A business unit of AISI www.smdisteel.org

State of the US Steel Industry Robert Wills, VP Construction Steel Market Development Institute

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American Iron and Steel Institute • AISI is a trade association consisting of producer members in the United States, Mexico and Canada

• 19 producer member companies, including integrated and electric furnace steelmakers • Represents nearly 70 percent of steel capacity in the United States and North America • Approximately 125 associate members, mostly suppliers and customers to the industry

• Public policy focus (not covered today) – Pro-manufacturing agenda -2-

AISI Steel Market Development Institute • Steel Market Development Institute is a business unit of the American Iron and Steel Institute • Goal is to increase the use of steel by developing innovative materials and applications. • SMDI demonstrates steel as the highest value material in automotive, construction and packaging; and differentiates steel based on its environmental performance and sustainability.

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CONDITIONS ARE WORSE THAN LAST MAJOR STEEL CRISIS 100%

Annual U.S. Capacity Utilization (1995 to 2013)

Weekly U.S. Capacity Utilization (2014 to 2015)

90%

80%

70%

60%

50%

Last Major Steel Crisis 1999 to 2001

Domestic mills utilization rate below 70% since October 24, 2015

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

40% 14

Source: American Iron and Steel Institute

2014

15

2015

Industry Mindset 4Q2015

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U.S. Capacity Utilization Remains Weak 70.1% in 2015, Down from 77.5% in 2014 Remains Low in 2016 at 71.3% through 1Q2016

What is a sustainable capacity utilization? -5-

Domestic Shipments Down in 2015 12% decline from 2014 levels

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Global Steel Excess Capacity: 700 MMT

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Growing Global Overcapacity

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Import Market Share At Historic Levels

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CHINESE STEEL PRODUCTION SURGING

Million Metric Tons (MMT)

900

United States

China

Up

800

540%

700

from 2000

600 500 400 300 200

100 0

Source: WorldSteel Association (WSA)

Down 13% from 2000

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AS CHINESE STEEL DEMAND DECLINES, CHINESE STEEL EXPORTS HIT RECORD LEVELS 800

120,000,000

Chinese Steel Exports

100,000,000

600 500 400 300

Metric Tons (MT)

Million Metric Tons (MT)

700

China Apparent Steel Use (ASU)

80,000,000

60,000,000

40,000,000

200 100 0

20,000,000

0

*2015 forecast from October 2015 Preliminary SRO Table Source: WorldSteel Association (WSA), China Iron and Steel Association (CISA), Government of China

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The Problem: Global Steel Overcapacity • Rather than cutting back production, China is flooding the U.S. market with its excess steel at below-market prices, harming U.S. producers and American workers • In 2015, China exported 112 million metric tons of steel to the world, a 20 percent increase over an already record-setting 2014 • Securing binding commitments from China and other nations to reign in steelmaking overcapacity is critical to domestic producers’ ability to compete for business

700 MILLION metric tons of excess global steel capacity

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China: State Controlled Steel

9 out of top 10 producers are state-owned Firm

2014 Production (MMT)

Hebei Steel Group Baosteel Group Wuhan Steel Group

47.1 43.3 33.1

Shagang Group (Private) Ansteel Group

35.3 34.3

Shougang Group Shandong Steel Group Tianjin Bohai Steel

30.8 23.3 18.5

Maanshan Steel Benxi Steel

18.9 16.3

TOTAL

These two companies, alone, account for more steel than the entire U.S. steel industry shipped in 2014 (89.1 MMT)

300.9 Source: National Bureau of Statistics/WorldSteel Association (WSA)

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G7 Summit Declaration - May 27, 2016 • We recognize the negative impact of global excess capacity across industrial sectors, especially steel, on our economies, trade and workers. In particular, we are concerned about subsidies and other support by governments and governmentsupported institutions that distort the market and contribute to global excess capacity . . . We are committed to moving quickly in taking steps to address this issue . . .

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Addressing Global Overcapacity • Government actions to eliminate excess capacity – Especially with regard to China

• Elimination of market-distorting government policies – Subsidies and other trade-distorting policies – Governmental barriers to exit /adjustment – Government industrial planning and decision-making in the steel sector – Export restrictions on raw materials and other government intervention in raw material markets • Aggressive enforcement of trade laws against dumped and subsidized imports - 15 -

State of the US Steel Industry • More visibility in last year than we’ve had in decades. – – – –

Topic for both parties/candidates Discussion point at the OECD Multiple trade cases in industry news US/China Steel dialogue • China commits to reduce capacity 100-150MMT 2020

– China pressing for market economy status

Review of Global Steel Market Supply

• US remains an attractive market comparatively • Nothing on the demand side can significantly impact the excess global supply if the borders are open

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A business unit of AISI www.smdisteel.org

Steel US Market Consumption

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2015 Steel Shipments by Market Classification

Automotive Production

NAFTA Auto Production 2001-2015, Forecast 2016-2017

Units (millions)

Source: Wards Automotive; AMRC for 2016-2017 forecasts.

