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The U.S. Steel Industry Where We Have Been and Where We Are Going. Keith Busse President and CEO Steel Dynamics, Inc. National Association of Pipe Distributors Las Vegas, February 26, 2005. The U.S. Steel Industry. Historical Perspective: 1950-2000 Global Perspective The 1990s

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the u s steel industry where we have been and where we are going

The U.S. Steel Industry Where We Have Been and Where We Are Going

Keith Busse

President and CEO

Steel Dynamics, Inc.

National Association of Pipe Distributors

Las Vegas, February 26, 2005

the u s steel industry
The U.S. Steel Industry
  • Historical Perspective: 1950-2000
  • Global Perspective
  • The 1990s
  • The Recent Past: 2000-2004
  • The Future
    • 2005
    • Longer term
domestic steel production by type of steel
Domestic Steel Production by Type of Steel

4%

Rod & Wire

Semi-finished

1%

Other

5%

6%

Structural

Flat-rolled sheet

54%

Plate

8%

Coated Sheet

Rebar

7%

19%

Other Bar

10%

Cold Rolled

14%

5%

Pipe

Hot Rolled

21%

Source: American Iron and Steel Institute

1950 through 2000
1950 through 2000
  • High concentration of large, integrated producers, but many regional and specialty players emerged
  • Very little growth in domestic steel production over the period
  • Domination by large integrated producers finally gave way to EAF-based mini-mills
  • Periods of intense competition from offshore
large integrated producers dominated through the 1970s
Large integrated producers dominated through the 1970s
  • U.S. Steel
  • Bethlehem Steel
  • National Steel
  • LTV
  • Wheeling-Pittsburgh Steel
domestic steel production 1950 2000
Domestic Steel Production, 1950-2000

Very little growth in domestic steel production…

160

peak about 150 million tons

140

120

100

80

60

110 million tons

40

20

0

1950

1960

1970

1980

1990

2000

Source: American Iron and Steel Institute

domestic steel production by furnace type

Changes in steel production technology …

Domestic Steel Production by Furnace Type

Millions of Tons

Total U.S Production

160

140

120

100

80

Basic Oxygen

Open Hearth

60

40

Electric

20

0

1950

1960

1970

1980

1990

2000

Source: American Iron and Steel Institute

integrated and eaf production

Electric-arc furnace production gained parity…

Integrated and EAF Production

Percent of U.S. Steel Production

100

90

Integrated

80

70

60

50%

50

40

Electric

30

20

10

0

1950

1960

1970

1980

1990

2000

Source: American Iron and Steel Institute

slide9

From 1980 to 2000, the new EAF producers gained substantially

  • Nucor
  • Birmingham Steel
  • Commercial Metals
  • Ipsco
  • Steel Dynamics
  • Gerdau Ameristeel

… and the U.S. began to see intense competition from offshore

global perspective 1950 1980s
Global Perspective, 1950-1980s
  • Post WW II, U.S. steel industry was strong, but complacent.
  • Japan and Germany rebuilt.
  • The U.S. became an attractive steel market.
  • Around the world, governments invested in national steel companies.
  • Imported steel became a big issue in the U.S.
global perspective 1980 2000
Global Perspective, 1980-2000
  • Japan and Western Europe became more industrialized, like the U.S.
  • The U.S. became a very attractive market to an increasing number of the world’s steel producers.
  • Imported steel became a bigger issue in the U.S.
  • Nationalized steel companies did not work out– governments started privatizing them. (Examples: Great Britain, USSR, Eastern Europe, India– China is the exception, but moving strongly to privatize)
in the 1990s
In the 1990s
  • Global factors and past management “sins” converged on the U.S. steel industry.
  • U.S. producers were dramatically affected by currency manipulation.
  • The U.S. became the world’s steel “dumping ground.”
u s annual apparent steel supply

1998: Peak Imports

of 40+ million tons

U.S. Annual Apparent Steel Supply

(Use of steel in the U.S.)

