Recent Developments in the NAFTA Steel Industry

OECD Steel Committee MeetingParis, France

September 26-27, 2019

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Macroeconomic economic conditions in North America are softening, causing growth in manufacturing to slow

While new investments in North American steel mills continue, there have also been recent increases in announced layoffs, mill idling and permanent closures

Overview of North American Market Conditions

NAFTA Macroeconomic Data

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Gross Domestic Product (GDP)Percent Change (Y-O-Y)

2013 2014 2015 2016 2017 2018 2019f 2020fU.S. 1.7 2.5 2.9 1.6 2.2 2.9 2.3 2.3

Canada 2.0 2.5 1.1 1.5 3.0 1.9 1.3 1.9

Mexico 1.4 2.2 2.5 2.3 2.0 2.5 0.5 1.0

Industrial Production (IP)Percent Change (Y-O-Y)

2013 2014 2015 2016 2017 2018 2019f 2020fU.S. 2.0 3.1 -1.0 -1.9 1.6 3.9 1.0 1.1

Canada 1.8 4.0 -1.1 -0.3 4.9 3.0 1.0 2.0

Mexico -0.5 2.7 1.0 0.0 0.0 0.5 -0.5 0.8

Source: U.S. Bureau of Economic Analysis (BEA), IHS Markit (U.S. – Sep. 2019 forecast), Bank of Canada, Mexico Economic Outlook, BBVA Research 2019f and 2020f = Forecasts

Offshore Imports Account for 16 Percent of the North American Market in 2019

4Source: U.S. Census Bureau (Commerce), Global Trade Atlas, AISI, CSPA, Canacero

0%

5%

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35%

40%

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4

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12

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2013 2014 2015 2016 2017 2018 2019

Fini

shed

Impo

rt M

arke

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are

(%)

Mill

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Tons

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MT)

Non-NAFTA Steel Imports

Non-NAFTA Semi-Finished Imports Non-NAFTA Finished Imports Finished Import Market Share

Total Steel Imports% Change 1H19 vs. 1H18

-12.3%

North American Steel Production Has Returned to 2014 Levels, but Shows Signs of Slowing Growth

5Source: AISI, CSPA, Canacero

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5

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35

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2013 2014 2015 2016 2017 2018 2019

Mill

ion

Met

ric

Tons

(M

MT)

North American Crude Steel Production% Change 1H19 vs. 1H18

+1.8%

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North American Apparent Steel Demand Remains Below Recent Highs

Source: U.S. Census Bureau (Commerce), Global Trade Atlas, AISI, CSPA, Canacero

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5

10

15

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45

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2013 2014 2015 2016 2017 2018 2019

Mill

ion

Met

ric

Tons

(M

MT)

NAFTA Apparent Demand% Change 1H19 vs. 1H18

-3.5%

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North American Finished Steel Exports Remain Low,Down 32 Percent from 2013 Levels

Source: U.S. Census Bureau (Commerce), Global Trade Atlas

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100

200

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1000

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2013 2014 2015 2016 2017 2018 2019

Thou

sand

Met

ric

Tons

(M

T)

NAFTA Finished Steel Exports to the World

NAFTA Direct Steel Deficit Set to Exceed 25 Million Metric Tons for Sixth Year in a Row

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Source: U.S. Census Bureau (Commerce), Global Trade Atlas-12

-10

-8

-6

-4

-2

01Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2013 2014 2015 2016 2017 2018 2019

Mill

ion

Met

ric

Tons

(M

MT)

NAFTA Direct Steel Trade Balance

NAFTA Semi-Finished Steel Trade BalanceNAFTA Finished Steel Trade Balance

NAFTA Utilization Has Dipped Below World Utilization Rates

9Source: AISI, CSPA, Canacero, WorldSteel Association

60%

65%

70%

75%

80%

85%

90%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q

2013 2014 2015 2016 2017 2018 2019

Steelmaking Capacity Utilization – NAFTA vs. World

NAFTA

World

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NAFTA Steelmaking Capacity Has Remained Remarkably Steady Since 2000

Source: OECD

0

500

1,000

1,500

2,000

2,500

2000

2001

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Steelmaking Capacity Global vs. NAFTA - 2000 to 2018

Global

NAFTA

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Steel Production Growth Weak or Negative for Most Global Producers, While China Soars

Source: worldsteel

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China EU NAFTA India Japan SouthKorea

Russia Turkey Brazil

Mill

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MT)

Crude Steel Production by Top Global Steel Producers

7mo2018 7mo2019

-2.4%+1.7% +4.6% -3.1%

+0.6% +0.4% -10.2% -4.3%

+9.0%

Efforts to Strengthen the North American Steel Market through Increased Cooperation

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The steel industry in all three countries is working to strengthen the North American steel market by——Urging prompt adoption and implementation of the U.S.-

Mexico-Canada Agreement, which will enhance the integration of our economies and modernize the NAFTA

—Strongly supporting government efforts to address global excess capacity and improve WTO rules on subsidies and other forms of market-distorting support

—Supporting North American governments’ cooperative efforts to strengthen trade remedy enforcement against dumped and subsidized imports and to adopt measures to combat transshipment, circumvention and evasion

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As demand and production soften in many markets worldwide, North American steel producers continue to face unfairly-traded steel imports and circumvention of trade remedies from many countries

Meanwhile, global steel excess capacity continues to plague steelmakers and markets worldwide

Over nearly three years, the GFSEC has had few results; much remains to be done

North American producers favor effective solutions to get governments out of the business of supporting uneconomic capacity expansions

Urgent actions by governments are needed to address this critical situation by effective trade remedies enforcement and continuation of the Global Forum on Steel Excess Capacity

State Supported Steel Production Continues to Impact North America

Update on Steel Market in Mexico

Mexico: Macro economics fundamentals

• GDP: 2.5% average growth (2013-2017), 2018: 2.0%. 2019: +0.5%. Estimated

• Construction sector: +0.6% marginal growth in 2018, and 2019: +1.0% Estimated

• Industrial sector: +0.6% growth in 2018, and 2019: +0.5% Estimated

Med-term public policy actions:

1) Fight against corruption2) Infrastructure investment plan3) Industrial policy to expand industrial development4) Government spending control5) Sound fiscal and financial management6) Implementation of Plan for Well-being and Health

• Safeguard. Mexican Government implements a 15% ad valorem MFNon 186 HTS codes, which defend ten finished steel categories.

• Anti-dumping. Mexico has implemented 33 final anti-dumpingresolutions against several steel products and 3 underwayinvestigations, AD targeted country was PR China with 80%.

• Customs Enforcement. The new Federal Administration has themandate to fight against corruption and unfair trade. Steel has definedas a strategic sector in customs enforcement action plans.

Enforcement and Mx goverment actions against unfair trade

Mexico: Trade law and enforcement actions