- The tyranny of large numbers continues - The age of metallics has lost its shine - The price outlook will float from overcast (black) to sunny (blue) to black to blue as sustainable demand recovery is delayed until 2010 or later Becky Hites, Managing Partner, World Steel Dynamics

1. Charming the
Ch i th
Steel Price Snake
Presentation to:
Met Coke 13th Annual World Summit
Pittsburgh, Pennsylvania
by:
Becky E. Hites
Managing Partner
October 14, 2009

2. Th ’
Dollars per metric tonne
m
100
200
300
400
500
600
700
800
900
1000
1100
1200
Jan
n-00
M j
Mar-00
y-00
May
Ju
ul-00
Sep
p-00
Nov
v-00
Jan
n-01
Mar-01
May
y-01
(WSD s
Ju
ul-01
Sep
p-01
Nov
v-01
Jan
n-02
Mar-02
May
y-02
Ju
ul-02
Sep
p-02
Nov
v-02
Jan
n-03
Mar-03
May
y-03
Ju
ul-03
USA
Sep
p-03
FOB m ill
Nov
v-03
Jan
n-04
Mar-04
May
y-04
Ju
ul-04
Sep
p-04
Nov
v-04
Jan
n-05
th W ld E
Mar-05
World Export
May
y-05
Ju
ul-05
FOB port of export
Septem ber 28, 2009
Sep
p-05
Nov
v-05
Jan
n-06
Mar-06
y-06
May
Ju
ul-06
Sep
p-06
Nov
v-06
Jan
n-07
SteelBenchmarker TM HRB Price
Mar-07
USA, China, Western Europe and World Export
ex-w orks
y-07
May
Ju
ul-07
Western Europe
Sep
p-07
Nov
v-07
China
Jan
n-08
ex-w orks
Mar-08
y-08
May
Ju
ul-08
(WSD's PriceTrack data, Jan. 2000 - March 2006; SteelBenchmarker data begins April 2006)
Sep
p-08
Nov
v-08
Jan
n-09
Mar-09
H t
y-09
May
Ju
ul-09
Sep
p-09
Nov
v-09
415
545
606
616
•2
There’s a Major “Chill” on the World Export Market for Hot-Rolled Band
t M k t f Hot-R ll d B d

3. WSD Isn’t Expecting A Price Plummet (Only 20% Odds)
I ’t E ti P i Pl t (O l Odd )
Source: WSD’s SteelBenchmarkerTM
•3

4. Steel Price Outlook Scenarios and Odds
• Scenario I: Steel boom returns by mid-2010. Odds = 10% (prior odds
at 2 %) There’s a f h surge of Chi
25%). h ’ further f Chinese steel demand in 2010, on top
ld d i 2010
of the 20% gain in 2009. Also there’s a fair to good rise in non-Chinese
steel demand. The consequence is a tightening of the global
supply/demand balance for steelmakers metallics (pig iron, steel scrap
steelmakers’ iron
and steel scrap substitutes).
• Scenario II: Gradual volume recovery, but difficult pricing conditions
for the steel mills in 2010. This scenario is “THE SNAKE” pricing
pattern. Odds = 70% (no change in odds). Price levels and shipments
for the steel mills, while not great, are far better than those in the first
half f 2009 Steel ill ’
h lf of 2009. St l mills’ operating rates are too low to sustain hot-rolled
ti t t l t t i h t ll d
band export prices at desired levels; hence, only the lowest cost steel
mills report good profits.
•4

5. Steel Price Outlook Scenarios and Odds (Continued)
• Scenario III: Shake-out conditions return (including a pricing “death
spiral’). Odds = 20% ( i odds at 5%). S l d
i l’) Odd (prior dd %) Steel demand i fl or
d is flat
lower, with steel production rising above underlying steel demand. The
steel mills are too slow in cutting back output once again. The Russian
mills sustain output by reducing prices and the Chinese mills sharply cut
prices,
their export quotes.
•5

6. Apparent Steel Consumption Has Rebounded From the Deep
Freeze, But Perhaps Less Than Increased Supply from Global
Freeze
Restarts
Global Apparent Steel Consumption Year-to-Year Change
25%
20%
Forecast
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
1Q 95
1Q 96
1Q 97
1Q 98
1Q 99
1Q 00
1Q 01
1Q 02
1Q 03
1Q 04
1Q 05
1Q 06
1Q 07
1Q 08
1Q 09
1Q 10e
1Q 11e
Source: WSD Global Steel Alert System
•6

