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Thomas A. Danjczek President Steel Manufacturers Association November 12, 2008 AIST – Baltimore...
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Thomas A. DanjczekPresidentSteel Manufacturers AssociationNovember 12, 2008
AIST – Baltimore Chapter
Steel Issues in Washington
OutlineAIST – Steel Issues in Washington
•SMA
•Today’s Concerns
•Today’s Financial Deterioration
•Scrap Issue
•Energy Issue
•GHG Issue
•China Issue
•Protectionism and Trade Issue
•Conclusion – Is Enough Being Done?
• 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
AIST – Steel Issues in Washington SMA
• 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
AIST – Steel Issues in Washington SMA
AIST – Steel Issues in Washington Concerns- The Obvious
-Our Jobs
-US Recession and financial meltdown
-Recent market fluctuation
-Value of the RMB
-Energy shortfalls and pricing
-Federal Bailouts
-Attracting talent to the steel industry
-China, China, China
-Global Steel Overcapacity
-Subsidies and other trade distortions
-US Legislation (111th Congress and the 44th President)
AIST – Steel Issues in Washington Concerns Discussed Today
• Market Volatility
•Scrap- Global barriers and restriction
• Energy- Foreign dependency and lack of growth
•Trade- Free trade verses Protectionism
• China- North American Steel Industry CANNOT compete against Chinese steel companies that are financed and controlled by their government.
Steel Executive-4th Quarter 2008
-70
-60
-50
-40
-30
-20
-10
0
Per
cent
Stock Markets Worldwide Have Plunged in Recent Months
Percentage Change in Key Stock Markets Since the Beginning of May
Source: Yahoo! Finance.
Russia Brazil Shanghai Hong Kong Tokyo London S&P 500 Frankfurt
AIST – Steel Issues in Washington
1000
1050
1100
1150
1200
1250
1300
1350
1400
1450
1500
1Q2005
2Q2005
3Q2005
4Q2005
1Q2006
2Q2006
3Q2006
4Q2006
1Q2007
2Q2007
3Q2007
4Q2007
1Q2008
2Q2008
3Q2008
(e)
4Q2008
(e)
mil
lion
s of
MT
After Years of Growth, Global Steel Consumption Appears to Be Falling
Global Apparent Steel Consumption (Annualized)
Source: World Steel Dynamics, “Global Alert # 31” (Oct. 1, 2008) at 12.
AIST – Steel Issues in Washington
The Fall 2008 Short Range Outlook historically Provided by IISI (“Worldsteel”) was not issued due to the Unprecedented Level of
Market Uncertainty
PRESS RELEASE
World Steel Association Revised Short Range Outlook (SRO)
Washington DC, 6 October 2008 – The World Steel Association Executive Committee reviewed its original Short Range Forecast issued in April 2008. The Executive recognized that the market is demonstrating rapidly changing circumstances but noted that 2008 will be another year of growth for the steel industry.
Ku-Taek Lee, Chairman of the World Steel Association and Chairman & CEO of POSCO said, “We are in a period of high economic uncertainty. The impact on steel markets is becoming more apparent as we move into the later part of this year. We are currently reviewing our forecasts for 2009, which had been prepared this summer before current events. However, we continue to expect growth in steel demand in 2009 and for the medium term, above the world GDP growth rate.”
The next World Steel Association Short Range Outlook (SRO) will be issued in April 2009.
“A Confluence of a rapid economic deterioration in the
US and Europe, a slowdown in emerging markets like China,
and increasing difficulty in financing new projects in both
industrial and construction sectors has taken the steam out
of the steel sector. Accordingly, we are revising
our shipment volumes and earnings estimates as well as significantly reducing price targets for the entire sector.”
Sal Tharani – Goldman Sachs (Comments made in recent Steel
Market analysis report)
AIST – Steel Issues in Washington
U.S. Exports of Steel ScrapU.S. Scrap Exports Have Steadily Increased Since 2000
2
6
10
14
18
2000 2001 2002 2003 2004 2005 2006 2007 Jan-Aug2007
Jan-Aug2008
Mil
lion
s of
Sh
ort
Ton
s
Includes HTS subheadings 7204.10, 7204.21, 7204.29, 7204.30, 7204.41, 7204.49, and 7204.50 Data Source : US export data is from the USITC Trade Dataweb, http:/ /dataweb.usitc.gov /scripts/user_set.asp
AIST – Steel Issues in Washington
$50
$150
$250
$350
$450
$550
$650
U.S. Shredded Auto ScrapMonthly, $/ ton
Data Source : American Metal Market; prices based on Chicago IL
AIST – Steel Issues in Washington
AIST – Steel Issues in Washington
AIST – Steel Issues in Washington
Energy Summary
• US power generation industry is at a critical juncture, with social pressures and pending legislation demanding massive changes.
