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Steel Founders’ Society of America Steel – A Year Later

Steel Founders’ Society of America Steel – A Year Later. Thomas A. Danjczek President Steel Manufacturers Association Charleston, SC September 9, 2008. SMA. SFSA Annual Meeting. The Steel Manufacturers Association (SMA) 35 North American companies: 30 U.S., 3 Canadian, and 2 Mexican

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Steel Founders’ Society of America Steel – A Year Later

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  1. Steel Founders’ Society of America Steel – A Year Later Thomas A. Danjczek President Steel Manufacturers Association Charleston, SC September 9, 2008

  2. SMA SFSA Annual Meeting • The Steel Manufacturers Association (SMA) • 35 North American companies: 30 U.S., 3 Canadian, and 2 Mexican • 125 Associate members: Suppliers of goods and services to the steel industry • SMA member companies • Operate 125 steel recycling plants in North America • Electric Arc Furnace (EAF) steelmakers using recycled steel

  3. SMA SFSA Annual Meeting • Production capability • EAF steel producers accounted for 60% of U.S. production in 2007 • SMA represents over 70% of all U.S. steel production • Recycling • SMA members are the largest recyclers in the U.S. • EAF steel producers are the largest recyclers in the world • Last year, the U.S. recycled over 75 million tons of steel • Growth of SMA member companies • Highly efficient users of labor, energy, and materials • Modern plants producing world class quality products

  4. Outline SFSA Annual Meeting • SMA • Conclusions from 2007 • What’s the same? – 1 year later • What’s different? – 1 year later • Raw Material Story • Scrap Story • Energy Issues • GGG Issues • Global Steel Capacity • Consolidations • U.S. Steel Market Projections • China Bashing • Unknowns • Conclusions

  5. SFSA Annual Meeting Conclusions From 2007 • Need aggressive policy measures to prevent China from causing a major crisis. To date, only trade cases have had an impact. • It’s still a cyclical business with demand, scrap, inventories, etc. • U.S. EAF growth will continue • Massive subsidized growth continues • Consolidations will continue • China, China, China… everything else is only an embellishment • Unknowns (interest rates, economic growth, imports, etc.) • Between foundries and steel, similar issues in environment, energy, and trade

  6. SFSA Annual Meeting What’s the Same? – 1 Year Later • Weak U.S. dollar • Steel company consolidations continue • No greenhouse gas legislation • Strong U.S. steel industry profitability & stock values • Low steel inventories • Worldwide steel capacity growing faster than consumption • No significant energy supply developments • China, China, China

  7. SFSA Annual Meeting What’s Different? – 1 Year Later • U.S. economic conditions down • China’s steel exports down – prices higher escalate here • U.S. mills buying scrap • Steel imports down • Exploding new material prices (ore, scrap, coal, etc.) • Flat rolled slowing down (automotive, outages ,etc.)

  8. SFSA Annual Meeting U.S. Steel Production U.S. Raw Steel Production: Largest Recyclers in the Nation ~ 100 million tons of steel produced each year

  9. Raw Materials and Competitiveness SFSA Annual Meeting • Raw material prices are soaring • Higher raw material prices have placed substantial cost pressures on NAFTA steel producers • At the same time, unfairly-traded imports make it more difficult to raise prices, creating a harmful cost-price squeeze • China (and other foreign) interference in raw material markets is unfairly helping their steel industries while driving up the cost of steel production worldwide

  10. Since Last Year, Prices for Key Raw Materials Have Soared SFSA Annual Meeting Source: World Steel Dynamics and JP Morgan

  11. SFSA Annual Meeting Other Metal Prices Are Soaring *Information obtained from the American Metal Market website

  12. SFSA Annual Meeting Other Metal Prices Are Soaring (cont.) *Information obtained from the American Metal Market website