7. Global Crude Steel Production Could Recover
to the 1.3 Billion Tonne Rate by the Fourth Quarter
Global Steel Production, Consumption and Related Items
(million metric tonnes, crude steel equivalent (CSE) basis)
------------------------------------------ Annualized -----------------------------------------------------
SAAR* Less: Steel Ratio: Equals: Minus: User Equals: Steel Year on Year
Crude Steel Net Mill Inventory Crude Apparent Steel Inventory Consumption % Change in
Quarter Production Exports Addition to ASC Consumption (CSE) Addition (crude EQ) Consumption
1Q 08 1,364 3.4% 0 0 1.00 1,364 4.8% 30 1,334 4.3%
2Q 08 1,444 6.8% 0 20 1.01 1,424 6.3% 50 1,374 3.9%
3Q 08 1,411 3.2% 0 -15 0.99 1,426 4.4% -25 1,451 8.0%
4Q 08 1,207 -11.8% 0 -15 0.99 1,222 -10.5% -60 1,282 -4.6%
1Q 09 1,164 -14.7% 0 -55 0.95 1,219 -10.6% -55 1,274 -4.5%
2Q 09 1,114 -22.8% 0 -25 0.98 1,139 -20.0% -50 1,189 -13.5%
3Q 09e 1,246 -11.6% 0 17 1.01 1,229 -13.8% 0 1,229 -15.2%
4Q 09e 1,311
1 311 8.6%
8 6% 0 -5
5 1.00
1 00 1,316
1 316 7.7%
7 7% 10 1,306
1 306 1.9%
1 9%
1Q 10e 1,288 10.6% 0 10 1.01 1,278 4.8% 15 1,263 -0.9%
2Q 10e 1,284 15.3% 0 22 1.02 1,262 10.8% 15 1,247 4.9%
3Q 10e 1,316 5.6% 0 7 1.01 1,309 6.5% 10 1,299 5.6%
4Q 10e 1,348 2.8% 0 9 1.01 1,339 1.8% 10 1,329 1.8%
1Q 11e 1,374 6.7% 0 24 1.02 1,350 5.7% 22 1,328 5.2%
2Q 11e 1,356
1 356 5.6%
5 6% 0 23 1.02
1 02 1,333
1 333 5.6%
5 6% 22 1,311
1 311 5.1%
5 1%
3Q 11e 1,390 5.6% 0 6 1.00 1,384 5.7% 10 1,374 5.8%
4Q 11e 1,424 5.6% 0 10 1.01 1,414 5.6% 5 1,409 6.0%
1Q 12e 1,446 5.2% 0 9 1.01 1,437 6.5% 12 1,425 7.3%
2Q 12e 1,425 5.1% 0 9 1.01 1,416 6.2% 7 1,409 7.5%
3Q 12e 1,461 5.1% 0 10 1.01 1,451 4.8% 1 1,450 5.5%
4Q 12e 1,496 5.1% 0 6 1.00 1,490 5.4% 2 1,488 5.6%
* SAAR = seasonally-adjusted annual rate.
Source: IISI for historical steel production and WSD's GSA for annual apparent steel consumption figures.
Source: WSD’s Global Steel Alert System
•7

8. China Recovered First From A Production Stand-Point…
Stand-
Regional Crude Steel Production
(Year-to-Year Change)
50%
Forecast
40%
China
30%
Developing World
20%
10%
0%
-10%
-20% Advanced Countries
-30%
-40%
-50%
Q1-98
Q3-98
Q1-99
Q3-99
Q1-00
Q3-00
Q1-01
Q3-01
Q1-02
Q3-02
Q1-03
Q3-03
Q1-04
Q3-04
Q1-05
Q3-05
Q1-06
Q3-06
Q1-07
Q3-07
Q1-08
Q3-08
Q1-09
Q3-09
Q1-10
Q3-10
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Source: WSD Global Steel Alert System
•8

9. But Has Paid The Price As It Enters Its
Fifth Pricing Death Spiral Since 2005
•9

10. Global Steel Production and Consumption Patterns
WSD Estimated Changes in Steel Production
Region 2008 2009 2010 2011 2012
Advanced
-3.2% -27.0% 17.3% 8.0% 5.0%
Countries
ROW
-4.1% -12.8% 13.2% 0.6% 5.5%
ex-China
China 1.1% 10.8% 2.1% 6.9% 4.9%
TOTAL -1.9% -9.0% 9.3% 5.6% 5.1%
WSD Estimated Changes in Apparent Steel Demand
Region 2008 2009 2010 2011 2012
Advanced
-5.8% -24.0% 12.3% 2.9% 6.7%
Countries
ROW
-0.9% -20.8% 9.6% 8.3% 8.1%
ex-China
Chi
China 4.0% 20.1% 1.5% 5.2% 3.3%
TOTAL -1.1% -7.9% 6.8% 5.4% 5.7%
•10

