Transcript 20100113 - Steel Manufacturers Association

Steel Orbis Webinar
Key Issues Affecting US Minimills
Thomas A. Danjczek
President
Steel Manufacturers Association
January 13, 2010
Steel Orbis Webinar: Key Issues Affecting US Minimills
•SMA
•Today’s Concerns
•Today’s Deterioration – US Steel Production
•China, China, China
•Scrap
•Energy
•Climate Change
•Infrastructure
•Protectionism and Trade Issue
•Is Enough Being Done?
•Conclusion
Outline
Steel Orbis Webinar: Key Issues Affecting US Minimills
SMA
• The Steel Manufacturers Association (SMA)
– 34 North American companies:
29 U.S., 3 Canadian, and 2 Mexican
– 128 Associate members:
Suppliers of goods and services to the steel industry
• SMA member companies
– Operate 125 steel recycling plants in North America
– Electric Arc Furnace (EAF) steelmakers using recycled steel
Steel Orbis Webinar: Key Issues Affecting US Minimills
SMA
• Production capability
– EAF steel producers accounted for 60% of U.S. production in 2008
– 62% first half 2009
– SMA represents over 70% of all U.S. steel production
• Recycling
– SMA members are the largest recyclers in the U.S.
– EAF steel producers are the largest recyclers in the world
– Last year, the U.S. recycled over 75 million tons of steel
• Growth of SMA member companies
– Highly efficient users of labor, energy, and materials
– Modern plants producing world class quality products
Steel Executive- 2009
Steel Orbis Webinar: Key Issues Affecting US Minimills
The Obvious Concerns
-Our Jobs
-US Recession and financial meltdown
-Infrastructure Spending
-Value of the RMB
-Energy shortfalls and pricing
-China, China, China
-Global Steel Overcapacity
-Subsidies and other trade distortions
-US Legislation (111th Congress and the 44th President)
Steel Orbis Webinar: Key Issues Affecting US Minimills
12-21-2009
US Steel Production
(All in Million Net Tons)
(Numbers are Approximate)
PAST –
From 1986 through 2008, U.S. steel production has been around
100 m tons – up & down 10%
PRESENT – 2009
1st Half
2nd Half
Year
25m
36m
63m
(45% utilization)
(62% utilization) Now 1.5m/week vs. 2.1m/week
(57.6m net tons through 11 months - Minimills at
65% of production)
FUTURE – 2010
World Steel 78m
Peter Marcus 68m
US Poll
69m
(up 19% over 2009), optimistic
(Back to 75m in 2012)
(up 10% over 2009)
Steel Orbis Webinar: Key Issues Affecting US Minimills
U.S.Raw Steel Production - 2008 & 2009
Production Tons
10
9
Million Tons
8
7
6
5
4
3
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2008
2009
2008-2009 Monthly
Steel Orbis Webinar: Key Issues Affecting US Minimills
U.S. Raw Steel Capability Utilization - 2008 & 2009
Monthly Utilization Percentage
100
Utilizatin Percentage
90
80
70
60
50
40
30
JAN FEB MAR APR MAY JUN
JUL AUG SEP
OCT NOV DEC
JAN FEB MAR APR MAY JUN
2008
JUL AUG
2009
2008-2009 Monthly
SEP
OCT NOV DEC
NAFTA Production Declines More Than Other World Regions
Global Output Sharply Down, With Few Exceptions
Global Crude Steel Production
2009 YTD vs. 2008 % Change
N. America:
Canada:
U.S.:
Mexico:
-45.1
-51.9
-47.0
-29.5
S. America:
Brazil:
EU27: -39.3
Turkey: -13.5
Russia: -26.8
Ukraine: -31.9
Asia:
Japan:
S. Korea:
China:
India :
-30.3
-31.4
Global Production:
Excluding China:
Source: Worldsteel
-16.4
-30.9
-2.2
-34.0
-14.9
+7.5
+1.6
While NAFTA Production Has Risen Recently,
Capacity Utilization Is 30% Below 2008 Levels
NAFTA Raw Steel Production - 2009 vs. 2008
Production Tons - NAFTA
NAFTA - Rate of Capability Utilization
China - Rate of Capability Utilization
ROW ex China - Rate of Capability Utilization
90%
80%
•
100%
70%
60%
10,000
50%
40%
30%
5,000
20%
2008
Source:Worldsteel
2009
AUGUST
JULY
JUNE
MAY
APRIL
MARCH
FEBRUARY
JANUARY
DECEMBER
NOVEMBER
OCTOBER
SEPTEMBER
AUGUST
JULY
JUNE
MAY
APRIL
MARCH
0
FEBRUARY
10%
0%
Utilization percentage
15,000
JANUARY
Monthly Tonnage (MT)
20,000
• Several NAFTA
facilities have been
restarted, after having
been offline for close to
a year. Some facilities
have no future return
date.
The NAFTA economic
recovery is still very
fragile, and a return to
pre-crisis steel
production levels
remains years away.
• The NAFTA and rest of
world (ROW) utilization
rates have stayed well
below China’s rate.
