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Solving the China Puzzle

AMERICAN METAL MARKET CONFERENCE:. Solving the China Puzzle. Session VI – China Trade and its Impact on North American Manufacturing. Thomas A. Danjczek President Steel Manufacturers Association September 29, 2006 Rev. 9/1/06. AMM – Solving the China Puzzle.

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Solving the China Puzzle

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  1. AMERICAN METAL MARKET CONFERENCE: Solving the China Puzzle Session VI – China Trade and its Impact on North American Manufacturing Thomas A. Danjczek President Steel Manufacturers Association September 29, 2006 Rev. 9/1/06

  2. AMM – Solving the China Puzzle China Trade and its Impact on North American Manufacturing • Capacity (World, region, China by product, China’s announcements) • Subsidies (SMA statement, examples, comment re: AIIS • Environmental impact • Unknown • Conclusions

  3. Projected Worldwide Crude Steel Capacity vs. Demand (2006 – 2010) Million Metric Tons *Demand growth estimated at 6%/yr

  4. Worldwide Announced Steel Capacity AdditionsBy Region 139 120 Million Metric Tons 110 106 51 45 44

  5. China Announced Steel Capacity By Product 54 51 46 Million Metric Tons 37 5 5 4

  6. AMM – Solving the China Puzzle Notable China Capacity Announcements • Baosteel planning construction of a 20mt/yr mill • Wuhan plans 10mt/yr steelworks in southern China • Anshan ready to start 10mt/yr steel mill • Maanshan orders 5.5mt/yr hot strip mill • Hangzhou to resume previously suspended project to build 6mt/yr plate mill • POSCO in talks on 12mt/yr steel plant in China’s Fujian province

  7. AMM – Solving the China Puzzle China’s Subsidies SMA statement RE: WRF report, entitled: “The China Syndrome: How Subsidies and Government Intervention Created the World’s Largest Steel Industry”

  8. AMM – Solving the China Puzzle China’s Subsidies -Non-performing loans at state banks -Export subsidies -Import substitution subsidies -Preferential loans -Grants (land, cash, energy, raw materials -Environmental non-enforcement & weak regulation -Tax incentives & reductions -RMB manipulation -Debt to equity conversion -Barriers to foreign investment -Debt forgiveness WHO IN THE ROOM IS RECEIVING ANY OF THE ABOVE???

  9. AMM – Solving the China Puzzle China’s Subsidies Comments on AIIS report: “Integrating the Chinese Steel Industry and Trade Policy into the 21st Century” • AIIS’ attack on U.S. trade laws so that some importers can obtain illegally subsidized steel is not news for AIIS. • AIIS contradicts itself by acknowledging that tens of billions of dollars of investments by Chinese banks are directly controlled by the Chinese government. How does AIIS explain the 80% ownership of the Chinese steel industry by the Chinese government? • AIIS’ “not to worry” attitude regarding the potential for excess steel making capacity to choke world export markets is consistent with their view that China’s capacity growth is market-drive, rather than government subsidized. This is a prime example of distortion of the facts.

  10. AMM – Solving the China Puzzle Environmental Impact • U.S. EPA estimates that approximately 20% of the particulate matter in the skies above Los Angeles can be traced to China. • China’s environmental problems are severe, and getting worse. • The World Bank estimates that 16 of the world’s 20 most polluted cities are in China

  11. AMM – Solving the China Puzzle Unknown • JCCT Steel Dialogue – where goal is to promote transparency with better decisions??? • European Union antidumping investigation & targets??? • Energy cost & interest rate impacts??? • China’s restrictive policy of foreign ownership participation??? • U.S. legislation??? • Trade actions??? • When will China play by market rules???

  12. AMM – Solving the China Puzzle Conclusion • Continued North American steel industry resiliency. North American steel mills, for the most part, are technologically advanced, highly competitive, environmentally acceptable, and a key component of the North American economic infrastructure • U.S. Congress is very disappointed in the lack of China’s progress correcting currency manipulation • China has more government-financed steel making capacity than it can use • The growth of the Chinese steel industry has been at the expense of its international competitors • Concern with the displacement of steel consuming industries • China’s trade and environmental policies and laws are not enforced • North American steel industry CANNOT compete against the Chinese government • Still, reasons for meaningful optimism • It’s still a cyclical business, but enjoy today

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