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Steel Founders’ Society of America
Steel – A Year Later
Thomas A. DanjczekPresident
Steel Manufacturers AssociationCharleston, SCSeptember 9, 2008
• 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
SFSA Annual Meeting SMA
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• 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
SFSA Annual Meeting SMA
SFSA Annual Meeting
• SMA
• Conclusions from 2007
• What’s the same? – 1 year later
• What’s different? – 1 year later
• Raw Material Story
• Scrap Story
• Energy Issues
• GGG Issues
• Global Steel Capacity
• Consolidations
• U.S. Steel Market Projections
• China Bashing
• Unknowns
• Conclusions
Outline
3
SFSA Annual Meeting Conclusions From 2007
-Need aggressive policy measures to prevent China from causing amajor crisis. To date, only trade cases have had an impact.
-It’s still a cyclical business with demand, scrap, inventories, etc.
-U.S. EAF growth will continue
-Massive subsidized growth continues
-Consolidations will continue
-China, China, China… everything else is only an embellishment
-Unknowns (interest rates, economic growth, imports, etc.)
-Between foundries and steel, similar issues in environment, energy,and trade
SFSA Annual Meeting What’s the Same? – 1 Year Later
• Weak U.S. dollar
• Steel company consolidations continue
• No greenhouse gas legislation
• Strong U.S. steel industry profitability & stock values
• Low steel inventories
• Worldwide steel capacity growing faster than consumption
• No significant energy supply developments
• China, China, China
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SFSA Annual Meeting What’s Different? – 1 Year Later
• U.S. economic conditions down
• China’s steel exports down – prices higher elsewhere
• Steel companies buying scrap companies
• Steel imports down
• Exploding raw material prices (ore, scrap, coal, etc.)
• Flat rolled slowing down (automotive, outages ,etc.)
U.S. Raw Steel Production: Largest Recyclers in the Nation~ 100 million tons of steel produced each year
SFSA Annual Meeting U.S. Steel Production
U.S Raw Steel Production
0
20
40
60
80
100
120
140
160
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Year
To
ns
EAF
BOF
Total
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Raw Materials and Competitiveness
• Raw material prices are soaring
• Higher raw material prices have placed substantial cost pressures onNAFTA steel producers
• At the same time, unfairly-traded imports make it more difficult to raiseprices, creating a harmful cost-price squeeze
• China (and other foreign) interference in raw material markets is unfairlyhelping their steel industries while driving up the cost of steel productionworldwide
SFSA Annual Meeting
Since Last Year, Prices for Key Raw Materials Have Soared
0
50
100
150
200
250
300
350
Iron Ore Coking Coal Scrap (automotive bundle)
20
07
= 1
00
2007 2008
Source: World Steel Dynamics and JP Morgan
SFSA Annual Meeting
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Copper Sales Prices
0
50
100
150
200
250
300
350
400
450
2004 2005 2006 2007 2008
Years
Pri
ce
Ferrochrome (Low Carbon) Sales Price
0
50
100
150
200
250
300
350
400
2004 2005 2006 2007 2008
Years
Pri
ce
Ferromanganese (Medium Carbon) Sales Price
0
20
40
60
80
100
120
140
160
180
200
2004 2005 2006 2007 2008
Years
Pri
ce
Ferrosilicon Sales Price
0
10
20
30
40
50
60
70
80
90
2004 2005 2006 2007 2008
Years
Pri
ce
*Information obtained from the American Metal Market website
Other Metal Prices Are SoaringSFSA Annual Meeting
Nickel (Melting Material) Sales Price
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2004 2005 2006 2007 2008
Years
Pri
ce
Siliconmanganese Sales Pricce
0
20
40
60
80
100
120
2004 2005 2006 2007 2008
Years
Price
Zinc Sales Price
0
20
40
60
80
100
120
140
160
180
2004 2005 2006 2007 2008
Years
Pric
e
*Information obtained from the American Metal Market website
Other Metal Prices Are Soaring (cont.)SFSA Annual Meeting
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Raw Materials: Governments Still Intervening
• Governments (e.g. China, India) Continue to Intervene in Key RawMaterials Markets For Steel:
– Iron Ore
– Coke
– Ferroalloys
– Refractory Materials
• Export Tax Manipulations / Restrictions
• Distortions Created; NAFTA Competitiveness Negatively Impacted
SFSA Annual Meeting
SFSA Annual Meeting
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SFSA Annual Meeting
SFSA Annual Meeting
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SFSA Annual Meeting Energy Issues List
Energy – Availability and Cost
• Utility Infrastructure (Generation & Transmission) Needs to MatchGrowth in Consumer Demand
• Diversity of Generation (Alternative Fuels – Climate Change) – Excess Reliance on Natural Gas
• NRC Expects up to 30 Applications for New Nuclear GeneratorsOver Next Two Years- Cost was estimated in a range of $2500-3500/KW; Now
Moody’s estimates are above $5000/KW- Florida’s Progress Energy filed for twin 1,100 MW generation units for 2016, at $14 Billion + over $3 Billion oftransmission upgrades = $6,400/KW of generation
Electrical Energy Costs - Generation
Typical US Mill uses an average of 500-700KW per ton of steel produced
5,000- 7,0002,000- 4,000Nuclear
3,500- 4,000n/aAdvanced Coal
Gasification
2,5001,000Pulverized Coal
700500Natural Gas Combined
Cycle
Current Estimates($-kw.)Historic cost ($-kw.)Generation Technology
. .
