1

NAFTA Steel Industry Pulse

North American Steel Trade CommitteeMexico City

June 27-28, 2011

2Source: AISI, Statistics Canada, Canacero

NAFTA Apparent Demand

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2008 2ND 3RD 4TH 2009 2ND 3RD 4TH 2010 2ND 3RD 4TH 1ST

2008 2009 2010 2011

Met

ric

To

ns

('00

0)

NAFTA Capacity

Canada Demand

Mexico Demand

US Demand

NAFTA Crude Steel Production & Capacity

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1st 2ND 3RD 4TH 1st 2ND 3RD 4TH 1st 2ND 3RD 4TH 1st

2008 2009 2010 2011

Metr

ic T

on

s (

'000)

NAFTA CapacityCanada ProductionMexico ProductionUS Production

3Source: AISI, Statistics Canada, Canacero

NAFTA Steel Imports

-

1

2

3

4

5

6

7

8

1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST

2008 2009 2010 2011

Met

ric Tons (m

illions)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

NAFTA Finished Imports Import Market Share

NAFTA Steel Exports

5%7% 6% 7%

6%8% 7%

6%5% 6% 5%

6%5%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST

2008 2009 2010 2011

Metric

Tons (m

illion)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0% Exports

% of

Shipments

NAFTA Exports % of Shipments

4

NAFTA Raw Steel Production & Utilization

17.4 17.6

22.024.4

27.0 27.7 26.9 28.628.7

73%

45%44%

68%70%73%68%62%

56%

-

5

10

15

20

25

30

35

1st 2nd 3rd 4th 1st 2nd 3rd 4the 1ST

2009 2010 2011

Mill

ion

Met

ric

Tons

0%

20%

40%

60%

80%

100%

Util

izat

ion

Rat

e

Exports

1.0

1.31.4

1.31.2

1.3

1.6

1.41.4

24%

-9% -15%

24%

-9%-12%

12%

-

0

0

1

1

1

1

1

2

2

1st 2nd 3rd 4th 1st 2nd 3rd 4th 1ST

2009 2010 2011

Mill

ion

Met

ric

Tons

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Q-Y

-Q %

incr

ease

Finished Imports

4.8

2.72.4

3.3 3.5

5.5

4.7

4.1

5.0

-14%-13%

10%

-11%38%

-6%

42%

-

1

2

3

4

5

6

1st 2nd 3rd 4th 1st 2nd 3rd 4the 1st

2009 2010 2011

Million

Met

ric

Ton

s

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Q-Y

-Q %

incr

ease

Tracking North America’s Steel RecoverySteel Production and Shipment Tonnage for 2009-2011

Apparent Supply

20.718.3

21.5 23.226.7 28.3 27.4

31.028.7

-2% -3%

13%

17%8%

15%8%

-

5

10

15

20

25

30

35

1st 2nd 3rd 4th 1st 2nd 3rd 4the 1ST

2009 2010 2011

Mill

ion

Met

ric T

ons

-10%

0%

10%

20%

30%

40%

50%

Q-Y

-Q %

incr

ease

Source: AISI, Statistics Canada, Canacero

5

Led by China, 2011 YTD World Steel Production at Record LevelNAFTA steel capacity utilization still 10% less than world-average

6

Key Concerns about Competitiveness

• Level of investment innovation by NAFTA countries continues to decline vs. competitor nations – without reversal, risk of becoming “old economy.”

• NAFTA industries face uncertainties due to governments not taking a long-term focus in policy development and expenditure decisions.

• Growth in steel-containing imports adding to capacity underutilization problem within NAFTA steel industry.

• Complex regulatory regimes are impeding ability of businesses to remain competitive and “profitable.”

• The government of China continues to expand its reach into both upstream and downstream industries, including through SOEs – new 5-Year Plans could increase China’s share of world manufacturing production and exports.

