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Steel – 2005/2006

National Slag Association 89 th Spring Meeting Clearwater, FL. Steel – 2005/2006. Thomas A. Danjczek, President Steel Manufacturers Association March 20, 2006. NSA – Spring Meeting. Steel – 2005/2006. SMA 2005 • World Steel Production/Operating Rate • China

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Steel – 2005/2006

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  1. National Slag Association 89th Spring Meeting Clearwater, FL Steel – 2005/2006 Thomas A. Danjczek, President Steel Manufacturers Association March 20, 2006

  2. NSA – Spring Meeting Steel – 2005/2006 • SMA • 2005 • • World Steel Production/Operating Rate • • China • • Scrap, Ore, Steel, Gas Prices • • Consolidations • 2006 • • China’s Challenges • • Trade • • Energy & Environment • • Other • IV. Slag Issues • V. Conclusion

  3. NSA – Spring Meeting • The Steel Manufacturers Association (SMA) • 39 North American Companies: • 33 U.S., 3 Canadian, and 3 Mexican • 109 Associate Members: • Suppliers of goods and services to the steel industry • SMA member companies • Operate 120 Steel plants in North America • Employ about 40,000 people • Minimill Electric Arc Furnace (EAF) producers • Produce nearly 100% of structural, wire rod, rebar, minimill plate and hot rolled, and a high percentage of SBQ products • Also represent several integrated steel producers and rerollers

  4. NSA – Spring Meeting • Production capability • SMA represents over two-thirds of U.S. steel production (app. 70%) • Recycling • SMA members are the largest recyclers in the U.S. • Last year, the U.S. recycled over 70 million tons of ferrous scrap • Growth of SMA members • Efficiency and quality due to low cost • Flexible organizations • EAF growth surpassed 53% in 2004, and anticipated to be 60% by 2010

  5. 2005

  6. WORLD CRUDE STEEL OPERATING RATE Operating rates recovered from 76 percent in 2000, to a peak of 87 percent in 2004, and have moved moderately downward since late 2004. World Crude Steel Operating Rate % Source: Metal Strategies

  7. NSA – Spring Meeting China’s Impact After 4 Trips in a Year… Key Questions: - When will Chinese steel production significantly exceed its own domestic consumption – i.e. 50/60 MMT? - Will the Chinese government shut down inefficient, excess capacity? (Has not done so with polluting facilities despite strong policy) - How can North American Steel Industry compete against Chinese government - - - IT CAN’T!

  8. Chart 2: The Exploding Trade Deficit With China

  9. Chart 3: China’s Foreign Exchange Reserves

  10. CONCERNS Steel ItemComment •North American steel industry CANNOT Currency, banks, land, environment, compete against Chinese steel companies consolidations, policies financed and controlled by their government • In 2005, compared to 2004, China steel Trend worsens in 2006 with new imports are projected to drop by 6.1 capacity on line, and China’s million tons, while exports are projected slowdown to increase by 12.3 million tons • North American steel industry loss of a Government de facto subsidies significant increment of its customer (industrial parks, infrastructure, base to relocation to Chinese factory space, loans) production sites

  11. Steel Making Raw Material Prices Prices of key steel making cost inputs have more than doubled in 2004 and 2005. The outlook for 2006 is for continuing cost pressures...

  12. Source: Iron and Steel Statistics Bureau

  13. Rebar Prices, 1990-2005 (Midwest, $ per ton) June 2005 = $470 July 2005 = $450 Aug. 2005 = $435 Sept. 2005 = $485 Oct. 2005 = $494 Nov. 2005 = $486 Dec. 2005 = $481 Source: Purchasing Magazine

  14. Wire Rod Prices, 1990-2005 (Midwest, $ per ton) June 2005 = $505 July 2005 = $472 Aug. 2005 = $469 Sept. 2005 = $523 Oct. 2005 = $492 Nov. 2005 = $503 Dec. 2005 = $503 Source: Purchasing Magazine

  15. Wide-Flange Beam Prices, 1990-2005 (Midwest, 8 x 8, $ per ton) June 2005 = $516 July 2005 = $506 Aug. 2005 = $496 Sept. 2005 = $545 Oct. 2005 = $560 Nov. 2005 = $574 Dec. 2005 = $587 Source: Purchasing Magazine

  16. U.S. Oil and Natural Gas Prices …oil prices are the major uncertainty in the outlook for 2006, with forecasts ranging from thirty-five to seventy-five US$ per bbl…