11. Flatter World Cost Curve Provides Incentive For Mills to Export When
the FOB Port of Export Price is $475 per Tonne or More
2009 Preliminary versus 2008 World Cost Curve for Steel Sheet Producers
y
Hot Rolled Band Operating Cost including Overhead
Note: Circles indicate midpoint cost for the quartile.
1050
950
850
Median $776
$ PER METRIC TONNE
$644
750
T
Sept. 2008 $632 $668
650
$558
$486
550
Median $457
$433 $444
450
$381
350
June 2009
250
0 50 100 150 200 250 300 350 400 450 500 550
CUMULATIVE CAPACITY
(million tonnes)
Source: WSD’s World Cost Curve for Sheet Producers
•11

12. Market Factors Driving Down the Price
• Steel buyers’ reluctance to place orders because they are worried that
prices will fall (the “chill”)
i ill f ll ( h “ hill”)
• Rising steel production outside of China as the mills respond to
improved orders.
p
• Increasing export offerings by Chinese mills that are suffering from a
massive fall in their home price and extreme overproduction.
• Substantial non-Chinese excess steelmaking and rolling mill capacity.
• Perhaps lower than perceived steel demand due to reduced activity.
• F lli steel scrap and pig iron prices.
Falling t l d i i i
• Availability of distressed cargos at reduced prices.
• A fairly flat World Cost Curve.
Curve
•12

13. Inventories Have Been Dramatically Reduced Throughout the
Manufacturing System
Global Steel Production, Consumption and Related Items
(
(million metric tonnes, crude steel equivalent (
q (CSE) basis)
) )
SAAR* Less: Steel Ratio: Equals: Minus: User Equals: Steel Year on Year
Crude Steel Net Mill Inventory Crude Apparent Steel Inventory Consumption % Change in
Year Production Exports Addition to ASC Consumption (CSE) Addition (crude EQ) Consumption
1997 799 6.5%
6 5% 0 10 1.01
1 01 789 6.8%
6 8% 8 781 5.2%
5 2%
1998 777 -2.7% 0 -3 1.00 780 -1.1% -5 785 0.5%
1999 789 1.5% 0 -8 0.99 797 2.1% -2 799 1.7%
2000 849 7.7% 0 3 1.00 846 6.2% -3 849 6.3%
2001 851 0.2% 0 -5 0.99 856 1.2% -4 860 1.3%
2002 905 6.3% 0 3 1.00 902 5.3% 5 897 4.3%
2003 971 7.3%
7 3% 0 -2
2 1.00
1 00 973 7.9%
7 9% 0 973 8.5%
8 5%
2004 1,070 10.2% 0 -8 0.99 1,078 10.8% 10 1,068 9.8%
2005 1,146 7.2% 0 9 1.01 1,138 5.6% 19 1,119 4.8%
2006 1,251 9.1% 0 9 1.01 1,242 9.2% 19 1,223 9.3%
2007 1,351 8.0% 0 9 1.01 1,343 8.1% 21 1,322 8.1%
2008 1,356
1 356 0.4%
0 4% 0 -3
3 1.00
1 00 1,359
1 359 1.2%
1 2% -1
1 1,360
1 360 2.9%
2 9%
2009e 1,209 -10.9% 0 -17 0.99 1,226 -9.8% -24 1,250 -8.1%
2010e 1,309 8.3% 0 12 1.01 1,297 5.8% 13 1,284 2.8%
2011e 1,386 5.9% 0 16 1.01 1,370 5.6% 15 1,355 5.5%
2012e 1,457 5.1% 0 9 1.01 1,448 5.7% 6 1,443 6.5%
•13

14. Market Factors Perhaps Mitigating the Downward Price Pressure
• The weak US dollar versus the Euro.
• Somewhat higher industrial activity in a number of non-Chinese
consuming industries in the past few months because they had cut
their output to levels even below the reduced demand for products.
• The apparent end of non-Chinese steel buyers’ and traders’
inventory liquidations.
• Seasonal factors including the end of the European vacation, Indian
monsoon and Ramadan observance periods.
• Reduced foreign steel deliveries to a number of home country
home-country
markets.
• In North America, orders still higher than production for higher-
value-added steel sheet products for the automotive and appliance
l dd d t l h t d t f th t ti d li
industries.
•14

15. USA Hot-Rolled Band Pricing Situation Fluid
Hot-R ll d B d P i i Sit ti Fl id
H t
• Through the first week of October, mills were still receiving good
orders for a number of higher value added products.
value-added
• Foreign deliveries are down substantially due to uncertainty about
the sustainability of increased prices.
• Buyers’ inventories have been sharply reduced.
• The potential for a major decline in HRB prices doesn’t seem to be
great unless there is a huge drop in the steel scrap price.
price
• The USA economy is now in a recovery mode (albeit from very
depressed levels).
• Distributors’ inventories are close to all time lows on a days’ supply
basis.
• The battle for market share among the mini-sheet mills and the
integrated mills will likely remain intense.
•15

16. The Mini-Sheet Mills Were Quick to Ramp-Up Production When Market
Mini- Ramp-
Demand Solidified, While the Integrated Mills Lagged
•16

