Transcript Slide 1

American Galvanizers Association
Annual Conference
State of Steel 2011
Washington’s Impact on Steel
Thomas A. Danjczek
President
Steel Manufacturers Association
April 6, 2011
AGA: Annual Conference
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)
•Steel Trends
•Conclusion
2
AGA: Annual Conference
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
3
AGA: Annual Conference
Where SMA Member EAFs are located…
4
AGA: Annual Conference
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
5
AGA: Annual Conference
•
Set the Tone
Return to divided government
– Control of the Senate remains 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
6
AGA: Annual Conference
-
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
7
AGA: Annual Conference
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
– Impact of Japanese Earthquake
• ???
8
AGA: Annual Conference
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 extended from March 18, 3 weeks at a time — 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
The 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
9
AGA: Annual Conference
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
10
AGA: Annual Conference
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
11
AGA: Annual Conference
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
• Impact of US EPA regulations on power plant emissions
12
AGA: Annual Conference
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 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
13
AGA: Annual Conference
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
14
AGA: Annual Conference
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?
•
•
•
•
•
•
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?
15
AGA: Annual Conference
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.
16
AGA: Annual Conference
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
17
AGA: What Does the U.S. Need to Do?
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?
18
AGA: Annual Conference
World Steel Capacity
Global Steel Capacity Continues to Increase
World Crude Steel Capacity 2000-2012
World Crude Steel Capacity
CAGR
2,100
1,917
2,055
20
1,816
1,850
1,654
1,453
15
1,356
1,350
1,100
1,062
1,062
1,095
1,170
1,245
10
850
600
5
350
Current Average Growth Rate (CAGR)
1,583
1,600
Steel Capacity (million metric tonnes)
1,997
100
2000
Source: Worldsteel
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010(e)
2011(e)
2012(e)
0
19
U.S. Minimill Growth
AGA: Annual Conference
U.S. Capacity and Production Figures – 2000-2010
% 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
2010E
113
70.0
86.0
-
48.0
64
22.0
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/
20
AGA: Annual Conference
U.S. Minimill Growth
EAF Share of Total U.S. Production
70.0%
60.0%
50.0%
40.0%
30.0%
% of EAF Production
20.0%
10.0%
0.0%
21
Global EAFs
AGA: Annual Conference
Global Steel Production by Process –
2009
BOF
EAF
World Total
70.6%
28.1%
U.S.
36.0%
64.0%
China (Est.)
90%
10%
(EAFs Growing)
*Remaining 1.3% of world total by open hearth process
22
AGA: Annual Conference
Raw steel capacity utilization may reach
80% in 2011
www.first-river.com
Source: AISI, First River
23
Moderate Manufacturing Growth
Manufacturers Alliance/MAPI Manufacturing Production Forecast
Inflation-Adjusted Percent Change
Industry
Manufacturing - SIC Basis
Food
Textile Mills
Textile Product Mills
Apparel
Wood Products
Furniture & Related Products
Paper & Products
Printing Support Activities
Petroleum & Coal Products
Chemicals
Rubber & Plastics Products
Nonmetallic Mineral Products
Primary Metals
Fabricated Metal Products
Machinery
Computers & Electronic Products
Elec. Eq., Appliances, & Components
Aerospace Products & Parts
Motor Vehicles & Parts
Miscellaneous
Non-High Tech Manufacturing
2010(F)
2011(F)
2012(F)
2013(F)
2014(F)
5.8
5.7
11.8
1.8
0.3
0.9
-1.6
4.2
-3.4
2.5
2.9
8.2
1.1
4.0
2.8
-1.9
0.9
-6.6
4.3
3.7
1.4
-1.3
2.4
1.5
2.4
2.7
4.9
1.9
-2.5
1.5
-5.7
21.8
6.0
4.0
-1.2
1.1
3.3
3.3
