Transcript No Slide Title

What to make of steel in 2009
Presentation to
SMA Annual Members Conference
Washington DC
May 19, 2009
What to make of steel in 2009
 A dangerous place for
forecasting
 Plenty to worry about
 Pursuing unhappiness
 Some confident
predictions
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A dangerous place for forecasting
Last year’s message…Black swan
events are:
• Rare (highly improbable)
• Hard to predict (except in retrospect)
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• Consequential
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Other forecasting miseries



Missed 2008 – in September!
Recalibrated 2009 several times Q1
6 reasons why it won’t be so bad this
time (October 2008)
– Global economic growth (3% to
-2.8%)
– Industrialization
– Capacity management
– Chinese industry rationalization
– Renewed consolidation
– Growth, Environment & Energy
A man who predicts the future is lying – even if he’s right
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Arab proverb
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What to do/think?




Avoid too much emotional
commitment to one outcome
Avoid to much organizational
commitment to one outcome
Consider all outcomes equally
possible
Be ready
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Plenty to Worry About
World steel forecast
Apparent steel use forecast & y-o-y change 2008 to 2009
5%
900
India
800
-5%
China ME&A
-10%
-15%
Brazil
-20%
Dev. Asia
-25%
-30%
CIS
Europe
-35% NAFTA
2008: 1,197MT to 2009: 1,019MT
~15% decline
Developed world consumption
from 36% to 31% of total
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M Tonnes Apparent Steel Use
Y-on-Y change
0%
-8%
700
600
500
400
-27%
300
200
100
0
Developed
2008
Developing
2009
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2009 in a long term context
Year
Decline
60%
1
1921
-38%
50%
2
1932
-27%
40%
3
1931
-27%
4
1945
-25%
5
1919
-24%
6
1908
-22%
7
1930
-21%
8
1914
-21%
9
1938
-19%
-20%
10
2009F
-15%
-30%
11
1982
-9%
-40%
12
1975
-9%
-50%
13
1958
-7%
14
1918
-6%
15
1944
-5%
30%
20%
10%
0%
-10%
19
00
19
05
19
10
19
15
19
20
19
25
19
30
19
35
19
40
19
45
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
Year on Year Change in Production
Global steel annual production changes
Source: worldsteel, First River
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2009 in a long term context
Year on Year Change in Production
US steel industry production changes
Year
Decline
1
1921
-53%
100%
2
1932
-47%
80%
3
1938
-44%
4
1908
-40%
5
1982
-38%
40%
6
1931
-36%
20%
7
2009F
-30%
8
1930
-28%
9
1914
-25%
-20%
10
1958
-24%
-40%
11
1919
-22%
12
1954
-21%
13
1975
-20%
14
1980
-18%
15
1946
-16%
60%
World
USA
0%
19
00
19
05
19
10
19
15
19
20
19
25
19
30
19
35
19
40
19
45
19
50
19
55
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
-60%
Source: AISI, First River
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GDP forecast indicates 20-25% drop in
US finished steel demand
Change in Steel Demand %
25%
20%
15%
10%
5%
IMF World Economic Outlook
April 2009
US 2009 GDP Forecast: -2.8%
0%
-5%
-10%
-15%
2008
-20%
-25%
2009
-30%
-3%
1980
1982
-2%
1975
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Change in GDP (% )
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Sources: AISI, US BEA, IMF, First River
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Finished steel demand drivers in US
150
125
Actual
Million Tons
Fitted
100
75
50
Two drivers matter most:
- NA automotive production
- US non-residential construction
R² = 70%
25
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
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Source: First River
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NA automotive production forecast
Below 15 million thru 2013
20
35% drop this year
Average 11.8 2009-2013
Million Vehicles
16
14.7
13.7
12
12.6
12.3
10.0
8
8.2
4
1990
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1992
1994
1996
1998
2000
2002
2004
2006
2008
2010F
2012F
Source: CSM Worldwide (March 2009)
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Big 3 participation in car production
Big 3, Others units & share 1985-2008, US only
9,000
100%
8,000
90%
7,000
80%
5,000
70%
4,000
60%
%
'000's of Units
6,000
3,000
50%
2,000
40%
1,000
Big 3
Others
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
30%
1985
0
Big 3 Share - rhs
Source: Ward’s automotive, FRC
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US non-residential construction
No return to level of late 1990s thru 2013
2,500
Million Square Feet
2,000
1,500
1,505
1,467
1,397
1,246
1,131
1,000
1,094
22% drop 2008 to 2010
Average 1,300 2009-2013
500
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010F
2012F
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Source: FW Dodge (Spring 2009)
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US finished steel demand forecast
Weak throughout forecast period
150
Forecast
125
115
Million Tons
110
110
100
100
90
Actual ADC
75
80
68 (WSA)
50
30-40% drop this year
25
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010F
2012F
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Source: CSM, FW Dodge, WSA, First River
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Operating rates for rest of 2009
Full Year
2009
Q1 Est.
Q2-Q4
US ADC all steel products
75.0
16.5
58.5
- Net Imports
12.0
3.5
8.5
Finished Steel Production
63.0
13.0
50.0
Finished steel production as % of peak
shipments (110 MT)
57%
47%
61%
Million Tons
Risk is to the downside
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Source: AISI, MSCI, First River