17. EAF Production Accounted for Almost 68% of Total Crude Steel
Production in June Versus a Prior 59% Peak
•17

18. USA Service Center Inventories at Historically Low Levels
•18

19. Million Tonnes
0
5
10
15
20
25
30
35
40
45
50
Jan-01
May-01
Sep-01
Jan-02
May-02
Source: WSD estimates
Sep-02
Jan-03
Imports
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
USA Imports Remain Low
Jan-07
Exports
May-07
USA Monthly Steel Imports and Exports Annualized Rate
Sep-07
Jan-08
May-08
Sep-08
Jan-09
May-09
•19

20. USA Industrial Activity Off 23% Year-to-Year…..
Year-to-Year
Components of IDX (2004=100) as of August 2009 & 2008
Y/Y Share Share Y/Y
Indicator Index Figure Weighted Index % Chg of Index of Index First
August August August August August August 8 months
2009 2008 2009 2008 2009 % Chg
CES : Short-Lead-Time Capital Goods
Oil & Gas Well Drilling 67.6 137.9 2.03 4.14 -51.0% 3.0% 2.6%
Railroad Rail & Miscellaneous 74.5 122.7 2.23 3.68 -39.3% 3.0% 2.9%
Business Equipment 111.1 131.6 5.56 6.58 -15.6% 5.0% 7.2%
Trucks (Not Seasonally Adjusted) 41.2 55.8 2.88 3.91 -26.3% 7.0% 3.7%
Fabricated Metals 84.5 106.7 10.15 12.80 -20.8% 12.0% 13.2%
Non-Electrical Machinery 59.3 91.0 7.12 10.93 -34.8% 12.0% 9.2%
Total 29.97 42.03 -28.7% 42.0% 38.9% -29.8%
CEL : Long-Lead-Time Capital Goods
Ships & Boats Construction 84.8 96.4 0.85 0.96 -12.0% 1.0% 1.1%
Electrical Equipment 102.1 121.2 5.10 6.06 -15.8% 5.0% 6.6%
Non-Residential Construction (NSA) 94.6 119.7 21.76 27.53 -21.0% 23.0% 28.2%
Total 27.71 34.56 -19.8% 29.0% 36.0% -16.3%
CDIDX : Consumer Goods
Residential Housing (Not Seas. Adj.) 49.2 62.0 1.48 1.86 -20.7% 3.0% 1.9%
Household Appliance 79.5 90.0 3.18 3.60 -11.6% 4.0% 4.1%
Automobiles (Not Seasonally Adj.) 55.8 69.5 8.93 11.12 -19.7% 16.0% 11.6%
Total 13.59 16.58 -18.0% 23.0% 17.6% -38.7%
MIDX : Miscellaneous Industries
Defense & Space Equipment 118.8 117.1 1.19 1.17 1.5% 1.0% 1.5%
Farm Equipment 101.3 110.9 2.03 2.22 -8.6% 2.0% 2.6%
Metal Cans 84.9 116.3 2.55 3.49 -27.0% 3.0% 3.3%
Total 5.76 6.88 -16.2% 6.0% 7.5% -26.3%
Total 77.02 100.05 -23.0% 100.0% 100.0% -26.6%
•20

21. And Down Almost 27% Year-to-Date
Year-to-
•21

22. USA Steel Shipments Are Expected To Be Down 36% For 2009
USA Steel Consumption / Shipment Outlook
(million short tons)
1995 2000 2005 2006 2007 2008 2009e 2010e 2011e
First quarter 24.9 28.6 27.1 27.8 26.3 27.5 13.0 18.0 22.0
Second quarter 24.4 28.5 25.6 28.8 26.5 27.5 13.1 20.0 23.0
Third
Thi d quarter
t 24.0
24 0 27.3
27 3 25.7
25 7 26.8
26 8 27.1
27 1 26.0
26 0 17.5
17 5 20.0
20 0 22.0
22 0
Fourth quarter 24.2 24.7 26.6 26.1 26.5 16.8 19.0 21.0 20.0
Shipments 97.5 109.1 105.0 109.5 106.4 97.8 62.6 79.0 87.0
Plus: Imports 24.4 38.0 32.1 45.3 33.2 31.9 15.0 22.0 26.0
Less: Imported semis converted to finished 5.0 8.6 6.9 9.3 6.6 5.9 1.5 3.0 4.0
products by AISI-reporting companies
AISI reporting
Less: Exports 7.1 6.5 9.4 9.7 11.2 13.5 8.5 10.0 10.0
Subtotal: Apparent steel demand 109.8 131.9 120.8 135.8 121.9 110.3 67.6 88.0 99.0
Less: Est. user/buyer inventory build -2.0 -2.0 -6.4 6.6 -2.5 -4.0 -10.0 2.0 4.0
Equals: Actual steel consumption 111.8 133.9 127.2 129.2 124.4 114.3 77.6 86.0 95.0
Index of activity in 15 steel consuming
industries (2004 = 100) 99 116 102 108 108 100 80 93 102
% change 4.3% 5.8% 1.9% 6.3% 0.1% -7.6% -20.2% 16.3% 9.7%
Steel consumption per point of
activity index (million tons)
ti it i d ( illi t ) 1.134
1 134 1.152
1 152 1.247
1 247 1.192
1 192 1.146
1 146 1.140
1 140 0.970
0 970 0.925
0 925 0.931
0 931
Source: AISI, Company Reports and WSD estimates
•22

