amm mexican steel conference monterrey, mexico january 29, 2008 thomas a.danjczek steel...
TRANSCRIPT
AMM Mexican Steel Conference
Monterrey, Mexico
January 29, 2008
Thomas A.Danjczek
Steel Manufacturers Association
NAFTA Steel Roundtable
Outline
• SMA
• Consolidations
• China
• NAFTA
• Policy Implications
• Unknowns
• Conclusion
AMM Mexican Steel Conference
• The Steel Manufacturers Association (SMA)– 35 North American member companies:
30 U.S., 3 Canadian, and 2 Mexican– 126 Associate Members:
Suppliers of goods and services to the steel industry
• SMA member companies– Operate 125 steel recycling plants in North America– Electric Arc Furnace (EAF) steelmakers using recycled steel
AMM Mexican Steel Conference SMA
• Production capability– EAF steel producers accounted for over 60% of U.S. production in 2007– SMA represented over 70% of all U.S. steel production in 2007
• Recycling– SMA members are the largest recyclers in the U.S.– EAF steel producers are the largest recyclers in the world– Last year, the U.S. recycled over 75 million tons of steel
• Growth of SMA member companies– Highly efficient users of labor, energy, and materials – Modern plants producing world class quality products
AMM Mexican Steel Conference SMA
Steel Consolidating, But Still Fragmented
Top 15 Global Steel Producers - September 2007Based on 2006 Production: 1240 Million MT
Baosteel (26 mt)
Tata (incl. Corus) (24 mt)
USS (incl. Stelco) (26 mt)
POSCO (31 mt)
JFE (32 mt)
Anben (23 mt)
Shandong (22 mt)
Nucor (20 mt)
Wuhan (19 mt)
Tangshan (19 mt)
Evraz (19 mt)
Riva (18 mt)
Severstal (18 mt)
Nippon (34 mt)
Rest of World 64%
(794 mt)Arcelor Mittal - 9.5%
(118 mt)
Automotive OEM Global Market Share(Based on 2006 Production)
Top 1068%
All Others32%
Iron Ore Supplier Market Share
Top 375%
All Others25%
TOP 15 Represent 36% of Global Production
Source: IISB
AMM Mexican Steel Conference
Active Consolidation Within NAFTA
• Recent Key NAFTA Announcements:– ArcelorMittal-Dofasco– USS-Stelco, USS-LoneStar– Gerdau-Chaparral, Gerdau-MacSteel– Ternium-Grupo Imsa– SSAB-IPSCO– Essar-Algoma, Essar-Minnesota, Evarz-Claymont
• Emerging Downstream Focus:– Nucor-Harris, Nucor-Barker, Gerdau-Enco
• Extending to Scrap:– Sims-Metal Management, Steel Dynamics-OmniSource
AMM Mexican Steel Conference
Consolidation: Opportunities & Risks
• Potential Benefits:– Access to Capital, Technology– Deeper Customer Relationships– Facility Optimization / Strategic Fit– Industry Sustainability
• But Benefits Are Undermined By Prevailing Risks:
– Global Overcapacity– Subsidies and Other Trade Distortions
AMM Mexican Steel Conference
New Capacity Outpaces Consumption Growth
Capacity – Multiple Sources; Nucor Analysis
Demand – IISI projections thru ’08; 6% increase “09 – ‘10
EU-251%
India23%
NAFTA2%Other Asia
15%
Other Europe3%
CIS6%
Africa & Middle East5%
Central & South America
12%
China33%
Announced Steel Capacity Increases By Region
(2006 – 2012)
Announced Steel Capacity Vs. Projected Consumption 2007 – 2010
(Million Metric Tonnes)
