thomas a. danjczek president steel manufacturers association july 30, 2009 steel orbis – steel...
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Thomas A. DanjczekPresidentSteel Manufacturers AssociationJuly 30, 2009
Steel Orbis – Steel Trade Conference
Steel Producers Issues in Today’s Economy
• The Steel Manufacturers Association (SMA)– 36 North American companies:
31 U.S., 3 Canadian, and 2 Mexican– 125 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
SMASteel Orbis – Steel Trade Conference
• Production capability– EAF steel producers accounted for 60% of U.S. production in 2008– 62% first half 2009– SMA represents over 70% of all U.S. steel production
• 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
SMASteel Orbis – Steel Trade Conference
Outline
•SMA
•Today’s Concerns
•Today’s Deterioration
•China, China, China
•Other Issues (Energy, GHG, Infrastructure Spending)
•Consolidation
•Scrap
•Protectionism and Trade Issue
•Legislative Items (Cap & Trade, Infrastructure, Trade)
•Is Enough Being Done?
•Conclusion
Steel Orbis – Steel Trade Conference
Steel Executive- 1st Half 2009
The Obvious Concerns
-Our Jobs
-US Recession and financial meltdown
-Infrastructure Spending
-Value of the RMB
-Energy shortfalls and pricing
-Federal Bailouts
-China, China, China
-Global Steel Overcapacity
-Subsidies and other trade distortions
-US Legislation (111th Congress and the 44th President)
Steel Orbis – Steel Trade Conference
2009 in a long term contextGlobal steel annual production changes
Source: worldsteel, First River
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Ye
ar
on
Ye
ar
Ch
an
ge
in P
rod
uc
tio
n
Year Decline
1 1921 -38%
2 1932 -27%
3 1931 -27%
4 1945 -25%
5 1919 -24%
6 1908 -22%
7 1930 -21%
8 1914 -21%
9 1938 -19%
10 2009F -15%
11 1982 -9%
12 1975 -9%
13 1958 -7%
14 1918 -6%
15 1944 -5%
2009 in a long term contextUS steel industry production changes
Source: AISI, First River
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Ye
ar
on
Ye
ar
Ch
an
ge
in P
rod
uc
tio
n
World USA
Year Decline
1 1921 -53%
2 1932 -47%
3 1938 -44%
4 1908 -40%
5 1982 -38%
6 1931 -36%
7 2009F -30%
8 1930 -28%
9 1914 -25%
10 1958 -24%
11 1919 -22%
12 1954 -21%
13 1975 -20%
14 1980 -18%
15 1946 -16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Cap
acity
Util
izat
ion
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Cap
acity
Util
izat
ion
US raw steel capacity utilizationLong-term average is 78%, stable
level is 85%
Source: AISI, First River
63% 48% 65% 61%
Average Utilization RatesPeriods of adjustment (red bars): 60%Periods of relative stability: 85%
World Steel Capacity Grew by Over 50% in the Past Eight Years.
Source: German Steel Federation and IISI verifications
Global Steel Capacity Through 2008
World Crude Steel Capacity 2000-2008
1,065 1,065 1,0981,173
1,2491,361
1,4561,564
1,654
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Ste
el C
ap
ac
ity
(th
ou
sa
nd
me
tric
to
ns
)
0
5
10
15
20
Cu
rre
nt
Av
era
ge
Gro
wth
Ra
te (
CA
GR
)
World Crude Steel Capacity CAGR
90*
*Additions to Capacity
Steel Orbis – Steel Trade Conference
Crude Steel Supply in China, 2005-2009 (million metric tons)
2005 2006 2007 2008 2009 (e)
Capacity 450.0 530.0 599.0 640.0 (e) 660.0
Production 352.0 416.0 489.0 498.0 520.0
Net Exports 0.5 29.7 41.7 51.0 38.0
Source: Growell Research, “China Steel Capacity Forecast for 2006-2010” and CISA Presentation at OECD, December 15, 2008.
Steel Orbis – Steel Trade Conference
China Steel Comments
•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 to absorb overproduction
•Chinese steel industry is overbuilt and under-demolished
Steel Orbis – Steel Trade Conference
China’s Trade Surplus with the U.S.