  17. Natural Gas Cost Impact …sharp gains in natural gas prices have more than doubled steel mill gas costs per ton since 2000. Costs for integrated mills have risen over $30 per ton…

  18. U.S. STEEL INDUSTRY CONSOLIDATION(Percent Change, 2000 compared to 2005) • Mittal Steel weighted average share of all markets • served = ~33% (major product range-15-40%+) • FRP acquisition price ($/ton, going-concern basis) • 2002= $110……..2003-’04=$170……2005=$225 Source: Metal Strategies

  19. 2006

  20. NSA – Spring Meeting 2006 China CHINA’S CHALLENGES AreaComment •EnvironmentTrade policy and laws are not enforced regarding emissions and effluents; Province versus Beijing; employment rules, not environment •ConsolidationsState-owned facilities; only non-controlling foreign ownership allowed; antiquated facilities; policy is 20 large producers, push small producers out •Technology/QualityQuality in flat rolled will affect export capabilities. Switch from long to flat not easy •InventoriesRun full out. Not always market-oriented •CapitalWill not always be free; could lose state credit •PersonnelSome “unrest” expressed toward elite class. Internet is politically uncontrollable

  21. 2006 China China’s Steel Trade Balance Year 2004 2005 2006 Imports 33.1 27.0 22.0   Exports 20.2 32.5 36.0 (Semi’s) 6.2 9.0 5.0 Steel Trade Balance -12.9 +5.5 +14

  22. 2006 China COMPLIANCE WITH THE WTO The National Association of Manufacturers (NAM) recently reviewed China’s compliance with its WTO commitments in the accession protocol. While progress has been made in certain areas, there are serious concerns and problems with effective compliance relating to: 1. Huge U.S. trade imbalance 2. Continued currency manipulation 3. Arbitrary VAT taxes and rebates 4. Massive counterfeiting and piracy 5. Discriminatory standards 6. Inadequate regulatory transparency

  23. 2006 China Chinese steel industry expansion continues in a region that is deficient in resources (supply and quality) and environmental compliance…

  24. 2006 Prices

  25. 2006 Trade • Section 421 Disappointment – No Relief • Wire Rod Case – No Import Injury • Solicit Congressional Assistance & Action - Ryan/Hunter - Graham/Schumer - Other??? • Doha Agenda “only lose?”

  26. 2006 Energy • No National Energy Policy • For EAFs, Demand Response is “Perfect Peaker” • Need for Nuclear • After Metallic Exports, Number One Threat for Competitiveness

  27. 2006 Environment • Mercury “End of Pipeline” Regulation Risk (Area Source Rule vs. Negotiated Settlement) • TOSCA – Not Recognizing Benefits of Recycling i.e. Automotive Scrap, Fluff, & Slag • Trend Toward “Measure – Monitor – Control”, vs. “Under the Bar” Compliance • Continued Risk With Lost Radioactive Sources, TRI Reporting, and GGG

  28. 2006 Other • Metallics Exports Concerns • Transportation Challenges • Congressional “Gridlock” • TEA 21 $$$ - Finally • U.S. Government Financial Policies (Trade & Budget Deficit) • Need for Border Adjustable Tax

  29. NSA – Spring Meeting SLAG ISSUES Two Primary Issues: • Revision of the Slag Risk Assessment • Regulatory Status of Slag as a Product

  30. NSA – Spring Meeting SLAG RISK ASSESSMENT PROJECT • Conducted by Steel Slag Coalition • Anticipate completion, Spring 2006 • Updated to reflect current toxicological data, standards, and risk methodology • Work completed, now doing human health portion • Ecological report will be valuable in responding to potential impact on the environment

  31. NSA – Spring Meeting REGULATORY STATUS OF SLAG • SMA is engaged with EPA and various state agencies that EAF SLAG IS NOT A WASTE MATERIAL, BUT IS A USEFUL PRODUCT • Regulations in Iowa are attempting to classify EAF slag as a waste under “beneficial reuse” regulations • SMA is coordinating a federal effort to prompt the EPA to clarify the status of EAF slag under federal solid waste regulations

  32. NSA – Spring Meeting Conclusions • Hell, it’s still a cyclical business • We need to continue to work together on slag issues • Fundamental shift in both demand and supply due to China & its appetite for raw materials – China is still the “wild card”. Risk near term is auto’s; long term is China • Consolidations and discipline have had an impact to reduce volatility • Role of inventories affecting pricing and production • Demand still healthy, construction solid • Unknowns (Oil, interest rates, auto sector, energy, freight rates, federal spending, China, China, China) • Still reasons for meaningful optimism

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