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INSTITUTE FOR SUPPLY MANAGEMENT STEEL FORUM MANAGEMENT STEEL FORUM MAY 5, 2009
John Packard – Steel Market Update
Who is John Packard?
Why is he here?
What’s in it for me?
You know what? I think I’ll go into the steel
businessbusiness
WHO IS JOHN PACKARD?And what happened to his hair…?
Rolled Steel (1977)(1977)
Innovative Steel (1980)
Novosteel / PN Ent Steel (1980)(2003)
P tt Wi St l Pacesetter (1982)
Winner Steel (1997)
Duferco / Sterling Pacesetter Sterling (1991)(1994)
Unique Backgroundq g
1. Rolled Steel Corporation 1. Hands-on product –
2. Innovative Steel
secondary sales – prime exposure.
2. Creative processing –
3. Pacesetter SteelHVAC – purchasing.
3. Prime sales - service center, HVAC & OEM.
4. Duferco / Sterling
5 Winner Steel & Trading
,4. Management, mill
purchasing.5 Direct Mill foreign 5. Winner Steel & Trading 5. Direct Mill, foreign
exposure, international travel, business owner.
August 2008
STEEL MARKET UPDATE www steelmarketupdate comSTEEL MARKET UPDATE www.steelmarketupdate.com
Welcome John Packard Volume 4, #52
Monday, May 4, 2009IN THIS ISSUE:
ArcelorMittal Warns of Need to Shutter Capacity in U.S. MarketISM Index Improves to 40.1Inventory Write-Downs Hurt California Steel & Olympic SteelMarch Raw Steel ProductionQuick Note on China MarketU.S. Auto Sales Worse than ExpectedChrysler Bankruptcy FactsNYMEX Hot Rolled Futures ContractsWhat to Watch this WeekFinal Thoughts
WHY AM I HERE?Student of the steel business
AISI Mill Shipments by end userAISI Mill Shipments by end user
Service Centers/Processors
Construction
Automotive28.7%
29%
Energy
Containers
15.4%
12 6%3%
Exports
12.6%3%
2.1%9.2%
Other
Other includes non-classified shipments, rail, mining, agricultural, military
Flat Rolled Steel Market
1 Construction is 45% of total flat rolled steel 1. Construction is 45% of total flat rolled steel market. This includes residential which represents only 5% of the steel used in the construction sector.y
2. Automotive is 15-20% of the flat rolled market with NAFTA producing 14.8+ units/year.p g /y
3. Pipe & Tube is 15% of the flat rolled market 4. All other = 20% of the remaining market4. All other 20% of the remaining market
Mill Shipment Reality
25%Service CentersToll ProcessorsDirect to OEM's65%
25%
10%
“MAY YOU LIVE IN INTERESTING TIMES”
Chinese Curse
Demand Destruction = Missing Pieces of the P leof the Puzzle
We haven’t accepted the changes to the market and market and we look to the past for help…
US Housing Starts Seasonally Adjusted Annual Rate Source: US Census
2,500
2005 6
2,000
2,068,000
1,500
000
units
1 000
0
1,000
2009 New Starts 550M?2008 904,000
5002000 2001 2002 2003 2004 2005 2006 2007 2008
N. American Auto Production since 2000
