Transcript Document

American Boiler Manufacturers Association
Annual Meeting 2005
Steel – A Year Later
Thomas A. Danjczek, President
Steel Manufacturers Association
June 27, 2005
AMBA – Annual Meeting 2005
Steel – A Year Later
I.
SMA
II.
Review 2004 Presentation Highlights/Conclusions
III. 2005
• World Steel Production/Operating Rate
• China
• Scrap, Ore, Steel Prices
• Consolidations
IV. Expert Views
V.
Conclusion
AMBA – Annual Meeting 2005
•The Steel Manufacturers Association (SMA)
–38 North American companies:
31 U.S., 5 Canadian, and 2 Mexican
–103 Associate members:
Suppliers of goods and services to the steel industry
•SMA member companies
–Operate 120 Steel plants in North America
–Employ about 40,000 people
–Mini-mill Electric Arc Furnace (EAF) producers
AMBA – Annual Meeting 2005
•Production capability
–SMA represents over half of U.S. steel production
•Recycling
–SMA members are the largest recyclers in the U.S.
–Last year, the U.S. recycled over 70 million tons of ferrous
scrap
•Growth of SMA members
–Efficiency and quality due to low cost
–Flexible organizations
–EAF growth surpassed 53% in 2004, and anticipated to be
60% by 2010
Last Year
AMBA – Annual Meeting
June 28, 2004
•SMA
I. Trade
Current Drivers
Impacting Steel
Competitiveness
III. Other Costs
•201 Real World Impact
•Restrictive Scrap Exports
•World Steel Production
•Freights
•China, China, China…
•Coke
•Energy
II. Steel Production Costs
•Key Issues
•Asset Values
•Exchange Rates
•Steel Imports – Value of
U.S. $
•Bankruptcy/Restarts
IV. Market
•Overview
•Public Works Construction
V. Conclusion
Some things are the same…
Courtesy – IMF
Courtesy – IMF
Courtesy – IMF
CHINA CONCLUSIONS
Currency Manipulations


For eight and one-half years, China has maintained a fixed exchange rate of 8.3 yuan to the
dollar. China has printed any amount of yuan necessary to purchase dollars to maintain a fixed
artificial rate, giving it enormous export advantage, and creating a China trade surplus with the US
reaching $124 billion in 2003.


In the two-year period, 2002-2003, US imports of manufactured goods from China accounted
for 56 percent of the total growth in US imports of manufactured goods during the period. The US
trade deficit in manufactured goods with China was $128 billion in 2003. The overall US trade
deficit with China is now the largest bilateral trade imbalance ever seen in the history of world trade.


The United States should insist that China change its exchange rate regime which allows it to
sell undervalued goods in export markets at costs denominated in undervalued yuan. Simultaneously,
China must relax its tight capital controls, which have resulted in an accumulation of foreign
exchange acquired from export sales, amounting to $420 billion in 2003, about one-third of China’s
GDP. China must stop excessive issuance of undervalued yuan, and pay for its imports with foreign
exchange.


