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Thomas A. Danjczek President Steel Manufacturers Association January 13, 2010

Steel Orbis Webinar. Key Issues Affecting US Minimills. Thomas A. Danjczek President Steel Manufacturers Association January 13, 2010. Steel Orbis Webinar: Key Issues Affecting US Minimills. Outline. SMA Today’s Concerns Today’s Deterioration – US Steel Production China, China, China

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Thomas A. Danjczek President Steel Manufacturers Association January 13, 2010

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  1. Steel Orbis Webinar Key Issues Affecting US Minimills Thomas A. Danjczek President Steel Manufacturers Association January 13, 2010

  2. Steel Orbis Webinar: Key Issues Affecting US Minimills Outline • SMA • Today’s Concerns • Today’s Deterioration – US Steel Production • China, China, China • Scrap • Energy • Climate Change • Infrastructure • Protectionism and Trade Issue • Is Enough Being Done? • Conclusion

  3. Steel Orbis Webinar: Key Issues Affecting US Minimills SMA • The Steel Manufacturers Association (SMA) • 34 North American companies: 29 U.S., 3 Canadian, and 2 Mexican • 128 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

  4. SMA Steel Orbis Webinar: Key Issues Affecting US Minimills • Production capability • EAF steel producers accounted for 60% of U.S. production in 2008 • 62% first half 2009 • 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

  5. Steel Executive- 2009

  6. Steel Orbis Webinar: Key Issues Affecting US Minimills The Obvious Concerns • Our Jobs • US Recession and financial meltdown • Infrastructure Spending • Value of the RMB • Energy shortfalls and pricing • China, China, China • Global Steel Overcapacity • Subsidies and other trade distortions • US Legislation (111th Congress and the 44th President)

  7. 12-21-2009 Steel Orbis Webinar: Key Issues Affecting US Minimills US Steel Production (All in Million Net Tons)(Numbers are Approximate) PAST –From 1986 through 2008, U.S. steel production has been around 100 m tons – up & down 10% PRESENT – 2009 1st Half 25m (45% utilization) 2nd Half 36m (62% utilization) Now 1.5m/week vs. 2.1m/week Year 63m (57.6m net tons through 11 months - Minimills at 65% of production) FUTURE – 2010 World Steel 78m (up 19% over 2009), optimistic Peter Marcus 68m (Back to 75m in 2012) US Poll 69m (up 10% over 2009)

  8. Steel Orbis Webinar: Key Issues Affecting US Minimills

  9. Steel Orbis Webinar: Key Issues Affecting US Minimills

  10. NAFTA Production Declines More Than Other World RegionsGlobal Output Sharply Down, With Few Exceptions Global Crude Steel Production 2009 YTD vs. 2008 % Change Turkey: -13.5 Russia: -26.8 Ukraine: -31.9 N. America:-45.1 Canada: -51.9 U.S.: -47.0 Mexico: -29.5 EU27:-39.3 Asia:-2.2 Japan: -34.0 S. Korea: -14.9 China: +7.5 India : +1.6 S. America:-30.3 Brazil: -31.4 Global Production: -16.4 Excluding China: -30.9 Source: Worldsteel

  11. While NAFTA Production Has Risen Recently, Capacity Utilization Is 30% Below 2008 Levels • Several NAFTA facilities have been restarted, after having been offline for close to a year. Some facilities have no future return date. • The NAFTA economic recovery is still very fragile, and a return to pre-crisis steel production levels remains years away. • The NAFTA and rest of world (ROW) utilization rates have stayed well below China’s rate. Source:Worldsteel

  12. Steel Orders Collapsed After The Financial MeltdownAnd Still Have Not Recovered • In the U.S., steel purchases were cut in half within 7 months (Aug. ’08 -Mar. ’09), and 50% of U.S. output was shuttered. • In Canada, August 2009 shipments were 39% lower than a year earlier. A number of facilities remain idled or operating at reduced rates. • In Mexico, ASC for 2009 (Jan – Sept) is 25% below 2008 levels. The September figure is 31% below the last peak (June 2008). NAFTA Demand for Steel, Aug 2008 – August 2009 Source: World Steel Association, NAFTA Steel Trade Monitor

  13. The U.S. Construction Market Is Still Weak • The residential housing market has bottomed in the past 6 months – to 40-year lows. • Home foreclosures are continuing to rise. Government incentives (e.g., a tax credit for first-time buyers) are helping, but limited. Tighter credit standards are reducing the pool of available new buyers. • An uptick in the non-residential, commercial market is not expected until late next year. Source: U.S. Department of Commerce.

  14. The NAFTA Automotive Production Remains Deeply Depressed While the “cash for clunkers” program has helped increase production and sales, “Detroit 3” production has declined by over 50% YTD vs. 2008. With the end of this incentive program and with unemployment likely to stay high for several years, automotive production and sales are unlikely to return to pre-crisis levels for the medium term. Source: Ward’s Automotive. * 2009 Annualized based on September year-to-date.

