The U.S. Steel Industry Where We Have Been and

Where We Are Going

Keith BussePresident and CEO

Steel Dynamics, Inc.

National Association of Pipe Distributors

Las Vegas, February 26, 2005

The U.S. Steel Industry

• Historical Perspective: 1950-2000• Global Perspective• The 1990s• The Recent Past: 2000-2004• The Future

– 2005– Longer term

Domestic Steel Production by Type of Steel

Structural 6%

Plate 8%

Rebar 7%

Other Bar

10%

Pipe 5%

Hot Rolled 21%

Cold Rolled14%

Coated Sheet

19%

Rod & Wire 4%

Other 5%

Semi-finished1%

Flat-rolled sheet54%

Source: American Iron and Steel Institute

• High concentration of large, integrated producers, but many regional and specialty players emerged

• Very little growth in domestic steel production over the period

• Domination by large integrated producers finally gave way to EAF-based mini-mills

• Periods of intense competition from offshore

1950 through 2000

Large integrated producers dominated through the 1970s

• U.S. Steel• Bethlehem Steel• National Steel• LTV • Wheeling-Pittsburgh Steel

0

20

40

60

80

100

120

140

160

1950 1960 1970 1980 1990 2000

peak about 150 million tons

110 million tons

Source: American Iron and Steel Institute

Very little growth in domestic steel production…

Domestic Steel Production, 1950-2000

0

20

40

60

80

100

120

140

160

1950 1960 1970 1980 1990 2000

Open Hearth

Electric

Total U.S Production

Basic Oxygen

Millions of Tons

Source: American Iron and Steel Institute

Domestic Steel Production by Furnace Type

Changes in steel production technology …

0

10

20

30

40

50

60

70

80

90

100

1950 1960 1970 1980 1990 2000

Percent of U.S. Steel Production

Electric

Integrated

50%

Source: American Iron and Steel Institute

Electric-arc furnace production gained parity…

Integrated and EAF Production

From 1980 to 2000, the new EAF producers gained substantially

• Nucor• Birmingham Steel• Commercial Metals• Ipsco• Steel Dynamics• Gerdau Ameristeel

… and the U.S. began to see intense competition from offshore

Global Perspective, 1950-1980s

• Post WW II, U.S. steel industry was strong, but complacent.

• Japan and Germany rebuilt.

• The U.S. became an attractive steel market.

• Around the world, governments invested in national steel companies.

• Imported steel became a big issue in the U.S.

Global Perspective, 1980-2000

• Japan and Western Europe became more industrialized, like the U.S.

• The U.S. became a very attractive market to an increasing number of the world’s steel producers.

• Imported steel became a bigger issue in the U.S.

• Nationalized steel companies did not work out– governments started privatizing them. (Examples: Great Britain, USSR, Eastern Europe, India– China is the exception, but moving strongly to privatize)

In the 1990s

• Global factors and past management “sins” converged on the U.S. steel industry.

• U.S. producers were dramatically affected by currency manipulation.

• The U.S. became the world’s steel “dumping ground.”

U.S. Annual Apparent Steel Supply

-20

0

20

40

60

80

100

120

140

160

Exports

Imports

Apparent “Consumption”

U.S. DomesticShipments

1990 20001995 20041986

Millions of Tons

(Use of steel in the U.S.)

1998: Peak Importsof 40+ million tons

Source: American Iron and Steel Institute

Domestic Steel Production 1950-2000

0

20

40

60

80

100

120

140

160

1950 1960 1970 1980 1990 2000

peak about 150 million tons

1990s

100 million tons

Source: American Iron and Steel Institute

Millions of Tons

During the 1990s U.S. integrated steel producers fell on hard times

• They had not adapted well to lower-cost technologies.

• They carried extremely high employee obligations

• They required strong steel prices to stay afloat

• They were increasingly vulnerable to economic downturn

Leading into 2000…

Recession causes decline in domestic demand for steel

0

20

40

60

80

100

120

140

160

1990 2000-20011995 20041986

Millions of Tons

Source: American Iron and Steel Institute

2000-2001 recession hits steel markets…

Apparent “Consumption”

Percent

50%

60%

70%

80%

90%

100%

2000 2001 20032002 2004

Source: American Iron and Steel Institute

U.S. Raw Steel Capacity Utilization

Capacity utilization sinks…

Source: Purchasing Magazine

$200

$300

$400

$500

$600

$700

$800Dollars per Ton

1980 1988 1994 2000 2001

$450

$390

$225

Hot-rolled Sheet Selling Price

Steel prices drop to a 20-year low…

More than 35 steel companies filed for bankruptcy from 1998 to 2002

• Bethlehem Steel• National Steel• LTV • Wheeling-Pittsburgh Steel• Geneva• Gulf States• Northwestern Wire and Steel• Birmingham Steel• Republic Technologies• GS Industries• Acme Metals• Trico

• Qualitech Steel

• J&L Structural Steel

• Laclede Steel

• Erie Forge & Steel

• CSC Ltd.

• Freedom Forge Corp.

