Metals Service Center Institute Northern Ohio Chapter Town Hall Meeting

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Metals Service Center InstituteNorthern Ohio
ChapterTown Hall Meeting
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BOB WEIDNER President Chief Executive
Officer Metals Service Center Institute
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Capacity Utilization Durable Manufacturing
85.0 82.5 80.0 77.5 75.0 72.5 70.0 67.5
www.Economagic.com


November 4, 2003
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Recessions

• Cyclical
• Vs.
• Structural

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Recovery Preconditions

• Low Interest Rates
• Improved Financial Market Conditions
• Tax Cuts
• Weaker Dollar

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However

• GDP Anemic
• Unemployment High
• Under-employment

Jobless Recovery
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Economic Landscape

• Struggle continues for manufacturers
• Chicago Tribune 7-4-03
• Unemployment rate jumps to 9-year high
• Chicago Tribune 7-4-03

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Declining State of Manufacturing

• Over 2.8 million manufacturing jobs lost in
  past 3 years
• Manufacturing employment in the U.S., currently
  at approximately 14.8, has fallen below the
  level at which it was first officially
  announced
• The flight of labor-intensive goods-making
  tasks to low wage countries isnt the only
  reason for manufacturing unemployment anymore.
  Lately its been big companies tendency to
  order parts from foreign countries that has cost
  small to medium-sized U.S. family firms a lot of
  business. (Los Angeles Times 5/18/03)

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Metalworking Alliance to Save North American
Manufacturing

• Need for collaborative coalition of metals and
  manufacturing groups
• We need to elevate awareness level of the
  manufacturing crisis
• Large and small manufacturing businesses need
  to work together to insure fair and free trade
• Securing Americas Future The Case for a
  Strong Manufacturing Base
  Joel Popkin Study

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MSCIs Role

• Leverage the strength of our diverse membership
  base focusing it on saving N. A. manufacturing
• Utilize our chapter infrastructure to conduct 5
  town hall meetings by year-end
• ? Chicago on 8-21, Charlotte on 10-9, Atlanta on
  10-16, Los Angeles on 10-21, Cleveland on 12-2
  and 7-10 more scheduled in 2004
• CEO fly-in to Washington, D.C. in February
• Coalition for a Sound Dollar

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BILL HICKEY President Lapham-Hickey Steel
Corporation
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Currency Manipulation

• Market fundamentals have historically not set
  the value of the Japanese Yen, Taiwanese
  Dollar, Korean Won and Chinese Yuan
  Governments Have!
• Chinas growing trade surplus and huge foreign
  investment inflows would suggest one thing a
  stronger yuan reality is visa vie the U.S.
  dollar theres been no change
• Optimism that Treasury Secretary Snow
  understands the issue

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The U.S. Current Account Deficit
6 Mos.
Source U.S. Department of Commerce October 7,
2003
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Factory Jobs in Decline
37th Consecutive Monthly Decline in Manufacturing
Jobs
U.S. MANUFACTURING JOBS Seasonally Adjusted,
scale in millions
01
02
03
Source U.S. Bureau of Labor Statistics
October 7, 2003
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Coalition for a Sound Dollar

• Coalition of over 80 trade associations focused
  on achieving a sound dollar policy
  www.sounddollar.org
• Growing momentum to utilize Section 301 of the
  Trade Law of 1974 to get the Administration and
  Congress to address currency manipulation
• IMF Article 4
• Various provisions of WTO regulations

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Personal Commitment Participation

• Write your elected officials (federal, state
  local)
• Invite elected officials into your plants
• Hold elected officials accountable to take a
  stance on pro-manufacturing agenda
• Get engaged in championing manufacturing at
  home . . .

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MICHAEL SIEGAL Chairman Chief Executive
Officer Olympic Steel, Inc.
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MSCI Town Hall MeetingSaving ManufacturingDec
ember 2, 2003

• Michael D. Siegal
• Chairman CEO
• Olympic Steel, Inc

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(No Transcript)
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U.S. DomesticHot Rolled Steel Prices
( per ton)
2004 Projected 350 per ton
Source Purchasing Magazine
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(No Transcript)
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Months Supply on Hand
Source Metals Service Center Institute
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Weekly Production and Operating Rates
Source American Iron and Steel institute
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Steel Production Statistics - as of October 2003

• Year to date production at 80,748,000 tons,
  compared to 82,493,000 for the same period in
  2002.
• Year to date capacity utilization rate - 81.5, a
  decrease of 2.1 from the previous year, trending
  upward.
• Steel consumption is expected to cap at 114
  million tons for 2003, compared to 115.5 million
  tons for 2002. 2004 projections are at 116.6
  million tons, trending rapidly upward
• Service center shipments at 36,944,000 tons for
  2003, compared to 37,682,000 tons for the same
  period in 2002.

