North American Steel Industry:Recent Market Developments and

Key Challenges Going ForwardOECD Steel Committee

May 6-7, 2010 Paris, France

*American Iron and Steel Institute (AISI)Steel Manufacturers Association (SMA)

Specialty Steel Industry of North America (SSINA)Canadian Steel Producers Association (CSPA)

Mexican Steel Producers Association (CANACERO)

2

Presentation Summary

I. NAFTA Economic Conditions and Outlook

II. NAFTA Steel Market Conditions and Outlook

III. Major NAFTA Industry Concerns Going Forward

3

I. NAFTA Economic Conditions and Outlook

4

The NAFTA Economies: A Hesitant Recovery

• In 2008 and 2009, the NAFTA economies experienced the deepest recession since the Great Depression

• It appears that the NAFTA economies are now beginning to grow, but at a modest rate

• GDP and employment are still well below their pre-recession levels

• A number of factors could slow or even reverse growth in all three countries

5

The NAFTA Region Is Starting to Recover from An Unusually Deep Recession

Source: OECD

NAFTA GDP By Quarter, 2007 - 2009(Seasonally Adjusted Annual Rates)

13.2

13.3

13.4

13.5

13.6

13.7

13.8

13.9

14.0

14.1

14.2

Q1-2007 Q2-2007 Q3-2007 Q4-2007 Q1-2008 Q2-2008 Q3-2008 Q4-2008 Q1-2009 Q2-2009 Q3-2009 Q4-2009

Trill

ions

of U

.S. D

olla

rs

66Sources: Bureau of Economic Analysis (US) ,CSSPA, Canacero

United States• GDP recovery has begun, but 4Q09 growth was inventory-driven, and 2010-11 will average 3% at best.• Slow, extended recovery is underway, but unemployment is at 26-year high and will be slow to decline.• Credit remains constrained. Capital construction continues to drag. Equipment and machinery positive.• Housing is improving from abysmal levels while automotive has shown some improvement.

Canada• Economic recovery has clearly begun, but pace is expected to slow down in 2H10.• Government and consumer spending will lead 2010, but unemployment remains a concern at 8%.• Non-res construction and machinery remain weak and will decline in 2H10 as stimulus effect slows.• Canadian dollar has strengthened significantly in past year, creating competitiveness challenges.

Mexico• Emerging recovery driven by manufacturing exports.• Outlook somewhat improved on gains in industrial production, exports, investment.• Recession-induced low trade gap in 2009 is rising again. • Uncertainties (including higher taxes, inflationary pressure, weak consumer credit) limit GDP recovery.

Economic Analysis & Trends

7

Easier

Tighter

Canada: Economic Conditions Moderating

Canada: Manufacturing Inventories Through February 2010 Canada: Manufacturing Sales Through February 2010

Sources: Bank of Canada, Richard Ivey School of Business, Statistics Canada

20

30

40

50

60

70

80

90

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

Ivey Purchasing Managers IndexSince January 2007

Expanding

Contracting

-40

-20

0

20

40

60

80

1999

:Q2

1999

:Q4

2000

:Q2

2000

:Q4

2001

:Q2

2001

:Q4

2002

:Q2

2002

:Q4

2003

:Q2

2003

:Q4

2004

:Q2

2004

:Q4

2005

:Q2

2005

:Q4

2006

:Q2

2006

:Q4

2007

:Q2

2007

:Q4

2008

:Q2

2008

:Q4

2009

:Q2

2009

:Q4

Bank of Canada Senior Loan Officer Survey: Q1 2010

8

Mexico: Recovery Driven by Industrial Production

Mexico: Gross Domestic Product, 2005 - 2009(Annual rate of growth - %)

Mexico: Gross Domestic Product, Quarterly, 2008 - 2009(Annual rate of growth - %)

Mexico: Industrial Production, Monthly, 2009 - 2010(Annual rate of growth - %)

Mexico has started to emerge from an historical crisis.

Industrial production (IP) has started to grow after 21 consecutive months of negative growth.

IP has now seen positive growth rates for 3 straight months.

Source: INEGI

9

Mexico: Manufactured Exports Key to Recovery

Mexico: Exports, 2005 - 2009(Annual rate of growth - %)

For nearly a year, exports had negative growth rates. Now, they are growing at + 29 %

Manufactured exports: + 25 %

Non-automotive exports: + 12 % and represent 75 % of total

Automotive exports: +84 % and represent 25 % of total

Exports to the US account for 80% of total

But exports to the US are still below 2008 peak levels.

