A1261169105WeMst

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AMERICAN METAL MARKET CONFERENCE
Solving the China Puzzle
Session VI China Trade and its Impact on North
American Manufacturing
Thomas A. Danjczek President Steel Manufacturers
Association September 29, 2006 Rev. 9/1/06
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AMM Solving the China Puzzle
China Trade and its Impact on North American
Manufacturing

1. Capacity (World, region, China by product,
   Chinas announcements)
2. Subsidies (SMA statement, examples, comment re
   AIIS
3. Environmental impact
4. Unknown
5. Conclusions

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Projected Worldwide Crude Steel Capacity vs.
Demand (2006 2010)
Million Metric Tons
Demand growth estimated at 6/yr
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Worldwide Announced Steel Capacity AdditionsBy
Region
139
120
Million Metric Tons
110
106
51
45
44
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China Announced Steel Capacity By Product
54
51
46
Million Metric Tons
37
5
5
4
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AMM Solving the China Puzzle
Notable China Capacity Announcements

• Baosteel planning construction of a 20mt/yr mill
• Wuhan plans 10mt/yr steelworks in southern China
• Anshan ready to start 10mt/yr steel mill
• Maanshan orders 5.5mt/yr hot strip mill
• Hangzhou to resume previously suspended project
  to build 6mt/yr plate mill
• POSCO in talks on 12mt/yr steel plant in Chinas
  Fujian province

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AMM Solving the China Puzzle
Chinas Subsidies
SMA statement RE WRF report, entitled The
China Syndrome How Subsidies and Government
Intervention Created the Worlds Largest Steel
Industry
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AMM Solving the China Puzzle
Chinas Subsidies
-Non-performing loans at state banks
-Export subsidies
-Import substitution subsidies
-Preferential loans
-Grants (land, cash, energy, raw materials
-Environmental non-enforcement weak regulation
-Tax incentives reductions
-RMB manipulation
-Debt to equity conversion
-Barriers to foreign investment
-Debt forgiveness
WHO IN THE ROOM IS RECEIVING ANY OF THE ABOVE???
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AMM Solving the China Puzzle
Chinas Subsidies
Comments on AIIS report Integrating the Chinese
Steel Industry and Trade Policy into the 21st
Century

• AIIS attack on U.S. trade laws so that some
  importers can obtain illegally subsidized steel
  is not news for AIIS.
• AIIS contradicts itself by acknowledging that
  tens of billions of dollars of investments by
  Chinese banks are directly controlled by the
  Chinese government. How does AIIS explain the
  80 ownership of the Chinese steel industry by
  the Chinese government?
• AIIS not to worry attitude regarding the
  potential for excess steel making capacity to
  choke world export markets is consistent with
  their view that Chinas capacity growth is
  market-drive, rather than government subsidized.
  This is a prime example of distortion of the
  facts.

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AMM Solving the China Puzzle
Environmental Impact

• U.S. EPA estimates that approximately 20 of the
  particulate matter in the skies above Los Angeles
  can be traced to China.
• Chinas environmental problems are severe, and
  getting worse.
• The World Bank estimates that 16 of the worlds
  20 most polluted cities are in China

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AMM Solving the China Puzzle
Unknown

• JCCT Steel Dialogue where goal is to promote
  transparency with better decisions???
• European Union antidumping investigation
  targets???
• Energy cost interest rate impacts???
• Chinas restrictive policy of foreign ownership
  participation???
• U.S. legislation???
• Trade actions???
• When will China play by market rules???

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AMM Solving the China Puzzle
Conclusion

• Continued North American steel industry
  resiliency. North American steel mills, for the
  most part, are technologically advanced, highly
  competitive, environmentally acceptable, and a
  key component of the North American economic
  infrastructure
• U.S. Congress is very disappointed in the lack of
  Chinas progress correcting currency manipulation
• China has more government-financed steel making
  capacity than it can use
• The growth of the Chinese steel industry has been
  at the expense of its international competitors
• Concern with the displacement of steel consuming
  industries
• Chinas trade and environmental policies and laws
  are not enforced
• North American steel industry CANNOT compete
  against the Chinese government
• Still, reasons for meaningful optimism
• Its still a cyclical business, but enjoy today