Program

Tuesday, June 18

8:25 am Welcome: Mike Botta, Publisher, AMM

8:30 am Keynote Presentation: Gaining the Upper Hand in the Global Poker Game
Peter F. Marcus and Karlis M. Kirsis, Managing Partners, World Steel Dynamics

9:00 am Highlight Speaker: Leo W. Gerard, International President, USWA

10:15 am Panel I: Are Steel Mills in the Americas Out of Poker Chips?

Moderator: Thomas C. Graham, Principal, TC Graham Associates
Panelists: Daniel R. DiMicco, Vice Chairman, President & CEO, Nucor Corp.
Alejandro M. Elizondo, President & CEO, Hylsamex, Mexico
John E. Lichtenstein, Associate Partner, Accenture
José Paulo de Oliveira Alves, Managing Dir - Infrastructure, Energy & Business
Development, CSN, Brazil
Rodney B. Mott, President & CEO, International Steel Group

12:00 noon Luncheon
Award Presentations:
The third "Willy Korf Award for Young Excellence" honors
Paulo Antonio de Souza, Jr, Brazil

The twelfth "Willy Korf/Ken Iverson Steel Vision Award" honors
Dr. Jamshed J. Irani, former Director, Tata Steel, India

Luncheon Speaker:
Thomas J. Usher, Chairman, U.S. Steel Corp.

2:15 pm Panel II: International Steel: Fewer Players, More Winners

Moderator: Tom Balcerek, Americas Steel News Editor, AMM
Panelists: Bruno Bolfo, Chairman, Duferco SA, Switzerland
John H. Goodish, President, US Steel Kosice SRO, Slovak Rep.
Jia Yanlin, CFO, Baosteel Co. Ltd., China
Alexei Mordashov, General Dir & Chairman, Executive Board, Severstal, Russia
Malay Mukherjee, COO, Ispat International, UK
Keiichiro Shimakawa, President & CEO, Nippon Steel USA Inc., Japan

4:00 pm Panel III: Winning Strategies in Distribution, Trading, E-Commerce and Forward Selling

Moderator: Peter F. Marcus, Managing Partner, World Steel Dynamics
Panelists: Wilfried von Bülow, President & CEO, Ferrostaal Inc.
Santiago Clariond, President & CEO, IMSA Acero SA de CV, Mexico
Robert Dryburgh, President, Straightline Source
Patrick J. Gallagher, President, MSA MetalSite
Patrick A. McCormick, Vice President, Procurement/MAC Group, Emerson
Bud Siegel, President & CEO, Russel Metals Inc., Canada

Wednesday, June 19

8:15 am Panel IV: Do Mini-mills Still Have an Ace in the Hole?

Moderator: Frank Haflich, West Coast Editor, AMM
Panelists: Donald F. Barnett, President, Economic Associates Inc.
Keith Busse, President & CEO, Steel Dynamics Inc.
John D. Correnti, Chairman & CEO, Birmingham Steel Corp.
Roger Phillips, retired President & CEO, IPSCO Inc., Canada

9:45 am Keynote Presentation: Guy Dollé, CEO, Arcelor, Luxembourg

11:00 am Panel V: Steel Company Finance: Are Poker Chips Available at What Price?

Moderator: Peter F. Marcus, Managing Partner, World Steel Dynamics
Panelists: R. Wayne Atwell, Managing Director, Morgan Stanley
Aldo Mazzaferro, Vice President, Goldman Sachs
Wilbur L. Ross, Chairman & CEO, Wilbur L. Ross & Co.
Glenn R. Tilles, Managing Director, Lehman Brothers
Jim Tumulty, Managing Director, Libra Securities

12:15 pm Luncheon

Luncheon Speaker:
Martin Wolf, Associate Editor & Chief Economics Commentator, The Financial Times, UK

2:00 pm Panel VI: Upping the Ante in Coke, Metallics and Slab

Moderator: Michael Marley, Editor, Secondary Materials, AMM
Panelists: Andrew Aloe, President, Shenango Inc.
Benjamin M. Baptista Filho, Commercial Director, CST, Brazil
C. Lourenço Gonçalves, President & CEO, California Steel
Brian Levich, Sr. Metals Analyst, CIS Steel Markets Monthly, UK
John L. Neu, Chairman, Hugo Neu Corp.
Duncan Price, Managing Director, HIsmelt, Australia

3:00 pm Panel VII: Introducing Wild Card Technologies into the Steel Game

Moderator: Peter F. Marcus, Managing Partner, World Steel Dynamics
Panelists: Gianpietro Benedetti, President & CEO, Danieli & C. SpA, Italy
Gerhard Falch, Pres & Chairman of the Board, VAI, GmbH, Austria
Klaus Galinski, Member of the Managing Board, SMS Demag AG, Germany
Susumu Okushima, Group Executive Vice President, Kobe Steel Ltd., Japan
Richard L. Wechsler, President, Castrip LLC

Steel Success Strategies XVII

Steel Mill Poker: Bluffs, Realities, Strategies

The conference this year was upbeat, with an active audience participation in the question and answer portion of the panels. We sensed a combination of excitement and positive feelings that we've not seen for at least the past five years.

One reason for the happier attitude on the part of most delegates no doubt was relief that the industry's worst financial setback in 30 years had ended far more quickly than expected. A second reason is that we see, after the fact, that a sizable number of the well-situated companies took actions in the recent period of shake-out in the industry that have caused them to be far better positioned on a longer-term basis. It is now clear that, in the past five years, the stronger companies have grown even stronger and the weak even weaker. For some, stress and crisis has led to opportunity and reward.

