ISRI Ferrous Division Denver July 2015

1. ISRI Ferrous DivisionDenverJuly 2015 Scott Newell Chairman Newell Recycling Equipment LLC

2. Successfully Selling Shredded Steel Scrap There is a Chinese salute given often, which translated means, “May you live in interesting times!”. I do not think that any of us present today would say that life in our industry is boring or easy, but I guess that we might be able to say that it is interesting trying to solve the problems we are facing. We are facing many problems in our industry, such as an over valued USD, in spite of running deficits that would make other failing countries jealous. It seems that people keep the value of the dollar up because America still seems to be the safest place. The results of overpriced USD are lower scrap prices.

3. Then, there seems to be more supply than demand for steel scrap as the American and the world economies continue to struggle with declining rates of GDP. Then, the push against “climate change” is leading to more and more regulations about how our industry and our customer’s industries can operate. This adds to costs without adding tangible value. Then, it is becoming more and more expensive to hire workers in the USA because of government mandated rules and the demotivating effect of generous unemployment and welfare benefits of not working. It is tough to increase productivity.

4. The challenges we are facing are many and unfortunately the things we can do are limited to trying to keep the three legged stool of our business standing straight. • The three legs being buying, processing and selling. • I like the analogy of the 3 legged stool because is makes it simple to think about what is important about our business. • The main emphasis of today is on the 3rd leg but remember each of them are important!

5. Clearly we all must be able to purchase scrap for lower prices, which the market will eventually allow. I do confess that I think that the free market works well, even if it grinds slowly, it eventually puts supply and demand in balance. Then we must process the scrap as efficiently as possible and we must continue to find better ways to recover more value from all scrap processed. When shredding that means using the best available technology, such as computer controls to operate the shredder and to supply management data that will allow constant improvement and finally we need to recover as much value as possible from every ton of material processed.

6. That includes effective separation equipment to capture as much nonferrous metal as possible. That nonferrous metal value is often greater than the straight margin available for the ferrous scrap. New separation equipment that is now available will sometimes capture more than double the older style equipment. It is important to treat the fines and it is important to recover copper values as they are worth so much more per pound than the other nonferrous products such as Zorba.

7. The third leg of the stool is selling and in the scrap processing business the generally accepted thought is that scrap is bought, it is not sold, meaning that the price is set by the buyer without much argument from the producers of the scrap. There are some things that we can do to improve the image and the use of our shredded scrap. The information in this presentation has already been given to steel makers at meetings in Shanghai, China, Moscow, Russia and Istanbul, Turkey and to many scrap sellers in this country. The more that the guys with the responsibility for melting and cost control understand this data, the better reception we will have when we ask for prices that correctly reflect the value that is being supplied.

8. Don’t measure scrap cost going into the furnace!

9. Measure the cost of the molten metal in the ladle to determine “value in use”.

10. “Value in Use” means that the cost for the scrap should not be measured by the cost per ton of scrap going into the furnace but rather by the cost per ton of the molten steel being poured from the furnace. We believe that the value in use of shredded steel scrap produces the lowest cost per ton for the steel being produce. This is the primary marketing tool available to shredded scrap sellers. It seems to be working as steel mills around the world in the free market value shredded scrap above other types of premium scrap.

11. The following Series of Slides were provided by Andreas Albuja, the manager of ADELCA steel mill, located in Quito Ecuador. I think that in another life, Andreas would have been a university professor as he is very capable of collecting and explaining complicated data very clearly. This is the most important real data that I have ever been able to find that accurately explains “Value in Use” for shredded scrap in EAF operations.

12. Meltshop ADELCA`S SUCCESS • I want to present some conclusions regarding the use of shredder scrap as the main source for steel production. THE COMPANY • ADELCA is the most important Ecuadorian Steel maker placed near Quito, Ecuador, South America. • Currently producing 300.000 tpy of rebar and small shapes. Besides, it has a cold drawing plant for 60.000 tpy of all type of wire products. THE MELTSHOP • In 2006, Adelca signed with Sider Engineneering (Udine-Italy) the 160.000 tpy meltshop and started up on July,2008

13. Meltshop • As every new participant, Adelca began operation focused in the figures related with the process, but not in the scrap (60% of total cost) THE ECUADORIAN SCRAP

14. Meltshop NON-FERROUS MATERIAL IN THE SCRAP SOIL, ROCKS AND OTHERS

15. Meltshop ADELCA`S MIX PRESSED&SHEAR AND BUNDLE SCRAP

16. Meltshop SCRAP MIX • Low density. • Dirty scrap.

17. Meltshop OPERATION OUTPUTS

18. Meltshop THE PROJECT • In february,2010 Adelca decided to change the Transformer from 25 MVA to 42 MVA. At this time signed the contract with the Brasilian company WEG . • Then in April, 2010 Adelca signed a contract to buy a 4000HP Newell shredder • We knew with experience using the shredder scrap in the mix bucket had reached up to 40%-50% in the mix charge. • We had a challenge for using up to 80%-90% of shredder scrap in the mix. • In April, 2011 we started up the Transformer and Shredder machine, 3 months later the objetives were reached.

