INSTITUTE FOR SUPPLY MANAGEMENT STEEL FORUM MANAGEMENT STEEL FORUM MAY 5, 2009

John Packard – Steel Market Update

Who is John Packard?

Why is he here?

What’s in it for me?

You know what? I think I’ll go into the steel

businessbusiness

WHO IS JOHN PACKARD?And what happened to his hair…?

Rolled Steel (1977)(1977)

Innovative Steel (1980)

Novosteel / PN Ent Steel (1980)(2003)

P tt Wi St l Pacesetter (1982)

Winner Steel (1997)

Duferco / Sterling Pacesetter Sterling (1991)(1994)

Unique Backgroundq g

1. Rolled Steel Corporation 1. Hands-on product –

2. Innovative Steel

secondary sales – prime exposure.

2. Creative processing –

3. Pacesetter SteelHVAC – purchasing.

3. Prime sales - service center, HVAC & OEM.

4. Duferco / Sterling

5 Winner Steel & Trading

,4. Management, mill

purchasing.5 Direct Mill foreign 5. Winner Steel & Trading 5. Direct Mill, foreign

exposure, international travel, business owner.

August 2008

STEEL MARKET UPDATE www steelmarketupdate comSTEEL MARKET UPDATE www.steelmarketupdate.com

Welcome John Packard Volume 4, #52

Monday, May 4, 2009IN THIS ISSUE:

ArcelorMittal Warns of Need to Shutter Capacity in U.S. MarketISM Index Improves to 40.1Inventory Write-Downs Hurt California Steel & Olympic SteelMarch Raw Steel ProductionQuick Note on China MarketU.S. Auto Sales Worse than ExpectedChrysler Bankruptcy FactsNYMEX Hot Rolled Futures ContractsWhat to Watch this WeekFinal Thoughts

WHY AM I HERE?Student of the steel business

AISI Mill Shipments by end userAISI Mill Shipments by end user

Service Centers/Processors

Construction

Automotive28.7%

29%

Energy

Containers

15.4%

12 6%3%

Exports

12.6%3%

2.1%9.2%

Other

Other includes non-classified shipments, rail, mining, agricultural, military

Flat Rolled Steel Market

1 Construction is 45% of total flat rolled steel 1. Construction is 45% of total flat rolled steel market. This includes residential which represents only 5% of the steel used in the construction sector.y

2. Automotive is 15-20% of the flat rolled market with NAFTA producing 14.8+ units/year.p g /y

3. Pipe & Tube is 15% of the flat rolled market 4. All other = 20% of the remaining market4. All other 20% of the remaining market

Mill Shipment Reality

25%Service CentersToll ProcessorsDirect to OEM's65%

25%

10%

“MAY YOU LIVE IN INTERESTING TIMES”

Chinese Curse

Demand Destruction = Missing Pieces of the P leof the Puzzle

We haven’t accepted the changes to the market and market and we look to the past for help…

