Society for Mining, Metallurgy and Exploration Washington, DC Section

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Society for Mining, Metallurgy and Exploration
Washington, DC Section U.S. Minimill
Competitiveness
Thomas A. Danjczek President Steel Manufacturers
Association September 11, 2007
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Outline
SME Washington, DC Meeting 9/11/07
SMA U.S. steel production Economic
competitiveness and scrap demand Chinese
government subsidies to its steel/auto
industries GHG issues for steel Conclusion
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SMA
SME Washington, DC Meeting 9/11/07

• The Steel Manufacturers Association (SMA)
• 36 North American companies
• 30 U.S., 4 Canadian, and 2 Mexican
• 130 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

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SMA
SME Washington, DC Meeting 9/11/07

• Production capability
• EAF steel producers represent 59 of U.S.
  production in 2006
• SMA represents over 70 of all U.S. steel
  production in 2006
• 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

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SME Washington, DC Meeting 9/11/07
U.S. Steel Production
U.S. Raw Steel Production Largest Recyclers in
the Nation 100 million tons of steel produced
each year
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SME Washington, DC Meeting 9/11/07
21st Century
U.S. Steel Industry, Then. . . . . . . . .and
Now EAFs are 21st Century Steelmakers
THEN Smoke pouring into the air from a
Pittsburgh steel mill. Image by Corbis -
Bettmann
NOW Electric Arc Furnace facility.
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Reasons
SME Washington, DC Meeting 9/11/07
Economics To be cost competitive, one needs to
be either where the market is, or where
the raw materials are. (Paul ONeil,
Alcoa) Scrap Availability U.S. has the scrap and
infrastructure, with over 2000 scrap
processors. Steel recycling rate is over 75
percent.
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SME Washington, DC Meeting 9/11/07
Economic Competitiveness

• Capital costs to build a scrap-based EAF
  minimill, versus an integrated ore-based mill, is
  less than half per ton of capacity
• Productivity is a key to competitiveness.
  Minimills are under one man-hour per ton (as low
  as 0.3 MH/ton), versus three times that for an
  integrated ore-based mill. The minimill culture
  makes a difference.
• Metallics comprise almost 60 percent of the total
  cost of producing a ton of steel energy,
  transportation, and labor costs account for the
  rest. Energy costs are 75 percent less than for
  ore-based transportation costs are lower, both
  inbound and outbound, due to proximity to
  markets labor costs are half

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SME Washington, DC Meeting 9/11/07
Chinas Subsidies

• China has NOT become the worlds 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
• Chinas steel capacity will be 600 million tonnes
  by year end 2007
• Chinas steel capacity is 5 times that of the U.S.

• Chinas steel exports surged to 33.8 million
  tonnes in the first half of 2007, double the same
  period in 2006

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SME Washington, DC Meeting 9/11/07
Auto Parts Summary
U.S. Imports of Auto Parts and Vehicle Bodies
from China, Value and Share
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What Harm
-Chinese steel exports surged to 33.8 million
metric tons in the first half of 2007, double the
same period in 2006. -In finished goods
containing steel, i.e. auto parts and vehicles,
Chinas exports are expanding by approximately 30
percent per year. -The rush to China has been
driven by illegal subsidies. -The U.S. steel
industry has enjoyed robust financial performance
over the past four years. However, over the past
50 years, iron and steel has a mean return on
equity after taxes of approximately 5 percent,
less than half of manufacturing at approximately
12 percent.
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SME Washington, DC Meeting 9/11/07
China Subsidies
-Imbalances cant go on forever -Chinese steel
market is reliant on export market to absorb
domestic overproduction -Chinese steel industry
today is OVERBUILT AND UNDERDEMOLISHED
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GHG Emissions
Growth in EAF steelmaking has allowed the steel
industry to reduce energy usage Lower energy
usage equals lower greenhouse gas emissions
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EAF Efficiency
EAF Steelmaking Is Energy Efficient
19.1 million Btu of Energy per ton of steel
produced
8.4 million Btu of Energy per ton of steel
produced
Scrap-based Steelmaking (EAF-recycling)
Ore-based Steelmaking
Steel Info US Dept. of Energy.
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Conclusion

• Need aggressive policy measures to prevent China
  from causing a major crisis. To date, only trade
  cases have had an impact.
• Its 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.)