Selected Viewpoints and Perspectives

· For flat-rolled steel, the global market continues to tighten. Japan's market is rebounding after a prolonged slowdown that saw contract and the spot market prices decline dramatically.

· On the technology front, there is a lot of optimism about direct strip casting. Nucor is cautious in its statements, however, saying it needs to be proven commercially viable. Others question the finished surface quality of the process.

· There was the perception at the conference that USA's Section 201 actions helped pricing globally. Prices are up in Japan, Europe, China, India and elsewhere.

· Contract prices for steel sheet products in the United States are expected to rise in 2003 because of the tighter supply/demand balance. The price may be $20-30 per ton above current contract prices.

· Worldwide demand for slab is expected to be huge - growing possibly from about 25 million tonnes per year now to 45 million tonnes annually.

· Spot steel prices for flat-rolled sheet may begin to ease in the United States in the fourth quarter 2002 / first quarter 2003, as ISG ramps up to perhaps as high as a 6 million tpy rate, and Nucor's Trico comes back onstream with its 2 million tpy plant.

· International steel traders are suffering profit-margin pressure in the face of rising protectionism. Steel-buying over the internet (in the form of USS' Straightline and MSA MetalSite) is back after last year's dot-com debacle.

· A reduction in CIS scrap exports has had a favorable impact on international scrap prices, and Russia and other CIS countries will continue to yield influence over international pig iron and semi-finished prices.

· Equity and debt issues are having some success in the steel industry after a hiatus of about three years, but opportunities could vanish quickly.

· China may consume 170 million metric tonnes of steel in 2002, up from 147 million tonnes in 2001 and about 120 million tonnes in 2000.

· Thirteen world-class steelmakers were identified: Posco, Nucor, Tata, Baosteel, Gerdau, China Steel, CSN, Severstal, Arcelor, Dofasco, Nippon Steel, Thyssen/Krupp and US Steel. These account for 25% of global shipments. WSD views these companies as likely winners in the next decade.

· Very little state-subsidized mills remain in the CIS. As a result, the companies are more transparent and competitive.

· Although the Chinese government still owns most of its steel companies, the mills are operated autonomously and steel company management is responsible for profits and losses.

· Arcelor, the world's largest steelmaker, wants to capture 20% of the global automotive sheet market. It now holds about 13%.

· There is a 75% chance of a global steel shortage in 2003 and a favorable supply/demand balance for the international industry during the next five years. Consumption is forecast to increase 2.2% this year versus a 1.3% decline in 2001.

Keynote and luncheon speakers…in a nutshell:

· Leo Gerard, president of the USWA said the union will not be a scapegoat for the industry's remaining woes, but will cooperate with consolidation moves.

· Thomas J. Usher, chairman, US Steel Corp, said the industry has maybe 12-18 months to get consolidation done.

· Guy Dollé, chairman of the management board, Arcelor, expressed the need for a steel early warning system, and the need to "bring rationality to volume-minded behaviors."

· Martin Wolf, associate editor and chief economics commentator, The Financial Times, felt a "post-bubble" global economy could burst, but that the consumer could indeed keep the recovery going.

Steel Success Strategies XVII

Steel Mill Poker: Bluffs, Realities, Strategies

Session Highlights

Tuesday, June 18, 2002

Keynote Presentation: "Mirror, Mirror on the Wall Who's the Fairest of Them All?"

For an audience of more than 600 industry executives from around the world, Peter F. Marcus and Karlis M. Kirsis, managing partners of World Steel Dynamics Inc., Englewood Cliffs, N.J., identified 13 companies that they believe deserve to be labeled "world-class steelmakers." In selecting the 13 companies, the analysts assessed 21 different categories including operating cost, profitability, harnessing technology, expansion rate, stock market performance and more.

According to Kirsis and Marcus, the companies can be divided into three groups, based on their findings:

• Those with the highest average rankings include:

q POSCO of South Korea (based on weighted average rankings for the 21 items, it is #1).

q Nucor of the United States (based on average rankings for the 21 items, it is #1).

q Tata Steel of India.

q Baosteel of China.

q Gerdau of Brazil.

· Those with mid-point average rankings include:

q China Steel of Taiwan.

q CSN of Brazil.

q Severstal of Russia.

· Those with the lowest average rankings (which include the most traditional of the steelmakers) include:

q Arcelor of Luxembourg.

q Dofasco of Canada.

q Nippon Steel of Japan.

q Thyssen/Krupp of Germany.

q United States Steel.

The World Steel Dynamics (WSD) partners also noted that flat-rolled steel prices in the United States may have peaked following a surge of as much as $175 per ton this year. More domestic production is now coming on stream - some tonnage from International Steel Group (ISG), which purchased the assets of the former LTV in April. World export prices, Marcus and Kirsis said, are likely to continue their recovery at a moderate rate.

U.S. spot steel prices for hot coil jumped from just $205 per net ton in December to $330 to $380 per ton today, Kirsis said. But producers currently off line were due to increase output starting in the third quarter, and Marcus observed that high domestic spot prices were attracting imports. Marcus said he saw a "fair amount of steel being booked for fourth-quarter delivery" because of the U.S. supply pinch.

Marcus said he found it difficult to believe that a real surge in imports was likely to occur. He cited a "volatile, unpredictable" market environment in the United States that was likely to discourage a wholesale influx of imports, since this year's price hikes left room for a reaction by domestic mills if they were undercut too sharply by imports. Nevertheless, he described the outlook for prices today as "very scary."

The two partners emphasized that WSD sees a 75% chance of a global steel shortage next year and a favorable supply/demand balance for the international industry during the next five years. They anticipate a 2.2% rise in global steel demand this year versus a 1.3% decline last year. In just the past few months, they noted, the price of hot-rolled band in China had increased to more than $360 per tonne from about $260 per tonne. Apparent steel consumption in China is expected to rise 11% compared with 3% in the rest of the world, although inventory reduction may mean that demand would remain flat next year compared with a 4% rise in the rest of the world.

