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SBB Steel Markets 2007. Steel – Global Impacts to North American Minimill Competitiveness. Thomas A. Danjczek, President Steel Manufacturers Association March 20, 2007. In March 2007, The Times they are a’changing…. SBB Steel Markets North America 2007. Steel Demand Fluctuating. Trade

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Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

Steel – Global Impacts to North American

Minimill Competitiveness

Thomas A. Danjczek, President

Steel Manufacturers Association

March 20, 2007


Steel global impacts to north american minimill competitiveness

In March 2007, The Times they are a’changing…

SBB Steel Markets

North America 2007

Steel Demand

Fluctuating

Trade

Imbalance

Consolidations

59% EAF

in U.S.

Service Center

Inventories

Down Slightly

Energy

Costs

Non-Production

Costs

Democratic

Congress

World Steel

Growth

China’s

Subsidies

China’s Steel

Growth

Perennial

Problems

U.S. Government

Debt

Investor’s Views

Scrap Costs

Greenhouse

Gases


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

Investor’s View

Summarized from Aldo Mazzaferro’s, Goldman Sachs, Presentation to SMA Board of Directors, 2/16/07:

• Sustainability is key

• Discipline = Confidence = Higher Valuations (Investors fear volatility and surprises from rapidly changing prices, supply swings, unpredictable earnings)

• Key questions going forward:

-Will discipline hold long-term, and will it be global?

-Will higher U.S. prices trigger large import response?

-What are the long-term risks from of increased capacity in other markets?

-Will China’s production continue to expand its supply over demand?


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

Scrap Demand

EAFs have grown to 59% of U.S. steel production.

Source: DJJ, 2/07


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

Excess Burden of Structural Non-Production Costs onU.S. Manufacturers Relative to Major TradingPartners, 2005(U.S. dollars per hour worked)

Source: Jeremy A. Leonard, The Escalating Cost Crisis,

Manufacturers Alliance/MAPI and NAM, 2006



Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

China Facts

  • China trade surplus swelled to $177 billion in 2006 – up 74% over 2005

  • China trade surplus in 2001 (WTO joining year) was $22 billion

  • China currency has only changed by 5.9% since July 2005


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

China Facts, cont.


Steel global impacts to north american minimill competitiveness

China Facts, cont.

SBB Steel Markets 2007

China Has the Most Heavily Subsidized Steel Industry in the World

$7.5 billion in

debt-to-equity

swaps in 2000

State-owned enterprises

account for

57 percent of

total Chinese production

An additional

$6 billion in

announced subsidies

during 2000

Chinese steelmakers

regularly obtain

preferential loans

from state-owned

banks

2005 steel policy

commits China

to further subsidies,

micromanagement

Manipulation of key

raw materials

markets, including

coke and ferroalloys

Inadequate protection

of workers’ rights and

enforcement of

environmental

standards

Support from local

and provincial

governments

uncontrolled

by central government

Chinese steel producers

enjoy government

assistance with energy

and other input costs


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

China Facts, cont.


Within the last year u s producers have been hit with a flood of chinese imports

SBB Steel Markets 2007

China Facts, cont.

Within the Last Year, U.S Producers Have Been Hit with a Flood of Chinese Imports

Total U.S. Imports from China

U.S. Imports of Critical High-Value Products

Source: AISI and IM-145 data


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

Aggressive Policy Measures Are Necessary to Prevent China from Causing a Major Crisis

  • Enact real China legislation (apply CVD law to China, address currency manipulation, WTO reform)

  • • Strict enforcement of U.S. AD/CVD laws (appearance at HR hearing, letters, Congressional hearings)

  • • Make clear that Congress will not accept any new agreements (Doha, Korea FTA, etc.) with trade law weakening


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

But, It’s Not China Alone


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

Greenhouse Global Gases

  • Effective Climate Change Policies must promote low carbon intensive technologies

  • Cap & Trade programs are a failure due to demand destruction (Ask the EU guys!)

  • Making steel in countries not subject to greenhouse global gas program is NOT a solution. Global problems require global solutions.


Steel global impacts to north american minimill competitiveness

SBB Steel Markets 2007

Conclusion

-Need aggressive policy measures to prevent China from causing a major crisis

-It’s still a cyclical business (percent utilization, scrap, inventories, etc.)

-Still no Global Subsidies Agreement – massive subsidized growth continues

-Greenhouse global gases require a global solution!

-When will inventories return to normal levels?

-Consolidation will continue

-China! China! China! (everything else is only an embellishment)

-Unknowns (interest rates, housing starts, economic growth, imports, customer base, pricing???)