Transcript PPT - Steel Manufacturers Association

Steel Founders’ Society of America
Steel Producers Issues in
Today’s Economy – An Update
Thomas A. Danjczek
President
Steel Manufacturers Association
September 13, 2010
SFSA – An Update
SMA
• The Steel Manufacturers Association (SMA)
– 34 North American companies:
29 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
SFSA – An Update
Where SMA Member EAFs are located…
SFSA – An Update
Outline
• SMA
• 2009 Review (Concerns, Infrastructure, China, GHGs, Scrap, Conclusion)
• 2010 Update
• US Steel Production/Capacity Utilization
• Steel Usage
• Jobless Claims & Steel Production
• Cars & Construction Market
• World Steel Outlook
• Steel Capacity Growth
• Export Restrictions & Scrap
• Subsidies
• Mercury Collection Status
•Inflation/Deflation
• What does the US need to do?
• Conclusion
2009 Review
SFSA – Steel Issues in Today’s Economy
(From 2009)
Outline
•SMA
•Today’s Concerns
•Today’s Deterioration
•China, China, China
•Other Issues (Energy, GHG, Infrastructure Spending)
•Consolidation
•Scrap
•Protectionism and Trade Issue
•Legislative Items (Cap & Trade, Infrastructure, Card Check, Trade)
•Is Enough Being Done?
•Conclusion
(From 2009)
SFSA – Steel Issues in Today’s Economy
The Obvious Concerns
-Our Jobs
-US Recession and financial meltdown
-Infrastructure Spending
-Value of the RMB
-Energy shortfalls and pricing
-Federal Bailouts
-China, China, China
-Global Steel Overcapacity
-Subsidies and other trade distortions
-US Legislation (111th Congress and the 44th President)
SFSA – Steel Issues in Today’s Economy
(From 2009)
Other Issues – Energy
SFSA – Steel Producers Issues in Today’s Economy
(From 2009)
Other Issues – GHG
The U.S. Steel Industry Has One of the
Lowest Process Emissions Intensities
in the World
1.60
1.36
1.40
1.20
1.12
Metric Tons CO2/Metric Ton of Steel
1.05
1.00
0.93
0.96
0.80
0.60
0.49
0.46
0.40
0.20
0.00
United States
Canada
Mexico
Germany
DRAFT
Australia
Russia
Japan
8
SFSA – Steel Producers Issues in Today’s Economy
(From 2009)
Infrastructure Stimulus
• 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
SFSA – Steel Producers Issues in Today’s Economy
(From 2009)
U.S. Steel Scrap
(Millions NT)
1991
2003
2004
2005
2006
2007
2008
46
63
69
66
70
70
82
Domestic Demand
10
12
13
14
15
19
24
Export
56
75
82
80
85
89
106
Total Demand
$108
$135
$241
$226
$240
$281
$418
Average Shredded $
54
65
67
66
69
76
94
Dom. Scrap Production
<1
<1
<1
<1
<1
<1
<1
Dom. Pig & DRI
2
10
15
14
16
13
12
Import Scrap, Pig & DRI
0
0
0
0
0
0
0
Balance
Market Clears
Source: SteelOrbis “Trade Conference and Trading Workshop.” Presented by David D. Hodory, The David J. Joseph Company June 30, 2009.
SFSA – Steel Producers Issues in Today’s Economy
(From 2009)
Is Enough Being Done?
Raw Materials
No
Barriers continue
Energy
No
China
No
Lack of policy
continues
Currency manipulation,
Subsidies, Not playing by
the rules
Trade
No
Distortions continue,
Who’s the protectionist
No long term structural policy changes are being proposed in
Washington for taxes, trade imbalance, and energy.
SFSA – Steel Producers Issues in Today’s Economy
(From 2009)
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 in
October”;
― 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!
― Improved Debt and Equity; Balance Sheet Position
― Still Challenging – But Reasons for Meaningful Long-Term Optimism!
An Update - 2010
(O’Bummer)
SFSA – An Update
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%
2009
1st Half
2nd Half
Year
25m
36m
63m
(45% utilization)
(62% utilization) Now 1.5m/week vs. 2.1m/week
(Minimills at 63% of production)
2010 – Today
Capacity Utilization (70.4%); or approximately 83 million tons annual rate
In 2010, Apparent Steel Use in the NAFTA Region Will Be
More than 30 Percent Below Pre-Crisis Levels
160
140
Apparent Steel Use in NAFTA Region (millions of
MT)
120
100
80
60
40
20
0
Average from 2004 to 2007
2010 (est.)
Even if apparent steel use in the NAFTA region recovers to 107 million MT by 2011, as currently projected by the World Steel
Association, it would still only match the 1993 consumption level – and be only 76% of the level in 2007.
