Transcript Slide 1

North American Steel Conference
CRU 2010
U.S. Minimills – Competitive Position and Drivers
Thomas A. Danjczek
President
Steel Manufacturers Association
November 2, 2010
CRU 2010
Outline
•SMA
•Growth of Minimills
•U.S./Global Demand for Scrap
•Ferrous Scrap Trade – Equity and Distortions
•Other Drivers
•Is Enough Being Done?
•What Does the U.S. Need to Do?
•Conclusion
CRU 2010
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
– Governance – i.e. vast majority
CRU 2010
Where SMA Member EAFs are located…
Minimill Growth
CRU 2010
U.S. Capacity and Production Figures – 2000-2009
% Capacity
Total Raw
Steel
Production
(mt)
Total
Shipments
(mt)
% EAF
Share
Integrated
Ore-Based
Share (mt)
%
Integrated
Ore-Based
Share
EAF BasedShare (mt)
118
86.1
102.0
99
46.5
47
52.5
53
2001
114
79.2
90.1
92.6
43.9
47.4
48.7
52.6
2002
103
88.8
91.6
90.7
45.7
50.4
45
49.6
2003
110
84.9
93.7
96.1
49
51
47.1
49
2004
105
94.6
99.7
101
52.7
52.2
48.3
47.8
2005
108
87.5
94.9
102
56.1
55.7
45.9
44.3
2006
112
87.5
98.2
99.3
56.7
57.1
42.6
42.9
2007
113
87.0
98.1
96.5
56.2
58.2
40.3
41.8
2008
113
81.4
91.9
89.3
51.3
57.4
38
42.6
2009
113
49.6
56.0
52
33.3
64
18.7
36
Year
Total
Capacity
(mt)
2000
Source – U.S. Geological Survey – Iron & Steel Statistics and Information web page =
http://minerals.usgs.gov/minerals/pubs/commodity/iron_&_steel/
Minimill Growth
CRU 2010
EAF Share of Total U.S. Production
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
% of EAF Production
Minimill Growth
Global Steel Production by
Process – 2009
BOF
EAF
World Total
70.6%
28.1%
U.S.
36.0%
64.0%
*Remaining 1.3% of world total by open hearth process
CRU 2010
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
2001
2002
2003
2004
2005
Source: Worldsteel
2006
2007
2008
2009
2010(e)
2011(e)
2012(e)
0
Current Average Growth Rate (CAGR)
1,816
1,850
Scrap
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U.S. Scrap Consumption and Exports
Quantity (Millions Metric Tons)
100
90
80
70
60
50
40
30
20
10
0
2000
2001
2002
2003
2004
Consumption
2005
2006
2007
Exports
Sources: Exports - U.S. International Trade Commission, Dataweb; Consumption - U.S. Geological Survey, Mineral Commodity
Summaries
2008
2009
Scrap
CRU 2010
U.S. Steel Scrap Exports
U.S. Steel Scrap Exports Have Steadily Increased Since 2000
Exported Quantity (Metric Tons)
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Includes HTS subheadings 7204.10, 7204.21, 7204.29, 7204.30, 7204.41, 7204.49, and 7204.50.
Data Source: U.S. export data are from the USITC Trade Dataweb, http://dataweb.usitc.gov/scripts/query.asp
Year to date data through July
2009
YTD '09 YTD '10
Scrap
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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
Scrap
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World Trade in Scrap
By the Numbers:
Although global electric arc furnace (EAF)
production fell by 16% in 2009, ISSB
estimates that world trade in steel scrap
actually increased by 1%.
Scrap
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World Trade in Scrap
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Scrap
Exports and Imports
The world’s leading net exporters of scrap in
2009 were:
-United States (19.5 million MT)
-Japan (9.2 million MT)
-United Kingdom (5.8 million MT)
-Germany (3.4 million MT)
The world’s leading importers of scrap in 2009
were:
-Turkey (15.7 million MT)
-China (13.7 million MT)
-Korea (7.8 million MT)
-India (5.1 million MT)
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Scrap
Countries Imposing Export
Restrictions on Steel Scrap
-China – 40% export tax (up from 15% in 2008)
-Russia – 15% export tax
-Ukraine
-India – 15% export tax
-Argentina
-Azerbaijan
-Egypt
-Iran – reported 70% export tax
-Kazakhstan
-Saudi Arabia
-Thailand
-United Arab Emirates
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Forms of Export Restrictions
-Export bans
-Quotas
-Export taxes
-No VAT export rebates
-Non-automatic (discretionary)
licensing requirements
-Other administrative barriers
(such as port restrictions)
Scrap
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Scrap
Effects of Export Restrictions
-Reduced international supply
-Higher international prices
-Lower prices on raw materials in countries
with export restrictions
-Subsidy to downstream industries in
countries with export restrictions
-Price volatility
CRU 2010 Impact
of Export Restrictions
Impact of Export Restrictions for Various Trading Nations
Total Quantity Exported (Metric Tons)
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
Canada
United States
Russia
2005
Source: United Nations, Commodity Trade Statistics for all Heading 7204
Ukraine
2009
Kazakhstan
While China Restricts Exports of Scrap,
U.S. Exports to China Have Surged
U.S. Scrap Exports to China - 2004 - 2009
Total Quantity Exported (Metric Tons)
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2004
2005
Source: U.S. International Trade Commission - Dataweb
2006
2007
2008
2009
Scrap – Energy/Environment
EAF Steelmaking is Energy Efficient
Scrap – Energy/Environment
BOF
EAF
MILLIONS TONS C (AS CO2)
250
200
GLOBAL C ( FOSSIL FUELS ) ~ 8 BILLION TONS
U.S. C ( FOSSIL FUELS )
~ 2 BILLION TONS
U.S. STEEL INDUSTRY
~ .034 BILLION TONS
U.S.EAF'S
~ .011 BILLION TONS
150
100
50
0
CHINA
E.U.
JAPAN
U.S.
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Scrap
-Restrictions on exports of steel scrap and
raw materials for steelmaking:
-Give domestic producers in the
exporting country an unfair competitive
advantage
-Increase worldwide costs of production
-Violate WTO agreements, and are not
justifiable under international trade law
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Other Drivers
•New Congress
-Maybe less helpful on trade
-Gridlock, or center-driven policymaking?
•Administration
-Increased oversight
•China, China, China
-Currency impact
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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.
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What does the U.S. 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 recession Real Foundation
– Bad loans and securities on bank balance sheets
– Reduce huge trade deficits
• Policy incrementalism is not sufficient
CRU 2010
Conclusion
• 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 basis
– Relatively strong U.S. market and U.S. resiliency
– Better U.S. company balance sheets
– Impact of currency long-term