AK Steel Holding (AKS)

Raw Materials

The principal raw materials required for the Company’s steel manufacturing operations are iron ore, coal, coke, oxygen, chrome, nickel, silicon, molybdenum, zinc, limestone, and carbon and stainless steel scrap. The Company also uses large volumes of natural gas and electricity in its steel manufacturing operations. In addition, the Company routinely purchases between 10% and 15% of its carbon steel slab requirements from other steel producers to supplement the production from its own steelmaking facilities. Most purchases of coal, iron ore, coke and limestone are made at negotiated prices under annual and multi-year agreements. Purchases of carbon steel slabs, carbon and stainless steel scrap, natural gas and other raw materials are made at prevailing market prices, which are subject to price fluctuations in accordance with supply and demand. The Company enters into financial instruments designated as hedges of the purchases of natural gas and certain raw materials, the prices of which may be subject to volatile fluctuations.

The Company believes that it currently has adequate sources of supply for its raw material and energy requirements for 2006. The Company has secured adequate sources of supply of most of these materials for subsequent years and continues to seek to secure the remainder of its needs.

In December 2004, the Company reached an agreement with Shenango Incorporated for the supply of all of the Company’s anticipated coke purchases through the end of 2009. That agreement extended and modified an existing supply contract that was set to expire at the end of 2005.

In August 2005, the Company entered into an agency agreement with Tube City, LLC for the purchase of ferrous scrap for all of the Company’s steelmaking facilities. As part of the agreement, Tube City is responsible for negotiating the majority of carbon scrap and pig iron purchases for AK Steel plants in Ashland, KY, Butler, PA, and Mansfield and Middletown, OH.

In October 2005, the Company entered into a 10-year take-or-pay agreement with Quebec Cartier Mining Company (“QCM”) for the purchase of iron ore pellets. This contract provides for the purchase of a significant portion of the Company’s iron ore needs from QCM. The purchase price of the pellets is adjustable annually based on the then-market price. Because of the variable pricing nature of the contract and historic significant fluctuations in the market price of iron ore pellets, the Company cannot reasonably determine at this time, its future expenditures for these iron ore pellets.

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In October 2005, the Company completed the construction of a new recycling facility at its Ashland Works. The facility can process and recycle waste materials from the plant’s blast furnace, cokemaking operation and continuous caster and reuse the products in the Company’s steelmaking process. The new facility is capable of recycling up to 250,000 tons of waste per year and recovering iron and carbon units that would otherwise be sent to a landfill. The use of the recycled materials will reduce the amount of purchased raw materials needed for the Ashland Works steelmaking process.

In 2005, there were shortages in the marketplace of certain key raw materials such as ferro-nickel, ferro-chrome, ferro-silicon, ferro-manganese, coal, coke, and iron ore, which increased the costs of these raw materials. The Company continues to reduce the risk of supply shortages by entering into multi-year supply contracts such as noted above and by evaluating alternative sources and substitute materials. The potential exists, however, for production disruptions due to shortages of raw materials in the future. If such a disruption were to occur, it could have a material impact on the Company’s financial condition, operations and cash flow.

Raw Materials

The principal raw materials required for AK Steel’s steel manufacturing operations are iron ore, coal, coke, natural gas, electricity, oxygen, chrome, nickel, silicon, molybdenum, zinc, limestone, carbon and stainless steel scrap, and other commodity materials. In addition, AK Steel routinely purchases between 10% and 15% of its carbon steel slab requirements from other steel producers, located primarily outside the United States, to supplement the production from its own steelmaking facilities. Most purchases of coal, iron ore, coke and limestone, as well as transportation services, are made at negotiated prices under annual and multi-year agreements. Purchases of carbon steel slabs, carbon and stainless steel scrap, natural gas and other raw materials are made at prevailing market prices, which are subject to price fluctuations in accordance with supply and demand. AK Steel enters into financial instruments designated as hedges of the purchases of natural gas and certain raw materials, the prices of which may be subject to volatile fluctuations from year to year. AK Steel believes that it currently has adequate sources of supply for its raw material and energy requirements for 2005. AK Steel is seeking to secure adequate sources of supply for subsequent years. There currently are, however, shortages of certain key raw materials such as ferro-nickel, ferro-chrome, ferro-silicon, ferro-manganese, coal, coke, iron ore and slabs, which have increased the costs of these raw materials and which could affect their availability to AK Steel in the future. The Company is currently managing its way through these supply issues by entering into multi-year supply contracts and evaluating alternative sources and substitute materials. The potential exists, however, for future production disruptions, which could have a material impact on the Company’s financial condition, operations and cash flow.

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In December 2004, the Company reached an agreement with Shenango Incorporated for the supply of all of the Company’s anticipated coke purchases through the end of 2009. The supply agreement, extends and modifies an existing contract that was set to expire at the end of 2005.