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Competitive Conditions on Regional Steel Markets

Wissen, Werkstoff, Werte Knowledge, materials, values. Competitive Conditions on Regional Steel Markets. Changing Times in the North American Steel Industry. Thomas A. Danjczek. President, Steel Manufacturers Association. STAHL 2011. Outline. SMA Safety Changes

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Competitive Conditions on Regional Steel Markets

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  1. Wissen, Werkstoff, WerteKnowledge, materials, values Competitive Conditions on Regional Steel Markets Changing Times in the North American Steel Industry Thomas A. Danjczek President, Steel Manufacturers Association

  2. STAHL 2011 Outline • SMA • Safety • Changes • Steel Demand Drivers & Forecasts • Raw Materials • Tone in Washington, DC & Regulations • What the U.S. Needs to Do • Final Thoughts

  3. STAHL 2011 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

  4. STAHL 2011 Where SMA Member EAFs are located…

  5. STAHL 2011 SMA Safety Overview Key Drivers to the SMA Safety Committee Success Safety Committee Meetings Safety Statistics Benching Marking Fatality Prevention Initiative Workplace Specific Safety Surveys Sharing of Site-Specific Best Practices SMA Safety Website Upstream/Downstream Safety Awareness Education & Outreach First Hand Governmental Compliance Awareness SMA Safety Awards

  6. STAHL 2011 Fatality Prevention Addresses Six (6) critical areas: • Confined Space; • Fall Protection; Lockout-Tryout; • Mobile Equipment • Material Handling; and • Rail • Cranes (Completed in 2011) • Focusing on five priorities in addressing crane fatalities: • operator visibility and attentiveness; • maintenance; • fall hazards; • charging the EAF/ladle handling; and • non-routine procedures • Videos to be completed by the end of summer and introduced to the SMA in October 2011 Fatality Prevention Initiative

  7. STAHL 2011 SMA Safety Data – 2010-2011yoy

  8. STAHL 2011 SMA Safety Awards • SMA Board of Directors recognizes outstanding safety performance through the annual Don Daily SMA Achievement in Safety Award. • 2011 recipient: • Chris Bullard and the Logistics Team Gerdau Ameristeel Midlothian

  9. US Changes STAHL 2011 China Deeper Recession Foreign Ownership Consolidations Transportation Costs Variable Cost Control Safety Ore Prices Scrap Prices Customer Requirements Energy Costs High Unemployment Environmental Regulations Currency Labor Intensity Engineers State-Owned Enterprises Inventory Levels Other Factors…

  10. STAHL 2011 Steel Changes

  11. STAHL 2011 In USA, raw steel capacity utilization may reach 75% in 2011

  12. STAHL 2011 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

  13. STAHL 2011 U.S. finished steel demand forecast Forecast Actual ADC Source: CSM, FW Dodge, AHAM, First River

  14. Auto build & non-res construction expected to recover, but not to previous peak STAHL 2011 NA Auto Build (Million Units) Non-Res Construction (Million Sq. Feet) Forecast Forecast Source: CSM Worldwide, FW Dodge

  15. STAHL 2011

  16. STAHL 2011 U.S. net imports expected to remain lower US Imports & Exports (Million Tons) Net Imports & US Dollar Imports (%) $ Index Net Imports as % of demand (3 year rolling average) Source: AISI, First River

  17. STAHL 2011 Comments on Current N.A. Steel Industry • Underlying Weak Economy • Recovery underway, but slow, last 4 weeks??? • North American steel market under pressure with unused capacity • Increased exports and percent imports (5mmt of semi’s imports) YOY • 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 expected to trend slightly lower next two months – too early to call a trend • China, China, China • Market cap values at historic lows

  18. STAHL 2011 The Tone in Washington, DC • It’s the Economy, stupid… • Dissatisfaction/Perception that US Government is not tackling right issues • (More for Wall Street than Main Street during recession) • (Growing deficit, skepticism about role of government) • GRIDLOCK (Democratic President & Senate; Republican House) • Trouble for Incumbents • Lack of Coherent China Policy (Currency?) Recognition that China has flagrantly violated WTP Rules – i.e. Raw Materials

  19. STAHL 2011 Regulations • Vigorous oversight of EPA, OSHA, Dept. of Labor, etc., is a general theme from the Administration • Prospects for comprehensive climate change legislation are weak – will see continued Congressional efforts to slow down EPA’s regulation of carbon emissions • Overwhelming burden of proposed regulations(Power Plant Emissions; EAF Mercury; Solid Waste, Boeing Case; Silica; Noise; Dust; Record Keeping, etc., etc., etc.)

  20. STAHL 2011 Raw Materials 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 • 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

  21. STAHL 2011 National Export Restrictions On Ferrous Scrap Trade

  22. STAHL 2011

  23. STAHL 2011

  24. STAHL 2011 Major Scrap Importers, 2010 and 2009

  25. STAHL 2011 World Scrap Supply and Consumption, By Region Source: World Steel Association

  26. STAHL 2011 While China Restricts Exports of Scrap, U.S. Exports to China Have Surged

  27. STAHL 2011 China Can only hope next 5 year plan which calls for 8% growth is WRONG! Actual Production .08 x 600mmt x 5 years = 240mmt… 281mmt compounded WOW!

  28. STAHL 2011 Scrap Demand Forecasts Scrap demand (mt) – 2017

  29. STAHL 2011 World Demand For Steel Scrap • World demand for steel scrap is likely to continue to increase • Increased Steel Production In China, India and Brazil • Economic Recovery • Limited Growth of Alternative Iron Units • But A Large Number of Countries Still Impose Restrictions On Exports of Scrap and Other Raw Materials • Steel Scrap Is Subject To More Export Restrictions Than Any Other Raw Material • There Is A Significant Problem With Transparency Because Export Restrictions Change Frequently, Making Supply Even More Problematic

  30. What does the U.S. need to do? STAHL 2011 • Assume a Pro-Manufacturing Agenda • Business Tax Reform • Border Adjustable Taxes • Currency Adjustments • Energy Independence • Reasonable regulatory measures (Environment/Labor) • Climate for investments (Jobs, Jobs, Jobs) and Infrastructure • Solve the structural problems that caused the recession - Real Foundation • Bad loans and securities on bank balance sheets • Reduce huge trade deficits • Stop the trade distorting restrictions in raw materials or ensure prompt reciprocity (SOEs?) • Policy incrementalism is not sufficient

  31. Final Thoughts STAHL 2011 • In steel, the world has changed (Developing world, not about USA, getting tougher, ownership) • U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Don’t look to Washington, DC for help • Environment of uncertainty and volatility will continue in U.S. industry until economic fundamentals are in equilibrium, last 4 weeks??? • In U.S., dissatisfaction/perception that U.S. Government is not tackling the right issues (i.e. “It’s the economy, stupid.”) • Reasons for optimismin 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

  32. Wissen, Werkstoff, WerteKnowledge, materials, values Competitive Conditions on Regional Steel Markets THANK YOU FOR YOUR ATTENTION Thomas A. Danjczek President, Steel Manufacturers Association

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