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

1. CANACERO: Global Economic Environment Competitiveness and Challenges Changes, Drivers, and Challenges in the North American Steel Industry Thomas A. Danjczek President Steel Manufacturers Association September 26, 2012 Cancun, Mexico

2. CANACERO - 2012 Outline • About the SMA • Set the Tone - Economy • Set the Tone - Steel • Changes Impacting Steel • Drivers Impacting Steel • Challenges Impacting Steel • Final Thoughts

3. CANACERO - 2012 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 CANACERO - 2012 • 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 • ARE WE LOSING MOMENTUM? • U.S. Auto, Aerospace, Machinery Strong • WILL IT CONTINUE? MAY BE DROPPING… • U.S. $ Stronger Lately • Second Recession in U.S.???

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

6. CANACERO - 2012 Set the Tone - Steel • Primary metal 6% growth YTD 2012 over 2011 in US • U.S. capacity utilization approx. 77.5% through August 2012 • Up 6.4% over 2011, but…Recent weeks around 75% • Scrap price volatility (75% of minimill costs) • $100/150 drop in 45 days – half back; maybe $20 down in September • Recent labor contracts • 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 (incl. 23% in August 2012)

7. CANACERO - 2012 Source: Gerdau NA, US Census Bureau & AISI

8. Changes Impacting Steel CANACERO - 2012 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…

9. Drivers Impacting Steel CANACERO - 2012 • 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

10. CANACERO - 2012 Iron Ore Market

11. CANACERO - 2012 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

12. CANACERO - 2012 NASTC Cooperation North American Steel Trade Committee NAFTA Governments & Industry – meet 2X Year (18 times) Associations: AISI, CPTI, CSPA, CANACERO, SSINA and SMA • Cooperation & education on steel issues • Customs training & seminars, fraud, circumvention • Border efficiencies • Trade data monitoring • NAFTA competitiveness issues (energy; infrastructure; workforce; regulations; etc.) • Issues outside NAFTA (China; OECD; WTO; TPP…)

13. CANACERO - 2012 NASTC Cooperation NASTC Future Priority Topics • Key developments in NAFTA and global steel market conditions and in the trade of raw materials and steel mill products; • A continental perspective on energy development and NAFTA region energy independence; • Existing and potential NAFTA region synergies to promote our region’s competitiveness; • Customs’ further integration into the work of the NASTC; collaborative efforts to address trade-distorting customs fraud; • A Trans-Pacific Partnership update focused on trade remedies; • State-owned enterprises; • China trade issues, including “China 2016”; and • Coordination of OECD efforts, focused on the December 2012 Steel Committee meeting.

14. CANACERO - 2012 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 • Cooperation within NAFTA is critically important • 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