The current shortage can be attributed to a number of factors, they explained, among them the fact that global steel demand fell less than expected last year due to a sizeable increase in consumption in China, while buyers in other parts of the world liquidated their inventories.

Despite a 46% rise in world sheet export prices this year, global prices were still depressed by historical standards, they said, while the world's major consuming markets had yet to show signs that prices were declining. The backlogs for mills, they pointed out, had remained unusually high going into the summer, normally a sign that prices in the second half should remain firm.

Highlight Speaker: Leo W. Gerard, president, United Steelworkers of America (USWA)

In a speech focusing sharply on several controversial issues, including the need for steel industry consolidation and legacy-cost relief, Leo W. Gerard, USWA president said the Union would be pleased to partner with steel companies to ensure the long-term viability of the industry. Nonetheless, he stressed that the Union is not willing to be the fall guy for the industry's remaining problems.

Gerard said his preference is to partner with one large North American steel company, rather than a number of smaller producers. "The problem we have today is too many steel companies," he said. "We need fewer steel companies, not fewer workers or fewer tons."

The Union president made the point that the USWA is not a roadblock to consolidation. "We are willing to work with the steel companies and will be the best partner to work with," Gerard said. "Consolidation has to occur."

The Union's vision, he said, was for one large North American steel company that would produce 40 million to 50 million tons annually. Such a company, he said, would have the flexibility to shift production and move workers around more effectively. "We would rather negotiate with one strong company than experience what we did in the last round with LTV, when the management team there took the money and ran to Texas," Gerard said.

"What we will not do is participate in a Rambo-style corporate restructuring or merger and acquisition. We believe we all have an obligation to the workers who have relied on these companies for health-care and retirement benefits."

Gerard also proffered a plan for dealing with health-care costs. He suggested that all steelworkers be placed into one large pool, creating a buying bloc that would provide purchasing power from which all companies could benefit.

He added that a new kind of collective-bargaining agreement--one to specifically cover high-value-added manufacturing--might help in the future. "Too many steel companies spun off or closed those high-value-added facilities in the 1970s and '80s," Gerard said. "Management and labor should have been stronger at that time. We should have had a basic manufacturing agreement that is different from the basic steel agreement to cover those facilities, something that would have brought the value-added properties on-site."

Gerard said the Union would be a "constructive partner" with the steel industry going forward provided the companies were willing to work in kind. "The thing we will not do," he said, "is have our Union or our membership portrayed as the scapegoat."

Panel I: Are American Steel Mills Out of Poker Chips?

The moderator of this panel, Thomas C. Graham, president of consulting firm TC Graham & Associates, Pittsburgh, and former president of U.S. Steel Corp. and AK Steel Corp., said those two companies, along with Nucor, were the USA companies holding the chips today. "The American companies that are running out of chips have plenty of international company," he added.

According to most other industry experts on this panel, some steel mills in the Americas have enough poker chips to remain viable in the near future -- but those lacking chips should not rely on the recent Section 201 action by the U.S. government to keep them at the table for long.

History will judge the Section 201 as the industry's "last hurrah," according to John Lichtenstein, a steel industry analyst and associate partner with Accenture LLP. "It will be seen as one final shining moment in the sun before the plunge into darkness." He expects that there may be a proliferation of 201 exemptions and an adverse (for the United States) ruling from the World Trade Organization (WTO). The result: The post-201 era will arrive "sooner than expected," and without such "life support" it will be tougher for a number of American mills to survive.

In fact, the consensus among the panel was that some companies were out of chips--but many were not. Those low on, or without chips, faced the possibility of extinction in the not-too-distant future if drastic changes -- including global capacity reductions and continued efforts toward industry consolidation -- did not happen in short order.

"The first thing we need to understand is that this is not a United States issue, it is a global issue," said Daniel R. DiMicco, vice chairman, president and chief executive officer of Nucor Corp., Charlotte, N.C. "And until we realize that, (the global steel industry) will continue to be inefficient and not profitable. The industry is not out of chips. Some have more than others. At the end of the day, there will be winners and losers, as there are in free-market economies."

DiMicco also chided European producers in attendance by saying that "the last time I looked, prices were up in Europe. You're welcome. The 201 was a global safeguard. Global overcapacity is, and will continue to be, a problem."

Alejandro M. Elizondo, president and chief executive officer of Mexican steelmaker Hylsamex SA de CV, warned that the higher steel prices companies were enjoying today---sparked by the Section 201 action--were not sustainable for the long term. He said that several other measures must be taken to ensure the long-term survival of the industry.

"Volatility is a concern," he said. "The cycles have become much shorter. If you want to move conservatively, the only way to do it is to carry very little debt on your balance sheet. It's difficult to enter long-term arrangements, given the volatility of the market."

Elizondo said that protection afforded by the Section 201 action was only a stop-gap measure and consolidation must come quickly, but those two factors alone were not enough to save the industry. He said that companies must do a better job of inventory management and must reduce fixed costs and convert them to variable costs.

José Paulo de Oliveira Alves, managing director of infrastructure, energy and development at Companhia Siderurgica Nacional (CSN) of Brazil, noted that very few steel companies in the United States are investing. "USX, Nucor and AK Steel are the exceptions," Alves said.

He offered another suggestion: The U.S. industry could be helped by flexibility from the United Steelworkers Union. "We would like to invest in the U.S.," said Alves, whose company is negotiating a joint-venture partnership with Bethlehem Steel Corp. on its Sparrows Point, Md., plant. "But the USWA will have to be more flexible to attract more foreign investment to the United States."