1,800,000
2,000,000
1,200,000
1,400,000
1,600,000
800,000
1,000,000
200,000
400,000
600,000
0
1/20
003/
2000
5/20
007/
2000
9/20
0011
/200
01/
2001
3/20
015/
2001
7/20
019/
2001
11/2
001
1/20
023/
2002
5/20
027/
2002
9/20
0211
/200
21/
2003
3/20
035/
2003
7/20
039/
2003
11/2
003
1/20
043/
2004
5/20
047/
2004
9/20
0411
/200
41/
2005
3/20
055/
2005
7/20
059/
2005
11/2
005
1/20
063/
2006
5/20
067/
2006
9/20
0611
/200
61/
2007
3/20
075/
2007
7/20
079/
2007
11/2
007
1/20
083/
2008
5/20
087/
2008
9/20
0811
/200
81/
2009
Source: Ward AutoiInfoBank
N. American Auto Production 2008-2009January 2008 =
1 200 000
1,400,000
1,168,267
800 000
1,000,000
1,200,000
600,000
800,000
200,000
400,000
January 2009 = 435,731
0
Source: Ward AutoiInfoBank
Architects Billings Index2000-2009 Source: American Insititute for Architects
70.0
2000 2009
50.0
60.0
30.0
40.0
Axi
s Ti
tle
Billings
Inquiries
20.0
Inquiries
2009 Commercial construction to
decline by 8-15%
0.0
10.0
00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09
decline by 8 15%
Mar
-0
Jun-
0Se
p-0
Dec
-0M
ar-0
Jun-
0Se
p-0
Dec
-0
Mar
-0Ju
n-0
Sep-
0D
ec-0
Mar
-0Ju
n-0
Sep-
0D
ec-0
Mar
-0Ju
n-0
Sep-
0
Dec
-0M
ar-0
Jun-
0Se
p-0
Dec
-0M
ar-0
Jun-
0Se
p-0
Dec
-0M
ar-0
Jun-
0
Sep-
0D
ec-0
Mar
-0Ju
n-0
Sep-
0D
ec-0
Mar
-0
Carbon - Flat RolledActual Shipments
2007 2009
3000
3500
2007-2009 Source: Metals Serviice Center Institute
2500
3000
1500
2000
ousa
nd o
f to
ns
211,800 tons per day
1000
1500
Tho
69,500 tons
500a day
0
Carbon- Flat RolledInventory (EOM)
2007 2009
7000
8000
2007-2009Source: Metals Service Center Institute
6000
4000
5000
ousa
nd o
f To
ns
228 900
2000
3000
Tho 4,228,900
tons
1000
0
IN RESPONSE U S MILLS ARE IN RESPONSE - U.S. MILLS ARE TAKING OUT CAPACITY
Whether they want to or not…
North American Blast Furnaces
Running (13) ?
AK Steel Ashland 1
AK Steel Middletown 0
ArcelorMittal Dofasco 2
ArcelorMittal Burns Harbor 1
ArcelorMittal Cleveland 0
ArcelorMittal Indiana Harbor E 1
ArcelorMittal Indiana Harbor W 0
Essar Algoma 1Essar Algoma 1
Severstal Dearborn 1
Severstal Sparrows Point 1
Severstal Warren 0
US Steel Fairfield 1
US Steel Gary 2 1
US Steel Granite City 0
US Steel Great Lakes 0
US Steel Hamilton 0
US Steel Lake Erie* 0
US Steel Mon Valley 2
EAF’s running under 50%g
Running at low 40%
SDI & Nucor projecting i d l continued low rates
C h t & ff Can shut on & off
EAF’s running EAF s running intermittently with reduced work weeks
ArcelorMittal Operating Levels
East Chicago West 30%
ArcelorMittal Operating Levels
East Chicago East 30%
Burns Harbor 35%
Cleveland 0%
Riverdale 18%
Coatesville 75%
Steelton 80%
Conshohocken 35%
Weirton 90%
Georgetown 0%
Source: USW
WHAT GETS LOST IS PRICE WHAT GETS LOST IS PRICE DISCIPLINE…Can the U.S. mills turn back the tide?