Source: INEGI

TOTAL

MANUFACTUREDNON - OIL

OIL

10

Mexico: Investment and Employment Still Lagging Behind

Mexico: Investment, 2006 – 2010 (February)(Index: 2003 = 100)

In annual real terms, investment in January was still registering negative growth: - 4.8 %

Machinery and equipment: -9.4%

Construction: ‑1.9 %

Capital good imports: - 9.9 %

Machinery & Equipment Construction

Employment in Manufacturing Sector, 2006 – 2010 (Ene)Index 2003 = 100

Source: INEGI

11

II. NAFTA Steel Market Conditions and Outlook

12

The NAFTA Steel Industry: An Equally Hesitant Recovery

• The NAFTA steel industry experienced a sharp drop in production in 2009 as a result of the “Great Recession”

• Production has begun to grow again, but capacity utilization is still well below historic levels

• Weakness in construction (especially non-residential) and other end-use sectors could limit the recovery

• Import market share remains significant, in the context of substantial unused capacity in the NAFTA steel industry

13

0

100

200

300

400

500

600

Jan-07

Mar

-07

May

-07Ju

l-07

Sep-07

Nov-07

Jan-08

Mar

-08

May

-08Ju

l-08

Sep-08

Nov-08

Jan-09

Mar

-09

May

-09Ju

l-09

Sep-09

Nov-09

Jan-10

Mar

-10

Stock Prices for American Steel Producers Continue to Show the Effects of the Economic Crisis

Closing Price of Dow Jones U.S. Iron and Steel Index, Jan. 2007-March 2010

Source: Google Finance.

14

0

2

4

6

8

10

12

14

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Mill

ion M

etric

Tons

USA Mexico Canada

North American Steel Production Remains Far Below Historic Norms

Monthly Crude Steel Production

Source: Worldsteel

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

15

89

10111213141516171819

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Mill

ion

Units

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

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.

16

0

50

100

150

200

250

300

350

400

450

500

Q1 200

4

Q2 200

4

Q3 200

4

Q4 200

4

Q1 200

5

Q2 200

5

Q3 200

5

Q4 200

5

Q1 200

6

Q2 200

6

Q3 200

6

Q4 200

6

Q1 200

7

Q2 200

7

Q3 200

7

Q4 200

7

Q1 200

8

Q2 200

8

Q3 200

8

Q4 200

8

Q1 200

9

Q2 200

9

Q3 200

9

Q4 200

9

'000

Sta

rts

The U.S. Construction Market Remains Weak

U.S. Single-Family Housing Starts, Q1 2004 through Q4 2009

Source: U.S. Census Bureau.

•Foreclosures remain a problem for both residential and non-residential construction.

•While residential construction is projected to increase, it is not expected to regain its 2008 level until 2013.

•The value of non-residential construction put in place fell by 9% from 2008 to 2009, and is projected to continue falling through 2011.

17

MSCI Average Daily Shipments & InventoryFor United States and Canada

Metric Tonnes (000)

100

150

200

250

300

350

400

2006JAN

APR JUL OCT 2007JAN

APR JUL OCT 2008JAN

APR JUL OCT 2009JAN

APR JUL OCT 2010JAN

Dai

ly S

hipp

ing

Rat

e

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Inve

ntor

y

Daily Shipping Rate Inventory

Source: Metals Service Center Institute

NAFTA Service Center Inventories Remain at Their Lowest Levels in Many Years, but Reduced Demand is Keeping Restocking from Taking Place

•Service center demand has begun to rise, but is still well below previous levels.

• Daily shipments have returned to the levels of late-2008, but remain far below peak 2008 levels.

• Inventories are less than 65% of their historical averages.

18Source: AISI, World Steel Association

NAFTA Import Market Share Has Remained Significant Despite Substantial Available Capacity in North America

NAFTA Demand and External Imports

0.0

5,000.0

10,000.0

15,000.0

20,000.0

25,000.0

30,000.0

35,000.0

40,000.0

45,000.0

1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009

Tho

usan

d T

ons

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

External ImportsApparent DemandImport Market Share

•NAFTA steel demand and domestic shipments have fallen by 34% and 29%, respectively, since peak levels in mid-2008.

•Non-NAFTA import market share actually increased in 4Q ‘09.

•NAFTA steel producers have more than adequate net capacity to meet home market demand in 2010.

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(Million MT) 2004 2005 2006 2007 2008 2009 e 2010 f

Finished Steel 149.0 138.3 155.7 141.2 129.7 80.9 99.9

Apparent Steel Use (ASU)

Survey of the Short Range OutlookSpring 2010 NAFTA Region

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%

From 2004 to 2007 (the last four full years before the economic crisis began), apparent steel use in the NAFTA region averaged 146 million MT/year. This year’s forecast of 100 million MT is 32 percent below that average.