International Steel Group's Rodney B. Mott, president and CEO, described himself as the "new kid on the block," having acquired certain LTV Steel assets just two month earlier (April 2002). As a result of that acquisition, Mott is pleased with the chips he received. He said the four blast furnaces that were part of the acquisition are all in good shape and still have "lots of life." The casters and rolling mills are solid and the cold mills/galvanizing lines are all facilities making a product that's in demand.

"When these mills were shutdown by LTV," Mott said. "It was done so admirably. They were protected. The workers cared. They made sure the furnaces were kept hot and the facilities were well maintained." Mott noted that it was apparent to ISG that the workers always wanted to bring these mills back. "As a result of the care taken to shut down," Mott explained, "our startup has been very successful, and the employees are making it happen." He noted that a new culture is taking root at the former LTV units, one that "focuses on new ideals and not tons." Those ideals include a sharp focus on cash, costs, inventory control, profits, and more.

Mott doesn't have a collective bargaining agreement with the United Steelworkers in hand just yet, but ISG is making consistent progress toward that and several other goals, not the least of which is an increase in its steel production rate. He said if current strong steel market conditions remain in place, ISG could increase its planned production rate to 6 million tons per year.

In response to questions about whether or not ISG was simply dressing up the mills to re-sell them, Mott answered: "Why would we do that? We see the potential to be a leader in this industry and we are in it for the long haul."

Willy Korf / Ken Iverson Steel Vision Award, presented to:

Jamshed J. Irani, former director, Tata Steel, India

To honor another visionary who passed away April 14, 2002, what was formerly known as the Willy Korf Steel Vision Award was renamed the Willy Korf / Ken Iverson Steel Vision Award. The award is made annually to individuals who have made a major contribution to the steel industry in terms of advancing change while at the same time promoting goodwill and integrity in the industry.

It was the first time the award carried the name of Iverson, the visionary who drove Nucor Corp., Charlotte, N.C., a mini-mill operation, to become the largest steel producer in the United States. The award is named for two men who demonstrated tremendous vision, innovation and willpower to alter the course of world steel -- and it was presented to Jamshed J. Irani, former director of India's Tata Steel. Irani lifted Tata into a world-class steel company.

Tata was founded in 1907 and is India's largest privately held steel company. Under Irani's leadership, Tata pioneered a number of innovative operating technologies, including one that allows the use of low grade coal to produce quality coke and another that converts India's powder-like "bluedust" iron ore into feedstock usable for his company's state-of-the-art blast furnaces.

Tata Steel also has made huge investments in the flat-rolled sector, allowing the company to upgrade its mix and giving it vastly improved standing in the marketplace.

In accepting the award, Irani told the luncheon audience that Tata is proud to have at least two Korf technologies in place and that, "Willy was always one step ahead of himself."

Astrid Korf-Wolman, daughter of the late technology leader, presented the award to Irani. She also presented the second Willy Korf Award for Young Excellence to Paulo Antonio de Souza, Jr. of Brazil's CVRD.

Luncheon Speaker: Thomas J. Usher, chairman, U.S. Steel Corp.

In a luncheon address before some 600 steel industry executives, Thomas J. Usher, chairman, US Steel Corp., reiterated his stand that consolidation of the integrated US industry must begin soon if this goal is to be accomplished by the end of the Section 201 program in 2005. While the industry has a "12-to-18-month window" to get this done, he said it's critical that work begin in the next three to four months. If not, he warned, the industry isn't going to be any more competitive going out of Section 201 than it was when "we came into it."

Usher also believes that it makes sense to pursue consolidation even if integrated mills don't receive outside aid to lighten their heavy legacy loads. He noted that the industry's plea for assistance to Washington for help in easing this burden was based on reasoning that, if companies failed, they would end up costing the government in any case. But this argument that if the government doesn't pay up front it could end paying later gained "no traction" in Washington.

Asked if the industry can consolidate without legacy relief, Usher responded that there can be "cleansing through the bankruptcy process." He pointed out that in such instances, the government still ends up covering some of the costs, such as pensions (through the PBGC) and Medicare.

In response to questions from the audience, the chairman of U.S. Steel also noted that the company is holding "ongoing" discussions with some contract customers about the possibility of early negotiations of annual supply agreements. He indicated that the Pittsburgh-based steelmaker and its contract buyers have talked about starting negotiations before the fall in order "to modify the impact" of the market changes wrought by Section 201 measures.

This year's talks would take place during dramatically different market conditions than last year's. U.S. Steel's annual contracts are typically negotiated with major buyers in the autumn, and market prices at that time last year were headed towards historical lows. But Section 201 restrictions on flat rolled steel have helped to spur spot price increases of $100 per ton or more this year.

Usher was asked about U.S. Steel's "position" with its contract buyers in light of the changes wrought by Section 201. He noted that the steelmaker is working to "talk with customers, keep them informed of what is going on the pricing front," along with the possibility of opening up contract talks earlier. "This fall, the spot market will be strong so we will work to negotiate higher contract prices," Usher said, noting that the percentage of spot sales varies from company to company and that there is a lag effect in contract pricing (relative to the spot price).

Panel II: International Steel: Fewer Players, More Winners

Keiichiro Shimakawa, president and chief executive officer of Nippon Steel USA Inc., provided a jolt to this panel. Shimakawa, whose company was identified as one of the 13 world-class steelmakers, said Japan's predictions of a serious American steel shortage in the wake of import tariffs imposed by the United States in March had come true, adding that automotive sectors and service centers "were suffering to meet needs."

