Steel A Year Later

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American Boiler Manufacturers Association Annual
Meeting 2005
Steel A Year Later
Thomas A. Danjczek, President Steel Manufacturers
Association June 27, 2005
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Steel A Year Later
AMBA Annual Meeting 2005

• SMA
• Review 2004 Presentation Highlights/Conclusions
• 2005
• World Steel Production/Operating Rate
• China
• Scrap, Ore, Steel Prices
• Consolidations
• Expert Views
• Conclusion

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AMBA Annual Meeting 2005

• The Steel Manufacturers Association (SMA)
• 38 North American companies
• 31 U.S., 5 Canadian, and 2 Mexican
• 103 Associate members
• Suppliers of goods and services to the steel
  industry
• SMA member companies
• Operate 120 Steel plants in North America
• Employ about 40,000 people
• Mini-mill Electric Arc Furnace (EAF) producers

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AMBA Annual Meeting 2005

• Production capability
• SMA represents over half of U.S. steel production
• Recycling
• SMA members are the largest recyclers in the U.S.
• Last year, the U.S. recycled over 70 million tons
  of ferrous scrap
• Growth of SMA members
• Efficiency and quality due to low cost
• Flexible organizations
• EAF growth surpassed 53 in 2004, and anticipated
  to be 60 by 2010

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Last Year
Current Drivers Impacting Steel Competitiveness
AMBA Annual Meeting June 28, 2004
SMA I. Trade 201 Real World Impact
World Steel Production China, China,
China II. Steel Production Costs Key
Issues Asset Values Exchange Rates
Steel Imports Value of U.S.
Bankruptcy/Restarts
III. Other Costs Restrictive Scrap Exports
Freights Coke Energy IV. Market
Overview Public Works Construction V.
Conclusion
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Some things are the same
Courtesy IMF
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Courtesy IMF
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Courtesy IMF
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CHINA CONCLUSIONS Currency Manipulations

• For eight and one-half years, China has
  maintained a fixed exchange rate of 8.3 yuan to
  the dollar. China has printed any amount of yuan
  necessary to purchase dollars to maintain a fixed
  artificial rate, giving it enormous export
  advantage, and creating a China trade surplus
  with the US reaching 124 billion in 2003.
• In the two-year period, 2002-2003, US imports
  of manufactured goods from China accounted for 56
  percent of the total growth in US imports of
  manufactured goods during the period. The US
  trade deficit in manufactured goods with China
  was 128 billion in 2003. The overall US trade
  deficit with China is now the largest bilateral
  trade imbalance ever seen in the history of world
  trade.
• The United States should insist that China
  change its exchange rate regime which allows it
  to sell undervalued goods in export markets at
  costs denominated in undervalued yuan.
  Simultaneously, China must relax its tight
  capital controls, which have resulted in an
  accumulation of foreign exchange acquired from
  export sales, amounting to 420 billion in 2003,
  about one-third of Chinas GDP. China must stop
  excessive issuance of undervalued yuan, and pay
  for its imports with foreign exchange.
• Today, China can absorb a revaluation without
  an economic collapse, versus a token one which
  would respond to the problem in form only, rather
  than a needed significant revaluation. If
  inadequate US policy causes a delay for another
  five years, however, China, the US, and the world
  economy are in for a very hard landing. At that
  point, an inevitable huge revaluation of the yuan
  will occur, which it must, when US policy
  officials then confront US trade, current
  account, and capital account deficits of
  disastrous proportions. US policy must
  effectively address this problem, now. So far,
  it has not.

