Transcript Slide 1

STAHL 2011

Wissen, Werkstoff, Werte

Knowledge, materials, values

Competitive Conditions on Regional Steel Markets Changing Times in the North American Steel Industry

Thomas A. Danjczek President, Steel Manufacturers Association 1 | 10.11.2011 · STAHL 2011 · © Stahlinstitut VDEh | Wirtschaftsvereinigung Stahl

Stahl-Zentrum

STAHL 2011

SMA

Safety

Changes

Steel Demand Drivers & Forecasts

Raw Materials

Tone in Washington, DC & Regulations

What the U.S. Needs to Do

Final Thoughts

Outline

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STAHL 2011

About the SMA

-Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 123 Associate Member steel industry suppliers -Today, roughly two-thirds of U.S. steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s -SMA Members account for approximately 80% of total domestic steel capacity

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Where SMA Member EAFs are located… 4

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SMA Safety Overview

Key Drivers to the SMA Safety Committee Success

• • Safety Committee Meetings Safety Statistics Benching Marking • • Fatality Prevention Initiative • Workplace Specific Safety Surveys Sharing of Site-Specific Best Practices • SMA Safety Website • Upstream/Downstream Safety Awareness • Education & Outreach • First Hand Governmental Compliance Awareness • SMA Safety Awards

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Addresses Six (6) critical areas: 1.

2.

3.

4.

5.

6.

Confined Space; Fall Protection; Lockout-Tryout; Mobile Equipment Material Handling; and Rail Cranes (Completed in 2011)

Fatality Prevention

 Focusing on five priorities in addressing crane fatalities: ◦ operator visibility and attentiveness; ◦ maintenance; ◦ fall hazards; ◦ charging the EAF/ladle handling; and ◦ non-routine procedures  Videos to be completed by the end of summer and introduced to the SMA in October 2011

Fatality Prevention Initiative

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Hours Worked

46 000 000 45 500 000 45 000 000 44 500 000 44 000 000 43 500 000 44 349 000 2010 45 488 000 2011 26,75 26,65 26,55 26,45 26,35 26,25

SMA Safety Data – 2010-2011yoy

Fatalities

Hours Worked 1 0 4 3 2 2010 2011 Fatalities 26,44 2010

Severity Rate

26,74 Severity Rate 0,75 0,72 0,69 0,66 0,63 0,6 2011

Lost Workday Case Rate

0,72 2010

OSHA Recordable Rate

0,65 2011 Lost Workday Case Rate 3,59 OSHA Recordable Rate 2010 3,32 2011

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 SMA Board of Directors recognizes outstanding safety performance through the annual Don Daily SMA Achievement in Safety Award. ◦ 2011 recipient:  Chris Bullard and the Logistics Team Gerdau Ameristeel Midlothian

STAHL 2011

Deeper Recession Variable Cost Control Scrap Prices High Unemployment Labor Intensity Inventory Levels China Safety Consolidations Customer Requirements Environmental Regulations Engineers Other Factors… US Changes Foreign Ownership Transportation Costs Ore Prices Energy Costs Currency State-Owned Enterprises 9

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Steel Changes 10

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In USA, raw steel capacity utilization may reach 75% in 2011

Capacity Utilization (%) 100% 90% 80% 70% 60% 50% 40% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F

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Finished steel demand drivers in US

Actual Fitted

Three variables drive demand: NA auto build

Non-residential construction

Appliance shipments R² = 85%

Source: First River 12

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U.S. finished steel demand forecast

Forecast

Actual ADC

Source: CSM, FW Dodge, AHAM, First River 13

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Auto build & non-res construction expected to recover, but not to previous peak

NA Auto Build (Million Units)

Forecast

Non-Res Construction (Million Sq. Feet)

Forecast Source: CSM Worldwide, FW Dodge 14

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U.S. net imports expected to remain lower

US Imports & Exports (Million Tons) Net Imports & US Dollar

Imports (%) $ Index Net Imports as % of demand (3 year rolling average) Source: AISI, First River 16

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• • •

Comments on Current N.A. Steel Industry

Underlying Weak Economy Recovery underway, but slow, last 4 weeks???

