1

North American Steel Industry

Recent Market Developments, Future 

Prospects and Key Challenges

OECD Steel Committee

June 8-9, 2009 

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. NAFTA Steel Trade Challenges and Concerns
2

3

I. NAFTA Economic Conditions and Outlook

4

NAFTA Region Continues in Serious Recession

NAFTA Real GDP Since 2007

-6.3

-1.8

0

-5.7

-5.4

-5.9

- 8

- 6

- 4

- 2

0

2

4

6

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2007 2008 2009

Quarterly % change

USA Canada Mexico

Sources: Bureau of Economic Analysis (US) , Statistics Canada, Canacero
3

Sources: Bureau of Economic Analysis (US) ,CSSPA, Canacero 5

United States

• GDP declines to continue through at least 2Q09. Negative GDP this year for 1st time since 1991.

• Rate of economic decline may be decelerating, but unemployment could hit double digits.

• Major drags on growth include financial system, business investment, consumer spending.

• Housing inventory overhang and automotive bankruptcies/uncertainties must be resolved.

Canada

• Deep economic problems of late 2008 have intensified in 2009.

• Severe job losses slightly reversed in April, but unemployment still at 8%.

• Business credit availability remains tight.

• 2009 budget deficit forecast at $50 billion, including $12 billion stimulus. Interest rates down sharply.

Mexico

• 1Q09 GDP plunged 8.2%. Industry activity shrank 9.9%.

• Outlook has worsened due to impact of H1N1 virus.

• Government response to global economic crisis includes several fiscal stimulus policies.

• Stimulus actions have yet to translate into real economy.

Economic Analysis & Trends

6

Length and Depth of Selected Post-World War II Recessions

Recession years Length in 

months

Peak-to-Trough Percent Change

GDP

Privatesector 

employment

Manufacturing 

production

2008-09* 18* -3.9 -3.9 -12.2

2001 9 -0.5 -2.7 -6.6

1990-91 8 -1.5 -1.9 -4.7

1981-82 16 -2.9 -3.5 -9.5

1973-75 16 -3.4 -4.2 -15.6

1957-58 8 -3.7 -5.3 -14.5

The U.S. Economy is Facing

Its Worst Downturn Since the Great Depression

* Data covers thru June 2009; Full duration of 2008-9 recession not available at time of presentation.

Source: National Bureau of Economic Research, Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve Board and

Manufacturers Alliance/MAPI
4

7

Despite Stimulus, U.S. Recovery Will Be 

Slow and Uncertain: Manufacturing Hit Hard

$787 Billion Federal Stimulus Program Not Yet 

Boosting Steel Demand

Stimulus will have greater effect in 2010.

• Very little spent on infrastructure projects so far.

• Chief Economist for AGCA says “2009 nonresidential spending could fall by as much as 9%, 

even with stimulus funds.”

U.S. Lost 539,000 Jobs in April, Including 149,000 in Manufacturing

• Lost 488,000 manufacturing jobs so far in 2009; nearly 5 million since 2001. 

• Manufacturing employment, 12.2 million, at lowest level since June 1941 (population half of 2009).

Sources: Various Media Articles

Uncertainty on When the Economy Will Return to “Normal” -- Or If We Will See a “New Normal”

• Some surveys show increases in consumer, housing and investor confidence, but “hard data” remains disappointing.

• Global Insight does not expect U.S. GDP to return to 2008 level until 2011. 

Infrastructure / 

Transportation, 

8%

Health Care, 17%

Individual Aid, 7%

Tax Cuts, 37%

Discretionary 

Spending, 31%

(Includes incentives to 

computerize medical 

records and aid to 

states for Medicaid 

spending)

(Includes extension of 

unemployment 

benefits for up to 33 

weeks and COBRA 

subsidy)

8

-40

-20

0

20

40

60

80

1999:Q22000:Q12000:Q42001:Q32002:Q22003:Q12003:Q42004:Q32005:Q22006:Q12006:Q42007:Q32008:Q22009:Q1 0.60

0.70

0.80

0.90

1.00

1.10

1.20

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

(January 2004 = 1.00)

Canada: Economic Downturn Intensifies

Sources: Bank of Canada, Statistics Canada

Credit Availability: Loan Officer Surveys Since 2000 Non-Gov Construction Expenditures - Quarterly

