Transcript Slide 1

American Metal Market
State of Steel 2011
New Government & the Impact on Steel
Thomas A. Danjczek
President
Steel Manufacturers Association
February 8, 2011
AMM State of Steel 2011
Outline
•SMA
•Set The Tone – Factors Influencing the Election
•US Macro Issues
(thanks Kelley Drye!)
•Steel Specific Issues
•Conclusion
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AMM State of Steel 2011
SMA
The Steel Manufacturers Association (SMA)
– 35 North American companies:
30 U.S., 3 Canadian, and 2 Mexican
– Operate 125 steel recycling plants in North America
– Electric Arc Furnace (EAF) steelmakers using recycled steel
– EAF steel producers accounted for nearly 2/3 of U.S. production in 2009
– SMA represents approximately 90 million of U.S. 120 million ton capacity
(75%)
– 128 Associate members - Suppliers of goods and services to the steel industry
– Governance – i.e. vast majority
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State of the Union:
Win the Future!
American Innovation
Some of the Items Focused on:
-Greater Internet Access
-Renewable Energy (Wind and
Solar)
-One Million Electric Vehicles by
2015
-80% American Access to High
Speed Rail (75 Years)
-Tax Loopholes
-Public Schools Lagging
• Are we targeting What’s Important NOW?
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AMM State of Steel 2011
Factors Influencing the 2010 Election
It’s the economy, stupid…
•The economy was the number one issue for the American public in 2010—frustrations with high and
stagnant unemployment figures, struggling housing markets, and persistently tight credit drove voter
sentiment
•Those concerns were confirmed in exit polls on November 2, where over 60% of voters ranked the
economy as the nation’s top problem and almost 90% expressed concern about the state of the economy
over the next year (Associated Press)
Dissatisfaction/perception that government is not tackling the right issues
•Frustrations augmented by the belief that the government has done more for Wall Street than for Main
Street during the current economic crisis
•That sentiment, coupled with increasing public concern/skepticism regarding the role of government in
the private economy and the growing deficit and long-term national debt, has resulted in a general
perception that lawmakers aren’t listening and are overreaching
In exit polling, 75% of voters “expressed negative views about how the federal government is
working” while over half said “the government should let business and individuals handle more
things on their own” (Associated Press)
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AMM State of Steel 2011
•
Set the Tone
Return to divided government
– Control of the Senate will remain with the Democrats
• New breakdown: 53 Democrats (including 2 Independents who caucus with the Democrats),
47 Republicans
– The House of Representatives is now controlled by the Republicans
• New breakdown: 242 Republicans, 193 Democrats
– The majority of state Governorships are now held by Republicans
• New breakdown: 29 Republicans, 20 Democrats, 1 Independent
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AMM State of Steel 2011
-
Big US Gov’t Issues/Priorities
Economy
War in Iraq
War in Afghanistan
Health Care
Deficit Reduction
Size of Government, Government Spending
Homeland Security
Ta x e s
Financial Oversight
I n t e r n a t i o n a l Tr a d e
Energy and Environment
Transportation and Infrastructure
Labor
Middle East Tensions
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AMM State of Steel 2011
Economy
• While the recession officially ended in June 2009, the sluggish pace of the recovery
remains a top concern for both the public and policymakers
– “Official” Unemployment remains at close to 9.5% and consumer income and spending are fairly
stagnant
• According to a recent Bloomberg News survey of economists, the unemployment rate will stay high for the
next year, averaging 9.3%
– In early November, the Federal Reserve announced plans to purchase an additional $600 billion of
longer-term Treasury debt over the next eight months to loosen credit conditions in order to speed
the economic recovery and boost job creation
• Interest rates are expected to remain low for the foreseeable future
– Facing a new political dynamic and skepticism regarding “stimulus” spending efforts, the White
House reached out to Congressional Republicans to forge a deal on extending tax breaks during the
lame duck session of the 111th Congress
• President Obama agreed to a 2-year extension of income tax rates for all income levels, while Republicans
acquiesced to several Democratic priorities aimed at stabilizing the economy, including a long-term
extension of unemployment insurance
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AMM State of Steel 2011
Deficit
 The need for policies to promote economic growth in the short-run is
complicated by the need/desire for longer-term austerity measures to
address the nation’s deficit and long-term debt


Reducing government spending is a top priority of the new 112th Congress
 The continuing resolution for FY11 runs through March 4—House Republicans had initially called
for a return to FY08 spending levels, which would require about $100 billion in cuts—while cuts that
large may be difficult, significant reductions are likely
 The conservative Republican Study Committee has proposed a plan to reduce spending by $2.5
trillion over the next decade
 House Republicans’ rules package replaced “pay-go” with “cut-go”—any new mandatory spending
must be offset with spending cuts, but NOT with tax increases
 Rules package also gave Budget Committee Chairman Ryan (R-WI) the authority to set spending
targets for appropriators if the House and Senate fail to agree on a final budget
 Republicans have instituted a party-wide ban on earmarks
Spring vote to increase the debt limit may prove particularly challenging for the Republican caucus, with
many pledging on the campaign trail to vote against it
 Opponents likely to use votes as leverage to secure commitments for longer-term deficit reduction
measures
 President Obama has signaled that addressing the deficit and long-term
debt is an area ripe for compromise with Congressional Republicans
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AMM State of Steel 2011
Taxes
• The cost of the tax package came in at just under $1 trillion and is being viewed by
many as a second stimulus, with some economists suggesting it could increase
2011 GDP by 0.5 to 1.25 percentage points
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AMM State of Steel 2011
International Trade
•
Ways and Means Committee Chairman Dave Camp (R-MI) and Trade Subcommittee
Chairman Kevin Brady (R-TX) are avowed free-traders
•
Items for consideration include:
– Consideration of the stalled free trade agreements with South Korea, Panama, and Colombia
•
Administration is supportive of ratification and must work with Republicans to ensure passage of the agreements—
could this be an example of early cooperation?
