Presentation to Institute of Supply Management Steel Forum. Graphs Covering: North American Blast Furnaces/US Housing Starts/Seasonally Adjusted Annual Rate/Auto Production since 2000/Architects Billings Index/Carbon - Flat Rolled Actual Shipments/Flat Rolled Inventory (EOM)

2. INSTITUTE FOR SUPPLY
MANAGEMENT STEEL FORUM
MAY 5, 2009
John Packard – Steel Market Update

3. Who is John Packard?
Why is he here?
What’s in it for me?

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

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

6. Rolled Steel
(1977)
Novosteel / Innovative
PN Ent Steel (1980)
(2003)
Winner St l
Wi Steel Pacesetter
P tt
(1997) (1982)
Pacesetter Duferco /
(1994) Sterling
(1991)

7. Unique Background
q g
1. Rolled Steel Corporation 1. Hands-on product –
secondary sales – prime
exposure.
2. Innovative Steel
2. Creative processing –
HVAC – purchasing.
3. Pacesetter Steel 3. Prime sales - service
center, HVAC & OEM.
,
4. Duferco / Sterling 4. Management, mill
purchasing.
5.
5 Winner Steel & Trading 5.
5 Direct Mill, foreign
Mill
exposure, international
travel, business owner.

8. August 2008

9. STEEL MARKET UPDATE
STEEL MARKET UPDATE www.steelmarketupdate.com
www steelmarketupdate com
Welcome John Packard Volume 4, #52
Monday, May 4, 2009
IN THIS ISSUE:
ArcelorMittal Warns of Need to Shutter Capacity in U.S. Market
ISM Index Improves to 40.1
Inventory Write-Downs Hurt California Steel & Olympic Steel
March Raw Steel Production
Quick Note on China Market
U.S. Auto Sales Worse than Expected
Chrysler Bankruptcy Facts
NYMEX Hot Rolled Futures Contracts
What to Watch this Week
Final Thoughts

10. WHY AM I HERE?
Student of the steel business

11. AISI Mill Shipments by end user
Service
Centers/Processors
Construction
29%
Automotive
28.7%
Energy
15.4%
3% 12.6%
12 6% Containers
Exports
9.2% 2.1%
Other
Other includes non-classified shipments, rail, mining, agricultural, military

12. Flat Rolled Steel Market
1.
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 market

13. Mill Shipment Reality
25%
Service Centers
10% Toll Processors
65% Direct to OEM's

14. “MAY YOU LIVE IN INTERESTING
TIMES”
Chinese Curse

15. Demand Destruction = Missing Pieces
of the P le
Puzzle
We haven’t
accepted the
changes to the
market and
we look to the
past for
help…

16. US Housing Starts
Seasonally Adjusted Annual Rate Source: US Census
2,500
2005
2,068,000
6
2,000
000 units
1,500
0
1,000
1 000
2008 904,000
2009 New Starts 550M?
500
2000 2001 2002 2003 2004 2005 2006 2007 2008

17. 0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
1/2000 2,000,000
3/2000
5/2000
7/2000
9/2000
11/2000
1/2001
Source: Ward AutoiInfoBank
3/2001
5/2001
7/2001
9/2001
11/2001
1/2002
3/2002
5/2002
7/2002
9/2002
11/2002
1/2003
3/2003
5/2003
7/2003
9/2003
11/2003
1/2004
3/2004
5/2004
7/2004
9/2004
11/2004
1/2005
3/2005
5/2005
7/2005
9/2005
11/2005
1/2006
3/2006
N. American Auto Production since 2000
5/2006
7/2006
9/2006
11/2006
1/2007
3/2007
5/2007
7/2007
9/2007
11/2007
1/2008
3/2008
5/2008
7/2008
9/2008
11/2008
1/2009

18. N. American Auto Production
January 2008 = 2008-2009
1,168,267
1,400,000
1,200,000
1 200 000
1,000,000
800,000
800 000
600,000
400,000
January 2009 =
200,000
435,731
0
Source: Ward AutoiInfoBank

19. Axis Title
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
Mar-0
00
Jun-0
00
Sep-0
00
Dec-0
00
Mar-0
01
Jun-0
01
Sep-0
01
Dec-0
01
Mar-0
02
Jun-0
02
Sep-0
02
Dec-0
02
Mar-0
03
Jun-0
03
Sep-0
03
Dec-0
03
Mar-0
04
Jun-0
04
Sep-0
04
Dec-0
04
Mar-0
05
Jun-0
05
2000 2009
2000-2009
Sep-0
05
Dec-0
05
Mar-0
06
Architects Billings Index
Jun-0
06
Sep-0
06
construction to
Dec-0
06
2009 Commercial
decline by 8-15%
8 15%
Mar-0
07
Jun-0
07
Sep-0
07
Dec-0
07
Mar-0
08
Jun-0
08
Sep-0
08
Dec-0
08
Mar-0
09
Source: American Insititute for Architects
Billings
Inquiries

