations
  for 5-10 reduction in shipments mid 2006
• Reduce workforce and related capacity mid 2006
• Implement Best Practices and operational
  efficiencies - 2007

21
Service Center StrategiesPrepare for 2007 2008
(Cont)
Operational (Cont)

• Try not to do Everything for Everyone,
  Concentrate on Core customer base and execute
• Utilize Outside Processors to reduce variable
  operating costs
• Low fixed and variable cost companies will
  prosper in a slowdown

Commercial

• Do not panic sell
• Maintain lean inventories during soft market (2.5
  3.0 months)
• Obtain more commercial intelligence before
  quoting a non-core account
• Demonstrate pricing power and leadership during a
  Soft market

22
James P. Bouchard, CEO
Would Like to Thank for the
opportunity to meet with you this evening

• Questions and Answers