Steel

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National Fluid Power Association Economic
Outlook Conference
Steel A Year Later
Thomas A. Danjczek, President Steel Manufacturers
Association August 16, 2005
Rev. 8/2/05
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Steel A Year Later
NFPA Economic Outlook Conference

• 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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NFPA Economic Outlook Conference

• 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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NFPA Economic Outlook Conference

• 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 (2004)
Current Drivers Impacting Steel Competitiveness
NFPA Economic Outlook Conference August 17, 2004
I. Trade 201 Real World Impact World
Steel Production (up 7.1) China, China,
China (up 21.1) (Its Impact) II. Steel
Production Costs Key Issues (Scrap 100 to
285) 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 Uncertainty Optimistic
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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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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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NFPA Economic Outlook Conference
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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NFPA Economic Outlook Conference
Chinas Impact
After 4 Trips in a Year
Key Questions - When will Chinese steel
production significantly exceed its own domestic
consumption I.e. 50/60 MMT? - Will the
Chinese government shut down inefficient, excess
capacity? (Has not done so with polluting
facilities despite strong policy) - How can
North American Steel Industry compete against
Chinese government - - IT CANT!
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Source Iron and Steel Statistics Bureau
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Hot-Rolled Sheet Prices, 1990-2005 (Midwest,
per ton)
June 2005 495 July 2005 460
Source Purchasing Magazine
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Wide-Flange Beam Prices, 1990-2005 (Midwest, 8 x
8, per ton)
June 2005 516 July 2005 506
Source Purchasing Magazine
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Rebar Prices, 1990-2005 (Midwest, per ton)
June 2005 470 July 2005 450
Source Purchasing Magazine
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Wire Rod Prices, 1990-2005 (Midwest, per ton)
June 2005 505 July 2005 472
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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NFPA Economic Outlook Conference
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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NFPA Economic Outlook Conference
Expert Views
Michelle Applebaum June 26, 2005
- Inventories decline modestly - 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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NFPA Economic Outlook Conference
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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NFPA Economic Outlook Conference
Expert Views
Peter Marcus World Steel Dynamics 5/27
7/7/05
- 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 - Lower freight
rates (70 to 55 per ton)
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NFPA Economic Outlook Conference
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 July 13, 2005
- Improvement in inventories - Oil country,
rail light shapes strong - Sheet products weak
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NFPA Economic Outlook Conference
Conclusions
Hell, its still a cyclical business
Fundamental shift in both demand and supply due
to China and its appetite for raw materials
China is still the wild card 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