20 18 16 14 12 10 8 6 4 2 0

15.8

16.7

16.2 16.2 16.3 15.9

15.4

15.4

16.1

16.9

17.4

17.7

17.1

13.1

12.9 11.9 8.9

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017





NAFTA auto production is expected to increase by 1% in 2016 before declining by 4% in 2017. Production will match prior peak production levels (1999 and 2000) between 2016 and 2018 before declining as vehicle costs increase as CAFE standards are implemented, among other factors. A significant portion of the increase in annual production will occur in Mexico as new capacity has been added there with more production scheduled to migrate to Mexico in future years. U.S. and Canadian production will experience a noticeable decline in 2017. 20

What about the steel vs. aluminum auto debate?

Automotive - Innovative Design and Manufacturing • AHSS Stamped Front Lower Control Arm – Matches weight of forged aluminum baseline – 34% lower manufacturing cost – Lower life cycle greenhouse gas emissions than Bushing aluminum baseline sleeve T-pin – Implemented on 1.2m MIG multiple vehicles Weld

Upper & lower stampings

Rivets Ball joint housing - 30 -

Automotive - AHSS Growth Exceeds Forecasts

Increasing evidence that vehicle mass reduction can be more effective with AHSS Source: Abraham, A., “Metallic Material Trends in the North American Light Vehicle,” Great Designs in Steel, 13 May 2015.

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?

Nonresidential construction is and will be cyclical The 2010 trough was abnormally deep Haven’t recovered in line with long term growth trends Now close to 22 quarters since trough

Building Construction

Source: McGraw-Hill (Dodge)

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Market Trends

2016 Results (Non-residential + residential > 4 stories)

MARKETING PUBLICATIONS REDESIGN 2016 Building Construction Starts Up 10%

Market Trends

Building Construction Market (Non-residential + residential > 4 stories)

MARKETING PUBLICATIONS REDESIGN

+13%

-7%

Market Trends

Project Count

MARKETING PUBLICATIONS REDESIGN

Market Trends

Building Market Forecast (Non-residential + residential > 4 stories)

MARKETING PUBLICATIONS REDESIGN AISC

2016 Up 5% to 7% 2017 Flat 2018 Gentle Decline

Steel Demand Change 2016-2017 Market

Forecast trend

Explanation

Automotive

NAFTA auto production will expand in 2016, but with much of the growth in Mexico. Production will decrease in 2017, as the initial cost escalation associated with CAFÉ standards is included in vehicle cost for the 1st time.

Non-Residential Construction

Moderate growth rates for 2016 and 2017 through most of this sector of construction.

Residential Construction

Recovery continues in residential construction as new home sales are strong and permits rising.

Machinery

Exports decline as strong dollar increases cost of U.S. goods. Slowing growth in China weakens global markets.

Infrastructure

Long term extension of highway funding in 2015 provides stability in future planning for large projects.

Energy

U.S. domestic production of oil and gas will remain at current level as energy companies cut back on rigs and exploration.

Inventory

Service Center continue to reduce inventories, not stocking at pre-recession levels. 38

Steel Industry Forecast 2016-2017 (Y-T-Y) 2016

2017

• Domestic Shipments • Imports • Exports

+4.7% -17.8% - 4.8%

+ 2.3% + 4.6% + 3.2%

• Real Steel Use

- 2.2%

+ 2.3%

No quick solutions- stability, limited growth

A business unit of AISI www.smdisteel.org

Innovation-/Differentiation Our History and Our Future

Construction - Pathways for Innovation • • • • •

Base material development or “re-purposing” Evolution of product and systems Design Optimization Delivery/construction methods Supply chain engagement

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Innovation is Our History

Eades Bridge 1867-1874

HPS Steel Bridges 1994

Innovation is Our Future- Press Brake Tub Girder

Necessity of Innovation

Competition for Innovation is Increasing

High Performance Concrete

ECC or “Bendable” Concrete “Green” Concrete

Scope for Innovation is Expanding

Thermal/Energy

Useable Environments Resiliency

Sustainability

Acoustic Performance

Opportunities for Innovation are Accelerating

Pathways to Innovation

Pathways to Innovation- Base Material Innovation

Pathway to Innovation- Product Improvement

Pathways to Innovation- Design Optimization

Strength of Building Systems

Pathways to Innovation- Construction Methods

Modularization and Hybrid Construction

Pathways to Innovation- Supply Chain Modification

Necessity for Innovation • Competition to innovate has increased – Traditional materials/applications – New materials/manufacturing

• Need to innovate has expanded (Expectations) – Energy, resiliency, sustainability – Useable environments

• Opportunity to innovate is accelerating – Automation, manufacturing, IT – Integrated modeling

Deterrents to Innovation

• • • • • •

Perception of Steel as a “Mature” Industry Silo Mentality Incremental vs. Game changing Short Term Focus Lack of Customer Feedback (Mill Disconnect) Fear of Failure

A business unit of AISI www.smdisteel.org

Thank you…

Website: www.smdisteel.org Twitter: @SMDISteel Facebook: www.facebook.com/smdisteel YouTube: www.youtube.com/smdisteel - 56 -