Steel – A Few Items Impacting U.S. Minimills

1. HBIA 2007 Spring Meeting Steel – A Few Items Impacting U.S. Minimills Thomas A. Danjczek, President Steel Manufacturers Association February 23, 2007

2. In February 2007, The Times they are a’changing… HBIA 2007 Spring Meeting Trade Imbalance Steel Demand Fluctuating Consolidations 59% EAF in U.S. Service Center Inventories Up Energy Costs Freight Costs Democratic Congress World Steel Growth China’s Subsidies China’s Steel Growth Perennial Problems U.S. Government Debt Ore/Coal Costs Operating Costs Benefits & Energy Labor Contracts

3. HBIA 2007 Spring Meeting A Few Facts • Steel prices through August 2006 were at historic high levels • Steel producer mergers continue – top 3 U.S. companies (Mittal, U.S. Steel, Nucor) now approximately 60% • ITC cases not favoring U.S. producers (Wire Rod, Corrosion Resistant, Pipe 421, etc.) • WTO cases also unfavorable (“Zeroing” & “Bratsk”) • Current U.S. Government Prohibitive Subsidies Case • Cost pressures continue (ore up 70% in 2005, 20% in 2006; natural gas in 2005 double 2004, etc.)

4. HBIA 2007 Spring Meeting Steel Production

5. HBIA 2007 Spring Meeting Price Forecasts Forecast Prices Source: AMM Research

6. HBIA 2007 Spring Meeting Imports & Inventory

7. Scrap Demand Source: DJJ, 2/07

8. HBIA 2007 Spring Meeting China Facts • China trade surplus swelled to $177 billion in 2006 – up 74% over 2005 • China trade surplus in 2001 (WTO joining year) was $22 billion • China currency has only changed by 5.9% since July 2005

9. HBIA 2007 Spring Meeting China Facts, cont.

10. HBIA 2007 Spring Meeting China Facts, cont.

11. HBIA 2007 Spring Meeting China Facts, cont. U.S. Trade Balance with China 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (est.) Source: U.S. Census Bureau 2006 Estimate based on data from January to November

12. China Facts, cont. HBIA 2007 Spring Meeting China Has the Most Heavily Subsidized Steel Industry in the World $7.5 billion in debt-to-equity swaps in 2000 State-owned enterprises account for 57 percent of total Chinese production An additional $6 billion in announced subsidies during 2000 Chinese steelmakers regularly obtain preferential loans from state-owned banks 2005 steel policy commits China to further subsidies, micromanagement Manipulation of key raw materials markets, including coke and ferroalloys Inadequate protection of workers’ rights and enforcement of environmental standards Support from local and provincial governments uncontrolled by central government Chinese steel producers enjoy government assistance with energy and other input costs

13. HBIA 2007 Spring Meeting China Facts, cont. Within the Last Year, U.S Producers Have Been Hit with a Flood of Chinese Imports Total U.S. Imports from China U.S. Imports of Critical High-Value Products Source: AISI and IM-145 data

14. HBIA 2007 Spring Meeting Aggressive Policy Measures Are Necessary to Prevent China from Causing a Major Crisis • Enact real China legislation (apply CVD law to China, address currency manipulation, WTO reform) • Strict enforcement of U.S. AD/CVD laws (appearance at HR hearing, letters, Congressional hearings) • Make clear that Congress will not accept any new agreements (Doha, Korea FTA, etc.) with trade law weakening. Current system is broken.

15. HBIA 2007 Spring Meeting Conclusion -Need aggressive policy measures to prevent China from causing a major crisis -It’s still a cyclical business (percent utilization, scrap, inventories, etc.) -Still no Global Subsidies Agreement – massive subsidized growth continues -No trade help from U.S. Government (421, antidumping, countervailing duties, etc.) -When will inventories return to normal levels? -Consolidation will continue -China! China! China! (everything else is only an embellishment) -Unknowns (interest rates, housing starts, economic growth, imports, customer base, pricing???)