Steel Manufacturing Relative GDP Share

-7

-6

-5

-4

-3

-2

-1

0

Q4:2007 Q1:2008 Q2:2008 Q3:2008 Q4:2008 Q1:2009

Q/Q Percent Change

Manufacturing Production Growth - Quarterly

(Chained 2002 Dollars)

-7

-6

-5

-4

-3

-2

-1

0

1

2

Q4:2007 Q1:2008 Q2:2008 Q3:2008 Q4:2008 Q1:2009

Q/Q Percent Change

Easie

r

Tighter
5

9

Mexico: Economic and Financial Update

Strongly Linked To U.S. Economy, Macro Indicators Turn Sharply Negative

Mexico: Industrial Production I - 09 (%)

Mexico: Inflation Up (Var %)

Mexico: Gross Domestic Product I – 09 (%)

Mexico: Unemployment I - 09 (Var %)

10

II. NAFTA Steel Market Conditions and Outlook
6

11

“Improvement in steel consumption 

for the second half of 2009 will 

depend on the effects of government 

stimulation packages, the continued 

stabilization of financial systems 

and a return of some consumer 

confidence” - Daniel Novegil, 

Chairman, Worldsteel Economic 

Committee, 26/4/09

Estimated 2009 Fall in NAFTA Apparent Steel Use (-32.2%)

More Than Twice World Average (-14.9%) and Greatest Among All Regions

(mil. MT) 2004 2005 2006 2007 2008 2009 f

Finished Steel 149.0 138.3 155.7 141.2 129.7 88.0

Apparent Steel Use

Survey of the Short Range Outlook

Spring 2009 NAFTA Region

United States*

2009 Million 

MT % Change

Crude Steel Use 70.3 -35.6 %

Finished Steel Use 61.8 -35.7 %

Exports 7.3 -40. 2%

Imports 16.8 -28.6 %

Canada

2009 Million 

MT % Change

Crude Steel Use 13.8 -21.6%

Finished Steel Use 11.6 -22.4 %

Exports 6.0 -27.3%

Imports 5.2 -31.6%

Mexico

2009 Million 

MT % Change

Crude Steel Use 19.8 -16.5 %

Finished Steel Use 14.6 -15.5 %

Exports 3.1 -32.3 %

Imports 1.6 -25.9 %

* Annualizing from 1Q „09, finished steel use would be 58.6 million MT (shipments of 47.3 million MT + 

18.5 million MT of finished imports – 7.2 million MT of exports).

Source: AISI, World Steel Association 12

NAFTA Steel Production Has Been Below 50% of Capability for Half a Year –

2009 Production Will Be the Lowest in 30 Years 

NAFTA Raw Steel Production - 2009 vs. 2008

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000 JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH APRIL

2008 2009 

Monthly Tonnage (MT)

30%

40%

50%

60%

70%

80%

90%

100% Utilization percentage

Production Tons Rate of Capability Utilization

Yet another effect of 

the economic crisis 

has been that NAFTA 

producers have 

deferred or cancelled 

over 5 million MT of 

previously announced 

short range (2009-11) 

steel capacity 

additions, according to 

Worldsteel estimates 

based on public 

announcements.
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13

MSCI Average Daily Shipments & Inventory

For United States and Canada

Metric Tonnes (000)

100

150

200

250

300

350

400

 2006

JAN

APR JUL OCT 2007

JAN

APR JUL OCT 2008

JAN

APR JUL OCT 2009

JAN

APR

Daily Shipping Rate 

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Inventory 

Daily Shipping Rate Inventory

Source: Metals Service Center Institute

NAFTA Service Center Inventories are at the Lowest Levels in Many Years, But 

Reduced Demand is Keeping Restocking from Taking Place

Service Center 

Demand Has Fallen 

in Line with Overall 

Steel Demand 

- U.S./Canadian 

service center 

shipments are off 

42% vs. 1 year ago.

- Inventories are down 

35% vs. August 2008, 

but reduced market 

demand has made 

current inventories 

large enough to last 3 

months (vs. a 2-month 

normal supply).