Millions of Tons

Apparent “Consumption”

160

140

120

100

U.S. Domestic

Shipments

80

60

Imports

40

20

0

Exports

-20

1986

1990

1995

2000

2004

Source: American Iron and Steel Institute

domestic steel production 1950 200014
Domestic Steel Production 1950-2000

peak about 150 million tons

Millions of Tons

160

140

100 million tons

120

100

80

1990s

60

40

20

0

1950

1960

1970

1980

1990

2000

Source: American Iron and Steel Institute

during the 1990s u s integrated steel producers fell on hard times
During the 1990s U.S. integrated steel producers fell on hard times
  • They had not adapted well to lower-cost technologies.
  • They carried extremely high employee obligations
  • They required strong steel prices to stay afloat
  • They were increasingly vulnerable to economic downturn

Leading into 2000…

recession causes decline in domestic demand for steel

2000-2001 recession hits steel markets…

Recession causes decline in domestic demand for steel

Apparent “Consumption”

Millions of Tons

160

140

120

100

80

60

40

20

0

1986

1990

1995

2000-2001

2004

Source: American Iron and Steel Institute

u s raw steel capacity utilization

Capacity utilization sinks…

U.S. Raw Steel Capacity Utilization

Percent

100%

90%

80%

70%

60%

50%

2000

2001

2002

2003

2004

Source: American Iron and Steel Institute

hot rolled sheet selling price

Steel prices drop to a 20-year low…

Hot-rolled Sheet Selling Price

Dollars per Ton

$800

$700

$600

$450

$500

$390

$400

$300

$225

$200

1980

1988

1994

2000

2001

Source: Purchasing Magazine

more than 35 steel companies filed for bankruptcy from 1998 to 2002
More than 35 steel companies filed for bankruptcy from 1998 to 2002
  • Qualitech Steel
  • J&L Structural Steel
  • Laclede Steel
  • Erie Forge & Steel
  • CSC Ltd.
  • Freedom Forge Corp.
  • Sheffield Steel
  • Calumet Steel
  • Edgewater Steel Ltd.
  • Galvpro
  • Metals USA
  • Action Steel … andothers
  • Bethlehem Steel
  • National Steel
  • LTV
  • Wheeling-Pittsburgh Steel
  • Geneva
  • Gulf States
  • Northwestern Wire and Steel
  • Birmingham Steel
  • Republic Technologies
  • GS Industries
  • Acme Metals
  • Trico
steel prices recover in 2002 under supply constraints
Steel prices recover in 2002 under supply constraints
  • Prices recover sharply from their 2001 lows, improving the health of remaining steelmakers.
  • Some mills are shut down permanently, but capacity utilization rebounds in the second half.
    • International Steel Group, begins restarting idled LTV mills.
    • Nucor buys and restarts Trico.
  • With the return of capacity, prices moderate by year-end 2002
  • Most integrated mills continue to lose money.
hot rolled sheet selling price climbs
Hot-rolled sheet selling price climbs

Dollars per Ton

2002

$800

$700

$600

$400

$500

$400

$300

$200

1980

1988

1994

2000

2004

Source: Purchasing Magazine

2003 presents new challenges
2003 presents new challenges
  • The U.S. economy begins to rebound, but pace of steel demand is slow.
  • With some shut-down mills coming back on line, industry capacity recovers and capacity utilization falls.
  • In the second half, signs of raw material shortages appear, causing steel scrap prices to rise at a rapid rate.
  • Steel producers bump up selling prices to recover increased costs.
  • Most integrated steel companies continue to lose money.
in 2004 the steel markets kick it up a notch
In 2004 the steel markets “Kick it up a notch”
  • Steel scrap costs (and now coke and iron ore costs) accelerate to historical highs.
  • Due to historically high input costs, steelmakers institute raw-materials surcharges.
  • Inflation-adjusted steel prices reach historical highs.
steel scrap pricing
Steel Scrap Pricing