  15. NAFTA Service Center Inventories At Multi-Year Lows, But Reduced Demand Delaying Restocking • Service center demand has fallen in line with overall steel demand. • NAFTA service center shipments are off 30% vs. 1 year ago. • As of October 2009, U.S. and Canadian service center inventories (2.3 months each) are at 5-year lows, but a lack of consumer confidence and low end-use demand are preventing restocking. Source: Metals Service Center Institute

  16. …While World Capacity Continues to Grow Source: Worldsteel Association

  17. NAFTA Imports During Crisis Period • Steel imports from other regions exceeded intra-NAFTA steel trade when the market collapsed. • Non-NAFTA imports at first surged, and then declined but have maintained a relatively high market share. • Imports from China peaked in October 2008. Source: NAFTA Steel Trade Monitor, US Department of Commerce, Canacero and World Trade Atlas.

  18. NAFTA Exports During Crisis Period • NAFTA producers send only a small portion of steel produced outside the region. • During 4Q ‘08, intra-NAFTA steel trade declined sharply, more or less in line with the steep decline in market demand. Source: US Department of Commerce and World Trade Atlas

  19. Nearly 3 Million More Lost NAFTA Manufacturing Jobs During the Economic Crisis (2007-2009) Source: U.S. Bureau of Labor Statistics, Statistics Canada

  20. While the Rest of the World Cuts Steel Production, Chinese Production Continues to Grow Percentage Change in Crude Steel Output, 1H 2008 to 1H 2009 North America Ukraine EU Japan Brazil Russia S. Korea Turkey Source: WorldSteel Association

  21. This Year, China Will Account for Almost Half of Total World Crude Steel Production Chinese crude steel production as a percentage of total world production China’s crude steel production Source: World Steel Dynamics, Inside Track # 77 (May 30, 2007); World Steel Dynamics, Truth & Consequences # 44 (Nov. 15, 2007); World Steel Dynamics, Inside Track # 87 (June 12, 2008); World Steel Dynamics, Truth & Consequences # 50 (Feb. 9, 2009); World Steel Dynamics, Inside Track # 97 (Oct. 2, 2009).

  22. Steel Orbis Webinar: Key Issues Affecting US Minimills China Steel 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 to absorb overproduction • Chinese steel industry is overbuilt and under-demolished

  23. Steel Orbis Webinar: Key Issues Affecting US Minimills China’s Trade Surplus with the U.S. YearChina’s Trade Surplus 2001 $22 billion (year China joined WTO) 2006 $177 billion 2007 $262 billion(up 47.7%) 2008 $290 billon The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.

  24. Steel Orbis Webinar: Key Issues Affecting US Minimills RMDAS Ferrous Scrap Price Index Effective 12/20/09

  25. Steel Orbis Webinar: Key Issues Affecting US Minimills Other Issues - Energy U.S. needs to address energy needs, availability, reliability, and competitive costs

  26. Steel Orbis Webinar: Key Issues Affecting US Minimills Other Issues - GHG

  27. Steel Orbis Webinar: Key Issues Affecting US Minimills • US aging infrastructure is functionally obsolete and structurally deficient • FHWA estimates $78.8 billion per year for the next 20 years to maintain infrastructure, $131.7 billion to improve • Gas tax at 18.54/gallon generates app. $40 billion • Current gas tax woefully insufficient, only half of maintenance

  28. Steel Orbis Webinar: Key Issues Affecting US Minimills Free Trade vs. Protectionism Is “Protectionism” the enemy of “Free Trade” • Protectionism • Predatory Pricing • Trade distorting subsidies • Government Ownership • National power by protecting our industries and state • Piling up currency measures • One way trade • Need “Balanced” Trade over “Mercantilism” • Who’s the Protectionist? 1. Taken in part from C. Blum

  29. Steel Orbis Webinar: Key Issues Affecting US Minimills Is Enough Being Done? Raw Materials No Barriers continue Lack of policy continues Energy No Currency manipulation, Subsidies, Not playing by the rules No China Distortions continue, Who’s the protectionist Trade No No long term structural policy changes are being proposed in Washington for taxes, trade imbalance, and energy.

  30. Steel Orbis Webinar: Key Issues Affecting US Minimills Conclusion • U.S. Steel Industry in Better Position Today to Manage the Down Cycle • (but what a down cycle!) • Improved Economics From Consolidations, i.e. “Reacted Quicker”; • Improved Control of Variable Costs • Scrap-Based Metallics (In 2009, U.S. will be nearly 2/3 EAF-based • Energy Costs • Transportation Costs • Labor Efficiency (U.S. at Below 2MH/Ton; Minimills Often Below 1MH/Ton) • Improved Inventory Control (Inbound Materials, Steel, and Customer Products). NOT THE OLD INVENTORY OVERHANG! • Concerns with Scrap, Climate Change, Energy, U.S. Debt, Taxes, Currency, but especially Climate for Investment • Still Challenging – But Reasons for Meaningful Long-Term Optimism!

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