Source: Federal Reserve Board (US), Statistics Canada, Canacero 14

NAFTA Industrial Production Continues to Decline in 2009

NAFTA Industrial Production 2008-2009

-8

-6

-4

-2

0

2

4

JAN

2008

FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN

2009

FEB MAR APR

Percent change( m-o-m)

UNITED STATES CANADA MEXICO

• Industrial production in the 

NAFTA region has fallen steeply 

during this recession which, for the 

U.S., began in December 2007. 

•The cumulative effect has been 

that operating rates at NAFTA 

factories producing steel-containing 

goods are some of the lowest on 

record.

• While the latest Institute for 

Supply Management data suggest 

that that the U.S. manufacturing 

slump may be easing, the U.S. 

manufacturing unemployment rate 

stood at 12.4% through April 2009, 

which was 3.5% higher than the 

overall unemployment rate of 

8.9%. 1.6 million U.S. 

manufacturing jobs have been lost 

since December 2007 alone.
8

15

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2001 2002 2003 2004 2005 2006 2007 2008 2009

Permits Starts Completions

• There are 40-year lows for 

permits, starts and 

completions. Housing stock 

is at all-time highs. Vacancy 

rates remain above normal.

• It is still not clear that the 

market has hit bottom. 10% 

of mortgages are now in 

arrears or foreclosure. 

Economists expect 2 million 

more foreclosures this year.

• For those who can get loans, 

mortgage rates are low. 

While existing home sales 

rose 2.9% in April, home 

values are still declining --

down 19.1% 1Q09 vs. 1Q08.

U.S. Residential Construction Market

The U.S. Housing Market Struggles to Rebound

Source: U.S. Department of Commerce Units (millions)

16

NAFTA Automotive Market Remains In Crisis

0

200

400

600

800

1000

1200

thousand units produced

2008

YTD

2009

YTD

Detroit 3 Production 

Jan-April 2009 vs. 2008

Chrysler

Ford

GM

The financial crisis and deep 

recession have hit the “Detroit 

3” the hardest. Chrysler and GM 

have declared bankruptcy, and 

both have cancelled vehicle 

production for the next 60-90 

days to reorganize financial 

matters and reduce inventory to 

match much lower demand.

2009 annualized 

based on April YTD

Source: Ward‟s Automotive

NAFTA Light Vehicle Production 1994-2009

15.2

14.9

15.4

15.6

15.4

17.0

17.2

15.5

16.4

15.9

15.815.8

15.3

15.1

12.8

7.1

0

2

4

6

8

10

12

14

16

18

20

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Millions of Units
9

17

Source: NAFTA Steel Trade Monitor, US Department of Commerce,

Canacero and World Trade Atlas.

NAFTA Imports During Crisis Period

NAFTA Imports 2008 & Q1 2009

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR Metric Tonnes

NAFTA External Imports NAFTA Internal Imports NAFTA imports from 

other regions exceed 

intra-NAFTA steel 

trade. 

Non-NAFTA imports 

in 4Q 2008 continued 

at the same level as 

earlier in the year –

this, at a time when 

NAFTA domestic 

production and 

shipments were in a 

steep decline.

Source: US Department of Commerce and World Trade Atlas 18

NAFTA Exports During Crisis Period

NAFTA Exports 2008 & Q1 2009

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

JAN

2008

FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN

2009

FEB MAR Metric Tonnes

NAFTA External Exports NAFTA Internal Exports

NAFTA producers 

send only a small 

portion (usually 5% 

or less) of steel 

outside the region. 

During 4Q 2008, 

intra-NAFTA steel 

trade declined 

sharply, more or 

less in line with the 

steep decline in 

NAFTA market 

demand.
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19

III. NAFTA Steel Trade Challenges and Concerns

20

Major Trade Concerns During Economic Crisis

NAFTA steel producers‟ key concerns include:

• Increased import market share, at a time when low-cost, efficient NAFTA 

steel producers have ample capacity to meet reduced domestic demand

• Threat of further surges of unfairly traded steel and manufactured goods 

imports into North America

• Subsidized capacity expansions offshore in the face of declining demand

• VAT rebate increases to promote direct and indirect steel exports

• Higher import tariffs unrelated to trade cases

• Steel quotas and more restrictive steel import licensing systems

• Increases in government transportation and energy subsidies

• Manipulation by governments of raw material markets 

• Massive government interventions to keep currencies undervalued
11

21

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1Q

2005

2Q

2005

3Q

2005

4Q

2005

1Q

2006

2Q

2006

3Q

2006

4Q

2006

1Q

2007

2Q

2007

3Q

2007

4Q

2007

1Q

2008

2Q

2008

3Q

2008 

4Q

2008

1Q

2009 Millions of MT

Global Apparent Steel Consumption (Annualized)

Source: World Steel Dynamics

Global Steel Consumption Is Declining...

