Transcript Document

Concrete Reinforcing Steel Institute
Fall Business Meeting - 2005
Steel – A Year Later
Thomas A. Danjczek, President
Steel Manufacturers Association
November 1, 2005
CRSI – Fall Business 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, Gas Prices
• Consolidations
IV.
Conclusion
CRSI – Fall Business Meeting - 2005
•The Steel Manufacturers Association (SMA)
–39 North American companies:
32 U.S., 4 Canadian, and 3 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
–Minimill Electric Arc Furnace (EAF) producers
–Produce nearly 100% of structural, wire rod, rebar, minimill
plate and hot rolled, and a high percentage of SBQ products
–Also represent several integrated steel producers and
rerollers
CRSI – Fall Business Meeting - 2005
•Production capability
–SMA represents over half of U.S. steel production (app.
70%)
•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 - 2004
Concrete Reinforcing Steel Institute
Fall Business Meeting, 2004
1.
SMA
2.
Changes
–
August 2003
–
Scrap Impact
–
World Steel Production
3.
China, China, China…
–
Key Statistics
–
Steel Production
–
SMA Mission
–
Lessons Learned
–
Currency
Washington’s Impact on Steel
4.
Other Government Impacts
–
Exchange Rates
–
Value of the Dollar
–
Scrap Imports/Exports
–
US Overhead Costs
–
TEA 21 Lunacy
5.
Steel Production Costs
–
Key Issues
–
Energy & Raw Material
Costs
–
Asset Values
–
Bankruptcy/Restarts
6.
Conclusion
Some things are the same…
Courtesy – IMF
Some things are worse…
Technical Read on Crude Oil Prices
Courtesy – JP Morgan
LAST YEAR - 2004
Concrete Reinforcing Steel Institute
Fall Business Meeting, 2004
Conclusion
•Don’t count on Washington for help! i.e. TEA 21
•Uncertainty – Cycle has Changed (Shorter Term & Greater
Peaks & Valleys)
•Revenue vs. Costs – Not the Same Business Model
•CHINA, CHINA, CHINA…
•Bankruptcy Laws Unfair to Competitors
•Investments – Earn Cost of Capital
•Mini-Mills 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 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%
World Raw Steel Production
8 Months 2005 (000 metric tonnes)
…although total world steel production is increasing,
Chinese production continues to increase, rest of the world
production is flat, and North America production declines...
8-MONTHS
2004
2005
TOTAL 61 COUNTRIES
681,956
728,980
6.9%
CHINA
175,390
224,850
28.2%
REST OF WORLD
506,566
504,130
-0.5%
EUROPEAN UNION (15)
CANADA
Source: IISI
YTD/YTD
% Change
111,399
109,531
-1.7%
10,839
10,444
-3.6%
USA
65,593
61,787
-5.8%
MEXICO
11,118
11,117
0.0%
U.S. Raw Steel Capability Utilization
2000 – August 27, 2005
…US steel makers reduced production (and capability utilization) to
support inventory drawdown, and undertook maintenance in early 2005 to
be prepared for stronger demand in 2H 2005…
100
95.9
95.6
85.4
94.7
95
90
85
Percent
80
78.6
75
73.8
70
Capability utilization has averaged
86.1% year-to-date, compared to
94.2% for the same period last year.
Year-to-date production is 5.9%
below last year's level.
65
63.6
60
60.2
55
50
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
CRSI – Fall Business Meeting - 2005
China’s Impact
After 4 Trips in a Year…
Key Questions:
- When will Chinese steel production significantly exceed its
own domestic consumption – I.e. 50/60 MMT?
- Will the Chinese government shut down inefficient, excess
capacity? (Has not done so with polluting facilities despite
strong policy)
- How can North American Steel Industry compete against
Chinese government - - IT CAN’T!
Ju
l. 1
8
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1
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9
Au
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Au
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8
Au
g.
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Au 1
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1
Au 6
g.
1
Au 9
g.
2
Au 4
g.
2
Se 9
p.
1
Se
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Chart 1: U.S. Dollar Exchange Rate for the Yuan
Daily, July 18th, 2005 - Present
Yuan per U.S. Dollar
7.3
Yuan Revalued
7.5
7.7
Hypothetical Yuan per US$*
7.9
Actual Yuan per US$
8.1
8.3
8.5
Ju
l. 1
Ju 8
l. 2
Ju 0
l. 2
Ju 2
l. 2
Ju 6
l. 2
Au 8
g.
Au 1
g.
Au 3
g.
Au 5
g.
Au 9
g
Au . 11
g.
Au 15
g.
Au 17
g.
Au 19
g.
Au 23
g.
Au 25
g.
Au 29
g.
Se 31
p.
Se 2
p.
Se 7
p.
