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Stahl-Zentrum
STAHL 2011
1 | 10.11.2011 · STAHL 2011 · © Stahlinstitut VDEh | Wirtschaftsvereinigung Stahl
Competitive Conditions on Regional Steel Markets
Thomas A. Danjczek
President, Steel Manufacturers Association
Changing Times in the North American Steel Industry
Wissen, Werkstoff, WerteKnowledge, materials, values
Outline
•SMA
•Safety
•Changes
•Steel Demand Drivers & Forecasts
•Raw Materials
•Tone in Washington, DC & Regulations
•What the U.S. Needs to Do
•Final Thoughts
STAHL 2011
2
About the SMA
-Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 123 Associate Member steel industry suppliers
-Today, roughly two-thirds of U.S. steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s
-SMA Members account for approximately 80% of total domestic steel capacity
STAHL 2011
SMA Safety Overview
Key Drivers to the SMA Safety Committee Success
• Safety Committee Meetings
• Safety Statistics Benching
Marking
• Fatality Prevention Initiative
• Workplace Specific Safety
Surveys• Sharing of Site-SpecificSite-Specific Best
Practices
• SMA Safety Website
• Upstream/Downstream Safety
Awareness
• Education & Outreach
• First Hand Governmental
Compliance Awareness
• SMA Safety Awards
STAHL 2011
Fatality Prevention Initiative
Addresses Six (6) critical areas:
1. Confined Space;
2. Fall Protection; Lockout-Tryout;
3. Mobile Equipment
4. Material Handling; and
5. Rail
6. Cranes (Completed in 2011)
Focusing on five priorities in addressing crane fatalities:
◦ operator visibility and attentiveness;
◦ maintenance;
◦ fall hazards;
◦ charging the EAF/ladle handling; and
◦ non-routine procedures
Videos to be completed by the end of summer and introduced to the SMA in October 2011
STAHL 2011 Fatality Prevention
SMA Board of Directors SMA Board of Directors recognizes outstanding recognizes outstanding safety performance through safety performance through the annual Don Daily SMA the annual Don Daily SMA Achievement in Safety Achievement in Safety Award. Award. ◦ 2011 recipient: 2011 recipient:
Chris Bullard and the Chris Bullard and the Logistics Team Gerdau Logistics Team Gerdau Ameristeel MidlothianAmeristeel Midlothian
STAHL 2011
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STAHL 2011 US Changes
Deeper Recession
Variable Cost Control
Engineers
Scrap Prices
High Unemployment
Labor Intensity
Inventory Levels
China
Safety
Consolidations
Customer Requirements
Environmental Regulations
Foreign Ownership
Transportation Costs
Ore Prices
Energy Costs
Currency
State-Owned Enterprises
Other Factors…
12
Finished steel demand drivers in US
Actual Fitted
Three variables drive demand:•NA auto build•Non-residential construction•Appliance shipmentsR² = 85%
Source: First River
STAHL 2011
13
U.S. finished steel demand forecast
Actual ADC
Forecast
Source: CSM, FW Dodge, AHAM, First River
STAHL 2011
Auto build & non-res construction expected to recover, but not to previous peak
NA Auto Build (Million Units)
14Source: CSM Worldwide, FW Dodge
ForecastNon-Res Construction
(Million Sq. Feet) Forecast
STAHL 2011
U.S. net imports expected to remain lowerUS Imports & Exports
(Million Tons)
16Source: AISI, First River
Net Imports & US Dollar
Net Imports as % of demand(3 year rolling average)
$ IndexImports (%)
STAHL 2011
• Underlying Weak Economy
• Recovery underway, but slow, last 4 weeks???
• North American steel market under pressure with unused capacity
• Increased exports and percent imports (5mmt of semi’s imports) YOY
• Not normal cycle of recession, overcapacity; new supply coming on
• Relative strong demand in auto; construction lagging
• Raw material costs, and variable cost controls are major drivers
• Scrap prices expected to trend slightly lower next two months – too early to call a trend
• China, China, China
• Market cap values at historic lows
Comments on Current N.A. Steel IndustrySTAHL 2011
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19
The Tone in Washington, DCSTAHL 2011
• It’s the Economy, stupid…• Dissatisfaction/Perception that US Government is not tackling
right issues(More for Wall Street than Main Street during recession)(Growing deficit, skepticism about role of government)
• GRIDLOCK (Democratic President & Senate; Republican House)• Trouble for Incumbents• Lack of Coherent China Policy (Currency?) Recognition that China
has flagrantly violated WTP Rules – i.e. Raw Materials
20
RegulationsSTAHL 2011
• Vigorous oversight of EPA, OSHA, Dept. of Labor, etc., is a general theme from the Administration• Prospects for comprehensive climate change legislation are weak – will see continued Congressional efforts to slow down EPA’s regulation of carbon emissions • Overwhelming burden of proposed regulations(Power Plant Emissions; EAF Mercury; Solid Waste, Boeing Case; Silica; Noise; Dust; Record Keeping, etc., etc., etc.)
