thomas a. danjczek president steel manufacturers association march 29, 2013 guangzhou, china
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Thomas A. DanjczekPresidentSteel Manufacturers AssociationMarch 29, 2013Guangzhou, China
11th International Steel Marketand Trade Conference
Update 3-6-13
CISA: China Iron and Steel Association
Metallurgical Council of CCPIT (MC-CCPIT)
Outline
•About the SMA
•Set the Tone - Economy
•Set the Tone - Steel
•US Steel Imports
•Expanding Future US Steel Production
•Final Thoughts
11th International Steel Marketand Trade Conference
About the SMA- Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 118 Associate Member steel industry suppliers
- SMA Members account for approximately 75% of U.S. domestic steel capacity
- Today, roughly two-thirds of North American steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s
11th International Steel Marketand Trade Conference SMA
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201120.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
U.S. EAF Share of Total Production
% of EAF Production
Approximately 2/3 of U.S. Steel Production
Set the Tone - Economy
• The US “fiscal cliff“ poses the most immediate risk to the US economy
• Pace of US growth in 2013 estimated at 2%, near stagnation
• While US unemployment rate declined, still above pre-recession levels
• Rising energy production and housing rebounding are bright spots (“race to gas”)
• Capital spending is a downside risk
• US trade deficit is unsustainable
11th International Steel Marketand Trade Conference
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.00
50,000.00
100,000.00
150,000.00
200,000.00
250,000.00
300,000.00
350,000.00
Source: US Census Bureau
Total US Trade Deficit with China(in million US$)
2012 US trade deficit with China was a record $315.1 billion, accounting for 43.3% of overall $727.9 billion US trade deficit.
2012 US steel imports from China were 1,505,751 metric tons, a 33.9% increase over 2011 levels, and a 92.8% increase over 2010 levels.
Mill
ion
US
$11th International Steel Market
and Trade Conference
US GOOds
Set the Tone - Economy
Annual Deficit is the most significant barrier to U.S. economic recovery
UNSUSTAINABLE
11th International Steel Marketand Trade Conference
Set the Tone - Steel
• Primary metal 4% growth YTD 2012 over 2011 in US
• U.S. capacity utilization approx. 74.4% in 2012
Y.T.D. capacity utilization approx.76.9% (w/reduced capacity)
• Scrap price volatility (75% of minimill costs)
11th International Steel Marketand Trade Conference
Year World Steel Production
(million metric tonnes)
US Steel Production
(million metric tonnes)
US Steel Imports
(million metric tonnes)
2007 1,347.0 98.1 30.2
2008 1,341.2 91.4 29.0
2009 1,235.8 58.2 14.7
2010 1,428.7 80.5 21.7
2011 1,490.1 86.2 25.9
2012 1,517.9 88.6 30.4
Sources: census.gov, worldsteel.org
NAFTA Auto Production
Source: Wards Automotive
0
2
4
6
8
10
12
14
16
18
Units (m
illions)
11th International Steel Marketand Trade Conference
Construction Activity*Non-building structures (e.g., infrastructure) not included
Source: McGraw-Hill (Dodge)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Squa
re F
oota
ge (0
00)
Residential (1 & 2 family dwellings) Non-Residential
11th International Steel Marketand Trade Conference
Energy Production
Source: Baker Hughes, U.S. Dept. of Energy
0
500
1,000
1,500
2,000
2,500
JA
N
AP
R
JU
L
OC
T
JA
N
AP
R
JU
L
OC
T
JA
N
AP
R
JU
L
OC
T
JA
N
AP
R
JU
L
OC
T
Ja
n
Ap
r
Ju
l
2008 2009 2010 2011 2012
RIG
CO
UN
T
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$ M
cf
Total RIGS
Verticle RIGS
Horizontal RIGS
Natural Gas Price at Wellhead
11th International Steel Marketand Trade Conference
Source: AISI
Demand ForecastFinished Steel (mmt)
2011 2012 ∆ YOY 2013 ∆ YOY
Industry Shipments 83.3 88.5 +6% 92.1 +4%
Finished Imports 19.8 22.7 +15% 22.9 1%
Adjustments 1.8 2.0 2.2
Exports 12.2 12.8 +5% 12.9 +0%
Apparent Steel Use (ASU)*
89.1 96.5 +8% 100.0 +4%
Inventory Change 0.6 1.1 0.9
Real Steel Use (RSU)**
88.5 95.4 +8% 99.1 +4%
11th International Steel Marketand Trade Conference
US Imports of Total Steel Products Up 17%
Source: U.S. Department of Commerce (Census Bureau)
2011 20120
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
28,515,276
33,474,583
Total Steel Imports (2011 vs 2012)Im
port
s (N
et
Ton
s)
11th International Steel Marketand Trade Conference US Steel Imports
Comparing 2012 to 2011 by product category:
• Semi-finished imports increased 14.2% to 6,772,056 metric tons;
• Flat product imports increased 16.4% to 9,550,032 metric tons;
• Pipe and tube imports increased 24.4% to 7,710,529 metric tons;
• Long product imports increased 14.6% to 5,191,504 metric tons;
• and stainless imports increased 13.5% to 1,143,515 metric tons.
