Transcript Slide 1

Association for Iron & Steel Technology
Pittsburgh Chapter
Washington’s Impact on Steel
Thomas A. Danjczek
President
Steel Manufacturers Association
April 11, 2011
AIST – Pittsburgh Chapter
Outline
•SMA
•Set The Tone – Washington “Stuff”
•US Macro Issues
•What Does the U.S. Need To Do
•Steel Recent History (Capacity; Demand; Shipments; Imports)
•Steel Specific Issues (Trade; Raw Materials; Scrap)
•Conclusion
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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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Where SMA Member EAFs are located…
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Factors in 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
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
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Big U.S. 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 Tra d e
Energy and Environment
Transportation and Infrastructure
Labor
Middle East Tensions
Japan Earthquake “Havoc”
Continuing Resolutions – Funding the Government
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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
– 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
• Impact of Japanese Earthquake
• Impact of Libya oil costs ? ? ?
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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
• President Obama has signaled that addressing the deficit and long-term
debt is an area ripe for compromise with Congressional Republicans
• Will the Continuing Resolutions Continue ? ? ? (as of 4/1/11)
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International Trade
• Ways and Means Committee Chairman Dave Camp (R-MI) and Trade
Subcommittee Chairman Kevin Brady (R-TX) are avowed free-traders
– 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
anti-government, 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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Energy & Environment
• Vigorous oversight of EPA will be a general theme throughout the 112th Congress
• Prospects for comprehensive climate legislation are weak—will see continued
Congressional efforts to slow down EPA’s regulation of carbon emissions
• Impact of US EPA regulations on power plant emissions
• 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)
– Potential Renewable Energy Standard (RES), but Republicans were 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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Infrastructure Spending
Good News
•
Early March, Congress passed legislation to extend Federal Highway & Transit Program
spending for 7 months
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Funding through end of current fiscal year at 2009 level
•
Stable Funding – bipartisan effort
Bad News
•
Need long term reauthorization bill – NOT A STOPGAP
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Need improvements
•
Gas tax woefully inadequate
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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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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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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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China
Addressing China’s trade practices
• U.S. Senators Sherrod Brown (D-OH) and Olympia Snowe (R-ME) and U.S.
Representatives Sander Levin (D-MI), Tim Murphy (R-PA), and Tim Ryan (D-OH)
introduced in February 2011 the Currency Reform for Fair Trade Act of 2011. Including
Congressmen Levin, Murphy, and Ryan, the House bill was introduced with 101 original
sponsors (27 R; 74 D).
• Last October, U.S. Trade Representative Ron Kirk announced that the United States had
initiated an investigation of China’s practices affecting trade and investment in green
technologies—will Congress enter the debate?
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Steel Specific
Raw steel capacity utilization may reach
80% in 2011
www.first-river.com
Source: AISI, First River
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Auto build & non-res construction expected to
recover, but not to previous peak
NA Auto Build
(Million Units)
www.first-river.com
Forecast
Source: CSM Worldwide, FW Dodge
Non-Res Construction
(Million Sq. Feet)
Forecast
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Comments on U.S. Production
• Recovery underway, but slow
• Increased exports and imports (5mmt of semi’s imports)
• Not normal cycle of recession, overcapacity
• Relative strong demand in auto; construction lagging
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Raw Materials
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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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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China – Raw Materials
• The United States, the EU, and Mexico have
challenged China’s application of a variety of
restrictions to exports of key raw materials used in
steelmaking, including:
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Coke
Refractory bauxite
Fluorspar
Zinc
• The restrictions China applies include:
– Export duties
– Export quotas
– Restrictive bidding procedures
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China – Raw Materials
• China has argued that these measures are justified to prevent
pollution and to preserve natural resources
• China has also claimed a “sovereign right to regulate” its raw
material exports
• The panel will release its decision this month:
• This decision could have a major impact on international trade in
raw materials for steelmaking – “Careful what you wish for…”
• Many other countries also restrict exports of raw materials,
especially steel scrap
• USTR is very interested in a potential case regarding China’s
restrictions on exports of rare earths and other raw materials
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Implications
• If these justifications are accepted, ever scrap producer could
legitimately limit exports of steel scrap
• This would wreak havoc on the global steel industry
• Countries that are heavily dependent on scrap imports would be
particularly affected
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World Scrap Supply and
Consumption, By Region
World Scrap Supply, 2008
120
Million Metric Tons
100
80
Domestic Supply
60
Apparent Consumption
40
20
0
EU
Turkey
CIS
NAFTA
Latin America
China
Japan
Other Asia
Source: World Steel Association
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Scrap
World Demand for Steel Scrap
•
World demand for steel scrap is likely to continue to
increase:
-Increased steel production in China, India, and Brazil
-Economic recovery
•
But a large number of countries still impose restrictions on
exports of scrap and other raw materials
•
Steel scrap is subject to more export restrictions than any
other raw material
•
There is a significant problem with transparency, because
export restrictions change frequently, making supply even
more problematic
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Final Thoughts
• Ultimately, the world needs greater total supply of scrap, steel and
galvanized products
• U.S. is in a traffic jam, moving slightly forward, but don’t know other
consequences. Don’t look to Washington, DC for help.
• Reasons for optimism in steel in U.S.A.
– Scrap-based, 70% of cost – local supply
– Low cost on global basis (energy is neutral, labor less than 10%, others have higher
transportation costs)
– Relatively strong U.S. market and U.S. resiliency
– Better U.S. company balance sheets
•
Comment on Steel Safety Performance & Don Daily AIST-SMA Project
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