He said all customer-sought exemptions to the Section 201-trade relief should be granted by the U.S. government, specifically citing specialty steel and high-grade steel products demanded by customers. Asked whether or not Japan and other global steel producers had benefited from a rise in prices since the inception of Section 201, Shimakawa reluctantly agreed that was so. "But it's very tentative," he said. "The basic problem is not solved. Production needs to be eliminated and we need to recover a healthy supply and demand balance."

Bruno Bolfo, chairman of Duferco SA, said everyone expected the Section 201 would result in tough times "and the exact opposite happened, with flat-rolled prices soaring more than $100 per ton in three months after the trade remedy took effect."

Shimakawa did say that steel demand in Japan was just now picking up very slowly. "Contract prices decreased very much in Japan over the past two to three years," he said, adding that Japanese steelmakers could be expected to bargain very hard with auto producers to increase their contract prices. He was optimistic, however, that the Asian steel market would be revitalized "in the very near future."

John H. Goodish, president, US Steel Kosice SRO, in the Slovak Republic, noted that his company is always seeking other opportunities and that "strategic plays" on a multinational level make good sense for today's steel industry. "We'll have fewer players in a number of years," he said, "it will be like the global auto industry."

Another Pacific Basin steel producer also making the list of 13 world-class steelmakers, Baosteel Co., Ltd. was asked if Chinese officials told Bao executives how to run the government-owned company. "Most Chinese steel companies are owned by the state but the government no longer runs the steel companies," Jia Yanlin, chief financial officer of Baosteel replied. "The companies take responsibility for their profits and losses and earnings themselves. We make our decisions ourselves."

Along these same lines, in Russia, all but the smallest of companies have eliminated state subsidies, according to Alexey A. Mordashov, chairman, Severstal. "As a group," he noted, "the companies are more transparent and competitive."

Having recently filed anti-dumping duty investigations into steel imports, Yanlin defended the company's actions, sounding very much like U.S. steel producers. "We are willing to compete with foreign counterparts in a fair trade environment," Yanlin said. "Any dumping hurts development of our individual steel companies and we will file a trade suit. It's quite understandable."

Yanlin said China consumed approximately 150 million tonnes of steel last year but still needs to import 15 to 20 million tonnes to meet domestic needs.

In a panel survey, participants across-the-board agreed there would be more slab trading in the future.

"There will be a shortage of slabs," Bolfo predicted, adding that costly planned projects in Brazil and Australia to add slab capacity may be superceded by some less-costly efforts by CIS producers.

"There will be a sustainable increase in slab trading," Malay Mukherjee, president and chief operating officer, Ispat International N.V. said. "The players in slab have the facilities and they only need to increase their efficiency to increase demand. We think slab will be a hot commodity in the near future."

Mukherjee also used his time at the conference to announce that just the day before, his L&M Group reached an agreement with the Czech government to acquire the Nova Hut steel works. A key component of the corporation's strategy, he said, is to provide flat-rolled products to the EU market.

Panel III: Winning Strategies in Distribution, Trading, E-Commerce and Forward Selling

Straightline Source is on track to be operating nationwide by the middle of next year. This development, in addition to the merger of MetalSite and Global Steel Exchange (GSX) now in the works, signals something of a steel e-commerce resurgence after an ambitious but ultimately unsuccessful initial thrust in the last few years.

"A dot-com for the steel industry sounds like a punchline for a late-night talk-show joke or a horror show," said Patrick J. Gallagher, president of MSA MetalSite. Nonetheless, he assured delegates at the Steel Success Strategies XVII conference that MetalSite owner Management Science Associates Inc. (MSA) had a long history in what is now known as e-commerce, going back to the 1960s, and could make it work.

Pittsburgh-based MSA has a plan to offer both a public exchange for steel and what it calls "private-branded marketplaces" for individual companies, their operations and major customers. Gallagher said he sees analysis of data gathered during e-commerce exchanges as a new area of growth.

Straightline, another Pittsburgh-based e-commerce operation and a unit of U.S. Steel Corp., appears to have learned from the myriad failures of other e-steel Web sites. "We believe some of the earliest e-commerce ventures did not address the supply chain or recognize the need to own the customer relationship," said Robert Dryburgh, Straightline president.

For Straightline, "ownership" means not only offering a real-time steel ordering service via Internet, telephone or fax, but also providing buyers with access to sales and metallurgical personnel, sourcing steel directly from suppliers and using regional processors to customize orders, and using third-party logistics companies for deliveries.

"Every step, from ordering to delivery, is managed through information systems," Dryburgh said. "This is in sharp contrast to previous Web-based metals marketplaces."

This second try for steel e-commerce comes at a time when many buyers are begging for steel, seeming to provide fertile ground for steel e-commerce startups or restarts. "A lot of people are having difficulty getting steel and trying a lot of different avenues. And ours is one of them," Gallagher said.

While steel e-commerce will likely make its mark eventually, at least one long-time steel market observer downplayed suggestions of revolutionary changes in steel distribution. Bud Siegel, president and chief executive officer of Mississauga, Ontario-based service center chain Russel Metals Inc., said the perceived threats to service centers of the past few years--starting with MetalSite, e-Steel and MaterialNet, then Enron and now Straightline--were of little concern to his company.

"Last year, we had over 16,000 individual customers and in our service centers our average order was 2.3 line items and $895 per order. No steel mill, no trader and no vertical/electronic portal will be able to service that clientele," Siegel said.

Meanwhile, Wilfried von Bülow, president and chief executive officer, Ferrostaal Inc. noted that protectionist measures-especially the United States and its Section 201-have left steel traders with "very few options." He added that 201 has "seriously damaged the environment for trade negotiations, stacked the deck against traders and caused distortion in supply."