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H e nry H ub Pr ic e Q uotes
$0. 000
$2. 000
$4. 000
$6. 000
$8. 000
$10. 000
$12. 000
$14. 000
1/2
/08
1/9
/08
1/1
6/0
8
1/2
3/0
8
1/3
0/0
8
2/6
/08
2/1
3/0
8
2/2
0/0
8
2/2
7/0
8
3/5
/08
3/1
2/0
8
3/1
9/0
8
3/2
6/0
8
4/2
/08
4/9
/08
4/1
6/0
8
4/2
3/0
8
4/3
0/0
8
5/7
/08
5/1
4/0
8
5/2
1/0
8
5/2
8/0
8
6/4
/08
6/1
1/0
8
6/1
8/0
8
6/2
5/0
8
7/2
/08
7/9
/08
7/1
6/0
8
7/2
3/0
8
7/3
0/0
8
T ran sa ctio n D ate
$/M
MB
tu
Typical N.A. Long Product producers use approximately 2MMBTU per ton of steel shipped.
- Natural Gas
. .
SFSA Annual Meeting Climate Change Issues
The Issue of Climate Change is one that the North American EAF SteelIndustry have been engaged in
Issues to Address:
• Need a Domestic Coherent Energy Policy Which Will Provide forNew Generation of Energy by Alternative Sources (wind; nuclear;ethanol; hydrogen)
• Associated New Transmission Infrastructure Will Be Needed
• New Research, Development, and Implementation for Climate Change Capture Technologies – Domestic and International
• Need to Engage Developing Nations to Commit to BindingAgreements on Greenhouse Gas Emissions – Post-Kyoto
• Recognition for Industry Commitments to Address ClimateChange Early – Recycling of Raw Materials; Process GasesRecapture
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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 use of industrial offsets, regardless of locale,
as one way to respond to greenhouse gas emissions; and
• Believes that the costs associated with any cap and trade program
must avoid double charging emissions (i.e. The electricity generator and
EAF mill consumer each must only be counted once on emissions).
. .
Growth in EAF steelmaking has allowed the steel industry toreduce energy usage:
Lower energy usage equals lower greenhouse gas emissions
Energy Intensity - Steel Industry in the U.S.
8
9
10
11
12
13
14
15
16
17
1990 1995 2000 2002 2003 2004 2005
Year
Millio
ns o
f B
tu
/T
on
o
f S
te
el
Steel Made in EAFs in the U.S.
30%
40%
50%
60%
1990 1992 1994 1996 1998 2000 2002 2004 2006
Year
SFSA Annual Meeting GHG Emissions
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Scrap-based Steelmaking(EAF-recycling)
Ore-based Steelmaking
8.4 million Btu of Energy perton of steel produced
EAF Steelmaking Is Energy Efficient
Steel Info – US Dept. of Energy
19.1 million Btu of Energyper ton of steel produced
SFSA Annual Meeting GGG Emissions
Global Steel Capacity 2001-2007
During 2001-2007, world crude steel capacity increases by499 mmt to 1,564 mmt (46.9% over 2000)
World Crude Steel Capacity 2000~07
Source: German Steel Federation and IISI verifications
13
During 2008-2010, world steel capacity will grow by 322mmt, a 21% increase over 2007, with a CAGR of 6.4%
World Crude Steel Capacity 2000~10
Global Steel Capacity 2008-2010
Source: German Steel Federation and IISI verifications
2010
2007
China
559
715
20102007
EU-27
247 254
20102007
CIS
137180
20102007
C&S
America
60 74
20102007
NAFTA
154 159
20102007
Africa
29 42
20102007
MiddleEast
26 48
2010
2007
Asia (excl.ME&CIS)
864
1071
Capacity by Region
2007 vs 2010
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• BRIC capacity will grow29%, by over 200 milliontonnes, in the next threeyears, with Chinadominating.