• Sheffield Steel

• Calumet Steel

• Edgewater Steel Ltd.

• Galvpro

• Metals USA

• Action Steel … and others

Steel prices recover in 2002 under supply constraints

• Prices recover sharply from their 2001 lows, improving the health of remaining steelmakers.

• Some mills are shut down permanently, but capacity utilization rebounds in the second half.

– International Steel Group, begins restarting idled LTV mills.

– Nucor buys and restarts Trico.

• With the return of capacity, prices moderate by year-end 2002

• Most integrated mills continue to lose money.

Hot-rolled sheet selling price climbs

Source: Purchasing Magazine

$200

$300

$400

$500

$600

$700

$800

Dollars per Ton

1980 1988 1994 2000 2004

$400

2002

2003 presents new challenges

• The U.S. economy begins to rebound, but pace of steel demand is slow.

• With some shut-down mills coming back on line, industry capacity recovers and capacity utilization falls.

• In the second half, signs of raw material shortages appear, causing steel scrap prices to rise at a rapid rate.

• Steel producers bump up selling prices to recover increased costs.

• Most integrated steel companies continue to lose money.

In 2004 the steel markets “Kick it up a notch”

• Steel scrap costs (and now coke and iron ore costs) accelerate to historical highs.

• Due to historically high input costs, steelmakers institute raw-materials surcharges.

• Inflation-adjusted steel prices reach historical highs.

Steel Scrap Pricing

Source: Purchasing Magazine

Dollars per Ton

2004

2003

$100

$200

$300

$400

$500

1980 1988 1994 2000

Auto-Bundles

No. 1 Heavy Melt

$450/ton$250/ton

2004

2004: Scrap costs reach historical highs

Hot-Rolled Sheet Selling Price

Source: Purchasing Magazine

$200

$300

$400

$500

$600

$700

$800Dollars per Ton

1980 1988 1994 2000 2004

$450

$390

$400

$760/ton 2004

Steel prices reach historical highs

Percent

50%

60%

70%

80%

90%

100%

2000 2001 20032002 2004

Source: American Iron and Steel Institute

Steel mills again run near full capacity

U.S. Raw Steel Capacity Utilization

Reflections on the 2004 Steel Market

• Mini-mills vs. integrated steelmakers– Who’s winning?

• Concerns about higher steel prices

• As a result of consolidation, the health of the U.S. steel industry vastly improved

• Is it sustainable?

“Where do we go from here?” – 2005

• Raw materials costs, while lower than 2004 peak levels, will not likely fall back to previous levels.

• Selling prices likewise are not expected to fall precipitously.

• The “steel short” supply-demand imbalance is likely to recur in much of 2005, assuming steel demand stays firm and imports continue at a moderate pace.

Source: US Census Bureau, graphic courtesy of Goldman Sachs Global Investment Research

Imports surged in 2004, but are now slowing

2,924

1,500

2,000

2,500

3,000

3,500

4,000

4,500

96 97 98 99 00 01 02 03 04

Average = 2,747 tons

Monthly Steel Imports(thousands of tons)

2004

“Where do we go from here?” – 2005

• Moderately strong world steel demand and higher global steel prices, a weak dollar, high ocean freight rates– all act as a disincentive for excessive imports.

• Continued economic expansion suggests demand will remain strong and possibly improve in some steel markets.

• Another good year is likely for steel companies.

“Where do we go from here?” – Beyond

• Consolidation of the U.S. steel industry has been good for the industry, and may continue.

– It has closed down antiquated production capacity, improving the cost competitiveness of the industry.

– It has resulted in better workplace practices and better union agreements for the unionized companies.

– By eliminating weak companies, it has increased steel-company managements’ focus on profitability.

(continued)

“Where do we go from here?” – Beyond

• Our competitiveness globally is essential to keeping our domestic industry strong

– We CAN BE the lowest cost steel producers in the world.

– U.S. competitiveness will depend on currencies, with a weaker dollar helping the steel industry

– China will continue to be the 800-pound gorilla, in terms of its market size, its growing steel industry, and how it deals with its currency valuation.

Source: II&SI, graphic courtesy of Goldman Sachs Global Investment Research

China’s steel production has surged

6

11

16

21

26

31

1994 1996 1998 2000 2002 2004

EU(150 Mt/yr)

US(85 Mt/yr)

Monthly Production(millions of metric tons) China

(300 Mt/yr)

Japan(120 Mt/yr)

“Where do we go from here?” – Beyond

• Overall, we are optimistic about the U.S. steel industry over the next ten years.

– Demand for steel in the U.S. will remain strong, with some cyclical variability.

– Domestic supply will grow slowly as “new steel management” is more cautious than in the past about adding capacity.

– U.S. likely will continue to require imports of 25-30% to meet demand.

– Excessive imports remain a risk, but can be dealt with.

The U.S. Steel Industry Where We Have Been and

Where We Are Going

Keith BussePresident and CEO

Steel Dynamics, Inc.

National Association of Pipe Distributors

Las Vegas, February 26, 2005