Steel Orbis Economic and Trade Matters

1. Steel Orbis Economic and Trade Matters Thomas A. Danjczek President Steel Manufacturers Association San Diego, CA July 9, 2010

2. SMA Steel Orbis • The Steel Manufacturers Association (SMA) • 34 North American companies: 29 U.S., 3 Canadian, and 2 Mexican • Operate 125 steel recycling plants in North America • Electric Arc Furnace (EAF) steelmakers using recycled steel • EAF steel producers accounted for nearly 2/3 of U.S. production in 2009 • SMA represents approximately 90 million of U.S. 120 million ton capacity (75%) • 128 Associate members - Suppliers of goods and services to the steel industry

3. Steel Orbis Where SMA Member EAFs are located…

4. Set the Stage Steel Orbis US Steel Production (All in Million Net Tons)(Numbers are Approximate) PAST –From 1986 through 2008, U.S. steel production has been around 100 m tons – up & down 10% 2009 1st Half 25m (45% utilization) 2nd Half 36m (62% utilization) Now 1.5m/week vs. 2.1m/week Year 63m (Minimills at 63% of production) 2010 (from November 2009) World Steel 78m (up 19% over 2009), optimistic Peter Marcus 68m (Back to 75m in 2012) US Poll 69m (up 10% over 2009) 2010 – Today (Through June 30, 2010) Capacity Utilization (70.4%); or approximately 83 million tons annual rate

5. North American Steel Production Remains Below Historic Norms Crude Steel Production After falling to below 50%,NAFTA capacity utilization has recovered to around 70%,but is still well below historic levels Source: World Steel Association.

6. In 2010, Apparent Steel Use in the NAFTA Region Will Be More than 30 Percent Below Pre-Crisis Levels Apparent Steel Use in NAFTA Region (millions of MT) Even if apparent steel use in the NAFTA region recovers to 107 million MT by 2011, as currently projected by the World Steel Association, it would still only match the 1993 consumption level – and be only 76% of the level in 2007. Source: Worldsteel

7. 2009 Was Only the Second Year Since 1963 in Which North America Produced Fewer than 9 million Cars and Trucks North America Car & Truck Production, 1963-2009 Recent gains in North American car and truck production notwithstanding, it is projected that it will take up to five years to return to pre-crisis ”normal” levels. 9 million cars and trucks produced 1982 Source: Ward’s Automotive.

9. Steel Orbis The Worldsteel Short Range Outlook Source: Worldsteel Economic Studies Committee, April 2010

10. Global Steel Capacity Continues to Increase World Crude Steel Capacity 2000-2012 World Crude Steel Capacity CAGR 2,055 2,100 20 1,997 1,917 1,816 1,850 1,654 1,583 1,600 1,453 15 1,356 1,350 1,245 1,170 1,095 1,062 1,062 1,100 Current Average Growth Rate (CAGR) 10 Steel Capacity (million metric tonnes) 850 600 5 350 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(e) 2011(e) 0 Steel Orbis 2012(e) Source: Worldsteel

11. Steel Orbis Meanwhile, Foreign Government Subsidies to Steel and Steel-Related Industries Remain a Particular Concern… • Foreign government subsidies are a major cause of overcapacity in the global steel industry and steel-related industries • Subsidies to steel and steel-related industries that (1) support inefficient and excess capacity and/or (2) distort trade are continuing, and remain a particular concern • Examples include: • Fundamental currency misalignment/undervalued currencies • Preferential financing to add new capacity • Loan forgiveness/equity infusions to prop up obsolete capacity

12. Steel Orbis Raw Material Export Restrictions are Continuing to Disadvantage NAFTA Steel and Other Manufacturers • Many countries continue to impose a variety of restrictions on exports of vital raw materials • Export prohibitions • Export duties • Export quotas • Other measures • Trade-distorting restrictions on exports of raw materials • Give domestic producers in the exporting country an unfair advantage • Increase worldwide costs of production • Place a heavy burden on steel industries in developing countries that do not have substantial iron ore reserves or steel scrap supplies

13. Steel Orbis-From 2009 Free Trade vs. Protectionism Is “Protectionism” the enemy of “Free Trade” • Protectionism • Predatory Pricing • Trade distorting subsidies • Government Ownership • National power by protecting our industries and state • Piling up currency measures • One way trade • Need “Balanced” Trade over “Mercantilism” • Who’s the Protectionist? 1. Taken in part from C. Blum

14. Steel Orbis-From 2009 Is Enough Being Done? Raw Materials No Barriers continue Lack of policy continues Energy No Currency manipulation, Subsidies, Not playing by the rules No China Distortions continue, Who’s the protectionist Trade No No long term structural policy changes are being proposed in Washington for taxes, trade imbalance, and energy.

15. Steel Orbis What does the US need to do? • Assume a Pro-Manufacturing Agenda • Business Tax Reform • Border Adjustable Taxes • Currency Adjustments • Energy Independence • Reasonable regulatory measures (Environment/Labor) • Climate for investments (Jobs, Jobs, Jobs) and Infrastructure • Solve the structural problems that caused the recession- Real Foundation • Bad loans and securities on bank balance sheets • Reduce huge trade deficits • Policy incrementalism is not sufficient