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KeyBanc Capital Markets Inc. Metal Research

KeyBanc Capital Markets Inc. Metal Research. Buckle-up: Metals Volatility Continuing As Global Recovery Unfolds SMA: January, 2011 Mark Parr, CFA 216-689-0269 Philip Gibbs 216-689-0312 Jason Brocious 216-689-0289 KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC.

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KeyBanc Capital Markets Inc. Metal Research

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  1. KeyBanc Capital Markets Inc. Metal Research Buckle-up: Metals Volatility Continuing As Global Recovery Unfolds SMA: January, 2011 Mark Parr, CFA 216-689-0269 Philip Gibbs 216-689-0312 Jason Brocious 216-689-0289 KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC Important disclosures for the companies mentioned in this report can be found at https://key.bluematrix.com/Disclosure.

  2. Since 1981: a 1% change in global GDP change has typically resulted in a 4% change in steel production Source: International Iron & Steel Institute (IISI)

  3. BRIC Influence to Dominate • Emerging markets marginal GDP contribution expected to overwhelm developed economies for the foreseeable future, especially for materials • Consolidation and enhanced financial strength/flexibility add incrementally to domestic steel industry fortunes

  4. Emerging Economies Becoming Dominant Source of Growth

  5. Emerging Economies Growth Is Much More Steel Intensive Source: World Bank and OECD

  6. Emerging Economies Growth Is Much More Steel Intensive Source: World bank and OECD

  7. Asian Production Decoupling from R.O.W. Source: International Iron & Steel Institute (IISI)

  8. Domestic Metal Spreads Decoupling from Domestic Demand Levels Source: Purchasing Magazine; Steel Business Briefing; RMDAS

  9. Source: Institute for Supply Management (ISM)

  10. Source: U.S. Census Bureau (M3 Survey)

  11. ABI 3 Month Moving Average Lagged 9 Months vs. Private Non-Residential Construction Spending Growth (% Y/Y) Source: Census Bureau, The American Institute of Architects Architectural Billings Index, KBCM Estimates

  12. Source: U.S. Census Bureau; Moody’s; The American Institute of Architects Architectural Billings Index

  13. Source: U.S. Census Bureau

  14. Source: Corelogic; National Association of Realtors; RealtyTrac

  15. Remodeling activity expected to grow after 3+ years of decline Source: U.S. Census Bureau; Harvard University Center for Housing Studies

  16. Source: Specialty Steel Industry of North America

  17. Source: American Association of Railroads

  18. Source: American Association of Railroads

  19. Source: ATA; IATA; Bloomberg; KeyBanc Capital Markets Inc estimates

  20. Source: Boeing, Airbus

  21. Supply Remains Constructive • Mills have kept supply in check, awaiting better signs of real demand • Trade balance for steel helped by weak dollar, stronger foreign markets • Inventories highly constrained

  22. Source: International Iron & Steel Institute (IISI)

  23. Supply Chain Decoupling vs. Previous Cycles Flat-rolled and Long Product Months-On-Hand Comparison Through December Source: Metals Service Center Institute (MSCI)

  24. Source: U.S. Census Bureau

  25. Source: U.S. Census Bureau

  26. Dollar vs. Trade-Weighted Baskets of Foreign Currency Source: St. Louis Federal Reserve

  27. Commodity Volatility Intact • Dependence on Emerging Markets creates more dynamic demand patterns • More attractive financial returns is attracting capital for the first time in several decades • No real end in sight • Buckle up!

  28. Source: Bloomberg

  29. Source: Steel Business Briefing; The Steel Index; KeyBanc Capital Markets Inc.

  30. Source: The Steel Index

  31. Source: RMDAS, KeyBanc Capital Markets Inc. estimate

  32. Reduced coking coal supply due to Australia flooding could drive this multiple higher, as steelmakers can substitute some scrap for hot metal Source: RMDAS, Steel Business Briefing; KeyBanc Capital Markets Inc. estimate

  33. Source: RMDAS, Steel Business Briefing; KeyBanc Capital Markets Inc. estimate

  34. Pricing Decoupling from Domestic Demand Source: US Geological Survey; Steel Business Briefing

  35. Pricing Decoupling from Domestic Demand Source: US Geological Survey; Steel Business Briefing

  36. Raw Materials Decoupling from Domestic Demand Source: US Geological Survey; Energy Information Administration; KeyBanc Capital Markets Inc.

  37. Raw Materials Decoupling from Domestic Demand Source: US Geological Survey; WorldSteel; Energy Information Administration

  38. Steel ETF Movements vs. Currency and Crude Oil Source: St. Louis Federal Reserve

  39. Source: Australian Bureau of Meteorology; Google Trends

  40. Source: Australian Bureau of Meteorology; Google Trends

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