Source - American Iron and Steel Institute
(AISI), Metal Service Center Institute (MSCI),
and Goldman Sachs
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Imports in Tons
Source US Census Bureau
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Euro and Canadian Dollar
Source Bloomberg
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Brazilian Real (inverted)
Source Bloomberg
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Korean won (inverted)
Source Bloomberg
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US Price Premiums
Source Metal Bulletin, Purchasing Magazine
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Finance/Credit Environment

• Steel industry on Office of Currency and
  Comptroller (OCC) watch list.
• Lending is now asset based.
• High fees and premiums.
• The ratio of debt to EBITDA tightening.
• Severe reduction of international credit
  insurance, limiting availability of imported
  steel.
• Continued bank consolidation.

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(No Transcript)
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MITCH HECHT Vice President, External Affairs
Public Policy International Steel Group, Inc.
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International Steel Group Inc.
Steel Industry Trends
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International Steel Group Inc.

• Major consolidation and restructuring in North
  America
• Trade restraints lifted with NAFTA and WTO
• Convergence of USA and Non-USA pricing
• Emergence of China as opportunity and threat
• May see disconnection of US prices and US
  economy?
• Raw materials becoming a driver of price?
• USA pursues European Model

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Substantial Progress In Consolidation
Bankrupt
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Groundbreaking New Labor Contract

• New ISG labor agreement reached with USWA on
  December 23
• cost significantly below historical standards
  with no exposure to onerous legacy liabilities
• workers have potential for high pay, depending on
  productivity and profitability
• Ratification by 90 on February 18, 2003

Operating Considerations
Economic Considerations
Corporate Governance

• Job descriptions
• Job classes
• Line of progression
• Schedules
• Safety committees
• Grievance procedure
• Employee security

• Health care
• 401(k)
• Holidays
• Shift premium
• Pension plan (defined contribution)
• Profit sharing
• Vacations
• Retiree benefits (VEBA)
• Wage scale
• Contracting out

• Access to board of directors
• Neutrality
• Ratio of represented workers
• Officer compensation formula
• Successorship

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Labor Efficiency
Man Hours per TonCold Rolled Coil
Source World Steel Dynamics estimates as of
February 2003 for reference plant comparisons.
Management estimates for ISG
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Comparison to the Global Cost Curve
World Cost Curve - Cold Rolled Coil
500
483
474
443
443
417
75
75
Current Price 375
401
75
75
20
391
388
400
386
25
359
356
355
75
348
75
75
20
141
20
129
139
320
318
75
75
109
97
123
57
25
300
1
64
75
61
72
102
21
26
64
Per Ton Shipped
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126
120
200
147
153
150
156
146
134
150
146
125
136
118
126
101
100
153
143
119
117
118
115
114
114
111
109
109
111
108
105
98
0
ISG
Mexico
Brazil
C.I.S.
USA Mini-
China
Canada
South
Taiwan
Australia
USA
Japan
U.K.
France
Germany
mill²
Korea
Traditional
Raw Materials Cost
All Other Materials Cost
Labor Cost
Transportation Costs³
Notes 1 Total operating costs for cold-rolled
coil production (based on total
shipments) 2 Mini-mill scrap reference rate of
152/ton 3 Company estimates
Source World Steel Dynamics estimates as of
February 2003 for reference plant comparisons.
Management estimates for ISG
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USA Steel Prices Track The Overall Economy
Source World Steel Dynamics
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Steel Industry Conditions

• USA-export price arbitrage has been eliminated

Source World Steel Dynamics
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Source World Steel Dynamics
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Steel Industry Conditions

• Chinas new role as a long-term net importer is a
  seminal event

Source World Steel Dynamics
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Steel Industry Conditions

• Projected 5.7 per annum growth in Chinas
  consumption requires replicating entire US steel
  industry

Source World Steel Dynamics
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Subsidized New Capacity Defies Reason
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Source World Steel Dynamics
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Global Trends in Steelmakers Costs

• Coke shortages 10 impact 0.4x delta
• Ocean freight (ore) 10 impact 1.5x delta
• Scrap (integrated) 8 impact 0.2x delta
• Natural Gas 10 impact 4.5x delta
• Labor Productivity 15 benefit
• Declining dollar

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U.S. Manufacturing Is Same Size It Was In 1959
Source Bureau of Economic Analysis
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20 Years of Jobs Decline
Source Bureau of Economic Analysis
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Majority of the Fortune 100 Exports Nothing
Source U.S. Census Bureau, Foreign Trade
Division
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Is the Deficit Sustainable?
Source Bureau of Economic Analysis
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DAVE PRITCHARD Chairman of the Board AJ Rose
Manufacturing Company
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Metals Service Center InstituteNorthern Ohio
ChapterTown Hall Meeting