Steel Orders Collapsed After The Financial Meltdown
And Still Have Not Recovered
• In the U.S., steel
NAFTA Demand for Steel, Aug 2008 – August 2009
purchases were cut
in half within 7
months (Aug. ’08 Mar. ’09), and 50%
of U.S. output was
shuttered.
160,000
140,000
Metric Tons ('000)
120,000
• In Canada, August
2009 shipments were
39% lower than a
year earlier. A
number of facilities
remain idled or
operating at reduced
rates.
100,000
80,000
60,000
40,000
20,000
0
AUG
SEP
OCT
NOV
DEC
Source: World Steel Association, NAFTA Steel Trade Monitor
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
•In Mexico, ASC for
2009 (Jan – Sept) is
25% below 2008
levels. The
September figure is
31% below the last
peak (June 2008).
The U.S. Construction Market Is Still Weak
U.S. Housing Permits, Starts and Completions
2.5
2.25
• The residential housing
market has bottomed in the
past 6 months – to 40-year
lows.
2
• Home foreclosures are
continuing to rise.
Government incentives (e.g.,
a tax credit for first-time
buyers) are helping, but
limited. Tighter credit
standards are reducing the
pool of available new buyers.
Million Units
1.75
1.5
1.25
1
0.75
0.5
Permits
Source: U.S. Department of Commerce.
Starts
Completions
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
20
01
0.25
• An uptick in the nonresidential, commercial
market is not expected until
late next year.
The NAFTA Automotive Production Remains
Deeply Depressed
Detroit 3 Production
Jan-September 2009 vs. 2008
NAFTA Light Vehicle Production 1999-2009
2500
thousand units produced
20
12
10.1
10
7.7
8
11.8
12.8
15.1
15.3
15.8
15.8
15.9
17.2
16.4
14
15.5
Millions of Units
16
17.0
18
6
4
2
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f
Source: Ward’s Automotive. * 2009 Annualized based on September year-to-date.
2000
Chrysler
1500
Ford
1000
GM
500
0
2009
YTD
2008
YTD
While the “cash for clunkers” program has
helped increase production and sales, “Detroit 3”
production has declined by over 50% YTD vs.
2008.
With the end of this incentive program and with
unemployment likely to stay high for several
years, automotive production and sales are
unlikely to return to pre-crisis levels for the
medium term.
NAFTA Service Center Inventories At Multi-Year Lows,
But Reduced Demand Delaying Restocking
MSCI Average Daily Shipments & Inventory
For U.S. & Canada Metric Tonnes (000)
Inventory
5,500
18,000
5,000
16,000
• NAFTA service center
shipments are off
30% vs. 1 year ago.
14,000
4,500
12,000
4,000
10,000
3,500
8,000
6,000
3,000
4,000
2,500
2,000
2,000
0
2006
JAN
JUL
Source: Metals Service Center Institute
2007
JAN
JUL
2008
JAN
JUL
2009
JAN
JUL
Inventory
Daily Shipping Rate
Daily Shipping Rate
• Service center demand has
fallen in line with overall
steel demand.
• As of October 2009, U.S.
and Canadian service
center inventories (2.3
months each) are at 5-year
lows, but a lack of
consumer confidence and
low end-use demand are
preventing restocking.
…While World Capacity Continues to Grow
World Crude Steel Capacity 2000-2011
World Crude Steel Capacity
Finished steel use
Chinese Capacity
1,997
1,917
1,816
1,654
World Steel Capacity/Demand
(thousand metric tonnes)
1,750
1,583
783
900
804
800
740
677
700
1,453
1,500
1,356
588
600
1,245
1,170
1,250
1,062
1,062
1,095
500
1,000
400
750
300
500
200
250
100
0
0
2000
Source: Worldsteel Association
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Chinese Capacity (thousand metric tons)
2,000
NAFTA Imports During Crisis Period
NAFTA Imports 2008 & 2009 - Monthly
NAFTA External Imports
NAFTA Internal Imports
3,000,000
• Steel imports from other
regions exceeded intraNAFTA steel trade when
the market collapsed.
2,500,000
Metric Tonnes
2,000,000
• Non-NAFTA imports at
first surged, and then
declined but have
maintained a relatively
high market share.
1,500,000
1,000,000
• Imports from China
peaked in October 2008.
500,000
JAN FEB MAR APR MAY JUN
JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN
Source: NAFTA Steel Trade Monitor, US Department of Commerce, Canacero and World Trade Atlas.
JUL AUG
NAFTA Exports During Crisis Period
NAFTA Exports 2008 & 2009 - Monthly
NAFTA External Exports
• NAFTA
producers send
only a small
portion of steel
produced outside
the region.
NAFTA Internal Exports
2,000,000
1,800,000
1,600,000
Metric Tonnes
1,400,000
• During 4Q ‘08,
intra-NAFTA
steel trade
declined sharply,
more or less in
line with the
steep decline in
market demand.