The Ferrostaal executive commented that the 201 has sent the wrong message to producers because capacity and production are again climbing. "201 is only a temporary benefit," he charged. "It won't solve problems, only prolong the agony."

NAFTA countries Mexico and Canada were not subject to Section 201 tariffs. Santiago Clariond, president and chief executive officer, IMSA Acero SA de CV, reaffirmed that "Mexico will not be the back door to the US market."

In the end, said Patrick A. McCormick, vice president, procurement/MAC Group, Emerson, "The consumer determines the winners and the losers." He emphasized the constant need to deliver quality and cost improvements to the consumer.

McCormick also agreed with the dot-com panelists. "The Internet is not a failure," he said. "It provides rapid access to information, it's a form of outreach and can be used as a tool in negotiations." The Emerson executive noted that his company has employed reverse auctions to reach out to global sources, and that interactive bidding can provide 30-40 bids in a half hour.

Wednesday, June 19, 2002

Panel IV: Do Minimills Still Have an Ace in the Hole?

Nucor Corp.'s efforts aimed at thin-strip casting of steel through the Castrip process are viewed by many as a cutting-edge technology that one day could revolutionize the steel industry. Donald F. Barnett, president, Economic Associates Inc., is one who believes that strip casting's "psychological impact" will be far more critical than what it can or cannot do from a volume standpoint.

Throughout the conference, Dan DiMicco, vice chairman, Nucor, (although not part of this particular panel) took a more cautious approach. DiMicco noted several times that the Castrip process still needs work to prove its commercial viability.

And indeed, some of his colleagues in the mini-mill sector of the business echoed similar caution, pointing out that issues of cost and surface quality still must be answered. "We've looked at the technology and it has merit," said Keith Busse, president and chief executive officer of Steel Dynamics Inc., Fort Wayne, Ind. "But I think school is still out. There are questions that need to be raised."

One of those questions, according to Busse, involves cost. If a plant has an existing hot end, the benefits may be there. But if someone would have to build a hot end to accommodate a casting facility, costs of thin-strip casting might be prohibitive.

"As far as surface quality goes, there is a long way to go," Busse said. "I don't think it will be able to emulate cold-rolled quality." Busse was also quick to note that his company's Butler, IN plant can make steel at the rate of 0.3 manhours per ton.

John D Correnti, chairman and chief executive officer of Birmingham Steel Corp., Birmingham, Ala., said he believes thin-strip casting will work in some form. "I think it will work," Correnti said. "The question I have is: Where do you draw the quality line? There does not seem to be a large advantage in operating costs. In capital costs, yes, but not operating costs."

On another front, Correnti said that "the easy pickin's are over for the minis," and that now there is considerable competitive intensity among minimill equals. "There really is not much more than $30 per ton (in operating costs) between the best and the worst," he said.

Roger Phillips, retired president and chief executive officer of Ipsco Inc., Lisle, Ill., warned that thin-strip casting "is not a panacea" with regard to the cost/quality equation for steel. "We're at a point of diminishing returns," Phillips said. "There are not many more costs to wring out. To me, it's a matter of surface quality. If you are not going to roll it, you are still going to have a big fence to get over."

Keynote Presentation: Guy Dollé, managing director, Arcelor, Luxembourg

Guy Dollé, managing director, outlined Arcelor's near-term goals as: Reducing the number of global steel players to facilitate relations between upstream and downstream and bring rationality to volume-minded behaviors; creating conditions to focus on prices and margins rather than tons; being a low-cost producer; diversifying markets geographically and with new products; satisfying global customers by increasing the attractiveness of steel solutions; addressing environmental issues with some depth, and realizing a 15-percent return on invested capital before taxes.

Even more specifically, getting a foothold in the North American automotive sheet market is a top priority for Arcelor. Dollé said such a move would depend on ensuring guaranteed benefits to Arcelor's balance sheet and a solution to the health-care legacy-cost burden hanging over U.S. integrated steel mills.

He added that Arcelor's goal of capturing 20 percent of the global automotive sheet market--it currently holds 13 percent--would be unattainable without a significant holding through a U.S. integrated steelmaker. While opportunities exist, he acknowledged, the balance sheet and legacy-cost risks were major constraints.

Dollé acknowledged that the company bore a responsibility in steel pricing behavior in Europe, owning as it does 35 percent of its market, and he agreed that supply-and-demand balances were negatively impacted by price increases coming at the end of a positive steel-demand cycle.

Dollé said the company was trying to position U.S.-based J&L Specialty Steel as an "acceptable commodity player" in the flat-stainless market, but said that while the company had some advantages downstream, it suffered from having no rolling mill and no distribution.

He dismissed the notion that European flat-carbon price increases were the result of the U.S. import tariffs, and credited the rise to distressingly low prices that had nowhere to go but up but were still only equal to second-quarter 2001 prices. He said that European flat-rolled prices were likely to remain 30-percent below U.S. prices. Dollé estimated the worldwide global steel overcapacity at approximately 150 million tonnes, significantly less than some estimates that put the figure as high as 300 million tonnes. He stressed the need for a steel industry "early warning system."

Panel V: Steel Company Finance: Are Poker Chips Available at What Price?

Financial analysts and investment bankers told the Steel Success Strategies XVII conference attendees that equity issues were staging a comeback this year after a lull of three to four years. But they were advised to act quickly. "Do it immediately," said R. Wayne Atwell,managing director, steel and nonferrous metals, at Morgan Stanley Dean Witter & Co., stressing that, over the years, the industry's access to capital had fluctuated wildly.

Atwell noted that from 1990 through 1992 just $750 million of public equity was issued by the industry, surging to $8 billion in 1993 to 1997 and then collapsing to only $250 million in the subsequent four years through 2001. However, so far this year equity issues have totaled $625 million, including the $174 million that Steel Dynamics Inc., Fort Wayne, Ind., recently targeted for a secondary stock offering.