US Housing Starts Seasonally Adjusted Annual Rate Source: US Census

2,500

2005 6

2,000

2,068,000

1,500

000

units

1 000

0

1,000

2009 New Starts 550M?2008 904,000

5002000 2001 2002 2003 2004 2005 2006 2007 2008

N. American Auto Production since 2000

1,800,000

2,000,000

1,200,000

1,400,000

1,600,000

800,000

1,000,000

200,000

400,000

600,000

0

1/20

003/

2000

5/20

007/

2000

9/20

0011

/200

01/

2001

3/20

015/

2001

7/20

019/

2001

11/2

001

1/20

023/

2002

5/20

027/

2002

9/20

0211

/200

21/

2003

3/20

035/

2003

7/20

039/

2003

11/2

003

1/20

043/

2004

5/20

047/

2004

9/20

0411

/200

41/

2005

3/20

055/

2005

7/20

059/

2005

11/2

005

1/20

063/

2006

5/20

067/

2006

9/20

0611

/200

61/

2007

3/20

075/

2007

7/20

079/

2007

11/2

007

1/20

083/

2008

5/20

087/

2008

9/20

0811

/200

81/

2009

Source: Ward AutoiInfoBank

N. American Auto Production 2008-2009January 2008 =

1 200 000

1,400,000

1,168,267

800 000

1,000,000

1,200,000

600,000

800,000

200,000

400,000

January 2009 = 435,731

0

Source: Ward AutoiInfoBank

Architects Billings Index2000-2009 Source: American Insititute for Architects

70.0

2000 2009

50.0

60.0

30.0

40.0

Axi

s Ti

tle

Billings

Inquiries

20.0

Inquiries

2009 Commercial construction to

decline by 8-15%

0.0

10.0

00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09

decline by 8 15%

Mar

-0

Jun-

0Se

p-0

Dec

-0M

ar-0

Jun-

0Se

p-0

Dec

-0

Mar

-0Ju

n-0

Sep-

0D

ec-0

Mar

-0Ju

n-0

Sep-

0D

ec-0

Mar

-0Ju

n-0

Sep-

0

Dec

-0M

ar-0

Jun-

0Se

p-0

Dec

-0M

ar-0

Jun-

0Se

p-0

Dec

-0M

ar-0

Jun-

0

Sep-

0D

ec-0

Mar

-0Ju

n-0

Sep-

0D

ec-0

Mar

-0

Carbon - Flat RolledActual Shipments

2007 2009

3000

3500

2007-2009 Source: Metals Serviice Center Institute

2500

3000

1500

2000

ousa

nd o

f to

ns

211,800 tons per day

1000

1500

Tho

69,500 tons

500a day

0

Carbon- Flat RolledInventory (EOM)

2007 2009

7000

8000

2007-2009Source: Metals Service Center Institute

6000

4000

5000

ousa

nd o

f To

ns

228 900

2000

3000

Tho 4,228,900

tons

1000

0

IN RESPONSE U S MILLS ARE IN RESPONSE - U.S. MILLS ARE TAKING OUT CAPACITY

Whether they want to or not…

North American Blast Furnaces

Running (13) ?

AK Steel Ashland 1

AK Steel Middletown 0

ArcelorMittal Dofasco 2

ArcelorMittal Burns Harbor 1

ArcelorMittal Cleveland 0

ArcelorMittal Indiana Harbor E 1

ArcelorMittal Indiana Harbor W 0

Essar Algoma 1Essar  Algoma 1

Severstal Dearborn 1

Severstal Sparrows Point 1

Severstal Warren 0

US Steel Fairfield 1

US Steel Gary 2 1

US Steel Granite City 0

US Steel Great Lakes 0

US Steel Hamilton 0

US Steel Lake Erie* 0

US Steel Mon Valley 2

EAF’s running under 50%g

Running at low 40%

SDI & Nucor projecting i d l continued low rates

C h t & ff Can shut on & off

EAF’s running EAF s running intermittently with reduced work weeks

ArcelorMittal Operating Levels

East Chicago West 30%

ArcelorMittal Operating Levels

East Chicago East 30%

Burns Harbor 35%

Cleveland 0%

Riverdale 18%

Coatesville 75%

Steelton 80%

Conshohocken 35%

Weirton 90%

Georgetown 0%

Source: USW

WHAT GETS LOST IS PRICE WHAT GETS LOST IS PRICE DISCIPLINE…Can the U.S. mills turn back the tide?