1,200,000
1,000,000
800,000
600,000
400,000
200,000
JAN FEB
2008
MAR APR MAY
JUN
Source: US Department of Commerce and World Trade Atlas
JUL
AUG SEP OCT NOV DEC
JAN FEB MAR APR MAY
2009
JUN
JUL
AUG
Nearly 3 Million More Lost NAFTA Manufacturing Jobs
During the Economic Crisis (2007-2009)
NAFTA Manufacturing Employment Since 2007
16.5
16
Millions
15.5
15
14.5
14
13.5
13
2007
Source: U.S. Bureau of Labor Statistics, Statistics Canada
2008
2009
While the Rest of the World Cuts Steel Production,
Chinese Production Continues to Grow
Percentage Change in Crude Steel Output, 1H 2008 to 1H 2009
10
North
America
EU
Japan
Brazil
Ukraine
Russia
S. Korea
Turkey
0
China +1.2
Percent
-10
-20
-30
-40
-50
Source: WorldSteel Association
This Year, China Will Account for Almost Half of
Total World Crude Steel Production
Chinese crude steel production as a
percentage of total world production
China’s crude steel production
600
50
45
500
40
35
30
300
percent
millions of MT
400
25
20
200
15
100
10
Source: World Steel Dynamics, Inside Track # 77 (May 30, 2007); World Steel Dynamics, Truth & Consequences # 44 (Nov. 15, 2007); World Steel Dynamics, Inside Track # 87 (June 12,
2008); World Steel Dynamics, Truth & Consequences # 50 (Feb. 9, 2009); World Steel Dynamics, Inside Track # 97 (Oct. 2, 2009).
2009(e)
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
1996
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
20 08
09
(e
)
0
1995
5
Steel Orbis Webinar: Key Issues Affecting US Minimills
China Steel Comments
•China has NOT become the world’s Largest steel producer by
accident, or by operation of free markets, or comparative advantage
•China is NOT a low-cost steel producer
•China has reached its position through a combination of
subsidies, mandates, and planned intervention
•In finished goods containing steel, China’s exports to absorb overproduction
•Chinese steel industry is overbuilt and under-demolished
Steel Orbis Webinar: Key Issues Affecting US Minimills
China’s Trade Surplus with
the U.S.
Year
China’s Trade Surplus
2001
$22 billion
(year China joined WTO)
2006
$177 billion
2007
$262 billion
2008
$290 billon
(up 47.7%)
The U.S. has lost 3.3 million manufacturing jobs
since 2000… imbalances cannot go on forever.
Steel Orbis Webinar: Key Issues Affecting US Minimills
RMDAS Ferrous Scrap Price Index
Effective 12/20/09
Steel Orbis Webinar: Key Issues Affecting US Minimills
Other Issues - Energy
U.S. needs to address energy needs, availability, reliability,
and competitive costs
Steel Orbis Webinar: Key Issues Affecting US Minimills
Other Issues - GHG
The U.S. Steel Industry Has One of the
Lowest Process Emissions Intensities
in the World
1.60
1.36
1.40
1.20
1.12
Metric Tons CO2/Metric Ton of Steel
1.05
1.00
0.93
0.96
0.80
0.60
0.49
0.46
0.40
0.20
0.00
United States
Canada
Mexico
Germany
DRAFT
Australia
Russia
Japan
8
Steel Orbis Webinar: Key Issues Affecting US Minimills
• US aging infrastructure is functionally obsolete
and structurally deficient
• FHWA estimates $78.8 billion per year for the
next 20 years to maintain infrastructure, $131.7
billion to improve
• Gas tax at 18.54/gallon generates app. $40
billion
• Current gas tax woefully insufficient, only half of
maintenance
Steel Orbis Webinar: Key Issues Affecting US Minimills
Free Trade vs. Protectionism
Is “Protectionism” the enemy of “Free Trade”
Protectionism
-Predatory Pricing
-Trade distorting subsidies
-Government Ownership
-National power by protecting our industries and state
-Piling up currency measures
-One way trade
Need “Balanced” Trade over “Mercantilism”
Who’s the Protectionist?
1. Taken in part from C. Blum
Steel Orbis Webinar: Key Issues Affecting US Minimills
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.
Steel Orbis Webinar: Key Issues Affecting US Minimills
Conclusion
U.S. Steel Industry in Better Position Today to Manage the Down Cycle
(but what a down cycle!)
― Improved Economics From Consolidations, i.e. “Reacted Quicker”;
― Improved Control of Variable Costs
― Scrap-Based Metallics (In 2009, U.S. will be nearly 2/3 EAF-based
― Energy Costs
― Transportation Costs
― Labor Efficiency (U.S. at Below 2MH/Ton; Minimills Often Below
1MH/Ton)
― Improved Inventory Control (Inbound Materials, Steel, and Customer
Products). NOT THE OLD INVENTORY OVERHANG!
― Concerns with Scrap, Climate Change, Energy, U.S. Debt, Taxes,
Currency, but especially Climate for Investment
― Still Challenging – But Reasons for Meaningful Long-Term Optimism!