  13. SFSA Annual Meeting Raw Materials: Governments Still Intervening • Governments (e.g. China, India) Continue to Intervene in Key Raw Materials Markets For Steel: • Iron Ore • Coke • Ferroalloys • Refractory Materials • Export Tax Manipulations / Restrictions • Distortions Created; NAFTA Competitiveness Negatively Impacted

  14. SFSA Annual Meeting

  15. SFSA Annual Meeting

  16. SFSA Annual Meeting

  17. SFSA Annual Meeting Energy Issues List • Energy – Availability and Cost • Utility Infrastructure (Generation & Transmission) Needs to Match Growth in Consumer Demand • Diversity of Generation (Alternative Fuels – Climate Change) – Excess Reliance on Natural Gas • NRC Expects up to 30 Applications for New Nuclear Generators Over Next Two Years • Cost was estimated in a range of $2500-3500/KW; Now Moody’s estimates are above $5000/KW • Florida’s Progress Energy filed for twin 1,100 MW generation units for 2016, at $14 Billion + over $3 Billion of transmission upgrades = $6,400/KW of generation

  18. SFSA Annual Meeting Climate Change Issues • The Issue of Climate Change is one that the North American EAF Steel Industry have been engaged in • Issues to Address: • Need a Domestic Coherent Energy Policy Which Will Provide for New Generation of Energy by Alternative Sources (wind; nuclear; ethanol; hydrogen) • Associated New Transmission Infrastructure Will Be Needed • New Research, Development, and Implementation for Climate Change Capture Technologies – Domestic and International • Need to Engage Developing Nations to Commit to Binding Agreements on Greenhouse Gas Emissions – Post-Kyoto • Recognition for Industry Commitments to Address Climate Change Early – Recycling of Raw Materials; Process Gases Recapture

  19. SFSA Annual Meeting GHG Emissions Growth in EAF steelmaking has allowed the steel industry to reduce energy usage: Lower energy usage equals lower greenhouse gas emissions

  20. SFSA Annual Meeting GGG Emissions EAF Steelmaking Is Energy Efficient 19.1 million Btu of Energy per ton of steel produced 8.4 million Btu of Energy per ton of steel produced Scrap-based Steelmaking (EAF-recycling) Ore-based Steelmaking Steel Info – US Dept. of Energy

  21. Global Steel Capacity 2001-2007 • During 2001-2007, world crude steel capacity increases by 499 mmt to 1,564 mmt (46.9% over 2000) World Crude Steel Capacity 2000~07 Source: German Steel Federation and IISI verifications

  22. Global Steel Capacity 2008-2010 • During 2008-2010, world steel capacity will grow by 322 mmt, a 21% increase over 2007, with a CAGR of 6.4% World Crude Steel Capacity 2000~10 Source: German Steel Federation and IISI verifications

  23. 254 247 1071 159 180 154 2010 2007 137 2010 2010 2010 2007 2007 864 NAFTA CIS 2007 EU-27 715 2010 559 2007 48 26 74 2010 60 2007 Middle East 2010 2007 42 29 C&S America 2010 2007 Africa China Asia (excl. ME&CIS) Capacity by Region2007 vs 2010

  24. Highlights - BRIC Capacity Additions mmt 150 Brazil India Russia 120 Rest of world 46 90 50 70 84 65 60 60 China 62 87 30 48 40 39 28 24 20 16 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -7 -30 Source: IISI members Brazil, Russia, India, China Will Have ~70% of Capacity Additions Through 2010 • BRIC capacity will grow 29%, by over 200 million tonnes, in the next three years, with China dominating. • These four countries will represent 50% of world capacity by 2010.