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World Steel Capacity Continues to Grow, Even as Economic Crisis

Has Delayed 64 Million MT Scheduled for 2009-10

Source: World Steel Association

... While Global Steel Capacity Continues to Increase 

World Crude Steel Capacity 2000-2009

1,065 1,065 1,098

1,173

1,249

1,361

1,456

1,564

1,802

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 Steel Capacity (thousand metric tonnes)

0

5

10

15

20 Current Average Growth Rate (CAGR)

World Crude Steel Capacity CAGR

134*

*2008-9 Additions to Capacity

79*
12

23

125

109

127

216

159

136

0

50

100

150

200

250

1st Qtr. 2008 4th Qtr. 2008 1st Qtr. 2009 Millions of metric tonnes

China Rest of World

Total Steel Production

Source: World Steel Association

Steel Production Outside of China is Falling Dramatically, 

While Steel Production in China is Actually Increasing

• While steel production has declined steeply in North America, South America, Europe and 

Japan, China‟s production has increased in recent months

• Chinese global market share increased to 49% at the end of 1Q 2009

Source: AISI, World Steel Association 24

NAFTA Import Market Share Has Increased During Crisis Period 

NAFTA Demand and External Imports

13% 14% 17%

25% 25%

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

1st Q - 2008 2nd Q 3rd Q 4th Q 1st - 2009 Metric Tonnes 

-5.0%

5.0%

15.0%

25.0%

35.0%

45.0%

55.0%

65.0%

75.0%

NAFTA External Finished Imports NAFTA Shipments -

External Import % of Apparent Demand

NAFTA steel demand 

and domestic shipments 

have fallen by 48% and 

40%, respectively since 

peak levels in mid-2008. 

Non-NAFTA import 

market share has 

increased over the last 

two quarters. 

NAFTA steel producers 

have more than adequate 

capacity to meet home 

market demand in 2009. 
13

25

Source: US Department of Commerce, Statistics Canada, Banco de Mexico

NAFTA Manufacturing (Not Just Steel) is in Crisis –

Huge Trade Deficits With the Rest of the World Threaten to Retard Recovery

NAFTA Trade Deficit - Manufacturing

193 241 285 320 342

318

342

329 266 211

-

100

200

300

400

500

600

700

2004 2005 2006 2007 2008

$ BILLION

CHINA NON-NAFTA (excl. China)

U.S. Trade Deficit - Manufacturing

53 58

19

44

-

20

40

60

80

100

120

1Q 2009 1Q 2008 

$ (Billion)

CHINA NON-NAFTA (excl. China)

The U.S. (non-NAFTA) manufacturing 

trade deficit declined n 1Q ‟09 vs. 1Q „08, 

but China‟s share of this 1Q ‟09 deficit 

increased to 70%.

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Key Policy Messages

When a meaningful recovery begins, the globally competitive, environmentally 

responsible NAFTA steel industry is “poised to compete.” Key policy messages are these:

• Regarding stimulus: 

 Economic stimulus is good, but it should be driven towards promoting domestic 

demand and not targeted at increasing exports

 NAFTA stimulus programs should create strong opportunities for North 

America‟s manufacturers, including steel producers

• Regarding trade:

 WTO-consistent use of laws against unfair trade to counter dumped and 

subsidized imports is market-correcting -- not “protectionism”

 Unfairly traded imports in NAFTA markets are particularly insupportable at this 

time of exceptionally low domestic capacity utilization and massive layoffs in 

North America

 NAFTA trade laws must be strongly and effectively enforced

 Existing trade remedy laws must not be undermined through international 

negotiations or WTO litigation