20. Carbon - Flat Rolled
Actual Shipments
2007-2009
2007 2009 Source: Metals Serviice Center Institute
3500
3000
2500
211,800 tons
ousand of tons
2000
per day
Tho
1500
1000
69,500 tons
a day
500
0

21. Carbon- Flat Rolled
Inventory (EOM)
2007-2009
2007 2009 Source: Metals Service Center Institute
8000
7000
6000
5000
ousand of Tons
4000
4,228,900
228 900
Tho
3000
tons
2000
1000
0

22. IN RESPONSE - U S MILLS ARE
U.S.
TAKING OUT CAPACITY
Whether they want to or not…

23. 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
Essar 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

24. EAF’s running under 50%
g
 Running at low 40%
 SDI & Nucor projecting
continued l rates
i d low
 Can h t
C shut on & off
ff
 EAF s
EAF’s running
intermittently with
reduced work weeks

25. ArcelorMittal Operating Levels
East Chicago West 30%
East Chicago East 30%
Burns Harbor 35%
Cleveland 0%
Riverdale 18%
Coatesville 75%
Steelton 80%
Conshohocken 35%
Weirton 90%
Georgetown 0%
Source: USW

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

27. 0
100
200
300
400
500
600
700
800
900
1000
1100
1200
Apr 00 1300
Jul 00
Oct 00
Jan 01
Apr 01
Jul 01
Oct 01
Jan 02
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
Jan 06
Apr 06
Jul 06
Oct 06
Jan 07
Apr 07
Cold Rolled Pricing 2000 2009
2000-2009
Jul 07
Oct 07
Jan 08
Apr 08
Jul 08
Oct 08
Jan-09
Apr-09

28. Hot Rolled Coil Pricing 2009
540
520
500
480
460
440
420
400
Pricing is based on .060 " X 48" Coil G90, CS/Large Coil

29. Galvanized Pricing 2009
680
660
640
620
600
580
560
540
520
500
480
Pricing is based on .060" X 48" Coil G90, CS/Large Coils

30. We’re Trying to Figure “it” Out
y g g
Business has
changed!
Where are
we now and
where do we
go from here?

31. Apparent Steel Consumption
pp p
2007 2008
 Shipments = 106 430 000
106,430,000  Shipments
Shi t = 97,846,000
97 846 000
 Imports = 33,244,000  Imports = 31,927,000
 Semi’s - 6,656,000  Semi’s - 5,971,000
 Finished = 26,588,000  Finished = 25,956,000
 Exports = 11,154,000
 Exports = 13,476,000
 Steel Consumption =
121,864,000  Steel Consumption =
110,326,000

32. 2009 Projected Steel Consumption
j p
 Based on World Steel Association projection
p 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
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
products
d

33. WHAT DO I DO – AND
WHAT’S IN IT FOR YOU?
Sentiment, Momentum, Real Time Pricing
Relevant News & Analysis

34. it
News
N
Prices
Trends
Momentum Missing
info

35. Steel Buyers Sentiment
100.0
75.0
50.0
25.0
0.0
-65.2
-65 2
-25.0
-50.0
-75.0
-100.0

36. Steel Buyers Future Sentiment
100.0
75.0
50.0
25.0
0.0
-25.0
-50.0
-14.8
-75.0
-100.0

37. Price Momentum

38. SMU Galvanized Index
Date Low High
g Average
g
2/23/2009 $580 $650 $615
3/4/2009 $580 $650 $615
3/9/2009 $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
/ / 9 $
$520 $
$560 $
$540
4/22/2009 $510 $550 $530
4/29/2009 $500 $540 $520

39. Steel Market Update Index Price Comparison as of
May 1, 2009
HR CR Galvanized Galvalume
Steel Market Update $415
Steel Market Update $415 $490
$490 $510
$510 $669‐$779
$669 $779
CRU $402 $485 $557 NA
The Steel Index
The Steel Index $410
$410 $499
$499 $567
$567 NA
SteelBenchmarker $411 $494 NA NA
Platts $
$400 $
$470 NA NA

40. Steel Price Calculator
Hot Rolled, Cold
Rolled,
Rolled Galvanized &
Galvalume
Based on SMU
Average Prime Spot
Price Indexes

42. Some Keys to Watch
y
 MSCI – carbon flat rolled under 2.5 mos
 Mill capacity utilization at, or above, 60%
 Reduction in initial jobless claims
j
 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 decreasing
g y g
Read my newsletter….

43. Thank You for your time as it is truly appreciated