23. Steel’s Age of Metallics Has Lost Its Shine
• The global obsolete steel scrap requirement in 2018 may
decline to less than 80% of the obsolete steel scrap reservoir
that’s on average 10-40 years old, versus about 95% in 2008.
• While steel scrap price volatility will remain huge in the
future, the price range for it may be far lower than what
occurred in 2007-2008.
• USA #1 heavy melting steel scrap prices in the next decade
may typically range from $150 to $300 per gross ton, with only
brief periods outside of this range, versus $300 to $570 per ton
in 2007 to July 2008.
• Pig is no longer beautiful and production outside of China will
grow less than expected.
•23

24. Dollars per gross ton
s
0
100
200
300
400
500
600
700
800
900
Jan-00
Mar-00
St l S
May-00
Jul-00
Sep-00
Nov-00
Jan-01
Mar-01
May-01
Jul-01
Sep-01
Nov-01
Jan-02
Mar-02
May-02
Jul-02
Sep-02
Nov-02
Jan-03
Mar-03
May-03
Jul-03
Sep-03
,
P i V l tilit
Nov-03
Jan-04
Mar-04
May-04
Jul-04
Sep-04
Nov-04
SteelBenchmarker
Jan-05
R
Mar-05
Septem ber 28, 2009
TM
May-05
Jul-05
Sep-05
USA, delivered to steel p
Nov-05
Jan-06
Mar-06
plant
May-06
Jul-06
Sep-06
Nov-06
Scrap Price
Jan-07
Mar-07
i B t
May-07
Jul-07
Sep-07
#1 Busheling
Nov-07
Shredded Scrap
Jan-08
L
Mar-08
#1 Heavy Melting
(AMM scrap price data, Jan. 2000 - Jan. 2007; SteelBenchmarker data begins Feb. 2007)
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
L
May-09
Jul-09
Sep-09
Nov-09
252
282
319
l
Steel Scrap Price Volatility Will Remain, But At Lower Levels
•24

25. China’s Demand For Global Iron Ore Will Ease in 2010
Chi ’ D d F Gl b l I O E i
• Chinese iron ore production is about 20% marginal.
• There’s much low cost capacity in China; perhaps half the
current capacity is extracted for less than $60 per tonne.
• Capital spending in 2009 could top $11 billion for iron ore mine
g
improvements and expansions.
• Chinese production/demand will expand much less in the
future than the past.
• There is an excess supply of Capesize vessels.
• Increases in global iron ore capacity still are massive.
• Foreign iron ore deliveries to China in 2009 will be about 576
million tonnes, versus 444 million tonnes in 2008, but could
drop to 520 million tonnes in 2010.
• WSD sees a decline in iron ore fines prices in 2010.
•25

26. Fixed Asset Investment in the Chinese Iron Mines
Fi d A tI t t i th Chi I Mi
China Iron Mines Fixed Asset Investment
(in millions)
2003 2004 2005 2006 2007 2008 2009e 2010e
RMB 5,007
5 007 13,294
13 294 28,196
28 196 35,649
35 649 42,723
42 723 66,867
66 867 75,900
75 900 40,000
40 000
Y-to-Y change 166% 112% 26% 20% 57% 14% -47%
US$ 605 1,606 3,503 4,571 5,934 9,649 11,500 5,857
Y-to-Y
Y to Y change 166% 118% 30% 30% 63% 19% -49%
49%
Source: WSD estimates
•26