  25. SFSA Annual Meeting 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

  26. Chinese Steel Producers Benefit from Massive Subsidies • U.S. steel producers have identified at least $52 billion in subsidies that have been provided to Chinese steel producers • China’s 2005 steel policy commits the government to further subsidies and micromanagement • Chinese steel producers enjoy government assistance with energy costs • Chinese steel producers regularly obtain preferential loans from state-owned banks • Most steel production in China is carried out by state-owned enterprises • NAFTA steel representatives recently raised the issue of China subsidies in a March 7, 2008 letter to NAFTA Ministers

  27. Globalization and Consolidation Developments Have Dramatically Changed the NAFTA Steel Landscape Acquiring Company Acquiring Company Acquiring Company Acquired Company Acquired Company Acquired Company Arcelor Mittal Nucor Duferco/NLMK Arcelor Connecticut Steel Winner Steel Dofasco Trico Evraz Mittal Birmingham Ispat Inland Corus Tuscaloosa Oregon Steel Bethlehem ISG Worthington-Decatur Claymont Steel Marion Ipsco Canada LTV Nelson Steel US Steel Plate Weirton Severstal Harris Steel Auburn Steel Arcelor Mittal-Sp. Pt. Acme-Riverdale North Star Arizona Rouge WCI (announced) Georgetown American Iron Reduction Sicartsa LMP Steel & Wire Wheeling Pitt Bayou (announced) The David J. Joseph Co. (Scrap) CSN US Steel Gerdau Ameristeel Heartland Lone Star Sheffield Essar National Chaparral Algoma LTV Tin Co-Steel Minnesota Steel ISG IH#2 Pkl. North Star Stelco Sidetul Tultitlan Quanex Macsteel BlueScope Corsa IMSA Steelscape SSAB OAO TMK ICH/Grupo Simec Ipsco Plate (U.S.) Ipsco Tubular (U.S.) Republic Tenaris Steel Dynamics Ternium GalvPro-Jeffersonville Maverick Tube (U.S.) Hylsa The Techs Prudential Canada IMSA Roanoke Steel Hydril Company Steel of West Virginia Omnisource (Scrap) 8/1/08

  28. SFSA Annual Meeting Steel Consolidating, But Still Fragmented TOP 15 Represent 36% of Global Production Source: IISB

  29. SFSA Annual Meeting Consolidations Steel Industry Consolidations • Raw steel capacity in U.S. is approximately 110-120 million tonnes • Due to a number of consolidations, the top 10 companies are approx. 90 million tonnes; top 3 companies are approx. 60 million tonnes • Worldwide, the top company is only 10 percent

  30. SFSA Annual Meeting Consolidation: Opportunities & Risks • Potential Benefits: • Access to Capital, Technology • Deeper Customer Relationships • Facility Optimization / Strategic Fit • Industry Sustainability • But Benefits Are Undermined By Prevailing Risks: • Global Overcapacity • Subsidies and Other Trade Distortions

  31. SFSA Annual Meeting U.S. Steel Market Projections

  32. China’s Trade Surplus with the U.S. SFSA Annual Meeting 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.

  33. SFSA Annual Meeting Impact of AD/CVD Percent of the value of Chinese imports covered by 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

  34. SFSA Annual Meeting 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?

  35. SFSA Annual Meeting 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 under-demolished

  36. SFSA Annual Meeting Unknowns -Raw material price impact??? -Impact of recession??? -Value of the RMB??? -JCCT Steel Dialogue – where goal is to promote transparency with better decisions??? -European Union antidumping investigation and targets??? -Energy cost and interest rate impacts??? -Rising freight costs??? -China’s restrictive policy of foreign ownership participation??? -China’s enforcement of environmental regulations??? -U.S. legislation (111th Congress) and 44th President??? -Trade actions??? -When will China play by market rules???

  37. SFSA Annual Meeting Conclusions • Need aggressive policy measures to prevent China from causing a major crisis. To date, only trade cases have had an impact. • It’s still a cyclical business with demand, scrap, inventories, etc. • U.S. EAF growth will continue • Massive subsidized growth continues • Consolidations will continue • China, China, China… everything else is only an embellishment • Unknowns (interest rates, economic growth, imports, etc.) • Between foundries and steel, similar issues in environment, energy, and trade

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