•Competing demands for reliable, low-cost energy and climate change mitigation appear incongruent.
•Our Nation’s liquid fuel dependence on foreign resources continue to grow.
•Uncertainty of regulatory outcomes and rising costs impact industry’s willingness to commit capital investments, endangering near-term production capacity.
• The United States must foster new processes that address conflicting energy objectives simultaneously.
AIST – Steel Issues in Washington
D R A F T8
T h e U . S . S t e e l I n d u s t r y H a s O n e o f t h e L o w e s t P r o c e s s E m is s io n s I n t e n s i t i e s
in t h e W o r ld
0 .4 9 0 .4 6
0 .9 3 0 .9 6
1 .0 51 .1 2
1 .3 6
0 .0 0
0 .2 0
0 .4 0
0 .6 0
0 .8 0
1 .0 0
1 .2 0
1 .4 0
1 .6 0
Un ite d S ta te s Ca n a d a Me x ic o G e rma n y A u s tr a lia Ru s s ia Ja p a n
Met
ric T
ons
CO
2/M
etric
Ton
of S
teel
AIST – Steel Issues in Washington
D R A F T
7
P ro ce ss G H G E m iss io n s P e r T o n H a ve F a lle n B y 4 8 % S in ce 1 9 9 0
0 .0 0
0 .2 0
0 .4 0
0 .6 0
0 .8 0
1 .0 0
1 .2 0
1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6
To
ns
CO
2/T
on
Ste
el
AIST – Steel Issues in Washington
AIST – Steel Issues in Washington
Climate Change Legislation
Steel Manufacturers Association:
•Supports the safety valve concept for limiting allowance pricing, in any
cap & trade program;
•Recognizes the international component of the climate change issue, and
would support the the use of industrial offsets, regardless of locale, as
one way to respond to greenhouse gas emissions; and
•Believes that the cost associated with any cap and trade program must
avoid double charging emissions (ie- The electricity generator and EAF
mill consumer each must only be counted once on emissions).
COMPLIANCE WITH THE WTO
The National Association of Manufacturers (NAM) recently reviewed China’s compliance with its WTO commitments in the accession protocol. While progress has been made in certain areas, there are serious concerns and problems with effective compliance relating to:
1. Huge U.S. trade imbalance2. Continued currency manipulation3. Arbitrary VAT taxes and rebates4. Massive counterfeiting and piracy5. Discriminatory standards6. Inadequate regulatory transparency
AIST – Steel Issues in Washington
AIST – Steel Issues in Washington 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
AIST – Steel Issues in Washington China’s Trade Surplus with the U.S.
Year China’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 The U.S. has lost 3.3 million manufacturing jobs since 2000… imbalances cannot go on forever.since 2000… imbalances cannot go on forever.
AIST – Steel Issues in Washington
China Interferes with Raw Materials Markets
• China’s steel policy mandates such interference - Article 28: “Mineral resources belong to the state”- Article 30: The state will encourage large Chinese producers to “construct
production supply bases of iron ores, chrome ores, manganese ores, nickel ores, scrap steel, and coking coal in foreign countries”
- Article 30: The state will use its power to prevent “cut-throat competition” among Chinese mills for raw materials
- Article 30: The export of “coke, iron alloy, cast iron, scrap steel, {and} steel billet…shall be restricted’
• Examples of how China restricts critical exports:- Metallurgical coke- Ferroalloys and other nonferrous metals
• China has subsidized domestic iron ore production, as well as foreign ventures created to obtain iron ore from abroad
AIST – Steel Issues in Washington China Conclusions
It’s About Competitiveness US producers have a competitive advantage in metallics due to US
scrap and China’s need to import over half its ore; US producers are on par with China on availability and price of energy, while labor is much lower in China; China’s labor savings do not equal US efficiency and Transportation cost from China.
US is competitive!!!
AIST – Steel Issues in Washington Free Trade vs. Protectionism
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?
Is “Protectionism” the enemy of “Free Trade”
1. Taken in part from C. Blum
AIST – Steel Issues in Washington
Is Enough Being Done?
Conclusions
Raw Materials
Energy
China
Trade
No
No
No
No
Barriers continue
Lack of policy continues
Currency manipulation, Subsidies, Not playing by the rules
Distortions continue, Who’s the protectionist
What part of “no” don’t you understand ?