Stahl-Zentrum

STAHL 2011

1 | 10.11.2011 · STAHL 2011 · © Stahlinstitut VDEh | Wirtschaftsvereinigung Stahl

Competitive Conditions on Regional Steel Markets

Thomas A. Danjczek

President, Steel Manufacturers Association

Changing Times in the North American Steel Industry

Wissen, Werkstoff, WerteKnowledge, materials, values

Outline

•SMA

•Safety

•Changes

•Steel Demand Drivers & Forecasts

•Raw Materials

•Tone in Washington, DC & Regulations

•What the U.S. Needs to Do

•Final Thoughts

STAHL 2011

2

About the SMA

-Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 123 Associate Member steel industry suppliers

-Today, roughly two-thirds of U.S. steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s

-SMA Members account for approximately 80% of total domestic steel capacity

STAHL 2011

Where SMA Member EAFs are located…STAHL 2011

4

SMA Safety Overview

Key Drivers to the SMA Safety Committee Success

• Safety Committee Meetings

• Safety Statistics Benching

Marking

• Fatality Prevention Initiative

• Workplace Specific Safety

Surveys• Sharing of Site-SpecificSite-Specific Best

Practices

• SMA Safety Website

• Upstream/Downstream Safety

Awareness

• Education & Outreach

• First Hand Governmental

Compliance Awareness

• SMA Safety Awards

STAHL 2011

Fatality Prevention Initiative

Addresses Six (6) critical areas:

1. Confined Space;

2. Fall Protection; Lockout-Tryout;

3. Mobile Equipment

4. Material Handling; and

5. Rail

6. Cranes (Completed in 2011)

Focusing on five priorities in addressing crane fatalities:

◦ operator visibility and attentiveness;

◦ maintenance;

◦ fall hazards;

◦ charging the EAF/ladle handling; and

◦ non-routine procedures

Videos to be completed by the end of summer and introduced to the SMA in October 2011

STAHL 2011 Fatality Prevention

STAHL 2011 SMA Safety Data – 2010-2011yoy

SMA Board of Directors SMA Board of Directors recognizes outstanding recognizes outstanding safety performance through safety performance through the annual Don Daily SMA the annual Don Daily SMA Achievement in Safety Achievement in Safety Award. Award. ◦ 2011 recipient: 2011 recipient:

Chris Bullard and the Chris Bullard and the Logistics Team Gerdau Logistics Team Gerdau Ameristeel MidlothianAmeristeel Midlothian

STAHL 2011

9

STAHL 2011 US Changes

Deeper Recession

Variable Cost Control

Engineers

Scrap Prices

High Unemployment

Labor Intensity

Inventory Levels

China

Safety

Consolidations

Customer Requirements

Environmental Regulations

Foreign Ownership

Transportation Costs

Ore Prices

Energy Costs

Currency

State-Owned Enterprises

Other Factors…

10

STAHL 2011 Steel Changes

11

In USA, raw steel capacity utilization may reach 75% in 2011

STAHL 2011

12

Finished steel demand drivers in US

Actual Fitted

Three variables drive demand:•NA auto build•Non-residential construction•Appliance shipmentsR² = 85%

Source: First River

STAHL 2011

13

U.S. finished steel demand forecast

Actual ADC

Forecast

Source: CSM, FW Dodge, AHAM, First River

STAHL 2011

Auto build & non-res construction expected to recover, but not to previous peak

NA Auto Build (Million Units)

14Source: CSM Worldwide, FW Dodge

ForecastNon-Res Construction

(Million Sq. Feet) Forecast

STAHL 2011

STAHL 2011

U.S. net imports expected to remain lowerUS Imports & Exports

(Million Tons)

16Source: AISI, First River

Net Imports & US Dollar

Net Imports as % of demand(3 year rolling average)

$ IndexImports (%)

STAHL 2011

• Underlying Weak Economy

• Recovery underway, but slow, last 4 weeks???

• North American steel market under pressure with unused capacity

• Increased exports and percent imports (5mmt of semi’s imports) YOY

• Not normal cycle of recession, overcapacity; new supply coming on

• Relative strong demand in auto; construction lagging

• Raw material costs, and variable cost controls are major drivers

• Scrap prices expected to trend slightly lower next two months – too early to call a trend

• China, China, China

• Market cap values at historic lows

Comments on Current N.A. Steel IndustrySTAHL 2011

17

19

The Tone in Washington, DCSTAHL 2011

• It’s the Economy, stupid…• Dissatisfaction/Perception that US Government is not tackling

right issues(More for Wall Street than Main Street during recession)(Growing deficit, skepticism about role of government)

• GRIDLOCK (Democratic President & Senate; Republican House)• Trouble for Incumbents• Lack of Coherent China Policy (Currency?) Recognition that China

has flagrantly violated WTP Rules – i.e. Raw Materials

20

RegulationsSTAHL 2011

• Vigorous oversight of EPA, OSHA, Dept. of Labor, etc., is a general theme from the Administration• Prospects for comprehensive climate change legislation are weak – will see continued Congressional efforts to slow down EPA’s regulation of carbon emissions • Overwhelming burden of proposed regulations(Power Plant Emissions; EAF Mercury; Solid Waste, Boeing Case; Silica; Noise; Dust; Record Keeping, etc., etc., etc.)

