Transcript Slide 1

AIST – St. Louis Chapter
Minimill Drivers in the North American
Steel Industry
Thomas A. Danjczek
President
Steel Manufacturers Association
February 29, 2012
AIST - St. Louis Chapter
Outline
•About the SMA
•Changes
•Steel Demand Drivers & Comments
•Raw Materials Drivers
•Energy Drivers
•Final Thoughts
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AIST - St. Louis Chapter
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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AIST - St. Louis Chapter
Where SMA Member EAFs are located…
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Changes
AIST - St. Louis Chapter
Deeper
Recession
Variable
Cost Control
Scrap
Availability
High
Unemployment
Labor
Intensity
Inventory
Levels
China
Foreign
Ownership
Consolidations
Safety
Customer
Requirements
Environmental
Regulations
Engineers
Transportation
Costs
Ore
Availability
Energy
Costs
Currency
State-Owned
Enterprises
Other Factors…
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AIST - St. Louis Chapter
World Steel Production
Steel Changes
1970
2010
2011
Comment
595
1414
1550
Growth in developing World
<10%(e) 27%
28%
<10%(e) 63%
64%
(mmt)
EAF Production
(World - % of Production)
EAF Production
Minimill Growth
(U.S. - % of production)
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In USA, raw steel capacity utilization was
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
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U.S. finished steel demand forecast
Forecast
Actual ADC
Source: CSM, FW Dodge, AHAM, First River
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Auto build & non-res construction are recovering,
but not to previous peak
NA Auto Build
(Million Units)
Source: CSM Worldwide, FW Dodge
Forecast
Non-Res Construction
(Million Sq. Feet)
Forecast
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AIST - St. Louis Chapter
Comments on Current N.A. Steel Industry
• Underlying Weak Economy, with less than 3% GDP and estimates
downward
• Recovery underway, but very slow
• North American steel market under pressure with unused capacity
• Increased exports and percent imports (5mmt of semi’s imports)
YOY, Impact of currency changes
• 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 trends unknown with developing world demand lower
next two months – too early to call a trend
• Economic growth turning point is always two quarters away
• Market cap values at historic lows
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Scrap
AIST - St. Louis Chapter
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 including scrap:
–
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
• Three Challenges
–
Export Restraints
–
EAF Capacity Expansion
–
Long Lead Time for Recycling Network
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Scrap Demand Forecasts
Scrap demand (mt) – 2017
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Scrap Exports as a Percentage of Steel Production,
2010
25.54%
30.00%
Scrap Exports/Steel Production
25.00%
20.00%
15.00%
10.00%
3.60%
0.00%
0.00%
5.00%
0.00%
China
Russia
India
USA
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AIST - St. Louis Chapter
Scrap Volatility Continues
• Global Demand and the relative value of the US dollar to other currencies determine
the volume of exported material.
• Ferrous scrap exports exceeded 20 million tons in 2010 for the third consecutive year
and will set a new annual record in 2011 (estimate - 24 million tons)
• Export restrictions on ferrous scrap have been enacted by 26 countries.
• With global steel output on the rise, prices for ferrous scrap in the US have decoupled
from US mill demand.
• Steel production should be based on comparative advantage (raw materials, energy,
capital).
• Need reciprocity.
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Energy Drivers
Abundant Domestic Natural Gas is a Game Changer
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Energy Drivers
Natural Gas Price Projections Remain Low
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Energy Drivers
EPA Mandates and Coal Plant Retirements: An Orderly
Transition or Big Trouble?
• Coal Plant Retirements: How Much? How Soon?
– Estimates Range from 20,000- 60,000 MWs by 2018
– Announced Retirements
•
•
•
•
•
8,700 MWs by 2015
13,000 MWs by 2018
Retiring Units On Average Began Commercial service in 1956
Average Unit Size = 166 MWs
23 units Are Smaller less than 100 MWs
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Energy Drivers
Near Term Impacts
• Output From Coal Fired Generation has declined slightly,
but Still Accounts for 45% of Electricity Generated
• Gas Demand From the Electric Sector Continues to
Increase
• Energy Produced By Renewable Sources (Mostly Wind)
has Increased Substantially, but Remains Less than 2% of
Generation Supply
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Energy Drivers
Gas Will Remain the Dominant Fuel For Electric
Generation
• Coal Technologies are Struggling
– Coal Gasification (Duke)
– Carbon Capture and Storage (AEP)
• No Supply Technologies are Remotely Competitive with GasFired Generation
• Nuclear, Wind and Solar are Heavily Dependent on Federal
Subsidies
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Energy Drivers
Energy Concerns
• Utility Rate Increases Driven by Coal Retirements,
Environmental Compliance Costs, Building Gas-Fired
Units, Grid Upgrades, Clean Energy and “Smart Grid”
Investments
• Increasing Intermittent Generation (Wind and Solar) Will
Present Reliability Questions
• Federal Dominance of Grid Expansion and Cost Allocation
• Shift in Clean Energy Mandates From Federal Budget to
Utility Ratepayers
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Final Thoughts
• U.S. is in a traffic jam, moving slightly forward, but don’t
know other consequences. Don’t look to Washington, DC
for help. Gridlock continues
• Uncertainty and volatility will continue in U.S. industry
until economic fundamentals are in equilibrium. Limited
visibility…
• Comment on Don Daily AIST-SMA Project
• Environmental Overregulation getting worse
• 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
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