Cold Rolled Pricing 2000 2009
1100
1200
1300
Cold Rolled Pricing 2000-2009
800
900
1000
400
500
600
700
0
100
200
300
0
Apr
00
Jul 0
0O
ct 0
0Ja
n 01
Apr
01
Jul 0
1O
ct 0
1Ja
n 02
Apr
02
Jul 0
2O
ct 0
2Ja
n 03
Apr
03
Jul 0
3O
ct 0
3Ja
n 04
Apr
04
Jul 0
4O
ct 0
4Ja
n 05
Apr
05
Jul 0
5O
ct 0
5Ja
n 06
Apr
06
Jul 0
6O
ct 0
6Ja
n 07
Apr
07
Jul 0
7O
ct 0
7Ja
n 08
Apr
08
Jul 0
8O
ct 0
8Ja
n-09
Apr
-09
Hot Rolled Coil Pricing 2009
520
540
500
460
480
420
440
400
Pricing is based on .060 " X 48" Coil G90, CS/Large Coil
Galvanized Pricing 2009
660
680
620
640
660
560
580
600
520
540
560
480
500
Pricing is based on .060" X 48" Coil G90, CS/Large Coils
We’re Trying to Figure “it” Outy g g
Business has changed!
Where are we now and where do we go from here?
Apparent Steel Consumptionpp p
Shipments = 106 430 000 Shi t 97 846 000
2007 2008
Shipments = 106,430,000 Imports = 33,244,000 Semi’s - 6,656,000
Shipments = 97,846,000 Imports = 31,927,000 Semi’s - 5,971,000
Finished = 26,588,000 Exports = 11,154,000
Finished = 25,956,000 Exports = 13,476,000
Steel Consumption = 121,864,000 Steel Consumption =
110,326,000
2009 Projected Steel Consumptionj p
Based on World Steel Association projectionp j WSA projecting U.S. apparent consumption at
68,000,000 tons for the year (all products) If foreign has 25% of the market = 51 million domestic
tons (all products) Historically flat rolled runs about 65% of total at 51 Historically flat rolled runs about 65% of total at 51
mil = 33.15 million tons. 2000 - 2008 average was = 112,777,000 tons with g , ,
flat rolled about 73.3 million tons Current run rate @ 43% cap = 52.8 mil tons all
dproducts
WHAT DO I DO – AND WHAT DO I DO AND WHAT’S IN IT FOR YOU?
Sentiment, Momentum, Real Time PricingRelevant News & Analysis
N
it
Prices
News
Trends
Momentum Missing info
Steel Buyers Sentiment
75.0
100.0
0.0
25.0
50.0
-65 2
-75.0
-50.0
-25.0-65.2
-100.0
Steel Buyers Future Sentiment
75.0
100.0
0.0
25.0
50.0
-75.0
-50.0
-25.0
-14.8
-100.0
Price Momentum
SMU Galvanized Index
Date Low High Averageg g2/23/2009 $580 $650 $615 3/4/2009 $580 $650 $615 3/9/2009 $570 $655 $6103/9/2009 $570 $655 $610 3/16/2009 $540 $640 $590 3/24/2009 $520 $600 $560 4/1/2009 $520 $600 $560 4/7/2009 $520 $580 $550 4/14/2009 $520 $560 $540 / / 9 $ $ $4/22/2009 $510 $550 $530 4/29/2009 $500 $540 $520
Steel Market Update Index Price Comparison as of May 1, 2009
HR CR Galvanized Galvalume
Steel Market Update $415 $490 $510 $669 $779
May 1, 2009
Steel Market Update $415 $490 $510 $669‐$779
CRU $402 $485 $557 NA
The Steel Index $410 $499 $567 NAThe Steel Index $410 $499 $567 NA
SteelBenchmarker $411 $494 NA NA
Platts $400 $470 NA NA$ $
Steel Price Calculator
Hot Rolled, Cold Rolled Galvanized & Rolled, Galvanized & Galvalume
Based on SMU Average Prime Spot Price Indexes
Some Keys to Watchy
MSCI – carbon flat rolled under 2.5 mos Mill capacity utilization at, or above, 60% Reduction in initial jobless claimsj AIA Billings Index over 50.0 Oil over $60 barrel$ SMU Buyers Sentiment in + territory SMU Market Momentum SMU Price Indexes stable and then moving higher Housing inventory and foreclosures decreasingg y g
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Thank You for your time as it is truly appreciated