8.1
4.9
1.5
-2.9
-1.0
-4.4
10.2
3.3
3.1
-1.3
0.8
3.1
3.2
7.4
5.0
1.5
-4.0
-2.1
-5.2
3.2
1.8
1.3
-1.4
0.0
3.6
2.4
4.2
3.9
1.6
-4.5
-2.8
-5.7
1.2
1.3
0.8
-1.0
-0.4
3.8
1.9
2.7
23.9
0.2
3.9
4.7
4.4
0.9
6.6
8.5
13.6
4.4
-4.8
25.4
2.4
5.1
3.2
7.0
12.3
2.8
6.1
8.5
2.8
2.8
2.4
6.1
14.7
4.4
12.6
9.6
5.7
4.0
3.7
4.1
16.4
5.7
15.6
6.5
5.0
3.8
3.6
3.1
17.9
3.2
13.3
2.4
5.2
3.3
2.4
1.7
15.4
1.9
5.8
0.0
4.1
2.2
Source: Manufacturers Alliance/MAPI simulation of the HIS Global Insight model, November, 2010
F=Forecast
2015(F)
24
AGA: Annual Conference
US finished steel demand forecast
Forecast
Actual ADC
Source: CSM, FW Dodge, AHAM, First River
www.first-river.com
25
AGA: Annual Conference
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
26
AGA: Annual Conference
US net imports expected to remain low
US Imports & Exports
(Million Tons)
Net Imports & US Dollar
Imports (%)
$ Index
Net Imports as % of demand
(3 year rolling average)
www.first-river.com
Source: AISI, First River
27
AGA: Annual Conference
28
AGA: Annual Conference
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
29
AGA: Steel Issues
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
30
AGA: Steel Issues
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
31
AGA: Steel Issues
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:
–
–
–
–
Coke
Refractory bauxite
Fluorspar
Zinc
• The restrictions China applies include:
– Export duties
– Export quotas
– Restrictive bidding procedures
32
AGA: Steel Issues
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 year:
– The interim report is due February 18, 2011
– The final report is due April 1, 2011
• 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
33
AGA: Steel Issues
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
34
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
35
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
2006
2007
2008
2009
Source: U.S. International Trade Commission - Dataweb
36
AGA: Steel Issues
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
37
AGA: Steel Issues
Steel Trends
(NOT in Priority Order)
•
•
•
•
•
•
•
•
•
•
•
•
•
Raw Material Availability
Minimill Growth
Consolidations
Foreign (Multinationals) Ownership
Variable Cost Control
Flat vs. Long (Auto vs. Construction)
Trade Cases
Quality and Weight/Strength/Value
Government Spending
OSHA, EPA, etc., Regulations
Loss of Manufacturing “Climate”
Sustainability
Improvements in Safety
38
AGA: Steel Issues
Steel Technology Issues
•
•
Continuous Improvement, inc. Maintenance Reliability
Gauge Control
•
•
•
•
•
High Strength Low Alloy (HSLA)
Lighter Hot Rolled Gauges
Rebar Quenching
Continuous Process & Automation
Alternate Iron Units
•
•
•
•
Green
Costs (Metallics & Yield; Labor; Energy Efficiencies; Transportation; and Others)
Cleanliness (Degassing; Sulfur)
Measure and Control
•
ENGINEERS ? ? ? ?
39
AGA: Steel Issues
Technology Trends for AGA
A few thoughts…
• Lead Content Concerns (EPA Rules; Prime Western Zinc)
• Steel Chemistry Applications (HSLA; Strength)
• Gauge Control
• Quality Challenges
• $ $ $
40
AGA: Steel Issues
Technology Trends
Specifics
-
i.e. Rebar
- Less alloys, more quench & tempering (Thermex)
- Coiled Rebar Growth
< 1960 Plain Mild Steel yield ≈ 250n/m2; 1960’s Ribbed Mild Bar; today high
strength yield ≈ 400n/m2 w/loss of elongation
- Seismic requirements going to 500n/m2
- Epoxy coatings, stainless, 75 year bridge
-
Correlation between coatings & minimizing corrosion
Parking Structures
- Castellated Beams
- Galvanizing Use vs. Painting
- Life Cycle Costs
It’s all about Costs and Value
41
AGA: Annual Conference
Infrastructure Spending
Good News
•
Early March, Congress passed legislation to extend Federal Highway & Transit Program
spending for 7 months
•
Funding through end of current fiscal year at 2009 level
•
Stable Funding – bipartisan effort
Bad News
•
Need long term reauthorization bill – NOT A STOPGAP
•
Need improvements
•
Gas tax woefully inadequate
42
AGA: Annual Conference
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
43