Thomas A. Danjczek President Steel Manufacturers Association November 12, 2008 AIST – Baltimore...

Thomas A. DanjczekPresidentSteel Manufacturers AssociationNovember 12, 2008

AIST – Baltimore Chapter

Steel Issues in Washington

OutlineAIST – Steel Issues in Washington

•SMA

•Today’s Concerns

•Today’s Financial Deterioration

•Scrap Issue

•Energy Issue

•GHG Issue

•China Issue

•Protectionism and Trade Issue

•Conclusion – Is Enough Being Done?

• The Steel Manufacturers Association (SMA)– 35 North American companies:

30 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

AIST – Steel Issues in Washington SMA

• 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

AIST – Steel Issues in Washington SMA

AIST – Steel Issues in Washington Concerns- The Obvious

-Our Jobs

-US Recession and financial meltdown

-Recent market fluctuation

-Value of the RMB

-Energy shortfalls and pricing

-Federal Bailouts

-Attracting talent to the steel industry

-China, China, China

-Global Steel Overcapacity

-Subsidies and other trade distortions

-US Legislation (111th Congress and the 44th President)

AIST – Steel Issues in Washington Concerns Discussed Today

• Market Volatility

•Scrap- Global barriers and restriction

• Energy- Foreign dependency and lack of growth

•Trade- Free trade verses Protectionism

• China- North American Steel Industry CANNOT compete against Chinese steel companies that are financed and controlled by their government.

Steel Executive-4th Quarter 2008

-70

-60

-50

-40

-30

-20

-10

0

Per

cent

Stock Markets Worldwide Have Plunged in Recent Months

Percentage Change in Key Stock Markets Since the Beginning of May

Source: Yahoo! Finance.

Russia Brazil Shanghai Hong Kong Tokyo London S&P 500 Frankfurt

AIST – Steel Issues in Washington

1000

1050

1100

1150

1200

1250

1300

1350

1400

1450

1500

1Q2005

2Q2005

3Q2005

4Q2005

1Q2006

2Q2006

3Q2006

4Q2006

1Q2007

2Q2007

3Q2007

4Q2007

1Q2008

2Q2008

3Q2008

(e)

4Q2008

(e)

mil

lion

s of

MT

After Years of Growth, Global Steel Consumption Appears to Be Falling

Global Apparent Steel Consumption (Annualized)

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


The Fall 2008 Short Range Outlook historically Provided by IISI (“Worldsteel”) was not issued due to the Unprecedented Level of

Market Uncertainty

PRESS RELEASE

World Steel Association Revised Short Range Outlook (SRO)

Washington DC, 6 October 2008 – The World Steel Association Executive Committee reviewed its original Short Range Forecast issued in April 2008. The Executive recognized that the market is demonstrating rapidly changing circumstances but noted that 2008 will be another year of growth for the steel industry.

Ku-Taek Lee, Chairman of the World Steel Association and Chairman & CEO of POSCO said, “We are in a period of high economic uncertainty. The impact on steel markets is becoming more apparent as we move into the later part of this year. We are currently reviewing our forecasts for 2009, which had been prepared this summer before current events. However, we continue to expect growth in steel demand in 2009 and for the medium term, above the world GDP growth rate.”

The next World Steel Association Short Range Outlook (SRO) will be issued in April 2009.

“A Confluence of a rapid economic deterioration in the

US and Europe, a slowdown in emerging markets like China,

and increasing difficulty in financing new projects in both

industrial and construction sectors has taken the steam out

of the steel sector. Accordingly, we are revising

our shipment volumes and earnings estimates as well as significantly reducing price targets for the entire sector.”

Sal Tharani – Goldman Sachs (Comments made in recent Steel

Market analysis report)


U.S. Exports of Steel ScrapU.S. Scrap Exports Have Steadily Increased Since 2000

2

6

10

14

18

2000 2001 2002 2003 2004 2005 2006 2007 Jan-Aug2007

Jan-Aug2008

Mil

lion

s of

Sh

ort

Ton

s

Includes HTS subheadings 7204.10, 7204.21, 7204.29, 7204.30, 7204.41, 7204.49, and 7204.50 Data Source : US export data is from the USITC Trade Dataweb, http:/ /dataweb.usitc.gov /scripts/user_set.asp


$50

$150

$250

$350

$450

$550

$650

U.S. Shredded Auto ScrapMonthly, $/ ton

Data Source : American Metal Market; prices based on Chicago IL




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


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).

COMPLIANCE WITH THE WTO

The National Association of Manufacturers (NAM) recently reviewed China’s compliance with its WTO commitments in the accession protocol. While progress has been made in certain areas, there are serious concerns and problems with effective compliance relating to:

1. Huge U.S. trade imbalance2. Continued currency manipulation3. Arbitrary VAT taxes and rebates4. Massive counterfeiting and piracy5. Discriminatory standards6. Inadequate regulatory transparency


AIST – Steel Issues in Washington 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

AIST – Steel Issues in Washington 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 Interferes with Raw Materials Markets

• China’s steel policy mandates such interference - Article 28: “Mineral resources belong to the state”- Article 30: The state will encourage large Chinese producers to “construct

production supply bases of iron ores, chrome ores, manganese ores, nickel ores, scrap steel, and coking coal in foreign countries”

- Article 30: The state will use its power to prevent “cut-throat competition” among Chinese mills for raw materials

- Article 30: The export of “coke, iron alloy, cast iron, scrap steel, {and} steel billet…shall be restricted’

• Examples of how China restricts critical exports:- Metallurgical coke- Ferroalloys and other nonferrous metals

• China has subsidized domestic iron ore production, as well as foreign ventures created to obtain iron ore from abroad

AIST – Steel Issues in Washington 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!!!

AIST – Steel Issues in Washington 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?

Conclusions

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

What part of “no” don’t you understand ?

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Thomas A. Danjczek President Steel Manufacturers Association November 12, 2008 AIST – Baltimore...

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