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January 12, 2004

Dear Valued Alro Customer,

The metals industry is experiencing a period of rapid change that has raised many questions and concerns among those who consume metals (steel, aluminum, and red metals) on a daily basis. With prices escalating at an unprecedented pace, and availability tightening, an already challenging business environment has become even more difficult. We regret the burden this has placed on trying to manage your business, and while we cannot change the current circumstances or predict when stability will return, we can assure you that Alro Steel’s commitment to maintaining an adequate supply of material for our customers has not wavered.

Many factors have contributed to the recent pricing trend; however, most industry experts agree that increase in the global consumption of steel is the driving force. While consumption of metals in the United States and other countries has remained relatively flat or even declined in recent years, China’s consumption has increased dramatically. To feed this increase in consumption, China’s demand for scrap, coke and other raw materials has strained the global supply of these commodities that are used in the production of steel. More specifically, in the last two years the price of scrap has doubled, base metals used as alloying elements in steel such as nickel and molybdenum have more than tripled and coke is in such short supply the Chinese government has intervened to restrict the exportation of this commodity so they can support their internal growth.

To keep up with the rapid increases in raw materials, most domestic steel producers have implemented a raw materials surcharge, primarily scrap. These surcharges are being added to existing orders regardless of purchase order price and are in addition to many base price increases that have occurred over the last several months. If we are to continue to remain a viable supplier and to make sure we have enough material to meet your requirements, we must continue to replenish material, even at these higher prices.

With the dissolution of the Section 201 tariffs, many expected prices to be lower at this time instead of higher. The relative attractiveness of the U.S. market for foreign steel producers has diminished primarily as a result of the significant decline in the value of the U.S. dollar over the last two years. Increased ocean freight costs and more profitable markets elsewhere have at least temporarily made the lifting of the tariffs a non-event.

A reduction in domestic steel-making capacity and consolidation of several major producers has also created concerns about the amount of steel available. Fortunately, Alro Steel has solid, long-standing supply relationships allowing us to be well positioned to meet your material requirements during these challenging times.

With all the recent changes, Alro’s pricing has begun to reflect these increases in order for us to continue to provide the service levels you have come to expect. If you need additional information or have questions, please contact your local Alro sales representative. We appreciate your business and look forward to continuing our relationship for many years to come.

Mark Alyea
President, C.O.O.
Alro Steel Corp.

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