•
The Democratic Caucus remains divided on the issue of trade
– Customs reauthorization legislation likely to emphasize trade facilitation
– Export control reform could see some legislative action, although, for the most part, it will be done
administratively
– Addressing China’s trade practices
•
•
Last Fall, the House passed the Currency Reform for Fair Trade Act—Sen. Schumer (D-NY) has pressed for a Senate
currency vote, but prospects for action this year are unclear
•
Last October, U.S. Trade Representative Ron Kirk announced that the United States has initiated an investigation of
China’s practices affecting trade and investment in green technologies—will Congress enter the debate?
More generally, the effect of the Tea Party is unknown—the movement has an antigovernment, free market strain, but there is also a populist, anti-Wall Street
component and it is unclear how this cuts on any particular issue, particularly trade
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AMM State of Steel 2011
Energy & Environment
• Vigorous oversight of EPA will be a general theme throughout the 112th Congress
– Oversight and Government Reform Committee Chairman Issa is soliciting responses from over 150
trade associations and businesses on regulations that have harmed job-growth—many expected to
emphasize environmental regulations, i.e. Mercury
• Prospects for comprehensive climate legislation are weak—will see continued
Congressional efforts to slow down EPA’s regulation of carbon emissions
– Numerous stand-alone bills to block or delay EPA action on GHGs have already been introduced in
the House
– Senator Rockefeller (D-WV) plans to re-introduce his proposal (2-year delay of GHG rules for
stationary source emissions) in the coming weeks
– Senator Barrasso (R-WY) plans to unveil a comprehensive measure to prevent federal agencies
from regulating climate change
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AMM State of Steel 2011
Energy & Environment
• Piecemeal approach to energy policy presents opportunities for cooperation—as
demonstrated by bipartisan legislation approved by the Senate Energy and Natural
Resources Committee in the last Congress under Chairman Bingaman (D-NM)
– Republicans in both chambers will place a greater emphasis on increasing domestic production of
traditional energy sources (i.e., oil and natural gas)—and continue to focus on domesticallyproduced renewable fuels
• Comprehensive offshore drilling safety legislation in response to the April Deepwater Horizon explosion/oil
spill is unlikely to be revived under Republican leadership in the House—even in the wake of
recommendations by the President’s spill commission
– Potential Renewable Energy Standard (RES), but Republicans likely to push for inclusion of nuclear
energy and clean coal technology, a “clean energy standard”
– Proposals for increased energy efficiency in industrial facilities and buildings (Home Star) as well as
financing for green technologies also on the table, but finding pay-fors will be difficult
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AMM State of Steel 2011
Labor
• Pending or planned Democratic labor-related legislative initiatives are very unlikely
to move forward in 112th Congress
– “Card-check” legislation (Employee Free Choice Act)
– Mine safety reform
– Legislation to allow all firefighters and police officers to unionize
• In fact, legislative efforts moving in the opposite direction have been proposed
previously
– Anti-card check legislation (Secret Ballot Protection Act)
– Campaign finance reforms to regulate use of union dues to support union political activity
• Some Democratic priorities can be pursued through administrative efforts of the
Department of Labor or the National Labor Relations Board
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AMM State of Steel 2011
What does the U.S. need to do?
