Changes, Drivers, and Challenges in the North American Steel Industry

1. CHAIN LINK FENCE MANUFACTURERS INSTITUTE ANNUAL MEETING Changes, Drivers, and Challenges in the North American Steel Industry Thomas A. Danjczek President Steel Manufacturers Association November 8, 2012 Scottsdale, Arizona Update 10-24-2012

2. CLFMI – Annual Meeting Outline • About the SMA • Set the Tone - Economy • Set the Tone - Steel • Changes Impacting Steel • Drivers Impacting Steel • Challenges Impacting Steel • Final Thoughts

3. CLFMI – Annual Meeting About the SMA SMA - Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 123 Associate Member steel industry suppliers - SMA Members account for approximately 80% of U.S. domestic steel capacity - Today, roughly two-thirds of North American steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s Approximately 2/3 of U.S. Steel Production

4. Set the Tone - Economy CLFMI – Annual Meeting • U.S. & Canada GDP Growth Around 2% • NEAR STAGNATION • U.S. Manufacturing Production Rebounding • STILL 6% BELOW PEAK & MAY BE DROPPING • Global Slowdown Weakens Demand, Poor Earnings • ARE WE LOSING MOMENTUM? • U.S. Auto, Aerospace, Machinery Strong • WILL IT CONTINUE? MAY BE DROPPING… • “Trimming Profits” • Second Recession in U.S.???

5. CLFMI – Annual Meeting Set the Tone - Economy UNSUSTAINABLE US GOOds $620 Billion Annual Deficit projected in 2012 is most significant barrier to U.S. economic recovery

6. CLFMI – Annual Meeting Set the Tone - Steel • Primary metal 4% growth YTD 2012 over 2011 in US • U.S. capacity utilization approx. 76.5% through October2012 • Up 6.4% over 2011, but…Recent weeks around 70%, now 69% • Scrap price volatility (75% of minimill costs) • $100/150 drop in 45 days – half back; maybe $20 down in September, maybe $50 in October??? • U.S. may hit 97ms tons in 2012 • Inventories remains LOW • Changes in mill orders lead time from 6 weeks to 2.5 weeks, back to 5 weeks…all in 2 months – VOLATILE • Iron ore prices down 36% YTD

7. CLFMI – Annual Meeting Source: Gerdau NA, US Census Bureau & AISI

8. CLFMI – Annual Meeting NAFTA Auto Production Source: Wards Automotive

9. CLFMI – Annual Meeting Construction Activity *Non-building structures (e.g., infrastructure) not included Source: McGraw-Hill (Dodge)

10. CLFMI – Annual Meeting

11. CLFMI – Annual Meeting Energy Production Source: Baker Hughes, U.S. Dept. of Energy

12. CLFMI – Annual Meeting • World Steel Association Global OverviewNAFTA Apparent Steel Use, finished steel (SRO October 2012) • 2011 Actual 1380.9 million tonnes6.2% growth 121.3   9.0%growth 2012 forecast 1409.4 million tonnes2.1% growth130.4   7.5%growth 2013 forecast 1454.9 million tonnes3.2% growth 135.1   3.6% growth 2013 As PCT 2007119.5% growth 95.3% growth

13. CLFMI – Annual Meeting Demand Forecast Source: AISI

14. Imports – 2012 CLFMI – Annual Meeting +52.51% Source: DOC

15. CLFMI – Annual Meeting U.S. Steel Imports YearM-Metric Tons 2010 21.7 2011 25.9 2012(e) 32.0 U.S. steel imports are a growing problem.

16. Changes Impacting Steel CLFMI – Annual Meeting Skilled Jobs Shortages Safety Deeper Recession Foreign Ownership Transportation Costs Consolidations Variable Cost Control Customer Requirements Scrap Exports CHINA Ore Availability Scrap Availability Energy Costs Semi-finished Imports High Unemployment Environmental Regulations Currency Union Contracts Labor Intensity Engineers State-Owned Enterprises Inventory Levels Other Factors…

17. Drivers Impacting Steel CLFMI – Annual Meeting • Underlying Weak Economy, with less than 3% GDP growth and estimates downward. • Recovery underway, but very slow – “Fragile” • North American steel market under pressure with unused capacity • Increased import percentages YOY, Impact of currency changes • Not normal cycle of recession, overcapacity; new supply coming on • Relative strong demand in auto; construction lagging • Raw material costs, energy, and variable cost controls are major drivers • Ore price evolution and recent developments-Platts graph • Scrap price impact, growth of EAFs, developing world slowing down • Economic growth turning point is always two quarters away • Company market cap values at historic lows

18. CLFMI – Annual Meeting Iron Ore Market

19. CLFMI – Annual Meeting Challenges Impacting Steel Scrap Exports Restrictions Role of Developing World Trade Restrictions Another Recession WTO Disputes Import Penetration Health Care Costs Infrastructure Investment Abundant Natural Gas is a “Game Changer” Capital Anti-Competitive Behavior Scrap Price Volatility Tax Manipulation & Reforms Indirect Steel % Labor Regulations China, China, China Gov’t Subsidies SOEs Environmental Regulations Trained Workforce Global Steel Capacity Growth Currency Undervaluation

20. CLFMI – Annual Meeting Final Thoughts • Volatile times continue, May be between recessions • U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Don’t look to Washington, DC for help. Gridlock continues • Uncertainty will continue especially in U.S. industry until economic fundamentals are in equilibrium. Limited visibility… • Other countries increasing steel capacity without regard to market forces or comparative advantage. • Current status of scrap restrictions is unsustainable • Reasons for optimismin steel in North America: • Favorable gains with reemerging manufacturing base • Scrap-based, 75% of cost – local supply • Low cost on global basis (energy is positive, labor less than 10%, others have higher transportation costs) • Relatively strong market and resiliency • Better & stronger company balance sheets