Presentation on theme: "Thomas A. Danjczek President Steel Manufacturers Association January 13, 2010 Steel Orbis Webinar Key Issues Affecting US Minimills."— Presentation transcript:
Thomas A. Danjczek President Steel Manufacturers Association January 13, 2010 Steel Orbis Webinar Key Issues Affecting US Minimills
Outline SMA Today’s Concerns Today’s Deterioration – US Steel Production China, China, China Scrap Energy Climate Change Infrastructure Protectionism and Trade Issue Is Enough Being Done? Conclusion Steel Orbis Webinar: Key Issues Affecting US Minimills
The Steel Manufacturers Association (SMA) –34 North American companies: 29 U.S., 3 Canadian, and 2 Mexican –128 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 SMA Steel Orbis Webinar: Key Issues Affecting US Minimills
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 SMA Steel Orbis Webinar: Key Issues Affecting US Minimills
The Obvious Concerns -Our Jobs -US Recession and financial meltdown -Infrastructure Spending -Value of the RMB -Energy shortfalls and pricing -China, China, China -Global Steel Overcapacity -Subsidies and other trade distortions -US Legislation (111 th Congress and the 44 th President) Steel Orbis Webinar: Key Issues Affecting US Minimills
US Steel Production (All in Million Net Tons) (Numbers are Approximate) PAST – From 1986 through 2008, U.S. steel production has been around 100 m tons – up & down 10% PRESENT – 2009 1 st Half25m(45% utilization) 2 nd Half36m(62% utilization) Now 1.5m/week vs. 2.1m/week Year63m(57.6m net tons through 11 months - Minimills at 65% of production) FUTURE – 2010 World Steel78m(up 19% over 2009), optimistic Peter Marcus68m(Back to 75m in 2012) US Poll69m(up 10% over 2009) 12-21-2009 Steel Orbis Webinar: Key Issues Affecting US Minimills
N. America:-45.1 Canada:-51.9 U.S.:-47.0 Mexico:-29.5 S. America:-30.3 Brazil:-31.4 EU27:-39.3 Turkey:-13.5 Russia:-26.8 Ukraine:-31.9 Asia:-2.2 Japan:-34.0 S. Korea:-14.9 China:+7.5 India:+1.6 Global Production:-16.4 Excluding China:-30.9 NAFTA Production Declines More Than Other World Regions Global Output Sharply Down, With Few Exceptions Global Crude Steel Production 2009 YTD vs. 2008 % Change Source: Worldsteel
Several NAFTA facilities have been restarted, after having been offline for close to a year. Some facilities have no future return date. The NAFTA economic recovery is still very fragile, and a return to pre-crisis steel production levels remains years away. The NAFTA and rest of world (ROW) utilization rates have stayed well below China’s rate. While NAFTA Production Has Risen Recently, Capacity Utilization Is 30% Below 2008 Levels
Source: World Steel Association, NAFTA Steel Trade Monitor NAFTA Demand for Steel, Aug 2008 – August 2009 Steel Orders Collapsed After The Financial Meltdown And Still Have Not Recovered In the U.S., steel purchases were cut in half within 7 months (Aug. ’08 - Mar. ’09), and 50% of U.S. output was shuttered. In Canada, August 2009 shipments were 39% lower than a year earlier. A number of facilities remain idled or operating at reduced rates. In Mexico, ASC for 2009 (Jan – Sept) is 25% below 2008 levels. The September figure is 31% below the last peak (June 2008).
The residential housing market has bottomed in the past 6 months – to 40-year lows. Home foreclosures are continuing to rise. Government incentives (e.g., a tax credit for first-time buyers) are helping, but limited. Tighter credit standards are reducing the pool of available new buyers. An uptick in the non- residential, commercial market is not expected until late next year. Source: U.S. Department of Commerce. The U.S. Construction Market Is Still Weak
While the “cash for clunkers” program has helped increase production and sales, “Detroit 3” production has declined by over 50% YTD vs. 2008. With the end of this incentive program and with unemployment likely to stay high for several years, automotive production and sales are unlikely to return to pre-crisis levels for the medium term. Source: Ward’s Automotive. * 2009 Annualized based on September year-to-date. The NAFTA Automotive Production Remains Deeply Depressed
Source: Metals Service Center Institute NAFTA Service Center Inventories At Multi-Year Lows, But Reduced Demand Delaying Restocking Service center demand has fallen in line with overall steel demand. NAFTA service center shipments are off 30% vs. 1 year ago. As of October 2009, U.S. and Canadian service center inventories (2.3 months each) are at 5-year lows, but a lack of consumer confidence and low end-use demand are preventing restocking.
…While World Capacity Continues to Grow Source: Worldsteel Association
Source: NAFTA Steel Trade Monitor, US Department of Commerce, Canacero and World Trade Atlas. NAFTA Imports During Crisis Period Steel imports from other regions exceeded intra- NAFTA steel trade when the market collapsed. Non-NAFTA imports at first surged, and then declined but have maintained a relatively high market share. Imports from China peaked in October 2008.
Source: US Department of Commerce and World Trade Atlas NAFTA Exports During Crisis Period NAFTA producers send only a small portion of steel produced outside the region. During 4Q ‘08, intra-NAFTA steel trade declined sharply, more or less in line with the steep decline in market demand.
Source: U.S. Bureau of Labor Statistics, Statistics Canada Nearly 3 Million More Lost NAFTA Manufacturing Jobs During the Economic Crisis (2007-2009)
Source: WorldSteel Association Percentage Change in Crude Steel Output, 1H 2008 to 1H 2009 TurkeyS. KoreaRussia Ukraine BrazilJapanEU North America While the Rest of the World Cuts Steel Production, Chinese Production Continues to Grow
China’s crude steel production Chinese crude steel production as a percentage of total world production Source: World Steel Dynamics, Inside Track # 77 (May 30, 2007); World Steel Dynamics, Truth & Consequences # 44 (Nov. 15, 2007); World Steel Dynamics, Inside Track # 87 (June 12, 2008); World Steel Dynamics, Truth & Consequences # 50 (Feb. 9, 2009); World Steel Dynamics, Inside Track # 97 (Oct. 2, 2009). This Year, China Will Account for Almost Half of Total World Crude Steel Production
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 Webinar: Key Issues Affecting US Minimills
China’s Trade Surplus with the U.S. YearChina’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 since 2000… imbalances cannot go on forever. Steel Orbis Webinar: Key Issues Affecting US Minimills
RMDAS Ferrous Scrap Price Index Effective 12/20/09 Steel Orbis Webinar: Key Issues Affecting US Minimills
Other Issues - Energy U.S. needs to address energy needs, availability, reliability, and competitive costs
Other Issues - GHG Steel Orbis Webinar: Key Issues Affecting US Minimills
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 Steel Orbis Webinar: Key Issues Affecting US Minimills
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 Webinar: Key Issues Affecting US Minimills
Is Enough Being Done? Raw Materials Energy China Trade 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 Webinar: Key Issues Affecting US Minimills
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”; ― 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! ― Concerns with Scrap, Climate Change, Energy, U.S. Debt, Taxes, Currency, but especially Climate for Investment ― Still Challenging – But Reasons for Meaningful Long-Term Optimism! Steel Orbis Webinar: Key Issues Affecting US Minimills