Tenaris Algoma Tubes shutting down two ... MSCI FY pipe

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Never before have I seen such a sharp decline
and I have been in the business since 1974.
Nucor COO John Ferriola

• Seen the news lately?

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Largest steel-making companies m tonnes crude
steel
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Seen the news?

• US Steel to indefinitely idle Lone Star facility
  February 13
• US Steel idles Lorain mill for at least 60 days -
  March 5
• US Steel exiting DOM tubular business - January 6
• PTC Alliance idles WV DOM operation -February 12
• Synalloy helped by trade case, hurt by surcharge
  decline - February 19
• Timken announces organizational changes, job cuts
  March 3
• New Chinese pipe mill in the US expected to open
  in 2011 - January 12
• Tenaris Algoma Tubes shutting down two Canadian
  facilities for six weeks beginning March 20 -
  March 10

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EAFs running under 50

• Estimated mid 40
• STLD projecting loss
• Can shut on off
• EAFs running intermittently with reduced work
  weeks

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AISI raw steel production
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North American Blast Furnaces
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ArcelorMittal Operating Levels
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MSCI FY inventory (all products)
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MSCI inventory data
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MSCI FY shipments
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MSCI FY pipe tube shipments
High April 335,200 Low Dec 178,500
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AISI FY domestic pipe shipments
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9.2
Other includes non-classified shipments, rail,
mining, agricultural, military
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US pipe imports
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End markets

• Weak

• Better

• Non-res construction bounces back in 2014
• Housing recovers in 2012
• White goods
• Automotive (February at 1982 levels)

• energy (could improve if oil prices rise)
• agriculture

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Industry forecast

• Inventories balance at end of May
• Buying resumes in July
• H2.09 improvement but no real recovery through
  H1.10
• Prices lower in Q2 flat in Q3 and then relapse
• Credit issues
• Failures, distressed mergers

• Even Warren Buffett feeling the pinch

Berkshire Hathaway FY.08 worst results ever.
Buffett says economy has fallen off a cliff.
Also notes that recent efforts to spur recovery
may cause inflation higher than the 1970s.
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Impact of stimulus plan

• domestic industry could see an additional 3.5-4m
  short tons of steel shipments
• go disproportionately to long product producers
• 4 of infrastructure spending slated for actual
  steel purchases which would amount to 3.2bn in
  steel purchases with an average selling price of
  800 s.t.

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Lawsuits

• Rare in the good times,
• Now becoming commonplace

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Tubular Lawsuits

• Olympic Steel suing Valmont Industries for
  791,900 for breach of contract contending that a
  sheet order was rejected only because the
  inventory devalued significantly between when the
  contract was signed and when the order was
  delivered.When Valmont placed an order for
  2,000 short tons of hotrolled coil last
  September, the selling price was 1,010 per short
  ton when shipped in November, HRC was selling
  for 820/s.t.Valmont contended that the steel
  did not meet specifications and refused to
  process it into tubes, according to the complaint.

• US Steel is being sued by distributor JD Fields
  of Houston for 992,000. The complaint states
  that USS agreed to sell Fields 800 feet of pipe
  for 2,205 per tonne, but then changed the terms
  of the agreement.
• Fields claims that after it had already accepted
  an order from a customer based on this price, USS
  told the company it needed a 100-tonne minimum to
  fill the order, which would be rolled in April.
  Fields said it agreed and then was informed on
  May 30 that USS would not honor the
  agreement.The dispute also involves a 6,150 ft
  seamless pipe order and a pipe invoice price that
  was allegedly 57 higher than agreed.

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and more lawsuits

• US mill antitrust case --A series of lawsuits
  have been filed against nine US producers
  contending they fixed prices and coordinated
  outages to keep prices high.Each case alleges
  the mills conspired to "fix, raise, maintain and
  stabilize the price at which steel products were
  sold in the US" beginning in 2005.

• Russian steelmaker Novolipetsk will pay DBO
  Holdings 234m to settle a lawsuit over NLMK's
  failure to purchase North American tubemaking
  group John Maneely Co.The payment is due within
  four business days of yesterday's signing of the
  agreement, Steel Business Briefing notes. NLMK
  last November terminated the deal to purchase the
  Maneely assets for 3.5bn and was sued for breach
  of contract by DBO on behalf of the Carlyle
  Group, which owns Maneely."The agreement
  provides for the full mutual release and
  discharge by NLMK and DBO from their claims
  arising from the transaction," NLMK states.In
  early January pre-trial dockets seen by SBB, NLMK
  denied the breach claim saying it terminated the
  agreement properly. The steelmaker also asserted
  that Maneely was not entitled to a claim for more
  than the termination fee in the merger agreement.
  The amount of the fee was not disclosed.Maneely
  owns 11 NA plants with total pipe and tube
  production capacity of over 3m short tons per
  year.

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The Steel Index March 2-8
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The Steel Index March 2-8
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The Steel Index
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The Steel Index
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TSI Global Inventory
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The Steel Index Global Demand Outlook
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The Steel Index Global Price Outlook
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The Steel Index N. American Inventory
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The Steel Index N. American Demand Outlook
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The Steel Index N. American Price Outlook
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TSI Asian/Middle East inventory
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TSI - Asian/Middle East demand outlook
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TSI - Asian/Middle East price outlook
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Summary

• Prices will continue to decline
• Demand will remain weak
• No improvement until H2.10

• Service centers still buying amongst themselves
• US raw steel output should be near bottom
• Non-residential construction downturn just
  getting underway

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Thank you!
London Pittsburgh Shanghai Sao Paulo
Singapore Bursa