2004

2003

$450/ton

Dollars per Ton

$250/ton

2004: Scrap costs reach historical highs

$500

$400

$300

Auto-Bundles

$200

$100

No. 1 Heavy Melt

1980

1988

1994

2000

2004

Source: Purchasing Magazine

hot rolled sheet selling price25

Steel prices reach historical highs

Hot-Rolled Sheet Selling Price

2004

$760/ton

Dollars per Ton

$800

$700

$600

$400

$450

$500

$390

$400

$300

$200

1980

1988

1994

2000

2004

Source: Purchasing Magazine

u s raw steel capacity utilization26

Steel mills again run near full capacity

U.S. Raw Steel Capacity Utilization

Percent

100%

90%

80%

70%

60%

50%

2000

2001

2002

2003

2004

Source: American Iron and Steel Institute

reflections on the 2004 steel market
Reflections on the 2004 Steel Market
  • Mini-mills vs. integrated steelmakers– Who’s winning?
  • Concerns about higher steel prices
  • As a result of consolidation, the health of the U.S. steel industry vastly improved
  • Is it sustainable?
where do we go from here 2005
“Where do we go from here?” – 2005
  • Raw materials costs, while lower than 2004 peak levels, will not likely fall back to previous levels.
  • Selling prices likewise are not expected to fall precipitously.
  • The “steel short” supply-demand imbalance is likely to recur in much of 2005, assuming steel demand stays firm and imports continue at a moderate pace.
slide29

Imports surged in 2004, but are now slowing

Monthly Steel Imports

(thousands of tons)

4,500

2004

4,000

3,500

3,000

2,924

2,500

2,000

Average = 2,747 tons

1,500

96

97

98

99

00

01

02

03

04

Source: US Census Bureau, graphic courtesy of Goldman Sachs Global Investment Research

where do we go from here 200530
“Where do we go from here?” – 2005
  • Moderately strong world steel demand and higher global steel prices, a weak dollar, high ocean freight rates– all act as a disincentive for excessive imports.
  • Continued economic expansion suggests demand will remain strong and possibly improve in some steel markets.
  • Another good year is likely for steel companies.
where do we go from here beyond
“Where do we go from here?” – Beyond
  • Consolidation of the U.S. steel industry has been good for the industry, and may continue.
    • It has closed down antiquated production capacity, improving the cost competitiveness of the industry.
    • It has resulted in better workplace practices and better union agreements for the unionized companies.
    • By eliminating weak companies, it has increased steel-company managements’ focus on profitability.

(continued)

where do we go from here beyond32
“Where do we go from here?” – Beyond
  • Our competitiveness globally is essential to keeping our domestic industry strong
    • We CAN BE the lowest cost steel producers in the world.
    • U.S. competitiveness will depend on currencies, with a weaker dollar helping the steel industry
    • China will continue to be the 800-pound gorilla, in terms of its market size, its growing steel industry, and how it deals with its currency valuation.
slide33

China’s steel production has surged

31

Monthly Production

(millions of metric tons)

China

(300 Mt/yr)

26

21

US

(85 Mt/yr)

EU

(150 Mt/yr)

Japan

(120 Mt/yr)

16

11

6

1994

1996

1998

2000

2002

2004

Source: II&SI, graphic courtesy of Goldman Sachs Global Investment Research

where do we go from here beyond34
“Where do we go from here?” – Beyond
  • Overall, we are optimistic about the U.S. steel industry over the next ten years.
    • Demand for steel in the U.S. will remain strong, with some cyclical variability.
    • Domestic supply will grow slowly as “new steel management” is more cautious than in the past about adding capacity.
    • U.S. likely will continue to require imports of 25-30% to meet demand.
    • Excessive imports remain a risk, but can be dealt with.
the u s steel industry where we have been and where we are going35

The U.S. Steel Industry Where We Have Been and Where We Are Going

Keith Busse

President and CEO

Steel Dynamics, Inc.

National Association of Pipe Distributors

Las Vegas, February 26, 2005