27. China’s Iron Ore Market Analysis
Chi ’ I O M k tA l i
Chinese Iron Ore Market Analysis
(million tonnes)
2006 2007 2008 2009e 2010e
Imported iron ore prices ($ per tonne with VAT)
tonne,
Benchmark 63.5% Fe contract price, FOB Australia 47 51 89 56(2)
Delivered to Chinese port from Brazil 89 170 160 102 (3)
Delivered to Chinese port from Western Australia 70 99 128 84 (3)
Delivered to Chinese port from India 89 221 171 87 (3)
China domestic market price ($ per tonne, with VAT 85 176 184(1) 102 100
Capital outlays on iron ore (US$ billion) 4.6 5.9 9.6 11.5 5.9
Y-to-Y % Change 28.3% 62.7% 19.8% -48.7%
China iron ore production capacity
Cost: $100 plus per tonne 10 40 50 60 60
Cost: $80 to $99 per tonne 30 35 40 70 70
Cost: $60 to $79 per tonne 90 90 90 90 100
Cost: less than $60 per tonne 170 185 210 210 220
Total 300 350 390 430 450
Chinese iron ore production by cost category
High cost: $100 plus per tonne 10 30 30 0 0
Medium high cost: $80 to $99 p tonne
g per 20 30 30 10 0
Medium low cost: $60 to $79 per tonne 90 90 90 90 75
Low cost: less than $60 per tonne 170 185 200 210 220
Total 290 335 350 310 295
(1)
September, 2008
(2)
Benchmark prices down 35%
(3)
Includes $11 or $26 per tonne in ocean freight and insurance expense, $6 per tonne in ship unloading fees, and 17
17% VAT. Does not include the estimated $13 per tonne transportation fee from the port to the steel mill.
Source: WSD estimates
•27

28. US$ / Per Tonne ( CIF )
e
50
0
100
150
200
250
5/16/2005
7/11/2005
9/5/2005
10/31/2005
Source: WSD estimates
12/25/2005
2/27/2006
4/24/2006
6/19/2006
8/14/2006
10/9/2006
12/4/2006
1/29/2007
3/26/2007
seaports
5/21/2007
7/20/2007
Ore inventory at
9/17/2007
11/19/2007
1/21/2008
3/18/2008
5/16/2008
Prices, $ Per Tonne
7/14/2008
9/8/2008
Imported Indian Ore Retail
11/3/2008
1/5/2009
3/9/2009
China Iron Ore Inventory and Indian Ore Retail Prices at Ports
5/7/2009
High Iron Ore Inventories at the Chinese Ports
Have Contributed to Lower Spot Market Prices
7/6/2009
8/31/2009
0
10
20
30
40
50
60
70
80
million tonnes
•28

29. China’s Iron Ore Supply/Demand Analysis
Chi ’ I O S l /D dA l i
China's Iron Ore Demand and Supply Balance
(million tonnes)
2000 2005 2006 2007 2008 1H 09 2H 09e 2009e
annualized
Crude steel production
p 129 356 423 494 500 533 577 555
Pig iron production 131 330 404 471 471 518 566 542
Demand for dressed ore (1.55 * pig iro 203 512 626 735 735 808 883 846
Domestic iron ore production
Small iron mine output (WSD estimate 50 85 105 130 160 110 130 120
Preliminary report iron ore output 222 397 574 707 824 760 800 780
Final reported iron ore output 223 420 588 707 824 783 777 780
Un-reported iron ore output 43 68 50 10 0 0 20 10
Total crude iron ore output 266 488 638 717 824 783 797 790
Fe content analysis
Reported ore 32.0% 31.8% 31.5% 31.3% 31.2% 31.3% 31.3% 31.0%
Unreported ore 30.5% 31.4% -1.6% 30.5% 30.0% 30.5% 30.5% 30.0%
Average calculated Fe content 31.8% 31.8% 28.9% 29.0% 31.2% 31.3% 31.3% 31.0%
Fe content required for blast furnace 63.5% 63.5% 63.5% 63.5% 63.5% 63.5% 63.5% 63.5%
Dressed ore output (1) 133 244 290 335 350 316 304 310
Y-to-Y change 24.5% 18.9% 15.5% 4.5% -14.7% -9.0% -11.4%
Ratio of crude ore / dressed ore 2.00 2.00 2.20 2.19 2.35 2.5 2.5 2.54
Imported iron ore requirement 70 268 336 400 385 594 477 536
Ports and mills inventory change 0 6 -10 -17 59 40 40 40
Imported iron ore 70 274 326 383 444 634 517 576
Y-to-Y change 31.7% 19.2% 17.5% 15.9% 42.9% 16.5% 29.7%
Investment in iron ore mining
Bil RMB na 28.2
28 2 35.7
35 7 41.8
41 8 68.0
68 0 72.8
72 8 79.0
79 0 75.9
75 9
Bil US$ na 3.5 4.6 5.8 10.0 10.7 12.3 11.5
RMB per $ 8.1 7.8 7.2 6.8 6.8 6.8 6.8
Crude steel production 129 356 423 494 500 533 577 555
Exports (crude steel basis) 10 28 55 75 64 18 38 28
Imports (crude steel basis) 22 30 20 19 17 22 14 18
Net imports (crude steel basis) 12 2 -35 -56 -47 4 -24 -10
Domestic crude steel apparent deman 141 358 388 438 453 537 553 545
Y-to-Y Change 24.3% 8.4% 12.9% 3.4% 22.6% 26.3% 20.3%
(1)
Dressed ore is upgraded iron ore (concentrate).
Source: WSD estimates
•29

