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The Refractories Institute Issues Impacting U.S. Steel Producers – Update “A Future for Steel”

The Refractories Institute Issues Impacting U.S. Steel Producers – Update “A Future for Steel”. Thomas A. Danjczek President Steel Manufacturers Association Napa Valley, CA June 2010. Outline. TRI Spring 2010. SMA TRI Update – “Refractories and Steel” 2010 versus 2008 Set the Stage

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The Refractories Institute Issues Impacting U.S. Steel Producers – Update “A Future for Steel”

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  1. The Refractories Institute Issues Impacting U.S. Steel Producers – Update “A Future for Steel” Thomas A. Danjczek President Steel Manufacturers Association Napa Valley, CA June 2010

  2. Outline TRI Spring 2010 • SMA • TRI Update – “Refractories and Steel” 2010 versus 2008 • Set the Stage • U.S. Steel Production • Global Steel Outlook • U.S. Steelmaking – Auto and Construction • Trade Issues • Foreign Governments, Raw Materials, Scrap, China, Trade Activities • Environmental / Safety Washington, DC Issues • Is Enough Being Done? • What does the U.S. need to do? • Conclusion

  3. SMA TRI Spring 2010 • The Steel Manufacturers Association (SMA) • 34 North American companies: 29 U.S., 3 Canadian, and 2 Mexican • Operate 125 steel recycling plants in North America • Electric Arc Furnace (EAF) steelmakers using recycled steel • EAF steel producers accounted for nearly 2/3 of U.S. production in 2009 • SMA represents approximately 90 million of U.S. 120 million ton capacity (75%) • 128 Associate members - Suppliers of goods and services to the steel industry

  4. TRI Spring 2010 US Capacity; Production & % EAF & Integrated – 2000-2009 Source – U.S. Geological Survey – Iron & Steel Statistics and Information web page = http://minerals.usgs.gov/minerals/pubs/commodity/iron_&_steel/

  5. TRI Spring 2010 Where SMA Member EAFs are located…

  6. TRI Spring 2008 - Update for 2010 Refractories & Steel Similar: (Spring 2008) -Recession impact? -U.S. dollar exchange rate -China finished goods vs. raw materials -Raw material price squeeze -Consolidations -NAFTA issues -Environmental regulations -Energy and transportation costs -China, China, China Update(Spring 2010) Anticipated it, not as big No change, except Euro Worse Worse – scrap and ore A few left One market? Worse Worse Worse

  7. TRI Spring 2008 - Update for 2010 1970’s 2008 2010 Production Employment Technology Location Imports Profitability Average Price 100-140 million tons 100 million tons 80 million tons, 63 in 2009 Approx. 700,000 12 MH/ton (1978 – 449,000) <120,000 (Minimills @ 60% - approx. 40,000, <2MH/ton) 100,000 <20% casters <10% EAF 95% casters 60% EAF + NW, SE, Rust Belt (near customers, and cheap power) Primarily Rust Belt & a few scattered Approx. 15% Approx. 25% (peak @ 35%) 20% Poor Good Marginal $605 $1000??? $600

  8. TRI Spring 2008 - Update for 2010 U.S. Steel Market Projections WRONG! Actual = 58 million tons total (half) in 2009

  9. TRI Spring 2008 - Update for 2010 Conclusions • Unknown impact of rising raw material costs • Consolidations helping, but overcapacity still a risk • Trade distortion still a problem, U.S. Congress disappointed • 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, freight, inventories, etc. (fasten your seat belt) • Finished goods containing steel are a major concern • China, China, China… everything else is still only an embellishment • Unknowns (recession, imports, interest rates, costs) • Don’t expect help from Washington… 2009 may bring increased environmental and labor legislation. • Still reasons for meaningful optimism due to North American steel industry resiliency. North American steel facilities, for the most part, are technologically advanced, cost competitive, environmentally acceptable, and are a key component of the North American infrastructure.

  10. Set the Stage TRI Spring 2010 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% 2009 1st Half 25m (45% utilization) 2nd Half 36m (62% utilization) Now 1.5m/week vs. 2.1m/week Year 63m (Minimills at 63% of production) 2010 (from November 2009) World Steel 78m (up 19% over 2009), optimistic Peter Marcus 68m (Back to 75m in 2012) US Poll 69m (up 10% over 2009) 2010 – Today (Through March 30) Capacity Utilization (67.7%); or approximately 80 million tons annual rate 42.9% in 2009

  11. TRI Spring 2010 The Worldsteel Short Range Outlook Source: Worldsteel Economic Studies Committee, April 2010

  12. Global Steel Capacity Continues to Increase World Crude Steel Capacity 2000-2012 World Crude Steel Capacity CAGR 2,055 2,100 20 1,997 1,917 1,816 1,850 1,654 1,583 1,600 1,453 15 1,356 1,350 1,245 1,170 1,095 1,062 1,062 1,100 Current Average Growth Rate (CAGR) 10 Steel Capacity (million metric tonnes) 850 600 5 350 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(e) 2011(e) 0 TRI Spring 2010 2012(e) Source: Worldsteel

  13. 2009 Was Only the Second Year Since 1963 in Which North America Produced Fewer than 9 Million Cars and Trucks North America Car & Truck Production, 1963-2009 Recent gains in North American car and truck production notwithstanding, it is projected that it will take up to five years to return to pre-crisis ”normal” levels. 9 million cars and trucks produced 1982 Source: Ward’s Automotive.

  14. The U.S. Construction Market Remains Weak U.S. Single-Family Housing Starts, Q1 2004 through Q4 2009 • Foreclosures remain a problem for both residential and non-residential construction. • While residential construction is projected to increase, it is not expected to regain its 2008 level until 2013. • The value of non-residential construction put in place fell by 9% from 2008 to 2009, and is projected to continue falling through 2011. Source: U.S. Census Bureau.