Despite this recovery, the U.S. total still lags the rest of the world, said Glenn R. Tilles, managing director for investment banking at Lehman Brothers Inc., Chicago. And the $600 million or so in U.S. equity financing raised this year accounted for a minority of the overall $3.75 billion in global issues.

While the United States accounted for all but about $100 million of the $1.5 billion of worldwide steel debt issued this year, Tilles stressed that domestic mills needed to book more equity in order to shore up their balance sheets. "If the North American industry is going to be competitive going forward, there's a need to raise equity," he said, noting that, in any case, the total $5.25 billion raised globally so far this year in both debt and equity was more than each of the previous four years.

Be that as it may, Aldo Mazzaferro, vice president of global investment research at Goldman, Sachs & Co., said that many investors saw "more long-term negatives than positives" associated with steel investments. Even in today's comparatively receptive markets, mills were forced to offer a premium over other industry sectors--albeit one that has narrowed in the past year--in terms of both interest rates on debt and a lowered price-to-earnings ratio for equity.

Mazzaferro pointed out that while it was becoming easier for some companies to find financing, others continued to seek protection in bankruptcy court. The one overriding factor that counters the industry's high capital costs, historic earnings volatility and other turnoffs to investors are low production costs, which allow acceptable returns on capital over the business cycle, especially labor costs. This is an advantage held by just a few steel producers such as Steel Dynamics Inc. and Nucor Corp.

Wilbur L. Ross, chairman and chief executive officer of Wilbur L. Ross & Co., doesn't think the same opportunities that allowed his firm to successfully bid $327 million in February for the steelmaking assets of LTV Corp. exist today. He pointed out that creditor expectations had

"gone up a lot" from what they were before the Bush administration imposed Section 201 restraints on imports in March.

James S. Tumulty, managing director of Libra Securities LLC, a dealer in distressed bonds and private placements, said the improving steel market meant that positive cash flow may be "only a quarter or two away" for some financially pressured firms. But he cautioned that the clock was ticking for producers facing the "perfect storm" of "dysfunctional" plants that had been only partially modernized and debt-financed facilities in disadvantaged locations. To succeed, mills must possess the advantages of good location, modifications in wages and work rules and other cost breaks that would support internal rates of return of more than 25 percent without the expectation of getting bailed out by higher prices, Tumulty said.

Luncheon Speaker: Martin Wolf, Chief Economics Commentator, The Financial Times, UK

The bearish economist acknowledged a "post-bubble" global economy could burst, and that the world is struggling with the aftermath of two huge "asset-price" bubbles in Japan and the United States. He noted, however, that his is a longer term view and that the consumer could indeed keep the bubble from bursting entirely.

Wolf also pointed to an exaggerated belief in the USA profits "miracle," saying that the profits recovery of the 1990s was largely an illusion. "As a share of GDP," Wolf said, "profits are well below the 1960s."

Still, a "weak" recovery is under way, led by the United States which is "forecast to grow quite strongly by mainstream forecasters", but Europe and Japan are lagging once again. Wolf credited the recovery to the fact that key causes of the slow-down (mini-oil price shock; tight monetary policy; high-tech stocks bubble burst) are now gone, that September 11^th had a "surprisingly small negative impact," and monetary and fiscal policy have been strongly supportive, especially in the United States.

Wolf explained why the United States is so critical: Between 1996 and 2000, the United States generated more than 40% of real global incremental demand. "There is now no comparable engine of demand in the world," he said. Among the advanced countries, which generate a little over 70% of world output, the Anglo-Saxons (with about half of this total) consume, while the Europeans and Japanese save. But the "spendthrifts," says Wolf, are the ones that have saved the world economy.

The big question then, Wolf maintained, is whether United States (and also UK) consumers can keep going and whether anyone else can replace them. "In other words," he said, "has the post-bubble adjustment been durably averted, or has it been merely temporarily postponed?"

Panel VI: Upping the Ante in Coke, Metallics and Slab

A recurring theme in this session was that global steel slab trade-now at about 25 million metric tonnes per year could go as high 45 million tonnes annually, but there is little merchant slab capacity planned.

Benjamin M. Baptista Filho, commercial director, CST, Espirito Santo, Brazil noted that in addition to Brazilian slab supply, the CIS slab is of high quality because they also now want to export more highly finished product. He said that Russia's Novoliptesk currently has the most excess slab capacity, but the company is building a new hot strip mill because there is a 5% annual growth rate in the Russian automotive market.

CST, according to Baptista, also plans to get into hot-rolled product in early August of this year. "The company wants to serve the domestic market where there is a good margin," he said. Traditionally, CST has exported 95% of its output. Preserving more for its domestic market will allow CST to help balance its currency fluctuations, "and to take advantage of tax credits of $100 billion reals."

Meanwhile, C. Lourenco Goncalves, president and chief executive officer, California Steel Industries, Fontana, Calif., said that as far as slab was concerned, "the position taken by the (USA) integrated mills during the Section 201 investigation was amazing." He noted that last year semi-finished steel accounted for some 6.5 million net tons of imports in the United States, of which CSI bought about 1.8 million tons of slab, or 30%.

Goncalves added that so far this year slab imports are running at a more than 9 million ton pace, which would be an all-time record high. "If we exclude CSI and a few other companies modeled like us," he said, "the integrated mills would be importing almost 6 million tons of slab for their own use." Goncalves was quick to acknowledge that given the fact that slab purchases are negotiated three to four months prior to delivery, "it is easy to conclude that at the very moment they were campaigning in Washington to ensure that tariffs on steel slabs were adopted, the integrated mills were also purchasing slab in record amounts."