Raw Material Cost and Availability is #1 Issue for NAFTA Producers
• 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
Raw MaterialsSTAHL 2011
21
22
Export Bans
Quotas
Export Taxes
Elimination of VAT Export Rebates
Non-automatic (discretionary) Licensing Agreements
Other Administrative Barriers (i.e. –Port Restrictions)
National Export Restrictions On Ferrous Scrap Trade
STAHL 2011
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World Scrap Exports, 2000 - 2010
0
20
40
60
80
100
120
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Mil
lio
n M
etri
c T
on
s
STAHL 2011
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Share of World Scrap Exports, 2010
USA23%
EU-2721%
Japan7%
Canada6%
Russian Federation5%
Other38% USA
EU-27
Japan
Canada
Russian Federation
Other
STAHL 2011
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Country 2010 2009
Turkey 19.20 15.7
Korea 8.7 7.8
China 5.8 13.7
India 4.7 5.1
Taiwan 4.2 3.9
USA 3.8 3.0
EU-27 3.6 3.3
Major Scrap Importers, 2010 and 2009
STAHL 2011
26
World Scrap Supply and Consumption, By Region
World Scrap Supply, 2008
0
20
40
60
80
100
120
EU Turkey CIS NAFTA Latin America China Japan Other Asia
Mil
lio
n M
etr
ic T
on
s
Domestic Supply
Apparent Consumption
Source: World Steel Association
STAHL 2011
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
To
tal Q
ua
ntit
y E
xpo
rte
d (
Me
tric
To
ns)
2004 2005 2006 2007 2008 2009
Source: U.S. International Trade Commission - Dataweb
U.S. Scrap Exports to China - 2004 - 2009
While China Restricts Exports of Scrap, U.S. Exports to China Have Surged
27
STAHL 2011
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STAHL 2011 China
Can only hope next 5 year plan which calls for 8% growth is WRONG!
.08 x 600mmt x 5 years = 240mmt… 281mmt compounded
WOW!
Actual Production
30
World Demand For Steel Scrap
World demand for steel scrap is likely to continue to increase
• Increased Steel Production In China, India and Brazil• Economic Recovery• Limited Growth of Alternative Iron Units
But A Large Number of Countries Still Impose Restrictions On Exports of Scrap and Other Raw Materials
Steel Scrap Is Subject To More Export Restrictions Than Any Other Raw Material
There Is A Significant Problem With Transparency Because Export Restrictions Change Frequently, Making Supply Even More Problematic
STAHL 2011
What does the U.S. 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
• Stop the trade distorting restrictions in raw materials or ensure prompt reciprocity (SOEs?)
• Policy incrementalism is not sufficient
STAHL 2011
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Final Thoughts
• In steel, the world has changed (Developing world, not about USA, getting tougher, ownership)• U.S. is in a traffic jam, moving slightly forward, but don’t know other consequences. Don’t look to Washington, DC for
help• Environment of uncertainty and volatility will continue in U.S. industry until economic fundamentals are in equilibrium,
last 4 weeks???• In U.S., dissatisfaction/perception that U.S. Government is not tackling the right issues (i.e. “It’s the economy, stupid.”)• Reasons for optimism in steel in U.S.:
– Scrap-based, 75% of cost – local supply– Low cost on global basis (energy is neutral, labor less than 10%, others have higher transportation costs)– Relatively strong U.S. market and U.S. resiliency– Better U.S. company balance sheets
STAHL 2011
32
Stahl-Zentrum
STAHL 2011
33 | 10.11.2011 · STAHL 2011 · © Stahlinstitut VDEh | Wirtschaftsvereinigung Stahl
Competitive Conditions on Regional Steel Markets
Thomas A. Danjczek
President, Steel Manufacturers Association
THANK YOU FOR YOUR ATTENTION
Wissen, Werkstoff, WerteKnowledge, materials, values
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