Source: Worldsteel Economic Studies Committee

The Worldsteel Short Range Outlook Shows that, Despite an Improvement from 2009 to 2010, Market Conditions Remain Poor

20

0

20

40

60

80

100

120

140

160

Average from 2004 to 2007 2010 (est.)

In 2010, Apparent Steel Use in the NAFTA Region Will Remain 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.

21

III. Major NAFTA Industry Concerns Going Forward

22

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1Q2005

2Q2005

3Q2005

4Q2005

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

3Q2008

4Q2008

1Q2009

2Q2009

3Q2009

4Q2009

Mill

ions

of M

T

Global Apparent Steel Consumption (Annualized)

Source: World Steel Dynamics

Global Steel Consumption Has OnlyBegun to Recover

23

World Steel Capacity Continues to Grow, Even Though the Economic CrisisDelayed Some Projects Scheduled for 2009-12

Source: Worldsteel

… While Global Steel Capacity Continues to Increase

2012(e)

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

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(e) 2011(e) 2012(e)

Stee

l Cap

acity

(mill

ion

met

ric to

nnes

)

World Crude Steel Capacity

24

300

350

400

450

500

550

Q1 200

8

Q2 200

8

Q3 200

8

Q4 200

8

Q1 200

9

Q2 200

9

Q3 200

9

Q4 200

9

Q1 201

0(e)

Q2 201

0(e)

Q3 201

0(e)

Q4 201

0(e)

Q1 201

1(e)

Q2 201

1(e)

Q3 201

1(e)

Q4 201

1(e)

Q1 201

2(e)

Q2 201

2(e)

Q3 201

2(e)

Q4 201

2(e)

In Advanced Economies, Apparent Steel Consumption Is Not Forecast to Return to Q2 2008 Levels at Least Through 2012

Advanced Countries’ Apparent Steel Consumption on an Annualized Basis (in millions of MT)

Source: World Steel Dynamics, “Inside Track # 104” (March 29, 2010) at 12.

Q2 2008: 503 million MT/year

25

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

26

… And 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

27Source: U.S. Census Bureau.

U.S. Manufacturing Trade Balance with Non-NAFTA Countries

-$700

-$600

-$500

-$400

-$300

-$200

-$100

$02000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Trad

e D

efic

it (B

illio

ns o

f Dol

lars

)

China Non-NAFTA Other Than China

27% 29% 31% 33% 36% 39% 42% 49% 54% 66%•Manufacturing trade balance trends parallel indirect steel trade balance trends.

•NAFTA steel strongly supports a rebalancing of global structural imbalances (with a significant increase in NAFTA exports of manufactured goods).

•These huge, unsustainable trade imbalances have caused millions of manufacturing job losses in the North America, and contributed to the recent world economic crisis.

28

The NAFTA Share of World Exports of Manufactured Goods Has Declined Sharply

4

6

8

10

12

14

01 02 03 04 05 06 07 08 09 10

Shares of World Exports of Manufactured Goods

USA

China

Germany

Perc

ent o

f Wor

ld M

anuf

actu

red

Goo

ds E

xpor

ts

Sosurce: Global Trade Inf ormation Sy stem, SITC 5-9

Data for 2009 and 2010 are not available yet, but preliminary indications are that the negative trend for NAFTA that we experienced in 2001-2008 is continuing.

29

• Overall steel demand conditions have improved somewhat from 2009, but demand remains far below pre-crisis levels, and some experts believe it could remain poor for years to come

• Global steel consumption is growing again, but so is world excess capacity

• NAFTA producers are in no position to deal with significant volumes of dumped and subsidized imports

• Trade-distorting government market interventions (to maintain undervalued currencies, subsidize steel and steel-related capacity and limit vital raw material exports) are continuing

• Manufacturing is critical to the NAFTA steel industry and our economies – and manufacturing in North America requires urgent policy attention.

Major NAFTA Industry Concerns Going Forward

30

Key Policy Messages for Steel Committee

With the recovery still fragile throughout the developed world, the NAFTA steel industry has the following key policy messages for the proposed 2011-12 Steel Committee budget and work program:

• We remain especially concerned about subsidies that contribute to excess and

inefficient capacity and/or distort trade, and believe the issue of government supports for steel should stay a part of any future Steel Committee work program.

• Two other trade-distorting practices that we would like to see remain on the Committee agenda are (1) enhanced work with the OECD Trade Committee on approaches to trade restrictions on raw materials and (2) differential or discriminatory fiscal policies.

• We believe it could be useful for the Committee to continue to analyze steel and technology and the steel trade dimensions of steel and the environment.

• Because of their importance to the global economy and the world steel industry, we would also support putting additional focus on analysis of developments in the “BRIC” countries.