9
Chart 2: U.S. Dollar Exchange Rates for Various Asian Currencies
Daily, July 18th, 2005 - Present
97
China
7/18/2005 = 100
98
Japan
99
Malaysia
100
South Korea
101
102
103
Yuan
Revalued
China’s Steel Trade Balance
Year
2004
2005
2006
Imports
33.1
27.0
22.0
Exports
20.2
32.5
36.0
(Semi’s)
6.2
9.0
5.0
Steel Trade Balance
-12.9
+5.5
+14
CONCERNS
Steel Item
•North American steel industry CANNOT
compete against Chinese steel companies
financed and controlled by their
government
• In 2005, compared to 2004, China steel
imports are projected to drop by 6.1
million tons, while exports are projected
to increase by 12.3 million tons
• North American steel industry loss of a
significant increment of its customer
base to relocation to Chinese
production sites
Comment
Currency, banks, land, environment,
consolidations, policies
Trend worsens in 2006 with new
capacity on line, and China’s
slowdown
Government de facto subsidies
(industrial parks, infrastructure,
factory space, loans)
CHALLENGES
Area
•Environment
•Consolidations
•Technology/Quality
Comment
Trade policy and laws are not enforced regarding
emissions and effluents; Province versus
Beijing; employment rules, not environment
State-owned facilities; only non-controlling foreign
ownership allowed; antiquated facilities; policy is
20 large producers, push small producers out
Quality in flat rolled will affect export capabilities.
Switch from long to flat not easy
•Inventories
Run full out. Not always market-oriented
•Capital
Will not always be free; could lose state credit
•Personnel
Some “unrest” expressed toward elite class.
Internet is politically uncontrollable
Chinese steel industry expansion continues in
a region that is deficient in resources (supply
and quality) and environmental compliance…
COMPLIANCE WITH THE WTO
The National Association of Manufacturers (NAM) recently reviewed
China’s compliance with its WTO commitments in the accession
protocol. While progress has been made in certain areas, there are
serious concerns and problems with effective compliance relating to:
1.
2.
3.
4.
5.
6.
Huge U.S. trade imbalance
Continued currency manipulation
Arbitrary VAT taxes and rebates
Massive counterfeiting and piracy
Discriminatory standards
Inadequate regulatory transparency
Steel Making Raw Material Prices
Prices of key steel making cost inputs have more than doubled in 2004 and 2005. The
Steeloutlook
Making
Raw Material Prices Indices
for 2006 is for continuing cost pressures...
1990 = 100%
300%
Coal
Iron Ore
Scrap - Chicago #1 Bundles
Slabs - Brazil Export
Index 1990 = 100
250%
200%
150%
100%
50%
20
05
E
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
0%
9/26/05
Source: Iron and Steel Statistics Bureau
Rebar Prices, 1990-2005
(Midwest, $ per ton)
June 2005 = $470
July 2005 = $450
Aug. 2005 = $435
Sept. 2005 = $485
Source: Purchasing Magazine
Wire Rod Prices, 1990-2005
(Midwest, $ per ton)
June 2005 = $505
July 2005 = $472
Aug. 2005 = $469
Sept. 2005 = $523
Source: Purchasing Magazine
Wide-Flange Beam Prices, 1990-2005
(Midwest, 8 x 8, $ per ton)
June 2005 = $516
July 2005 = $506
Aug. 2005 = $496
Sept. 2005 = $545
Source: Purchasing Magazine
Global Price Spreads Versus N.A. Spot
Price Hot Rolled Sheet
…the U.S. market had become less attractive to offshore steel with
lower prices and lower spreads versus the rest of the world in 2005.
Global Price Spreads Versus N.A. Spot Price
However, price rebounds and increases in overcapacity may encourage
Hot Rolled Sheet
imports to return…
250
EARLY SEPTEMBER SPREADS
200
$160
Incentives
for imports
to increase
150
$153
50
0
-$80
-50
USA - EU Export
-100
USA - Russia Export
USA - Japan Export
-150
Incentive for
import to fall
5
ul
-0
05
an
-
4
ul
-0
04
an
-
3
ul
-0
03
an
-
2
ul
-0
02
an
-
1
ul
-0
01
an
-
0
ul
-0
00
an
-
9
ul
-9
99
-200
an
-
U.S.$/ton
100
U.S. Oil and Natural Gas Prices
…oil prices are the major uncertainty in the outlook for 2006, with
forecasts ranging from thirty-five to seventy-five US$ per bbl…
Natural Gas Cost Impact
…sharp gains in natural gas prices have more than doubled steel
mill gas costs per ton since 2000. Costs for integrated mills have
Natuaral Gas Cost Impact
risen over $30 per ton…
60
50
Integrated Mills
Flat Rolled Mini-Mills
$ per ton
40
Long Product Mini-Mills
30
20
10
0
2000
2001
2002
2003
2004
Aug-05
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
CRSI – Fall Business 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 – China is still
the “wild card”
• Consolidations and discipline have had an impact to
reduce volatility
• Role of inventories affecting pricing and production
• Demand still healthy, construction solid
• Unknowns (Oil, interest rates, auto sector, energy,
freight rates, federal spending, China, China, China)
• Still reasons for meaningful optimism