Compound Annual Growth Rates:Capacity: 6.83% Demand: 4.65%
AMM Mexican Steel Conference
China: World’s Most Subsidized Industry
More than $50 billion in subsidies$7.5 billion in
debt-to-equityswaps in 2000
An additional $6 billion in
announced subsidiesduring 2000
2005 steel policycommits China
to further subsidies,micromanagement
Support from localand provincialgovernmentsuncontrolled
by central government Chinese steel producersenjoy government
assistance with energyand other input costs
Inadequate protectionof workers’ rights and
enforcement of environmental
standards
Manipulation of keyraw materials
markets, includingcoke and ferroalloys
Chinese steelmakersregularly obtain
preferential loansfrom state-owned
banks
State-owned enterprises
account for 91 percentof China’s largest
steel groups
AMM Mexican Steel Conference
China: World’s No. 1 Is Government Directed
Privately OwnedGovernment Owned or
Controlled
191 million tonnes
19 million tonnes
Source: Money for Metal (2007)
Top 20 Chinese Steel Producers:Government Control Vs. Private Ownership
Top 20 Capacity: 210 Million Tons
-
100,000
200,000
300,000
400,000
500,000
600,000
China Asia other thanChina
European Union(25)
North America C.I.S. (6) South America Other Europe Africa Middle East Oceania
Metr
ic t
on
s p
rod
uced
(in
'000s)
Source: World crude production through 9/07 annualized; IISI
2007 Projected Global Production
Australian Government Predicting China Will Reach 1B Tons by 2015,
CISA says 2020.
AMM Mexican Steel Conference
China Is the World’s Largest Exporter
China Finished Steel
Exports By Destination
2005 – 2007 (000 MT)Country / Region 2005 2006 2007
EU 25/27 1,367 7,393 12,650
S. Korea 5,526 8,817 11,844
NAFTA 3,092 7,047 5,970
Iran 185 5,180 3,096
Vietnam 865 1,721 2,994
United Arab Emirates
211 885 2,773
India 417 1,574 2,447
Others 8,86115,052
25,848
TOTAL20,524
43,007
67,622
Source: CISA, 2007 Data Annualized
China Finished Steel
Trade Balance
2006 – 2007 (000 MT)Im
po
rts
Exp
orts
Trad
e B
alance
200616,761
43,007
26,246
200715,400
67,622
52,222
% Change
-8.1 +57.2 +98.9
Source: China Customs, 2007 Data Annualized
AMM Mexican Steel Conference
AMM Mexican Steel Conference China “Bashing”
-China has NOT become the world’s largest steel producer by accident, or by operation of free markets, or comparative advantage
-China is NOT a low-cost steel producer
-China has reached its position through a combination of subsidies, mandates, and planned intervention
-In finished goods containing steel, China’s exports are expanding by approximately 30 percent per year
-Imbalance cannot go on forever
-Chinese steel market is still reliant on exports to absorb overproduction
-Chinese steel industry is overbuilt and underdemolished
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
2002 2003 2004 2005 2006
Mil
lion
s of
Dol
lars
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Sh
are
of U
.S. I
mp
orts
Imports from China China's Share of Imports
Data cover NAICS codes 33621, 33631-33639.Source: USITC Trade Dataweb at http://dataweb.usitc.org.