North American steel market under pressure with unused capacity • Increased exports and percent imports (5mmt of semi’s imports) YOY • Not normal cycle of recession, overcapacity; new supply coming on • • Relative strong demand in auto; construction lagging Raw material costs, and variable cost controls are major drivers • Scrap prices expected to trend slightly lower next two months – too early to call a trend • • China, China, China Market cap values at historic lows 17

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• • • • •

The Tone in Washington, DC

It’s the Economy, stupid… Dissatisfaction/Perception that US Government is not tackling right issues (More for Wall Street than Main Street during recession) (Growing deficit, skepticism about role of government) GRIDLOCK (Democratic President & Senate; Republican House) Trouble for Incumbents Lack of Coherent China Policy (Currency?) Recognition that China has flagrantly violated WTP Rules – i.e. Raw Materials 19

STAHL 2011

• • •

Regulations

Vigorous oversight of EPA, OSHA, Dept. of Labor, etc., is a general theme from the Administration Prospects for comprehensive climate change legislation are weak – will see continued Congressional efforts to slow down EPA’s regulation of carbon emissions Overwhelming burden of proposed regulations (Power Plant

Emissions; EAF Mercury; Solid Waste, Boeing Case; Silica; Noise; Dust;

Record Keeping, etc., etc., etc.) 20

STAHL 2011 Raw Materials

• •

Raw Material Cost and Availability is #1 Issue for NAFTA 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 21

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National Export Restrictions On Ferrous Scrap Trade

Export Bans Quotas Export Taxes Elimination of VAT Export Rebates Non-automatic (discretionary) Licensing Agreements Other Administrative Barriers (i.e. –Port Restrictions)

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World Scrap Exports, 2000 - 2010

120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 23

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Share of World Scrap Exports, 2010

USA 23% Other 38% Russian Federation 5% Canada 6% Japan 7% EU-27 21% USA EU-27 Japan Canada Russian Federation Other 24

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Major Scrap Importers, 2010 and 2009

Country

Turkey Korea China India Taiwan USA EU-27

2010

19.20

8.7

5.8

4.7

4.2

3.8

3.6

2009

15.7

7.8

13.7

5.1

3.9

3.0

3.3

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World Scrap Supply and Consumption, By Region

World Scrap Supply, 2008 60 40 20 0 120 100 80 EU Turkey CIS

Source: World Steel Association

NAFTA Latin America China Japan Other Asia Domestic Supply Apparent Consumption

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While China Restricts Exports of Scrap, U.S. Exports to China Have Surged

U.S. Scrap Exports to China - 2004 - 2009

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

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Can only hope next 5 year plan which calls for 8% growth is WRONG!

China

Actual Production .08 x 600mmt x 5 years = 240mmt… 281mmt compounded WOW!

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Scrap Demand Forecasts

Scrap demand (mt) –

2017

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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 Limited Growth of Alternative Iron Units

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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• • • •

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 Stop the trade distorting restrictions in raw materials or ensure prompt reciprocity (SOEs?) Policy incrementalism is not sufficient 31

STAHL 2011 Final Thoughts

• • • • • In steel, the world has changed (Developing world, not about USA, getting tougher, ownership) U.S. is in a traffic jam , moving slightly forward, but don’t know other consequences. Don’t look to Washington, DC for help Environment of uncertainty and volatility will continue in U.S. industry until economic fundamentals are in equilibrium, last 4 weeks???

In U.S., dissatisfaction/perception that U.S. Government is not tackling the right issues (i.e. “It’s the economy, stupid.”) Reasons for optimism in steel in U.S.: – Scrap -based, 75% 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 32

STAHL 2011

Wissen, Werkstoff, Werte

Knowledge, materials, values

Competitive Conditions on Regional Steel Markets

THANK YOU FOR YOUR ATTENTION

Thomas A. Danjczek President, Steel Manufacturers Association

Stahl-Zentrum

33 | 10.11.2011 · STAHL 2011 · © Stahlinstitut VDEh | Wirtschaftsvereinigung Stahl