May 12, 2004 SMA Press Release
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Some things are different
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IRON ORE PRICES - ANNUALThe 2004 iron ore
price-increase benchmark of 18.5 was established
in early-January by CVRD, following a 9 gain in
2003. China now accounts for over 25 (110 MT) of
world sea-borne demand, while three producers
(CVRD, RTZ and BHP) now control over 80 of the
supply.
Some things got worse
Pellets
Lump
Fines
Prices shown are from CVRD (Brazil) to Western
European steel customers (fob)
Courtesy Metal Strategies
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Technical Read on Crude Oil Prices
Courtesy JP Morgan
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ABMA Annual Meeting 2005
2004 Conclusions

• Uncertainty Cycle has Changed (Shorter Term
  Greater Peaks Valleys)
• Revenue vs. Costs Not the Same Business Model
• Bankruptcy Laws Unfair to Competitors
• Investments Earn Cost of Capital
• Minimills 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

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2005
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WORLD STEEL PRODUCTIONWorld steel production was
up 6.5 percent through March, following increases
of 8.9 percent and 6.8 percent in 2004 and 2003,
respectively. China accounted for 92 percent of
the y-t-d worldwide net gain and 25 percent of
total world production.
World Total
Steel Production March 2005 Percent Change,
Year Ago Month 6.5
Year-to-Date 6.5
World Excluding China
In the five years from 1998 to 2003, China and
the former-USSR states increased production by a
cumulative 140 MT, equal to 70 percent of the
combined total output in 2003 of both the U.S. or
Japan. Source Metal Strategies
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WORLD CRUDE STEEL OPERATING RATE
Operating rates recovered from 76 percent in
2000, to a peak of 87 percent in 2004, and have
moved moderately downward since late 2004.
World Crude Steel Operating Rate
Source Metal Strategies
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Source American Metal Market
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Source Iron and Steel Statistics Bureau
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Hot-Rolled Sheet Prices, 1990-2005 (Midwest,
per ton)
Source Purchasing Magazine
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Wide-Flange Beam Prices, 1990-2005 (Midwest, 8 x
8, per ton)
Source Purchasing Magazine
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Rebar Prices, 1990-2005 (Midwest, per ton)
Source Purchasing Magazine
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Wire Rod Prices, 1990-2005 (Midwest, per ton)
Source Purchasing Magazine
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U.S. STEEL INDUSTRY CONSOLIDATION(Percent
Change, 2000 compared to 2005)

• Mittal Steel weighted average share of all
  markets
• served 33 (major product range-15-40)
• FRP acquisition price (/ton, going-concern
  basis)
• 2002 110..2003-041702005225

Source Metal Strategies
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AMBA Annual Meeting 2005
Expert Views
Plummer Metal Strategies - May 18, 2005
- Eight months of downward market correction,
focused in sheet - Auto market under
pressure, especially SUVs - Positive outlook
despite current conditions (Supply moving in
balance with demand imports are down
inventories coming down by inventory liquidation
and mill shutdown) - Demand still healthy
(industrial equipment up by 7 percent now
residential recovering auto transplants are
strong
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AMBA Annual Meeting 2005
Expert Views
Michelle Applebaum June 2, 2005
- Sheet prices showed decline reflecting
automotive - Plate and long products sideways
(Cut to length plate unchanged in May 2005 rebar
unchanged) - Minimills more disciplined
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AMBA Annual Meeting 2005
Expert Views
SBB Global Market Outlook May, 2005
- Production cuts too little, too late -
Buyers holding back - Inventory draw down ends
in the third quarter (For long products, some
products are potentially in short supply due to
de-stocking) - Plate is still strong
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AMBA Annual Meeting 2005
Expert Views
Peter Marcus World Steel Dynamics May 27, 2005
- Bottom of the V pricing for hot-rolled on
the world export market may occur in third
quarter - Prime U.S. automotive scrap
plummeted another 60 to about 170 in May (vs.
high of 450 in November, 2004) - Steel
shipments in USA 5-10 percent projected below
2004 - Chinese steel production is likely to
decline sharply in months ahead
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AMBA Annual Meeting 2005
Expert Views
MEPS Steel News June 1, 2005
- Flat products fell by 5.5 percent in May -
Long product price held up
Charles A. Bradford Soleil June 1, 2005
- Improvement in inventories
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AMBA Annual Meeting 2005
Conclusions
Hell, its still a cyclical business
Fundamental shift in both demand and supply due
to China and its appetite for raw materials
Consolidations have had an impact to reduce
volatility Role of inventories affecting
pricing and production Unknowns (Oil, Interest
rate, Auto sector, Energy, China, China, China)
Still reasons for meaningful optimism