Raw Material Cost and Availability is #1 Issue for NAFTA Producers

• Many countries continue to impose a variety of restrictions on exports of vital raw materials

– Export prohibitions

– Export duties

– Export quotas

– Other measures

• Trade-distorting restrictions on exports of raw materials– Give domestic producers in the exporting country an unfair advantage

– Increase worldwide costs of production

– Place a heavy burden on steel industries in developing countries that do not have substantial iron ore reserves or steel scrap supplies

Raw MaterialsSTAHL 2011

21

22

Export Bans

Quotas

Export Taxes

Elimination of VAT Export Rebates

Non-automatic (discretionary) Licensing Agreements

Other Administrative Barriers (i.e. –Port Restrictions)

National Export Restrictions On Ferrous Scrap Trade

STAHL 2011

23

World Scrap Exports, 2000 - 2010

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mil

lio

n M

etri

c T

on

s

STAHL 2011

24

Share of World Scrap Exports, 2010

USA23%

EU-2721%

Japan7%

Canada6%

Russian Federation5%

Other38% USA

EU-27

Japan

Canada

Russian Federation

Other

STAHL 2011

25

Country 2010 2009

Turkey 19.20 15.7

Korea 8.7 7.8

China 5.8 13.7

India 4.7 5.1

Taiwan 4.2 3.9

USA 3.8 3.0

EU-27 3.6 3.3

Major Scrap Importers, 2010 and 2009

STAHL 2011

26

World Scrap Supply and Consumption, By Region

World Scrap Supply, 2008

0

20

40

60

80

100

120

EU Turkey CIS NAFTA Latin America China Japan Other Asia

Mil

lio

n M

etr

ic T

on

s

Domestic Supply

Apparent Consumption

Source: World Steel Association

STAHL 2011

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

To

tal Q

ua

ntit

y E

xpo

rte

d (

Me

tric

To

ns)

2004 2005 2006 2007 2008 2009

Source: U.S. International Trade Commission - Dataweb

U.S. Scrap Exports to China - 2004 - 2009

While China Restricts Exports of Scrap, U.S. Exports to China Have Surged

27

STAHL 2011

28

STAHL 2011 China

Can only hope next 5 year plan which calls for 8% growth is WRONG!

.08 x 600mmt x 5 years = 240mmt… 281mmt compounded

WOW!

Actual Production

29

Scrap demand (mt) – 2017

Scrap Demand Forecasts

STAHL 2011

30

World Demand For Steel Scrap

World demand for steel scrap is likely to continue to increase

• Increased Steel Production In China, India and Brazil• Economic Recovery• Limited Growth of Alternative Iron Units

But A Large Number of Countries Still Impose Restrictions On Exports of Scrap and Other Raw Materials

Steel Scrap Is Subject To More Export Restrictions Than Any Other Raw Material

There Is A Significant Problem With Transparency Because Export Restrictions Change Frequently, Making Supply Even More Problematic

STAHL 2011

What does the U.S. need to do? • Assume a Pro-Manufacturing Agenda

– Business Tax Reform– Border Adjustable Taxes– Currency Adjustments– Energy Independence– Reasonable regulatory measures (Environment/Labor)– Climate for investments (Jobs, Jobs, Jobs) and Infrastructure

• Solve the structural problems that caused the recession - Real Foundation

– Bad loans and securities on bank balance sheets– Reduce huge trade deficits

• Stop the trade distorting restrictions in raw materials or ensure prompt reciprocity (SOEs?)

• Policy incrementalism is not sufficient

STAHL 2011

31

Final Thoughts

• In steel, the world has changed (Developing world, not about USA, getting tougher, ownership)• U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Don’t look to Washington, DC for

help• Environment of uncertainty and volatility will continue in U.S. industry until economic fundamentals are in equilibrium,

last 4 weeks???• In U.S., dissatisfaction/perception that U.S. Government is not tackling the right issues (i.e. “It’s the economy, stupid.”)• Reasons for optimism in steel in U.S.:

– Scrap-based, 75% of cost – local supply– Low cost on global basis (energy is neutral, labor less than 10%, others have higher transportation costs)– Relatively strong U.S. market and U.S. resiliency– Better U.S. company balance sheets

STAHL 2011

32

Stahl-Zentrum

STAHL 2011

33 | 10.11.2011 · STAHL 2011 · © Stahlinstitut VDEh | Wirtschaftsvereinigung Stahl

Competitive Conditions on Regional Steel Markets

Thomas A. Danjczek

President, Steel Manufacturers Association

THANK YOU FOR YOUR ATTENTION

Wissen, Werkstoff, WerteKnowledge, materials, values