Source: Worldsteel
2009 Was Only the Second Year Since 1963 in Which North
America Produced Fewer than 9 million Cars and Trucks
North America Car & Truck Production, 1963-2009
19
Recent gains in
North American
car and truck
production
notwithstanding,
it is projected
that it will take
up to five years
to return to precrisis ”normal”
levels.
18
17
Million Units
16
15
14
13
12
11
10
9
1982
9 million cars and trucks
produced
8
63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20
Source: Ward’s Automotive.
SFSA – An Update
The Worldsteel Short Range Outlook
United States
Million MT
2009 (e)
2010(f)
Canada
Change
(%)
Million MT
2009 (e)
Mexico
2010(f)
Change
(%)
Million MT
2009 (e)
2010 (f)
Change
(%)
Crude Steel
Use
65.1
81.8
25.5%
Crude Steel
Use
10.6
13.1
23.9%
Crude Steel Use
17.7
22.1
24.5%
Finished
Steel Use
57.4
72.7
26.5%
Finished Steel
Use
9.5
11.8
23.9%
Finished Steel
Use
13.9
15.5
10.9%
Exports
8.5
11.3
32.9%
Exports
4.9
6.4
29.6%
Exports
2.0
2.4
20.0%
Imports
12.9
13.7
6.2%
Imports
6.0
7.7
28.3%
Imports
3.2
3.6
12.5%
Source: Worldsteel Economic Studies Committee, April 2010
SFSA – An Update
Global Steel Capacity Continues to Increase
World Crude Steel Capacity 2000-2012
World Crude Steel Capacity
CAGR
2,100
1,997
2,055
20
1,917
Steel Capacity (million metric tonnes)
1,654
1,583
1,600
1,453
15
1,356
1,350
1,100
1,245
1,062
1,062
1,095
1,170
10
850
600
5
350
100
2000
Source: Worldsteel
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010(e)
2011(e)
2012(e)
0
Current Average Growth Rate (CAGR)
1,816
1,850
“Some countries simply prohibit scrap exports.
Others, like China, impose export taxes to impede
the flow of their domestic scrap overseas. Not
one of them would countenance the export of up
to one-third of their available supply.”
-AMM, July, 2010
“Some countries simply prohibit scrap
exports. Others, like China, impose
export taxes to impede the flow of their
domestic scrap overseas. Not one of
them would countenance the export of
up to one-third of their available supply.”
AMM, July 2010
SFSA – An Update
Raw Material Export Restrictions are Continuing to
Disadvantage NAFTA Steel and Other Manufacturers
• 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
SFSA – An Update
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
SFSA – An Update
Mercury in Scrap Issue
•
Program is performing as the collection point for all convenience mercury
switches removed from domestic automobiles; fully implemented in first
quarter 2007
•
All US EAF Carbon Steel Facilities are operating under EAF Area Source
Rule mercury source control plan option, and depend upon ELVS as the
national program to collect mercury convenience switches
•
Implementation Fund ($2 million from domestic auto makers & $2 million
from US steel industry) exhausted in July 2009
•
Last statistics supplied by NVMSRP Stakeholder Group (October 2009)
shows performance in retorting of switches similar to previous years –
switches continue to be submitted to ELVS, regardless of lack of
Implementation Fund payouts
•
Performance of program continues to lag, compared to EAF Area Source
Rule “Goal” of 80% collection
•
Need for emphasis or supplier audits on mercury collection
•
EPA’s 114 Requests for Information
SFSA – An Update
Inflation/Deflation*
• Probably Deflation Initially
Inflation
- Government Subsidies
- Printing Currency
Deflation
- Lower Demand
- Discretionary items
(furniture, clothing, etc.)
- Medical Costs
- Energy
- Real Estate
- High Unemployment
• Growing Trade Deficit Reduces US Supply
• Deflation equates to Economic Decline
*Taken in part from Dr. Peter Morici
SFSA – An Update
Is Enough Being Done?
Raw Materials
No
Barriers continue
Energy
No
China
No
Lack of policy
continues
Currency manipulation,
Subsidies, Not playing by
the rules
Trade
No
Distortions continue,
Who’s the protectionist
No long term structural policy changes are being proposed in
Washington for taxes, trade imbalance, and energy.
SFSA – An Update
What does the US need to do?
• Assume a Pro-Manufacturing Agenda
–
–
–
–
–
–
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 recessionReal Foundation
– Bad loans and securities on bank balance sheets
– Reduce huge trade deficits
• Policy incrementalism is not sufficient
SFSA – An Update
Conclusion
• This 70% world is the new “norm”
(Construction, Auto, Government driven)
• The economy will come back as jobs are created
President Coolidge: “When more and more people
lose their jobs, unemployment results.”
• We’re in a traffic jam, moving slightly forward, but don’t know other
consequences
• Don’t look to Washington for help. Pendulum moves slowly.
• Reasons for optimism in steel
– Scrap based
– Low Cost on global bases
– Relatively strong US market and US resiliency
– Better US company balance sheets
– Impact of Currency long term