AMM Mexican Steel Conference What Harm
U.S. Imports of Auto Parts and Vehicle Bodies from China, Value and Share
Raw Materials: Governments Still Intervening
• Governments (e.g. China, India) Continue to Intervene in Key Raw Materials Markets For Steel:– Iron Ore– Coke– Ferroalloys– Refractory Materials
• Export Tax Manipulations / Restrictions
• Distortions Created; NAFTA Competitiveness Negatively Impacted
AMM Mexican Steel Conference
China Central To Current NAFTA CasesKey NAFTA Steel Trade Cases (Ch. 72 & Ch. 73)
May–November 2007
Country New Cases Current Sunsets
Canada Seamless OCTG Plate
United States
Pipe x 2
Nails
Wire Hangers
Hot-Rolled*
Mexico
Plate
Seamless OCTG
Nails
Wire Hangers
Wire Mesh
*Finding renewed against China on October 10, 2007
AMM Mexican Steel Conference
Example - Canada: China Growing Value, Market Share
APPLIANCES
Source2005 Imports
(CDN$ Millions)
Import
Share(%)
2007 Imports
(CDN$ Millions)
Import
Share (%)
% Value Change
05 / 07
1. United States 1579.7 53.75 1560.9 48.6 -2.2
2. China 605.0 20.59 764.2 23.8 +26.3
3. Mexico 146.6 4.99 226.9 7.1 +54.7
CONSTRUCTION PRODUCTS / FURNISHINGS
Source2005 Imports
(CDN$ Millions)
Import
Share (%)
2007 Imports
(CDN$ Millions)
Import
Share (%)
% Value Change
05 / 07
1. United States 3677.93 65.12 3860.88 61.11 +5.0
2. China 509.04 9.01 776.47 12.29 +52.5
3. Mexico 212.0 3.75 212.78 3.37 +0.03
Source: World Trade Atlas / AISI.
DOMESTIC & COMMERCIAL EQUIPMENT
Source2005 Imports
(CDN$ Millions)
Import
Share (%)
2007 Imports
(CDN$ Millions)
Import
Share (%)
% Value Change
05 / 07
1. United States 1493.3 50.34 1467.1 45.49 -1.8
2. China 619.13 20.87 802.42 24.88 +29.6
3. Mexico 351.68 11.86 377.16 11.69 +7.24
AMM Mexican Steel Conference
NAFTA
AMM Mexican Steel Conference
-Came into effect on Jan. 1, 1994
-One of the most significant trade events of the 90’s
-A trade agreement between three nations
-United States, Canada, and Mexico
-Population: 426 million
-Total GDP: $13 trillion
-Total Trade: $700 billion
Potential Effects of NAFTA
AMM Mexican Steel Conference
-Prices and wages
-Labor markets and jobs
-Imports and exports
-State and the local economy
NAFTA Conclusion
-General consensus that NAFTA had negligible effect on U.S. employment
-Trade may lead to wage inequality through an increase in earnings gap between skilled and the unskilled
-Little evidence that NAFTA-induced trade liberalization
-Evidence more in favor of net trade correction due to NAFTA
AMM Mexican Steel Conference
Role of NAFTA Governments
Defending the Market From Abuse:– Eliminating market interventions and distortions by all
governments– Enforcing compliance with trade agreements and competition
law– Maintaining and enforcing trade remedy laws– Assisting trading partners with understanding / adopting best
practices
AMM Mexican Steel Conference
Immediate Focus:
• Treat China as NME in AD Cases, and Fully Apply CVD Law to NMEs
• Promote NAFTA Manufacturing in FTAs
• Enhanced Government Information Sharing Across Jurisdictions on Trade Remedy Practice and Experience
AMM Mexican Steel Conference
AMM Mexican Steel Conference Unknowns
-Value of the RMB???
-JCCT Steel Dialogue – where goal is to promote transparency with better decisions???
-European Union antidumping investigation and targets???
-Energy cost and interest rate impacts???
-Rising freight costs???
-China’s restrictive policy of foreign ownership participation???
-China’s enforcement of environmental regulations???
-U.S. legislation???
-Trade actions???
-When will China play by market rules???
AMM Mexican Steel Conference Conclusion
-Consolidations helping ,overcapacity still a risk
-Trade distortion still a problem, U.S. Congress disappointed
-Need aggressive policy measures to prevent China from causing a major crisis. To date, only trade cases have had an impact.
-It’s still a cyclical business with demand, scrap, freight, inventories, etc.
-Finished goods containing steel are a major concern
-China, China, China… everything else is still only an embellishment
-Still reasons for meaningful optimism due to North American steel industry resiliency. North American steel facilities, for the most part, are technologically advanced, cost competitive, environmentally acceptable, and are a key component of the North American infrastructure.