Year China’s Trade Surplus
2001 $22 billion(year China joined WTO)
2006 $177 billion
2007 $262 billion (up 47.7%)
2008 $290 billon
The U.S. has lost 3.3 million manufacturing jobs The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.since 2000… imbalances cannot go on forever.
Steel Orbis – Steel Trade Conference
Other Issues - EnergySteel Orbis – Steel Trade Conference
Energy Summary
• US power generation industry is at a critical juncture, with social pressures and pending legislation demanding massive changes.
•Competing demands for reliable, low-cost energy and climate change mitigation appear incongruent.
•Our Nation’s liquid fuel dependence on foreign resources continue to grow.
•Uncertainty of regulatory outcomes and rising costs impact industry’s willingness to commit capital investments, endangering near-term production capacity.
• The United States must foster new processes that address conflicting energy objectives simultaneously.
Other Issues - Energy
Steel Orbis – Steel Trade Conference
D R A F T8
T h e U . S . S t e e l I n d u s t r y H a s O n e o f t h e L o w e s t P r o c e s s E m is s io n s I n t e n s i t i e s
in t h e W o r ld
0 .4 9 0 .4 6
0 .9 3 0 .9 6
1 .0 51 .1 2
1 .3 6
0 .0 0
0 .2 0
0 .4 0
0 .6 0
0 .8 0
1 .0 0
1 .2 0
1 .4 0
1 .6 0
Un ite d S ta te s Ca n a d a Me x ic o G e rma n y A u s tr a lia Ru s s ia Ja p a n
Met
ric T
ons
CO
2/M
etric
Ton
of S
teel
Other Issues - GHGSteel Orbis – Steel Trade Conference
D R A F T
7
P ro ce ss G H G E m iss io n s P e r T o n H a ve F a lle n B y 4 8 % S in ce 1 9 9 0
0 .0 0
0 .2 0
0 .4 0
0 .6 0
0 .8 0
1 .0 0
1 .2 0
1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6
To
ns
CO
2/T
on
Ste
el
Other Issues - GHGSteel Orbis – Steel Trade Conference
Globalization and Consolidation Developments Have Dramatically Changed the NAFTA Steel Landscape
Acquiring Company Acquiring Company Acquiring CompanyAcquired Company Acquired Company Acquired Company
Arcelor Mittal Nucor Duferco/NLMKArcelor Connecticut Steel Winner Steel
Dofasco TricoMittal Birmingham Evraz
Ispat Inland Corus Tuscaloosa Oregon SteelISG Worthington-Decatur Claymont Steel
LTV Marion Ipsco CanadaUS Steel Plate
WeirtonNelson SteelHarris Steel Severstal
Acme-Riverdale Auburn Steel Arcelor Mittal-Sp. Pt.North Star Arizona Rouge
WCI
Georgetown American Iron ReductionSicartsaBayou
LMP Steel & Wire
CSNHeartland
US Steel Gerdau AmeristeelLone Star Sheffield
EssarNational Chaparral AlgomaLTV Tin Co-SteelMinnesota SteelISG IH#2 Pkl. North Star
Stelco Sidetul Tultitlan Quanex Macsteel
BlueScope CorsaIMSA Steelscape
OAO TMKSSAB
Ipsco Tubular (U.S.)ICH/Grupo Simec Ipsco Plate (U.S.)Republic
Steel DynamicsTernium GalvPro-Jeffersonville
Hylsa The TechsIMSA Roanoke Steel
Steel of West Virginia
TenarisMaverick Tube (U.S.) Prudential Canada Hydril Company
Wheeling Pitt
1/1/09
Bethlehem
The David J. Joseph Co. (Scrap)
Omnisource (Scrap)
Steel Orbis – Steel Trade Conference
• US aging infrastructure is functionally obsolete and structurally deficient
• FHWA estimates $78.8 billion per year for the next 20 years to maintain infrastructure, $131.7 billion to improve
• Gas tax at 18.54/gallon generates app. $40 billion
• Current gas tax woefully insufficient, only half of maintenance
Infrastructure Stimulus
Steel Orbis – Steel Trade Conference
U.S. Steel Scrap(Data in million metric tons)
Source: US Geologic Survey, January 20081. 2008 is a rough estimate based on 3 normal quarters; 4 th Quarter @ 60% steel production
Salient Statistics—
United States:2003 2004 2005 2006 2007(e) 2008(e)1
Production
Home Scrap17 14 15 13 13 12
Production
Purchased Scrap
56 59 58 58 58 52
Imports for Consumption 4 5 4 5 5 4
Exports 11 12 13 15 15 23
Consumption, reported 65 67 66 66 66 59
Steel Orbis – Steel Trade Conference
Free Trade vs. Protectionism
Protectionism -Predatory Pricing -Trade distorting subsidies -Government Ownership-National power by protecting our industries and state -Piling up currency measures -One way trade
Need “Balanced” Trade over “Mercantilism”
Who’s the Protectionist?