• Assume a Pro-Manufacturing Agenda
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Business Tax Reform
Border Adjustable Taxes
Currency Adjustments
Energy Independence
Reasonable regulatory measures (Environment/Labor)
Climate for investments (Jobs, Jobs, Jobs) and Infrastructure
• Solve the structural problems that caused the recession - Real
Foundation
– Bad loans and securities on bank balance sheets
– Reduce huge trade deficits
• Policy incrementalism is not sufficient
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AMM State of Steel 2011
Steel – Raw Materials
Rules Associated with Raw Material Cost and
Availability is #1 Issue for U.S. Steel Producers
• Many countries continue to impose a variety of restrictions on exports of vital raw
materials
– Export prohibitions
– Export duties
– Export quotas
– Other measures
• Trade-distorting restrictions on exports of raw materials
– Give domestic producers in the exporting country an unfair advantage
– Increase worldwide costs of production
– Place a heavy burden on steel industries in developing countries that do not have substantial iron
ore reserves or steel scrap supplies
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AMM State of Steel 2011
Steel – Raw Materials
Meanwhile, Foreign Government Subsidies to Steel and
Steel-Related Industries Remain a Particular Concern…
• Foreign government subsidies are a major cause of overcapacity in the global steel
industry and steel-related industries
• Subsidies to steel and steel-related industries that 1) support inefficient and excess
capacity and/or 2) distort trade are continuing, and remain a particular concern
• Examples include:
– Fundamental currency misalignment/undervalued currencies
– Preferential financing to add new capacity
– Loan forgiveness/equity infusions to prop up obsolete capacity
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AMM State of Steel 2011
Chinese Mercantilism
• Currency Manipulation
• Market Forces – Compliance
– Expansion
– Government Intervention
– Exports on the Rise
• Trade Deficit
• State Owned Enterprise Distortions
• China’s Upcoming Steel Policy
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AMM State of Steel 2011
Steel – Taxes
• Need to reduce corporate tax rates
• Why not a VAT?
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AMM State of Steel 2011
Steel - Transportation and
Infrastructure
• Challenge: Balance a slate of program reauthorizations with growing
deficit concerns and limited revenue options
– Reauthorization of Surface Transportation Programs
• SAFETEA-LU expired on September 30, 2009 and has operated under short term extensions since; last
extension expires March 4, 2011 (with the current FY11 CR)
• Obama Administration has proposed a six-year reauthorization with a $50 billion up-front investment for
“roads, railways, and runways” and the establishment of an infrastructure bank
• May see a multi-year reauthorization this year—leaders in both chambers have expressed a desire to get it
done
• Discussions likely to be dominated by the hunt for funding sources
– Projected fall in gas tax revenues may mean cuts to the program (an increase in the tax is most-likely
a non-starter)
– Likely forced to focus on alternative revenue streams, including creation of an “infrastructure bank”
or greater use of public/private partnerships
– Industry concerns regarding Republican House rules change to allow consideration of legislation that
funds surface transportation programs at a lower level than authorized by law (prohibited since
1998)
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AMM State of Steel 2011
Around the Curve
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AMM State of Steel 2011
Things Around the Curve
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AMM State of Steel 2011
Things Around the Curve
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AMM State of Steel 2011
Key Questions Ahead
•
In the wake of Republican gains in both chambers, will the President move more to the middle and
revive efforts to work with Republicans, following in the footsteps of President Clinton? Are the
negotiations on tax policy a sign of things to come? Will we see cooperation on other major policy
initiatives, such as the reauthorization/revamp of No Child Left Behind and stalled free trade
agreements?
•
How will President Obama’s new competitiveness agenda play out? And what can we expect from
his recent Executive Order launching a government-wide review of federal regulations and their
impact on economic growth and competitiveness?
Will President Obama be able to “win back” the independent vote in 2012?
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Will widespread concerns related to deficits and long-term debt remain at the forefront? How will
Members concerned with deficit spending vote on raising the debt limit this year?
What is the impact of the Tea Party movement on the Republican Caucus—will the Caucus be
divided on policy priorities or coalesce around opposition to the Administration? Will they show a
willingness to cooperate with President Obama?
In the wake of this year’s election and the loss of a Democratic majority, will we see some key
retirements in the House?
How will the current political climate affect the policy stances of moderate Senators over the next
two years? What additional retirements can we expect?
Will an already partisan atmosphere be strained ever further by the loss of moderates in both
chambers? Will we see two years of legislative gridlock?
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AMM State of Steel 2011
2012 Election
• In the House, Democrats hold few competitive districts and need 24 to
retake the majority.
• In the Senate, Democrats will defend 24 Senate seats (including two
Independents) to the Republicans 10. Republicans need four net wins to
take control of Senate.
• Republicans currently have no clear frontrunner for the presidential
nomination.
• President Obama’s race to lose.
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AMM State of Steel 2011
Impact on Steel
Last Thoughts:
• We’re in a traffic jam, moving slightly forward, but don’t know
other consequences
• More Regulatory Oversight by Obama Administration (OSHA;
EPA; DOC; etc.)
• Don’t look to Washington for much Help!
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