7

Key Discussion Questions on Competitiveness

• What can be done to address capacity underutilization in the NAFTA steel industry?– growth in direct and indirect steel imports– continuing weak internal demand

• With governments facing mounting debt and deficits, where best can they direct limited available resources to strengthen manufacturing competitiveness--- gain the best “ROI?”

– stimulating industrial innovation and R&D– ensuring access to secure and affordable energy– supporting skills development and training– rebuilding infrastructure, etc.

• How best can we inject a “pro-manufacturing bias” into government policy development?:– within each NAFTA country– across NAFTA– in collaboration with other manufacturing entities– building more awareness on key factors of industrial competiveness, such as NAFTA

Leaders letter and “Infrastructure Conference”

• Is the industry deriving maximum benefits from the current policy and program “tool kits” of governments, e.g., tax measures for purchasing machinery and equipment, funding for R&D and increasing energy efficiency? If not, what needs to be done?

88

• Fraud, circumvention and evasion (FCE) can disrupt normal internal trading patterns.

• FCE practices can result in misleading and erroneous internal trade statistics, muddling trade analysis and complicating efforts to stop unfair trade.

• Infrastructure issues at the NAFTA borders can restrict legitimate cross-border trade flows.

• NAFTA steel trade data are not timely, hindering monitoring.• New York state ballast water regulations would disrupt trade on

the St. Lawrence Seaway.• Proposed North American Emissions Control Area (NAECA)

could raise shipping costs, restrict vessel movements, slow trade.• Potential regulations to halt spread of Asian carp in Great Lakes

could stifle inland economy through restricted ship movements.

Key Concerns about Internal Trade

99

• Regarding FCE, the industry has proposed (1) identifying enforcement violations (2) analyzing evasion schemes, (3) improving communication and (4) actions to resolve problems. Will NAFTA governments consider these recommendations that aim to reduce, and eventually eliminate, unfair and illegal FCE practices?

• What is being done now, and is expected in the future, to reduce and ultimately eliminate infrastructure bottlenecks and protocols that slow legitimate cross-border NAFTA trade?

• How can the timeliness of NAFTA steel import data be improved?• What are NAFTA governments doing to help solve the excessive, burdensome

restrictions that would be imposed by NY state ballast water regulations?• What are NAFTA governments doing to help to resolve the shipping and trade

problems that would be created by the implementation of the NAECA?• What is the position of NAFTA governments on potential regulations to stop

the spread of Asian carp and the impact of such regulations on shipping, and what can NAFTA governments do to help mitigate the negative impact?

Key Discussion Questions on Internal Trade

10

• Continuing effects of economic crisis

• Efforts to undermine trade laws through international negotiations or WTO litigation

• Market-distorting practices in China and other countries, including restrictions on trade in raw materials

• Policies that give state-owned enterprises (“SOEs”) an unfair advantage over private companies

• Need for more effective policies recognizing the importance of manufacturing to the NAFTA region

Key Concerns about External Trade

11

• What are the prospects for the world and NAFTA economies going forward?

• What steps can and should NAFTA governments take to prevent trade barriers and market-distorting practices from hurting NAFTA steel producers?

• What additional steps could NAFTA governments take to preserve and strengthen the antidumping and countervailing duty laws?

• What should be the top priorities for NAFTA governments seeking to address China’s mercantilist policies?

• What policies would help preserve true market competition between private companies and SOEs?

• What policies would most effectively promote manufacturing in the NAFTA region?

Key Discussion Questions on External Trade

12

Given the severe problems facing NAFTA economies, it is essential that NAFTA governments do the following:

• Ensure strong and effective enforcement of trade laws throughout the NAFTA region, including effective steps to prevent fraud and evasion of AD/CVD orders;

• Resist any effort to undermine trade laws through international negotiations or WTO litigation;

• Pursue a more aggressive response to market-distorting practices in China, including currency manipulation and raw material export restrictions;

• Ensure that SOEs are not given an unfair advantage over private companies, at least in the NAFTA region;

• Implement policies that recognize the importance of manufacturing to the long-term prosperity of the NAFTA region.

Industry Critical Alerts to NAFTA Governments