Cold Rolled Pricing 2000 2009

1100

1200

1300

Cold Rolled Pricing 2000-2009

800

900

1000

400

500

600

700

0

100

200

300

0

Apr

00

Jul 0

0O

ct 0

0Ja

n 01

Apr

01

Jul 0

1O

ct 0

1Ja

n 02

Apr

02

Jul 0

2O

ct 0

2Ja

n 03

Apr

03

Jul 0

3O

ct 0

3Ja

n 04

Apr

04

Jul 0

4O

ct 0

4Ja

n 05

Apr

05

Jul 0

5O

ct 0

5Ja

n 06

Apr

06

Jul 0

6O

ct 0

6Ja

n 07

Apr

07

Jul 0

7O

ct 0

7Ja

n 08

Apr

08

Jul 0

8O

ct 0

8Ja

n-09

Apr

-09

Hot Rolled Coil Pricing 2009

520

540

500

460

480

420

440

400

Pricing is based on .060 " X 48" Coil G90, CS/Large Coil

Galvanized Pricing 2009

660

680

620

640

660

560

580

600

520

540

560

480

500

Pricing is based on .060" X 48" Coil G90, CS/Large Coils

We’re Trying to Figure “it” Outy g g

Business has changed!

Where are we now and where do we go from here?

Apparent Steel Consumptionpp p

Shipments = 106 430 000 Shi t 97 846 000

2007 2008

Shipments = 106,430,000 Imports = 33,244,000 Semi’s - 6,656,000

Shipments = 97,846,000 Imports = 31,927,000 Semi’s - 5,971,000

Finished = 26,588,000 Exports = 11,154,000

Finished = 25,956,000 Exports = 13,476,000

Steel Consumption = 121,864,000 Steel Consumption =

110,326,000

2009 Projected Steel Consumptionj p

Based on World Steel Association projectionp j WSA projecting U.S. apparent consumption at

68,000,000 tons for the year (all products) If foreign has 25% of the market = 51 million domestic

tons (all products) Historically flat rolled runs about 65% of total at 51 Historically flat rolled runs about 65% of total at 51

mil = 33.15 million tons. 2000 - 2008 average was = 112,777,000 tons with g , ,

flat rolled about 73.3 million tons Current run rate @ 43% cap = 52.8 mil tons all

dproducts

WHAT DO I DO – AND WHAT DO I DO AND WHAT’S IN IT FOR YOU?

Sentiment, Momentum, Real Time PricingRelevant News & Analysis

N

it

Prices

News

Trends

Momentum Missing info

Steel Buyers Sentiment

75.0

100.0

0.0

25.0

50.0

-65 2

-75.0

-50.0

-25.0-65.2

-100.0

Steel Buyers Future Sentiment

75.0

100.0

0.0

25.0

50.0

-75.0

-50.0

-25.0

-14.8

-100.0

Price Momentum

SMU Galvanized Index

Date Low High Averageg g2/23/2009 $580 $650 $615 3/4/2009 $580 $650 $615 3/9/2009 $570 $655 $6103/9/2009 $570 $655 $610 3/16/2009 $540 $640 $590 3/24/2009 $520 $600 $560 4/1/2009 $520 $600 $560 4/7/2009 $520 $580 $550 4/14/2009 $520 $560 $540 / / 9 $ $ $4/22/2009 $510 $550 $530 4/29/2009 $500 $540 $520

Steel Market Update Index Price Comparison as of May 1, 2009

HR CR Galvanized Galvalume

Steel Market Update $415 $490 $510 $669 $779

May 1, 2009

Steel Market Update $415  $490  $510  $669‐$779

CRU $402  $485  $557  NA

The Steel Index $410 $499 $567 NAThe Steel Index $410  $499  $567  NA

SteelBenchmarker $411  $494  NA NA

Platts $400  $470  NA NA$ $

Steel Price Calculator

Hot Rolled, Cold Rolled Galvanized & Rolled, Galvanized & Galvalume

Based on SMU Average Prime Spot Price Indexes

Some Keys to Watchy

MSCI – carbon flat rolled under 2.5 mos Mill capacity utilization at, or above, 60% Reduction in initial jobless claimsj AIA Billings Index over 50.0 Oil over $60 barrel$ SMU Buyers Sentiment in + territory SMU Market Momentum SMU Price Indexes stable and then moving higher Housing inventory and foreclosures decreasingg y g

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