  15. TRI Spring 2010 Meanwhile, Foreign Government Subsidies to Steel and Steel-Related Industries Remain a Particular Concern… • Foreign government subsidies are a major cause of overcapacity in the global steel industry and steel-related industries • Subsidies to steel and steel-related industries that (1) support inefficient and excess capacity and/or (2) distort trade are continuing, and remain a particular concern • Examples include: • Fundamental currency misalignment/undervalued currencies • Preferential financing to add new capacity • Loan forgiveness/equity infusions to prop up obsolete capacity

  16. TRI Spring 2010 Raw Material Export Restrictions are Continuing to Disadvantage NAFTA Steel and Other Manufacturers • 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

  17. TRI Spring 2010 U.S. Scrap Consumption and Exports 2009 – Exports 22.3mt Imports (e) 3.0mt U.S. Consumption 48.0mt

  18. TRI Spring 2010 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%) • $290 billon • $196 billion The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.

  19. TRI Spring 2010 Trade Update

  20. Trade Update TRI Spring 2010

  21. Trade Update TRI Spring 2010

  22. U.S. Steel Industry, Then. . . . . . . . .and Now Smoke pouring into the air from a Pittsburgh steel mill, 1890. Image by Corbis - Bettmann Electric Arc Furnace facility Image by SMA.

  23. U.S. Steel Industry – Energy / TON TRI Spring 2010 Source: Dr. John Stubbles

  24. Electricity Prices TRI Spring 2010 nominal cents per kilowatthour – Projected to reflect impact of climate change legislation - 2009 History Projection

  25. TRI Spring 2010 SMA Climate Change Policy – 2010Federal Legislation Needs to Address the Following: • Reward Recycling • Recognize Steel Industry Improvement Limitations • Include Global Participation and Monitoring with No Exemptions Available for Any Nation • Prevent Double Counting of Carbon Costs • Promote GHG Emissions Reductions From Efficiency and Technology Improvements and Not Demand Destruction of North American Steel Production • Preempt Competing State Carbon Regulation Policies with a Single Federal GHG Policy, to Ensure a Level Playing Field within the U.S. • Avoid Unintended Consequences

  26. TRI Spring 2010 Other Environmental Concerns Facing the U.S. EAF Industry Sector • Mercury – EAF industry continues to require mercury-reduced scrap supply, per EAF Area Source Rule (Federal EPA rule governing EAF air emissions). If new EAF Area Source Rule is pursued, then the Agency is attempting to promulgate a rule upon a rule • Slag Usage as Aggregate Replacement – State Issues with usage continues • Combustible Dust – OSHA concerns over presence of “combustible dust” in industrial facilities across all sectors affects EAF industry • Radioactive Scrap & “Orphan Sources” in Scrap – As consumers of scrap steel, facilities must be constantly aware of possibility of radioactive “orphan sources” from finding their way into the furnace – SMA continues to support the DOE embargo on release of materials from decommissioned nuclear facilities (since 2000)

  27. TRI Spring 2010 SMA Safety Overview SMA Members are committed to continuous improvement in safety performance: • SMA Safety Statistics • Safety Committee Meetings • Fatality Prevention Initiative • Safety Surveys • Upstream/Downstream Safety • Contractor Safety • SMA Safety Awards • SMA Safety Website • Relationship with OSHA

  28. TRI Spring 2010 SMA Safety Statistics -SMA Members voluntarily report monthly data on number of recordable cases, lost workday cases, days lost, and hours worked -Compiled data is circulated to members as a spreadsheet each month -Year-end 2009 data demonstrates an across the board improvement over 2008 performance, which was already markedly improved over 2007

  29. TRI Spring 2010

  30. TRI Spring 2010

  31. TRI Spring 2010 Safety Committee – Fall 2009 Meeting -120 attendees, including member company safety professionals, plant managers, and upstream/downstream operators -Agenda topics: Fatality Prevention Initiative; managing safety during economic downturn; near miss discussion; industrial hygiene record keeping; mobile equipment alarm devices; crane safety; supplier safety efforts; lead programs; NFPA 70E -OSHA Update from Jeffry Carter, Deputy Commissioner, Indiana OSHA

  32. TRI Spring 2010 Safety Committee – Spring 2010 Meeting -115 attendees, including member company safety professionals and upstream/downstream operators -Agenda topics: Fatality Prevention Initiative; crane safety; lead programs; addressing complacency in routine work; hands free safety; leak detection; PPE technology upgrades; Six Sigma Analysis; waterborne pathogens; preventing electrode breakage; mobile equipment hazards -OSHA Update from Steve Hawkins, Assistant Administrator, Tennessee OSHA

  33. TRI Spring 2010 Fatality Prevention Initiative -Written guide, internal audit tools, and videos -Collaboration between members, and benchmarking against other industries -Addresses five critical areas: Confined Space; Fall Protection; Lockout-Tagout-Tryout; Mobile Equipment/Material Handling; and Rail -Sixth component, Cranes, currently under development -Widely shared within plants, and with upstream/downstream operations

  34. TRI Spring 2010 Fatality Prevention Initiative After 12 employee and contractor fatalities at SMA member plants in 2008, there were two in 2009. There is still plenty of work to be done, but early results from the Fatality Prevention Initiative have been promising.

  35. TRI Spring 2010 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.

  36. TRI Spring 2010 What does the US need to do? • 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 • Policy incrementalism is not sufficient

  37. TRI Spring 2010 Conclusion • The decline in U.S. Manufacturing has been so severe, policy incrementalism is not sufficient. IT’s NOT 2008! • 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 • Energy Costs • Washington Won’t Help • Transportation Costs • World Trade Distortions Continue • 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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