Turning to the coke situation, Andrew Aloe, president, Shenango Inc., noted that the last 18 months have been very difficult for the merchant coke industry, but 2002 is shaping up as a somewhat better year. In the United States, blast furnace coke demand should be a little more than 17 million net tons. "Domestically, captive and merchant suppliers currently produce about 15.5 million tons per year," he said. "The remainder will be made up primarily by imports from China and Japan."

But beyond 2002, Aloe was hard-pressed to present a clear picture, since demand is predicated on the number of blast furnaces operating in the United States. "Of the 32 blast furnaces that could be in operation, 28 of them are now in service," Aloe noted.

"However, how long will these blast furnaces operate before they are at the end of their campaign life, or find themselves in a financial crisis?"

On the scrap front, John L. Neu, chairman, Hugo Neu Corp., recalled that 2001 was marked by "ultra-low prices." But with scrap prices up "$30-40 per ton" this year, it is allowing some processing facilities to be rebuilt. His company played a key role in the post-9/11 cleanup by processing 5,000 tons per day, which was all recycled. In total, the World Trade Center destruction resulted in 350,000 tons of steel scrap on the market.

"This did not have much impact on the market," Neu said. "Most of its was exported; it may have delayed the international scrap-pricing upturn by 30-45 days." What's more, for some two years now, Russian scrap exports have been down because they are using more domestically. Long term, Neu sees parity in scrap supply and demand and he said that HBI and DRI will balance the market.

Echoing that sentiment was Duncan Price, managing director, HIsmelt, Australia, who updated the audience on his company's $200 million Quinana project. The iron-making facility is a joint project of Rio Tinto, Nucor (each with 25%), Shougang of China and Mitsubishi (smaller shares). Shougang will engineer plants in China. Construction is to start in early 2003 and finish in November 2004.

Brian Levich, senior metals analyst, Metal Bulletin Research, provided a US perspective on CIS metallics exports in the post-Section 201 era. "Section 201 was justified, at least for those outside the US market, as an appropriate and effective mechanism to reduce global excess capacity and spur on global restructuring," he said. For the short-term, however, Levich saw little evidence that protectionist actions against CIS steel have led to any wholesale restructuring reforms in the CIS.

"Consequently, while the reduction in CIS scrap exports has left a favorable impact in international scrap prices," summarized Levich, "the CIS region will continue to act as a powerful influence in international pig iron and semis prices. Alarmingly for some in this audience, we can presume that further increases in CIS exports are to come."

Panel VII: Introducing Wild Card Technologies into the Steel Game

"Investments in process innovations have slowed because they imply high costs and long-term results," noted Gianpietro Benedetti, president and chief executive officer, Danieli & C SpA, Udine, Italy. "Companies cannot afford added costs because of the lengthy market recession which hopefully is drawing to an end."

As a result, Benedetti said the preference is given to innovations with fast ROIs (such as high-speed casting, scrap preheating, in-line heat treatment, high-speed drawing, and a number of other Danieli developments.) "In the next two to three years," he continued, "investment will mostly be aimed at rationalizing existing plants through the application of innovative technological packages."

Benedetti expects there to be investments in compact plants to produce semifinished products (such as slab and billet where energy and ore are available at low cost), "for a product full-cost of $160-170 per metric tonne and a cash cost of $120-130 per tonne.

Because it can reportedly save about $100 per ton in costs, direct strip casting continues to be the current technological development commanding the most attention. In fact, construction of the world's first commercial strip caster for carbon and stainless steel is complete, according to Richard L. Wechsler, president, Castrip LLC. "When commissioned and proven (commercially), the CASTRIP facility is expected to have an annual capacity of 500,000 tonnes of hot-rolled coil below 2-mm in thickness.

Wechsler noted that Castrip products can, in many applications, be substituted for cold-rolled steel, "and will likely create a new product category-already termed UCS-for flat-rolled sheet products." Nonetheless, for hot-rolled carbon steel products greater than about 2.5-mm, Wechsler said, "it is likely that conventional thick and thin slab casters followed by hot strip mills will remain the preferred processes, for at least the near term."

Pointing to several areas where it is introducing "wild card technologies into the steel game" was Voest-Alpine Industrieanlagenbau's Gerhard F. Falch, president and chairman of the board. He said through the end of 2001, about 2.3 million metric tonnes of iron have been produced via the COREX process. In steelmaking, Falch showed the latest compact LD shop built by VAI at the Donawitz works of Voest-Alpine in Austria. Popular items in casting are its SMART automatic strand taper control and the HYDROWAM mold adjustment technology.

Taking some thunder from CASTRIP, Falch showed off its EUROSTRIP stainless strip-casting plant at the Krefeld works of Krupp Thyssen Stainless, which he said is "poised to move to commercialization."

Klaus Galinski, member of the managing board of SMS DEMAG AG, discussed a similar process. He said the first CSP stainless caster has been operating since August of last year at Terni, Italy, where production recently attained a level of 30,000 tons per month. The CSP approach came as a result of SMS Demag working with clients and in the past year, the company has received orders for six more CSP operations.

Focusing on the industry's hot-end was Susumu Okushima, group executive vice president, Kobe Steel Ltd. Japan, who highlighted his company's ITmk3 ironmaking technology. He described the process, the latest incarnation of Kobe's direct-reduction technology known as FastMet.

Okushima noted that ITmk3 represents the third generation of ironmaking technology, which offers a high degree of metallics physical separation (iron from slag). He said potential users may have once considered a blast furnace upgrade as a first generation approach, direct reduction technology as the second generation, and ITmk3 as the latest.