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Average US demand & production
2009-2013
140
~20% average decline
Recovery by 2015?
120
Million Tons
100
80
60
40
20
0
2004-08
ADC
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2009-13
Finished Steel Production
2015
Net Finished Imports
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US raw steel capacity utilization
Long-term average is 78%, stable level is 85%
100%
63%
48%
65%
61%
90%
CapacityUtilization
80%
70%
60%
50%
40%
Average Utilization Rates
Periods of adjustment (red bars): 60%
Periods of relative stability:
85%
30%
20%
10%
0%
1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Source: AISI, First River
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Future raw steel capacity requirement
A 30 MT issue?
2009-2013
Raw Steel Production
85.0
Capacity utilization “stable periods”
85%
= Target raw steel capacity
100.0
2008 raw steel capacity incl. additions
132
= “Excess” Capacity
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Source: First River
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2009 – Part of a notable recession
GDP Loss (%)
Months
Duration
GDP
Recovery to Prior GDP
20
18
16
14
12
10
8
6
4
2
0
(2)
(4)
Thru May 2009
Thru Q1 2009
1973-1975
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1980
1981-1982
1990-1991
2001
2007-2009?
Source: NBER, First River
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Big 5 financial crises & current US recession
GDP Loss (%)
Months
Duration
20
18
16
14
12
10
8
6
4
2
0
(2)
(4)
(6)
GDP
Recovery to prior GDP
August 2009?
March 2011?
Thru Q1 2009
“Big 5”
Financial Crises
US 2007-2009
Source: IMF, Reinhart & Rogoff, First River
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Pursuing unhappiness
THE YEAR THE
BOTTOM FELL OUT FOR
STEEL
Not since 1959, when the steel industry was in the
middle of a 15-month slump, have steel executives
gathered… for their annual meeting under worse
circumstances. Seven out of 10 steel companies operated
in the red during the first quarter, and losses are
expected to mount in the second quarter. Nearly 30
percent of the nation's steelworkers have been laid off,
and industry analysts, who just a month ago were
quibbling over whether shipments for the year would
slide below 80 million tons, now expect them to be
under 70 million tons…
Industry economists who had predicted
as recently as January that steel
shipments would equal last year's level
of 87 million tons, have scaled back
those forecasts to about 80 million tons
- the low reached in the severe sales
slump that developed after the 1974-75
recession. Some even say that
shipments will drop below 80 million
tons for the first time since 1963, when
the industry shipped 75.5 million tons.
FORECASTS WORSENING FOR STEEL
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THE YEAR THE
BOTTOM FELL OUT FOR
STEEL
1982
Not since 1959, when the steel industry was in the
middle of a 15-month slump, have steel executives
gathered… for their annual meeting under worse
circumstances. Seven out of 10 steel companies operated
in the red during the first quarter, and losses are
expected to mount in the second quarter. Nearly 30
percent of the nation's steelworkers have been laid off,
and industry analysts, who just a month ago were
quibbling over whether shipments for the year would
slide below 80 million tons, now expect them to be
under 70 million tons…
Industry economists who had predicted
as recently as January that steel
shipments would equal last year's level
of 87 million tons, have scaled back
those forecasts to about 80 million tons
- the low reached in the severe sales
slump that developed after the 1974-75
recession. Some even say that
shipments will drop below 80 million
tons for the first time since 1963, when
the industry shipped 75.5 million tons.
FORECASTS WORSENING FOR STEEL
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No déjà vu all over again







No functional union agreement or relationship
Unconsolidated industry
Poorly invested, inefficient facilities
Unfocused industry diversified outside steel
Lots of government ownership around the world
No prospects for industrialization among 2Bn+ people
Little transparency in prices, inputs, costs, production & demand
Far fewer prospects for recovery
in 1982 than 2009
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The pursuit of unhappiness
The situation is hopeless, but not serious
 Glorification of the past
– Nothing worthy in the present
 Obsession with precedents for unprecedented times
– Nothing worth learning from the present
 The Fatal Glass of Beer
– No escaping the sins of too much leverage
 General paranoia & fatalism
– They’re out to get us
– Nothing we do will make any difference
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Some confident predictions!





Growing population will want
– places to work
– places to live
– ways to get between the two
We will find new applications, new markets in the process of:
– Reducing carbon in the environment
– Switching energy sources
Manufacturing will grow in NAFTA as developing nations move towards
satisfying domestic demand
The automotive industry will emerge stronger than at any time in the
last 30 years
Average steel industry returns in the next 20 years better than 20 years
following 1982
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What to make of steel in 2009?
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 A scary ride to the
bottom?
 A turning point
 A wake-up call for
the developed world
 Strategies
reconsidered
 Some retrenchment
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