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Steel Trade Developments: A U. S. Perspective

6 th International Steel Market & Trade Conference CISA & MC – CCPIT Beijing, China March 19-20, 2008. Steel Trade Developments: A U. S. Perspective. Thomas A. Danjczek, President Steel Manufacturers Association. SMA. 6th International Steel Market & Trade Conference.

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Steel Trade Developments: A U. S. Perspective

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  1. 6th International Steel Market & Trade Conference CISA & MC – CCPIT Beijing, China March 19-20, 2008 Steel Trade Developments: A U. S. Perspective Thomas A. Danjczek, President Steel Manufacturers Association

  2. SMA 6th International Steel Market & Trade Conference • The Steel Manufacturers Association (SMA) • 36 North American companies: 30 U.S., 4 Canadian, and 2 Mexican • 125 Associate members: • Suppliers of goods and services to the steel industry • Operate 125 steel recycling plants in North America • Electric Arc Furnace (EAF) steelmakers using recycled steel • EAF steel producers accounted for over 60% of U.S. steel production in 2007 • SMA represents over 70% of all U.S. steel production, with similar numbers in Canada and Mexico

  3. 6th International Steel Market & Trade Conference Steel Trade Developments: A U.S. Perspective This Paper Will Address: 1. Changes in steel since 2005 (similar, different, unknown) 2. Developments in steel (consolidation, capacity, China’s exports, trade surplus, impact of AD/CVD, competitiveness vs. China) 3. U.S. market situation 4. Resolving tensions 5. Conclusions / Questions

  4. 6th International Steel Market & Trade Conference Similarities to 2005 In March 2005, I spoke at the 4th Market & Trade Conference Similar: -U.S. dollar exchange rate (China still a dirty float) -China’s steel growth and rising exports -China’s finished goods vs. raw materials -China’s subsidies -China’s compliance (environmental, emissions, arbitrary VAT’s, quotas) -Consolidations (access to capital, industry sustainability) -No U.S. policy actions -Energy and transportation costs -China, China, China (imbalances cannot go on forever)

  5. 6th International Steel Market & Trade Conference Different & Unknown • Different • U.S. recession impact? “STAGFLATION” • Raw material price squeeze (Ore, scrap, alloys, electricity) • Weaker dollar • Lower US steel imports • China’s steel exports to E.U. Unknown -JCCT Steel Dialogue -E.U. trade cases -Impact of sovereign wealth funds -Impact on China’s Purchasing Power by size of imbalances -VAT rebate changes -China’s rate of steel closures

  6. 6th International Steel Market & Trade Conference Steel Consolidating, But Still Fragmented TOP 15 Represent 36% of Global Production Source: IISB

  7. 6th International Steel Market & Trade Conference New Capacity Outpaces Consumption Growth Announced Steel Capacity Vs. Projected Consumption 2007 – 2010 (Million Metric Tonnes) Announced Steel Capacity Increases By Region (2006 – 2012) Compound Annual Growth Rates: Capacity: 6.83% Demand: 4.65% Capacity – Multiple Sources; Nucor Analysis Demand – IISI projections thru ’08; 6% increase “09 – ‘10

  8. 6th International Steel Market & Trade Conference China Is the World’s Largest Exporter Source: CISA, 2007 Data Annualized

  9. 6th International Steel Market & Trade Conference China 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 are expanding by approximately 30 percent per year • Chinese steel market is still reliant on exports to absorb overproduction • Chinese steel industry is overbuilt and underdemolished

  10. China’s Trade Surplus With U.S. 6th International Steel Market & Trade Conference YearChina’s Trade Surplus 2001 $22 billion (year China joined WTO) 2006 $177 billion 2007 $262 billion(up 47.7%) The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.

  11. 6th International Steel Market & Trade Conference Impact of AD/CVD Percent of the value of Chinese imports covered by U.S. AD/CVD duties? 2004 – 0.13% 2006 – 0.10% (TAD comment – What Protectionism?) International Trade Commission, based on U.S. DOC and Customs official statistics

  12. 6th International Steel Market & Trade Conference Competitiveness U.S. - China Steel Future Competitiveness Drivers DriverU.S.ChinaComment 1. Metallics •Weak $ •1/2 imported •Technological (Availability/Price) •Scrap exports •Freight developments + to U.S. 2. Energy •Gas/electricity + to China •Climate change (Availability/Price) constraints policy •Limited nuclear 3. Labor •Lack of technical + to China •Health care costs 4. Transportation + to U.S. 5. Trade + to China •Growth of steel- intensive goods 6. Environment + to U.S. •Enforcement?

  13. 6th International Steel Market & Trade Conference U.S. Current Steel Situation • Real steel usage down 4.4% in 2007 from 2006 • Overall, all steel consumption projected to be down 2.2% in 2008 vs. 2007 • 2008 should replenish steel inventories • 2009 expect steel turnaround • Raw material & steel prices continue to surge up with market support • Impact of weak dollar, less imports, U.S. recession? Margin squeeze???

  14. 6th International Steel Market & Trade Conference U.S.Steel Consuming Sectors Weight %1200520072008 Construction: 31%    Domestic Appliances: 2%    Electrical Equipment: 3%    Mechanical Machinery: 6%    Metal Products: 31%    Automotive: 25%    Other: 2% Total: 100% 1 AISI, February 2008

  15. 6th International Steel Market & Trade Conference U.S. Steel Market Projections

  16. 6th International Steel Market & Trade Conference Resolving Tensions A few suggestions… -Increase cross-foreign ownership - remove artificial restraints, i.e. 38%; reduce subsidies -(Obvious) - i.e. VAT adjustments; U.S. to use CVD against NME’s; eliminate market interventions (market will correct itself – but will rigged markets correct?) Intel. Property? -Mutual assured destruction is not acceptable -“We’ll send you lawyers, you send us engineers”; JCCT is worthwhile -Improve enforcement; expedite shutdown rate -China’s saving rates maybe too high, U.S. needs to save more • Investments • Transparency • Currency • Exchange Information • Environment • Savings

  17. 6th International Steel Market & Trade Conference Thanks / Conclusion • Reasons for meaningful optimism with good long-term world consumption, relative value, better managed facilities, and excellent recyclability • Consolidations helping, but overcapacity still a risk • Some uncertainty in near-term, with material supply and U.S. economic situation • China, China, China (some actions have helped) • Wish China well-consume production, please! • (Hope China will resolve monetary exchange issue, increase privatization of steel industry, and improve transparency)

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