Steel OrbisEconomic and Trade Matters

Thomas A. DanjczekPresidentSteel Manufacturers AssociationSan Diego, CAJuly 9, 2010

• 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

SMASteel Orbis

Where SMA Member EAFs are located…

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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

Set the StageSteel Orbis

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2

4

6

8

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12

14

Mill

ions

of M

T

USA Mexico Canada

North American Steel Production Remains Below Historic Norms

Crude Steel Production

Source: World Steel Association.

After falling to below 50%, NAFTA capacity utilization has recovered to around 70%, but is still well below historic levels

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20

40

60

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120

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160

Average from 2004 to 2007 2010 (est.)

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)

Source: Worldsteel

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.

89

10111213141516171819

Mill

ion

Uni

ts2009 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

Source: Ward’s Automotive.

9 million cars and trucks produced1982

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.

United States

Million MT2009 (e) 2010(f) Change

(%)

Crude Steel Use 65.1 81.8 25.5%

Finished Steel Use 57.4 72.7 26.5%

Exports 8.5 11.3 32.9%

Imports 12.9 13.7 6.2%

Canada

Million MT2009 (e) 2010(f) Change

(%)

Crude Steel Use 10.6 13.1 23.9%

Finished Steel Use 9.5 11.8 23.9%

Exports 4.9 6.4 29.6%

Imports 6.0 7.7 28.3%

Mexico

Million MT2009 (e) 2010 (f) Change

(%)

Crude Steel Use 17.7 22.1 24.5%

Finished Steel Use 13.9 15.5 10.9%

Exports 2.0 2.4 20.0%

Imports 3.2 3.6 12.5%

Source: Worldsteel Economic Studies Committee, April 2010

The Worldsteel Short Range Outlook

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Source: Worldsteel

World Crude Steel Capacity 2000-2012

1,062 1,062 1,0951,170

1,2451,356

1,4531,583

1,8161,917

1,997 2,055

1,654

100

350

600

850

1,100

1,350

1,600

1,850

2,100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(e) 2011(e)

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acity

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nnes

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World Crude Steel Capacity CAGR

2012(e)

Global Steel Capacity Continues to Increase

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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

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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

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Free Trade vs. Protectionism

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?

Is “Protectionism” the enemy of “Free Trade”

1. Taken in part from C. Blum

Steel Orbis-From 2009

Raw Materials

Energy

China

Trade

No

No

No

No

Barriers continue

Lack of policy continuesCurrency manipulation, Subsidies, Not playing by the rules

Distortions continue, Who’s the protectionist

No long term structural policy changes are being proposed in Washington for taxes, trade imbalance, and energy.

Steel Orbis-From 2009

Is Enough Being Done?

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

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