19. Meltshop THE NEW SCRAP MIX • High density. • Clean scrap.

20. Meltshop THE NEW OPERATION

21. Adelca installed a new 4000 HP Newell shredder and at the same time installed a new higher capacity transformer. The higher capacity transformer is seen by Andreas Albuja, the plant manager as being a part of why they can use charges of 85% shredded scrap. • Adelca was able to reduce the tap to tap time from 67.7 minutes to 40 minutes and to increase monthly production from 14,067 tons to 26,497 tons. This made a very significant difference to the amount of profits that the company has been able to create.

22. Adelca calculate that the use of shredded scrap has saved $35 to $40 in direct costs per billet ton of material produced. • In addition to the direct cost savings, Adelca increased monthly tons of production by almost 100%. The effect of this increase of production is a huge increase in the return on investment of money, time and energy. • It is almost like buying a new melting facility to double capacity for no investment cost and saving $40 per ton on melting at the same time.

23. It is my opinion that we all owe a great debt of gratitude to Andreas Albuja the manager of the plant and to Carlos Avalon and his family who own ADELCA for sharing this real information with us. I believe that the free market will continue to be relentless in the drive to force more efficiency into the economy. That means that while the free market works slowly it always works correctly. That gives me confidence to make the following predictions.

24. Steel makers need to make more steel for lower costs. • Scrap processors need to add more value to the scrap provided. • Both of these needs will push the world for more shredded steel scrap and more demand means better prices. • I predict that there will be a higher percentage of the total available ferrous scrap shredded in the future, because the market will reward efficient shredder operators.

25. . • The market is a tough master and it is true that less efficient shredder operators will be punished. • Shredding is much more efficient than previous methods of scrap processing such as torching, shearing or baling. • New modern computer controlled, much stronger shredders, are able to process a much wider range of raw material efficiently. • This means heavier scrap and more contaminated scrap is now being processed than was ever possible in the past.

26. Modern shredder plants have devices to change density of the shredded products with the flip of a hydraulic switch. This allows more types of specialty shredded scrap steel products being produced, such as low copper residual scrap, cooling scrap and simply higher density scrap for use in different applications. • The production of higher density shredded scrap also allows for higher recovery of nonferrous metals. • Higher density shredded scrap increases the efficiency of separation of waste material and reduces downtime due to stop ups or blockages in the conveyor systems.

27. Shredded steel scrap has many advantages over other types of scrap particularly when used in an electric furnace because: • 1) There is a high yield of hot metal as a ratio of input shredded scrap. • 2) The chemistry of the hot metal is more uniform heat after heat. • 3) The good density means there are less back charges in order to reach furnace capacity. • 4) There is less electrode breakage.

28. 5) There is longer furnace lining life. • 6) There is less sulfur in the hot metal. • 7) There is less phosphorus in the hot metal. • 8) There is less electric consumption per ton of hot metal.

29. 9) There is less air pollution. • 10) There are less hot spots in the furnace. • 11) When shredded scrap is mixed with other feed stock the shredded scrap fills the voids providing a more dense mix. • 12) Shredded scrap lends itself to better material handling techniques.

30. I believe that the scrap processing and the steel making industries are really one industry. • I believe that the continuing pressure on our combined industry will result in our learning to be more efficient by reducing costs and by adding value. • We will shred more of the scrap steel used in steel making. • We will shred it more efficiently tougher, smarter machines of both larger and smaller sizes, with the size and investment matched to the local market.

31. All of us will learn to eliminate steps in the process, reducing handling and freight costs. • We will learn how to blend a more value added package of scrap for use in the EAF. • We will learn how to use steel scrap in our furnaces in a more efficient manner. • Reducing costs and adding value will lessen the effect of economic challenges and problems and will prepare us for survival and prosperity.

32. For the best interests of all of us, I hope that the predictions of the recognition of the value of shredded steel scrap plus significant advancements in productivity and profitability are true.

33. Thank you for allowing me to share this information with you. I very much hope that as we educate the “melt Gods” that we will see some benefit to us and to our industry. • If you are interested in a flash drive with this presentation please email to me and we will send one to you or we will make this available to down load to your computer over the Internet. Scott Newell Chairman Newell Recycling Equipment, LLC ScottNewell@NewellEquip.com