• These four countrieswill represent 50% ofworld capacity by 2010.
Source: IISI members
Highlights - BRIC
1624 28
20
4048
87
62
8465
70
60
50
-7
46
39
-30
0
30
60
90
120
150
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
mmt
Rest of world
China
Brazil
RussiaIndia
Capacity Additions
Brazil, Russia, India, China Will Have ~70% of CapacityAdditions Through 2010
New Capacity Outpaces Consumption Growth
Capacity – Multiple Sources; Nucor Analysis
Demand – IISI projections thru ’08; 6% increase “09 – ‘10
EU-25
1%
India
23%
NAFTA
2%Other Asia
15%
Other Europe
3%
CIS
6%
Africa & Middle East
5%
Central & South
America
12%
China
33%
Announced Steel CapacityIncreases By Region
(2006 – 2012)
Announced Steel Capacity Vs.
Projected Consumption 2007 – 2010(Million Metric Tonnes)
Compound Annual Growth Rates:
Capacity: 6.83% Demand: 4.65%
SFSA Annual Meeting
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• U.S. steel producers have identified at least $52 billion in subsidiesthat have been provided to Chinese steel producers
• China’s 2005 steel policy commits the government to furthersubsidies and micromanagement
• Chinese steel producers enjoy government assistance withenergy costs
• Chinese steel producers regularly obtain preferential loans fromstate-owned banks
• Most steel production in China is carried out by state-ownedenterprises
• NAFTA steel representatives recently raised the issue of Chinasubsidies in a March 7, 2008 letter to NAFTA Ministers
Chinese Steel Producers Benefit from Massive Subsidies
Globalization and Consolidation Developments Have DramaticallyChanged the NAFTA Steel Landscape
Acquiring Company Acquiring Company Acquiring CompanyAcquired Company Acquired Company Acquired Company
Arcelor Mittal Nucor Duferco/NLMKArcelor Connecticut Steel Winner Steel
Dofasco TricoMittal Birmingham Evraz
Ispat Inland Corus Tuscaloosa Oregon SteelISG Worthington-Decatur Claymont Steel
LTV Marion Ipsco CanadaUS Steel Plate
Weirton
Nelson SteelHarris Steel Severstal
Acme-RiverdaleAuburn Steel Arcelor Mittal-Sp. Pt.North Star Arizona Rouge
WCI (announced)Georgetown American Iron Reduction
SicartsaLMP Steel & Wire
CSNHeartland
US Steel Gerdau AmeristeelLone Star Sheffield
EssarNational ChaparralAlgomaLTV Tin Co-SteelMinnesota SteelISG IH#2 Pkl. North Star
Stelco Sidetul Tultitlan Quanex Macsteel
BlueScope CorsaIMSA Steelscape
OAO TMKSSAB
Ipsco Tubular (U.S.)ICH/Grupo Simec Ipsco Plate (U.S.)
RepublicSteel Dynamics
Ternium GalvPro-JeffersonvilleHylsa The TechsIMSA Roanoke Steel
Steel of West Virginia
Tenaris
Maverick Tube (U.S.)