30. Iron Ore Price Forecast
I O Pi F t
Iron Ore Price Forecast
($ per metric tonne)
CVRD CVRD
Fines Fines Del. Pellets Pellets Del. Pellet-Fines
(FOB) % Chg Freight Rotterdam % Chg (FOB) % Chg Freight Rotterdam % Chg Spread
2000 17.99
17 99 4% 5.60
5 60 23.59
23 59 9% 32.01
32 01 6% 5.60
5 60 37.61
37 61 9% 14.01
14 01
2001 18.77 4% 5.07 23.84 1% 32.57 2% 5.07 37.64 0% 13.80
2002 18.32 -2% 4.00 22.32 -6% 30.78 -5% 4.00 34.78 -8% 12.47
2003 19.97 9% 8.00 27.97 25% 34.40 12% 8.00 42.40 22% 14.44
2004 23.69 19% 22.00 45.69 63% 40.22 17% 20.00 60.22 42% 16.53
2005 39.85
39 85 68% 17.00
17 00 56.85
56 85 24% 76.08
76 08 89% 17.00
17 00 93.08
93 08 55% 36.23
36 23
2006 47.42 19% 16.00 63.42 12% 73.79 -3% 16.00 89.79 -4% 26.37
2007 51.93 10% 30.00 81.93 29% 78.46 6% 30.00 108.46 21% 26.54
2008 85.94 66% 40.00 125.94 54% 144.56 84% 40.00 184.56 70% 58.62
2009 61.71 -28% 10.00 71.71 -43% 74.74 -48% 10.00 84.74 -54% 13.03
Forecast
2010 43.19 -30% 11.00 54.19 -24% 56.19 -25% 11.00 67.19 -21% 13.00
2011 36.71 -15% 12.00 48.71 -10% 49.71 -12% 12.00 61.71 -8% 13.00
2012 36.71 0% 14.00 50.71 4% 49.71 0% 14.00 63.71 3% 13.00
2013 36.71 0% 15.00 51.71 2% 49.71 0% 15.00 64.71 2% 13.00
2014 36.71
36 71 0% 15.00
15 00 51.71
51 71 0% 49.71
49 71 0% 15.00
15 00 64.71
64 71 0% 13.00
13 00
2015 37.45 2% 15.00 52.45 1% 50.45 1% 15.00 65.45 1% 13.00
Source: WSD
•30

31. China Steel Is Driving Its Bus Into the Great Wall
Entering a period of:
• Reduced demand growth.
• Intense price competition.
• The need f major consolidation (occurring already at a
for (
sizable pace).
• Mills need to reestablish their priorities (to profits over
growth).
th)
• Mills need to adapt new competitive strategies.
• The Chinese steel market is in an inherently unstable
y
situation.
•31

32. Market Differs By Product
• In the long products sector, China has 300+ companies
sector companies.
• In the flat sector, there are many plate mill companies, including
a number of independent plate mills.
• In the sheet sector, there are about 35 companies. There is not
a single independent wide hot-strip mill to our knowledge.
•32

33. Can China’s Massive Bus Make It To The Top of The Hill?
• China is about to enter a period of sharply lower economic
growth and perhaps even no steel demand growth
and, perhaps, growth.
• Factors restraining the economy include:
Rise in fiscal deficit to 5.0% share of GDP.
Massive rise in bank loans.
FAI/GDP ratio in 2009 will be reported at about 70%; but
probably is more like 50 55% Can’t keep growing
50-55%. Can t growing.
• When will Chinese steel demand “hit the wall”? Our guess is this
summer, but it could also be by next spring.
• Analogy of the 22-wheeler truck that’s heading up the hill – starts
out at 140 km/hour and 10 km/hour at the top. In fact, the
Chinese 22-wheel bus may not make it to the top this time –
i.e.,
i e demand could decline
decline.
•33

34. GDP Growth of 9% Expected for 2009; Steel Consumption Up 20%
China Growth of GDP By Category
(year-to-year change)
( t h )
By Final By Gross Capital Apparent Steel
Real GDP Consumption Formation By Net Export Consumption
%
2002 9.1
91 3.8
38 4.6
46 0.6
06 20.9
20 9
2003 10.0 3.6 6.5 -0.1 25.6
2004 10.1 4.1 5.6 0.5 10.0
2005 10.4 3.9 4.2 2.2 25.3
2006 11.6 4.5 4.8 2.3 10.2
2007 11.9
11 9 5.1
51 4.9
49 1.9
19 11.9
11 9
2008 9.0 3.8 4.3 0.9 4.4
2009E 9.0 3.5 6.0 -0.5 20.3
2010E 8.0 3.5 3.9 0.6 1.1
2011E 7.0
70 3.5
35 2.5
25 1.0
10 2.7
27
2012-2020E 6.0 3.5 2.0 0.5 3.0
Source: Government documents and WSD estimates
•34