Is “Protectionism” the enemy of “Free Trade”
1. Taken in part from C. Blum
Steel Orbis – Steel Trade Conference
HR 2998, “the American Clean Energy & Security Act”; or the Waxman-Markey bill
U.S. House of Representatives passed bill – June 26, 2009 -House passed bill in vote on Friday June 26-219-212 vote (1 in 5 Democrats did NOT vote for the bill)-White House called for a vote on bill, but did not endorse it-President Obama indicated that tariff concept included by Ways & Means Committee may have to be removed from final bill
No Equivalent Bill introduced in Senate-Senate has been surprised by quick movement of House billExpect Senate to move much more slowly in dealing with aspects of any climate change legislation – could be 2010 before something is voted on and conferenced with House version of bill
U.S. Cap & Trade Climate Legislation
Steel Orbis – Steel Trade Conference
-Current six-year, $286 billion plan expires at end of September
-House working to produce $500 billion bill that would create new fund for road repairs, increase funding for rail and public transit, and include reforms to reduce fossil fuel reliance; estimated to create or sustain six million family-wage jobs
-Administration has requested 18-month $20 billion extension of current bill – contention over how to fund increased spending
-Immediate patch required to address current insolvency in Highway Trust Fund – expected to run dry in July 2009
Highway Bill Reauthorization
Steel Orbis – Steel Trade Conference
1. Section 421 – Against Chinese Tires- When China joined WTO, part of agreement was a 421 Safeguard to avoid surges &
injuries- Filed by Unions only, case heard at ITC, 4-2 in favor, awaiting remedy recommendation by
ITC- Key is Presidential discretion; under Bush; won 6 cases, but no remedy- If positive from President (probably quotas), low cost legal approach only needs to show
surge and harm, not dumping, subsidies, etc.
2. WTO Complaint By US Government- 9 materials, some steelmaking raw materials- Seems counterintuitive - don’t want Chinese exports, but the complaint is against hoarding
of materials. But, quotas are illegal.- Chinese defense will be Article 20, preserve raw materials; Coke is a key.- Next steps: consultation between governments, followed by dispute resolution- Allows Chinese finished goods to be artificially cheaper
Trade Cases Against China
Steel Orbis – Steel Trade Conference
Is Enough Being Done?
Raw Materials
Energy
China
Trade
No
No
No
No
Barriers continue
Lack of policy continues
Currency manipulation, Subsidies, Not playing by the rules
Distortions continue, Who’s the protectionist
No long term structural policy changes are being proposed in Washington for taxes, trade imbalance, and energy.
Steel Orbis – Steel Trade Conference
Conclusion
U.S. Steel Industry in Better Position Today to Manage the Down Cycle (but what a down cycle!)
― Improved Economics From Consolidations, i.e. “Reacted Quicker in October”;― Improved Control of Variable Costs
― Scrap-Based Metallics (In 2009, U.S. will be nearly 2/3 EAF-based― Energy Costs― Transportation Costs― Labor Efficiency (U.S. at Below 2MH/Ton; Minimills Often Below 1MH/Ton)
― Improved Inventory Control (Inbound Materials, Steel, and Customer Products). NOT THE OLD INVENTORY OVERHANG!― Improved Debt and Equity; Balance Sheet Position
― Still Challenging – But Reasons for Meaningful Long-Term Optimism!
Steel Orbis – Steel Trade Conference