Prudential Canada
Hydril Company
Wheeling Pitt
8/1/08
Bethlehe
m
Bayou (announced) The David J. Joseph Co. (Scrap)
Omnisource (Scrap)
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Steel Consolidating, But Still Fragmented
Top 15 Global Steel Producers - September 2007Based on 2006 Production: 1240 Million MT
Baosteel (26 mt)
Tata (incl. Corus) (24 mt)
USS (incl. Stelco)
(26 mt)
POSCO (31 mt)
JFE (32 mt)
Anben
(23 mt)
Shandong
(22 mt)
Nucor
(20 mt)
Wuhan
(19 mt)
Tangshan
(19 mt)
Evraz
(19 mt)Riva (18 mt)
Severstal
(18 mt)
Nippon (34 mt)
Rest of
World 64%
(794 mt)Arcelor Mittal - 9.5%
(118 mt)
Automotive OEM Global Market Share
(Based on 2006 Production)
Top 10
68%
All
Others
32%
Iron Ore Supplier Market Share
Top 3
75%
All Others
25%
TOP 15 Represent 36% of Global Production
Source: IISB
SFSA Annual Meeting
SFSA Annual Meeting Consolidations
Steel Industry Consolidations
• Raw steel capacity in U.S. is approximately 110-120 million tonnes
• Due to a number of consolidations, the top 10 companies areapprox. 90 million tonnes; top 3 companies are approx. 60 milliontonnes
• Worldwide, the top company is only 10 percent
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Consolidation: Opportunities & Risks
• Potential Benefits:
– Access to Capital, Technology
– Deeper Customer Relationships
– Facility Optimization / Strategic Fit
– Industry Sustainability
• But Benefits Are Undermined By PrevailingRisks:
– Global Overcapacity
– Subsidies and Other Trade Distortions
SFSA Annual Meeting
110.96055.00056.000110.76055.00055.540108.230Apparent steel use
2.7201.0001.0002.7201.3301.3802.720Steel industryreceipts
10.2505.0005.0009.5304.8404.68010.160Exports
22.23011.00011.00021.68011.16010.52024.490Imports
101.70050.00051.000101.33050.25051.08096.620Deliveries
TotalJuly-Dec
Jan-JuneTotal
July-Dec
Jan-JuneTotal
2009200920092008200820082007
SFSA Annual Meeting U.S. Steel Market Projections
18
SFSA Annual Meeting China’s Trade Surpluswith 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 jobsThe U.S. has lost 3.3 million manufacturing jobs
since 2000since 2000…… imbalances cannot go on forever. imbalances cannot go on forever.
SFSA Annual Meeting Impact of AD/CVD
Percent of the value of Chineseimports covered by AD/CVD
duties?
2004 – 0.13%
2006 – 0.10%
(TAD comment – What Protectionism?)
International Trade Commission, based on U.S. DOC and Customs official statistics
19
SFSA Annual Meeting Competitiveness
U.S. - China Steel Future Competitiveness Drivers
Driver U.S. China Comment
1. Metallics •Weak $ •1/2 imported •Technological
(Availability/Price) •Scrap exports •Freight developments
+ to U.S.
2. Energy •Gas/electricity + to China •Climate change
(Availability/Price) constraints policy
•Limited nuclear
3. Labor •Lack of technical + to China
•Health care costs
4. Transportation + to U.S.
5. Trade + to China •Growth of steel-
intensive goods
6. Environment + to U.S. •Enforcement?
SFSA Annual Meeting China Comments
-China has NOT become the world’s largest steel producer byaccident, or by operation of free markets, or comparativeadvantage
-China is NOT a low-cost steel producer
-China has reached its position through a combination ofsubsidies, mandates, and planned intervention
-In finished goods containing steel, China’s exports areexpanding by approximately 30 percent per year
-Chinese steel market is still reliant on exports to absorboverproduction
-Chinese steel industry is overbuilt and under-demolished
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SFSA Annual Meeting Unknowns
-Raw material price impact???
-Impact of recession???
-Value of the RMB???
-JCCT Steel Dialogue – where goal is to promote transparency withbetter decisions???
-European Union antidumping investigation and targets???
-Energy cost and interest rate impacts???
-Rising freight costs???
-China’s restrictive policy of foreign ownership participation???
-China’s enforcement of environmental regulations???
-U.S. legislation (111th Congress) and 44th President???
-Trade actions – impact of CVD’s on China???
-When will China play by market rules???
SFSA Annual Meeting Conclusions
(Same as 2007)
•Need aggressive policy measures to prevent China from causing amajor crisis. To date, only trade cases have had an impact.
• It’s still a cyclical business with demand, scrap, inventories, etc.
• U.S. EAF growth will continue
• Massive subsidized growth continues
• Consolidations will continue
• China, China, China… everything else is only an embellishment
• Unknowns (interest rates, economic growth, imports, etc.)
• Between foundries and steel, similar issues in environment, energy,and trade