Thomas A. Danjczek President Steel Manufacturers Association February - 2009 AWPA – Annual Meeting...

Thomas A. DanjczekPresidentSteel Manufacturers AssociationFebruary - 2009

AWPA – Annual Meeting

Steel Producers Issues in Today’s Economy

OutlineAWPA – Steel Producers Issues in Today’s Economy

•SMA

•Today’s Concerns

•Today’s Deterioration

•China, China, China

•Other Issues (Energy, GHG, Infrastructure Spending, Mercury)

•Product Data 2008

•Protectionism and Trade Issue

•Is Enough Being Done?

•Conclusion

• 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

SMAAWPA – Steel Producers Issues in Today’s Economy

• Production capability– EAF steel producers accounted for 60% of U.S. production in 2007– 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

SMAAWPA – Steel Producers Issues in Today’s Economy

Steel-Wire Executive-4th Quarter 2008

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)

AWPA – Steel Producers Issues in Today’s Economy

NAFTA Economic Growth Is Decelerating

NAFTA Real GDP Since 2006

-2

-1

0

1

2

3

4

5

6

7

2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3

Rea

l G

DP

(Q

uar

terl

y %

Ch

ange

, S

AA

R)

USA Canada Mexico

Sources: Bureau of Economic Analysis, Statistics Canada, Bloomberg


Source: Federal Reserve Board

U.S. Gross Domestic Product

2.2

2.5

3.9

3.3

1.3*thru

9 m o.

3.2

2.0

0

0.5

1

1.5

2

2.5

3

3.5

4

%

The United States Is in a Recession


U.S. Business Activity Has Fallen Sharply

Source: ISM

U.S. Purchasing Managers Index (PMI) Since 2003

35

40

45

50

55

60

65

70

2003 2004 2005 2006 2007 2008

EX

PA

ND

ING

CO

NT

RA

CT

ING

Lowest level since 1982


0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2001 2002 2003 2004 2005 2006 2007 2008

Permits Starts Completions

Residential Construction Market

The U.S. Housing Market Is Plummeting

Source: US Dept of Commerce


20072008

1.18

0.74

-37%

US LV SALES

NOV NOV

North American Light Vehicle Production

Mil

lion

s of

Un

its

Source: Automotive Market Research Council, Fall 2008

ActualActualActualActual

Mil

lion

s of

Un

its

13.0 12.8

AMRC Data Fall ‘08

AMRC Data Fall ‘08

ActualActual


Dow Jones Index - 2008

7,000

8,000

9,000

10,000

11,000

12,000

13,000

2008 Weekly

Dow

Jon

es V

alu

e

500

700

900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

2,500

Dow Jones Daily Closing Value U.S. Weekly Raw Steel P roduct ion

Production (Thous. Metric Tons)

Steel Production in the U.S. Has Fallen Dramatically

Source: Dow Jones Industrial Index, AISI


After Years of Growth, Global Steel Consumption Has Fallen

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1Q2005

2Q2005

3Q2005

4Q2005

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

3Q2008

(e)

Mil

lion

s of

MT

Global Apparent Steel Consumption (Annualized)

Source: World Steel Dynamics, “Global Alert # 31” (Oct. 1, 2008) at 12.


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


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 352.0 416.0 489.0 498.0 470.0

Net Exports 0.5 29.7 41.7 51.0 49.0

Source: Growell Research, “China Steel Capacity Forecast for 2006-2010” and CISA Presentation at OECD, December 15, 2008.


Imports from China into NAFTA are Rising

CHINESE IMPORT SHARE OF U.S. APPARENT SUPPLY - 2008

0%

5%

10%

15%

20%

25%

30%

2008

PERCENT OF U.S.

DEMAND

PERCENT OF U.S. FINISHED

IMPORTS

CHINESE IMPORT SHARE OF TOTAL DEMAND CHINESE % OF IMPORTS

Source: AISI


China’s Capacity Now Exceeds Chinese DemandFor Many Key Steel Products

2008 Difference Between Chinese Capacity and Chinese Demand

Source: World Steel Dynamics, “Global Steel Alert # 31” (Oct. 1, 2008) at 17, 25.

0

5

10

15

20

25

30

35

Hot-rolledsteel

Plate OCTG Wire rod Rebar Cold-rolledsteel

Galvanized sheet

Mill

ion M

etr

ic T

ons


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


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%)

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.


China Conclusions

It’s About Competitiveness US producers have a competitive advantage in metallics due to US

scrap and China’s need to import over half its ore; US producers are on par with China on availability and price of energy, while labor is much lower in China; China’s labor savings do not equal US efficiency and Transportation cost from China.

US is competitive!!!

North American steel industry CANNOT compete against Chinese steel companies that are financed and controlled by their government.


AWPA – Steel Issues in Today’s EconomyOther Issues - Energy

Other Issues - Energy




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.



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 - GHGAWPA – Steel Producers Issues in Today’s Economy

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


Climate Change Legislation

Steel Manufacturers Association:

•Supports the safety valve concept for limiting allowance pricing, in any

cap & trade program;

•Recognizes the international component of the climate change issue, and

would support the the use of industrial offsets, regardless of locale, as

one way to respond to greenhouse gas emissions; and

•Believes that the cost associated with any cap and trade program must

avoid double charging emissions (ie- The electricity generator and EAF

mill consumer each must only be counted once on emissions).


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)


• 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


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


US Long Product Data 2008

For rebar, wire rod, merchant bar, light shapes, parallel flange sections, structural products1

1 December 2008 SMA Market Report (Moss/Taccone)

Through September 2008, domestic shipments plus exports were 4.1% higher than 2007, at 18,918,329 short tons, or roughly 2.1 mmt per month.

Data shows domestic shipment decline of 16% in October from September’s level.

Data shows domestic shipment decline of another 27% in November from October’s level.

Total domestic produced shipments have fallen approximately 50% in the 4th quarter, compared to the first 9 months of 2008.


Wire Rod Product Data 2008

Total Mill Shipments of Wire Rod were unchanged YOY

(2008 – 3,182,008 tons; 2007 – 3,178,027 tons) First 9 months of 2008, mill shipments – Quarterly Rate –

903,604 tons/qtr

Last Quarter of 2008 mill shipments – Quarterly Rate – 471,196 tons/qtr

Off 47.8% in 4th Quarter 2008, compared to 1st Quarter 2008

December 2008 SMA Market Report (Moss/Taccone)



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


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.


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!


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Thomas A. Danjczek President Steel Manufacturers Association February - 2009 AWPA – Annual Meeting...

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