35. New Bank Loans in 2009 to Top $1.5 Trillion;
$1 5
Total Debt Approaching $6 Trillion
Chinese Total and New Bank Loans for 2009
(billion RMB, billion US$ as indicated)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Total bank loan (RMB) 31,992 33,064 34,955 35,547 36,214 37,745 38,114 38,524 39,124 39,624 40,224 40,824 40,374
Total bank loans (US$) 4,684 4,841 5,118 5,205 5,302 5,526 5,580 5,640 5,728 5,801 5,889 5,977 5,911
New bank loans (RMB) 1,645 1,072 1,891 592 667 1,531 369 410 600 500 600 600 10,477
New bank loans (US$) 241 157 277 87 98 224 54 60 88 73 88 88 1,534
Source: PBC statistics and WSD estimates
S C S
•35

36. China s Fixed Asset Investment Forecast Up 33% in 2009
China’s
China Trade Balance and Fixed Asset Investment versus GDP
Annualized Rate (2)
2000 2005 2006 2007 2008 2009e 2010e Jul-08 Jul-09
(1)(2)
GDP ($ billions) 1,080 2,247 2,650 3,291 4,341 4,796 5,269 4,292 4,442
(1)(3)
China fixed asset investment ($ billions) 398 1,083 1,381 1,810 2,493 3,362 3,691 2,786 3,553
Ratio FAI to GDP 37% 48% 52% 55% 57% 70% 70% 65% 80%
Adjusted FAI to GDP (3) 36% 43% 43% 42% 43% 44% 43% 43% 44%
GDP (billion RMB) 8,940
8 940 18,387
18 387 21,087
21 087 24,953
24 953 30,067
30 067 32,770
32 770 35,400
35 400
FAI (billion RMB) 3,293 8,860 10,986 13,723 17,266 22,964 24,800
China trade ($ billions)
Imports all products 225 660 792 956 1,130 860 1,062 1,312 1,116
Exports all products 249 762 969 1,218 1,426 1,122 1,233 1,609 1,241
Trade surplus (deficit) 24 102 178 262 296 262 171 298 125
% of GDP 2% 5% 7% 8% 7% 5% 3% 7% 3%
Year-to-year change
GDP ($ billions) 36% 18% 24% 32% 10% 10% 3%
GDP (RMB) 34% 15% 18% 20% 9% 8%
FAI ($ billions) 28% 28% 31% 38% 35% 10% 28%
FAI (RMB) 26% 24% 25% 26% 33% 8%
Imports all products 18% 20% 21% 18% -24%
24% 23% -15%
15%
Exports all products 28% 27% 26% 17% -21% 10% -23%
Exchange rate-RMB per $ 8.28 8.18 7.96 7.58 6.93 6.83 6.72 6.83 6.83
Notes:
(1) FAI and GDP are before any inflation adjustment
( )
(2) GDP "monthly" is p
y previous qquarter run rate
(3) Chinese reported FAI figures include investment in land and other items that cause the figures to be overstated relative to the approach
used by the IMF.
Source: People's Bank of China, Bloomberg and WSD estimates
•36

37. Factors Working to Mitigate the Impact to the Global Steel Industry
• Steel production is prone to massive swings up, but also down.
• It’s possible that steel demand could increase in China due to the
33% increase in fixed asset investment in the country this year.
• Even with the lower export prices buyers have remained on the
prices,
sidelines for fear of adverse market moves in pricing during the 2-3
months that the steel is “on the water”.
• The Chinese RMB will begin to appreciate again over the next 1-3
13
years, increasing relative steel production costs.
• The Chinese government is almost certain to continue to take
actions to reduce significant steel exports due to the strain that steel
g p
production puts on the country’s infrastructure
(power, transportation, etc).
• By 2018, the global steel industry will need the flat-rolled tonnage
y , g y g
constructed in China as the non-Chinese world pulls back
investment.
•37

38. Milli Tonnes
ion
0
100
10
20
30
40
50
60
70
80
90
Jan-01
Apr-01
China’s
Jul-01
Oct-01
Jan-02
Source: WSD estimates
Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
Oct-04
Jan-05
Apr-05
Jul-05
Oct-05
China Steel Monthly Exports Annualized Rate
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
China s Steel Exports Are Down 70% Through July 2009 At An
•38
Annualized 17 Million Tonne Rate Versus 58.5 Million Tonnes in 2008

39. Steel Survival Strategies London Conference
St l S i l St t i L d C f
Who’s Left Standing?
November 16-17, 2009
16-
SSS-
SSS-E VII
Marriott Grosvenor Square, London
Square
To register, go to
http://www.metalbulletin.com/events/Details/Intro.aspx?EventID=1032.com.
•39