Today, China can absorb a revaluation without an economic collapse, versus a token one
which would respond to the problem in form only, rather than a needed significant revaluation. If
inadequate US policy causes a delay for another five years, however, China, the US, and the world
economy are in for a very hard landing. At that point, an inevitable huge revaluation of the yuan will
occur, which it must, when US policy officials then confront US trade, current account, and capital
account deficits of disastrous proportions. US policy must effectively address this problem, now. So
far, it has not.
May 12, 2004 SMA Press Release
Some things are different…
Some things got worse…
IRON ORE PRICES - ANNUAL
The 2004 iron ore price-increase benchmark of 18.5% was established in earlyJanuary by CVRD, following a 9% gain in 2003. China now accounts for over
25% (110 MT) of world sea-borne demand, while three producers (CVRD, RTZ
and BHP) now control over 80% of the supply.
$40
US$/Tonne @ 62.4% Fe
Pellets
$35
$30
Lump
$25
$20
Fines
$15
1980
1985
1990
1995
2000
Prices shown are from CVRD (Brazil) to Western European steel customers (fob)
Courtesy – Metal Strategies
Technical Read on Crude Oil Prices
Courtesy – JP Morgan
ABMA – Annual Meeting 2005
2004 Conclusions
•Uncertainty – Cycle has Changed (Shorter Term & Greater Peaks &
Valleys)
•Revenue vs. Costs – Not the Same Business Model
•Bankruptcy Laws Unfair to Competitors
•Investments – Earn Cost of Capital
•Minimills Must Compete in the World, as it is, and We Can!
•Meaningful Optimism with Good Long Term Consumption, Relative
Value, and Excellent Recyclability for Steel
2005
WORLD STEEL PRODUCTION
World steel production was up 6.5 percent through March, following increases of 8.9
percent and 6.8 percent in 2004 and 2003, respectively. China accounted for 92
percent of the y-t-d worldwide net gain and 25 percent of total world production.
100
Million Metric Tonnes
World Total
90
80
Steel Production: March 2005
Percent Change, Year Ago
Month:
6.5%
Year-to-Date:
6.5%
70
60
50
World
Excluding China
Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05
In the five years from 1998 to 2003, China and the former-USSR states increased production by a cumulative 140 MT,
equal to 70 percent of the combined total output in 2003 of both the U.S. or Japan.
Source: Metal Strategies
WORLD CRUDE STEEL OPERATING RATE
Operating rates recovered from 76 percent in 2000, to a peak of
87 percent in 2004, and have moved moderately downward since
late 2004.
90%
World Crude Steel
Operating Rate %
85%
80%
75%
2000
Cap Util % 76.1%
Source: Metal Strategies
2001
2002
2003
2004
2005
2006
2007
77.2%
80.3%
84.2%
86.8%
85.3%
85.0%
84.1%
Source: American Metal Market
Source: Iron and Steel Statistics Bureau
Hot-Rolled Sheet Prices, 1990-2005
(Midwest, $ per ton)
Source: Purchasing Magazine
Wide-Flange Beam Prices, 1990-2005
(Midwest, 8 x 8, $ per ton)
Source: Purchasing Magazine
Rebar Prices, 1990-2005
(Midwest, $ per ton)
Source: Purchasing Magazine
Wire Rod Prices, 1990-2005
(Midwest, $ per ton)
Source: Purchasing Magazine
U.S. STEEL INDUSTRY CONSOLIDATION
(Percent Change, 2000 compared to 2005)
75%
50%
Flat Rolled
Long, Other
25%
0%
-25%
No. of
Companies
No. of
Plants
Capacity
-50%
Mittal Steel weighted average share of all markets
served = ~33% (major product range-15-40%+)
-FRP acquisition price ($/ton, going-concern basis)
2002= $110……..2003-’04=$170……2005=$225
Source: Metal Strategies
Capacity /
Company
No. Plants /
Company
AMBA Annual Meeting 2005
Expert Views
Plummer – Metal Strategies - May 18, 2005
- Eight months of downward market correction, focused
in
sheet
- Auto market under pressure, especially SUV’s
- Positive outlook despite current conditions (Supply
moving in balance with demand; imports are down;
inventories coming down by inventory liquidation and mill
shutdown)
- Demand still healthy (industrial equipment up by 7
percent; now residential recovering; auto transplants are
strong
AMBA Annual Meeting 2005
Expert Views
Michelle Applebaum – June 2, 2005
- Sheet prices showed decline reflecting
automotive
- Plate and long products sideways (Cut to length
plate unchanged in May 2005; rebar unchanged)
- Minimills more disciplined
AMBA Annual Meeting 2005
Expert Views
SBB Global Market Outlook – May, 2005
- Production cuts too little, too late
- Buyers holding back
- Inventory draw down ends in the third quarter (For
long products, some products are potentially in short
supply due to de-stocking)
- Plate is still strong
AMBA Annual Meeting 2005
Expert Views
Peter Marcus – World Steel Dynamics – May 27, 2005
- Bottom of the “V” pricing for hot-rolled on the world
export market may occur in third quarter
- “Prime” U.S. automotive scrap plummeted another
$60 to about $170 in May (vs. high of $450 in
November, 2004)
- Steel shipments in USA 5-10 percent projected
below 2004
- Chinese steel production is likely to decline sharply
in months ahead
AMBA Annual Meeting 2005
Expert Views
MEPS Steel News – June 1, 2005
- Flat products fell by 5.5 percent in May
- Long product price held up
Charles A. Bradford – Soleil – June 1, 2005
- Improvement in inventories
AMBA Annual Meeting 2005
Conclusions
• Hell, it’s still a cyclical business
• Fundamental shift in both demand and supply due to
China and its appetite for raw materials
• Consolidations have had an impact to reduce volatility
• Role of inventories affecting pricing and production
• Unknowns (Oil, Interest rate, Auto sector, Energy,
China, China, China)
• Still reasons for meaningful optimism