11th International Steel Marketand Trade Conference US Steel Imports
Increase in Total Steel Imports is from Numerous Countries, Across the Globe
Source: U.S. Department of Commerce (Census Bureau)
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
Turkey Germany China Russia Japan South Korea Brazil
Impo
rts (N
T)
2011 vs. 2012 Total Steel Importsfrom Key Offshore Countries
2011 2012
+84% +24%
+34%
+74%
+30%
+30% +27%
11th International Steel Marketand Trade Conference US Steel Imports
Surge in Steel Imports is Across Various Product Lines
Source: U.S. Department of Commerce (Census Bureau)
0500,000
1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,000
Rebar Cut-to-LengthPlate
CorrosionResistant Steel
Line Pipe Oil CountryTubular Goods
Impo
rts (N
T)
2011 vs. 2012 Increases in Major Products
2011 2012
+49%
+19%
+37%
+41%
+25%
11th International Steel Marketand Trade Conference US Steel Imports
Factors in the Surge of Steel Imports
• Weakened global economy– Asian market downturn, large overcapacity of steel– European recession– U.S. market still weak
• Market interference by foreign governments:– Subsidies – Raw material export restrictions– Import restrictions on steel or steel containing products– Other interventions
11th International Steel Marketand Trade Conference US Steel Imports
• The US is a net importer of steel, yet domestic capacity is utilization only at appox 75%
• The US is the world’s largest exporter of scrap
• The US is a low cost steel producer
Expanding Future US Steel Production
The United States is unique among major steel producing nations:
11th International Steel Marketand Trade Conference
• Is self-sufficient in steelmaking raw materials, especially scrap (2011 – generated 84mmt of scrap, but consumed only 55mmt)(~ 75%of production costs)
• Since 2002, imports 26.2% of steel consumption, while capacity utilization only appox 80%
• Has relatively low energy prices
• Has high productivity to offset wage rates
• Has the world’s largest capital market
Expanding US Steel ProductionComparative Advantages in US
The United States:
• Need policies that encourage expanded domestic steel production to utilize domestic capacity
• Foreign export restrictions on steel scrap have many negative consequences
• Expanding US steel production through the conversion of scrap into steel would create high-paying jobs, increase GDP, reduce the trade deficit, and provide added tax revenues
• The expansion must occur without massive government investments, subsidies, and interventions; but needs to be based on comparative economics and market forces
• Significant amounts of imports should be replaced with domestically produced steel
Expanding Future US Steel Production Conclusions
Final Thoughts
• Volatile and fragile times continue• U.S. is in a traffic jam, moving slightly
forward, but don’t know other consequences. Gridlock continues
• Uncertainty will continue.• Increasing steel capacity without regard to
market forces or comparative advantage is wrong
• Reasons for optimism in steel in North America:
– Favorable gains with reemerging manufacturing base, including benefits of shale gas
– Scrap-based, 75% of cost – local supply– Low cost on global basis (energy is positive, labor
less than 10%, others have higher transportation costs)
– Relatively strong market and resiliency– Better & stronger company balance sheets
11th International Steel Marketand Trade Conference
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