Association of Women in the Metal Industry AWMI

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Association of Women in the Metal Industry
(AWMI) Issues Impacting U.S. Steel Producers
Thomas A. Danjczek President Steel Manufacturers
Association Columbus, Ohio November 13, 2007
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Outline
AWMI Columbus Chapter
SMA U.S. steel production Economic
competitiveness and scrap demand Steel market
conditions -Consolidations -Raw material
prices -Capital spending -Consumption -New
capacity -Imports -Price trends Chinese
government subsidies to its steel/auto
industries Washington issues for
steel -Environmental -Energy -Trade -Other Co
nclusion
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SMA
AWMI Columbus Chapter

• The Steel Manufacturers Association (SMA)
• 36 North American companies
• 30 U.S., 4 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

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SMA
AWMI Columbus Chapter

• Production capability
• EAF steel producers accounted for 59 of U.S.
  production in 2006
• 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

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AWMI Columbus Chapter
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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AWMI Columbus Chapter
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
AWMI Columbus Chapter
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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Steel Markets
AWMI Columbus Chapter
In U.S., EAFs have steadily expanded their range
of products, approaching 60 percent overall
EAF Production Heavy Structurals 100 Light
Structurals 100 Reinforcing Bar 100 Rail 100
Plate 33 SBQ 90 Hot Rolled 33 Cold
Rolled 33 Galvanized 33 Stainless
Sheet 100 Overall 60
Estimated that 90 of market specifications can
be made cost effectively from scrap (i.e. not tin
plate, deep draw auto, etc.), with limit on pig
iron usage
U.S. minimills produce 1/3 of U.S. flat rolled,
with 24 out of 72 million tons of capacity
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AWMI Columbus Chapter
Market Conditions
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 are approx.
90 million tonnes top 3 companies are approx. 60
million tonnes Worldwide, the top company is
only 10 percent
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Capital Spending is Expected to Double in 2007
for Major U.S. Producers
AWMI Columbus Chapter
Market Conditions
Capital Spending (in billions) 2002, 2006 and
forecasted 2007
Source Bank of America Survey includes six
steel companies Allegheny Technologies, Inc.,
CMC Steel Group, Ipsco Inc., Nucor Corporation,
Steel Dynamics Inc. and United States Steel
Corporation.
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AWMI Columbus Chapter
Market Conditions
Investment/Financing of New Capacity in the U.S.
Steel Industry The U.S. Steel industry will see
several new complete production facilities come
online in the next 2-3 years for the 1st time in
decades.

• SeverCorr will produce 1 million tonnes of
  coated sheet annually from its Columbus,
  Mississippi location starting in the Fall of
  2007, with plans for a capacity of 3.1 million
  tonnes when the full project is completed in
  several years. Cost is 880 million.
• ThysenKrupp AG is planning a large project also
  in Mobile, Alabama to supply the transplant auto
  industry with 3.6 million tonnes of flat rolled
  carbon and stainless steel. Cost is 3.7
  billion. Shipments are to begin in 2010. Slabs
  will be supplied from Brazil to complement the
  EAF furnace on site.
• Nucor is reopening a bar mill site in Memphis,
  Tennessee to supply the SBQ market with up to 750
  thousand tonnes annually. Cost is 230 million.
  Steel production is scheduled for the 1st Quarter
  of 2008.
• Essar Steel Holdings of India will take over the
  project started by Minnesota Steel to build a 2.3
  million tonne slab and hot-rolled coil project in
  Minnesota that includes a taconite mine. Start is
  scheduled in 2009 at a cost of 1.6 billion.
• Commercial Metals Corporation (CMC) is planning
  a micro mill to supply the West Coast rebar
  market with a 275 thousand tonne capability at a
  location outside of Phoenix, Arizona that is
  situated to serve the immediate areas supply
  needs starting in 2009. Cost is 130 million.
• Aside from mainly state (mostly locational,
  small, generally available) incentives, virtually
  all new investment is being financed by private
  sources. During the Steel Subsidies Agreement
  (SSA) negotiation, the U.S. steel industry
  opposed all steel-specific subsidies, other than
  for closure assistance. This remains our
  position.

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Market Conditions
Average Price Trends Steel Mill Products
Source Purchasing Magazine
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AWMI Columbus Chapter
Market Conditions
Raw Material Prices
Source American Metal Market / Scrap and Zinc
World Steel Dynamics / Coke (China
Export) Iron Ore Fines (Brazil
Export)
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AWMI Columbus Chapter
Market Conditions
2007 consumption is behind the apparent 2006
level, but is expected to improve by the end of
the year as inventories correct.
USA  
Million Mt Change (07 vs. 06)   Crude
Steel 128.4 -4.6 Finished
114.3 -4.4 Exports
8.8 -0.1 Imports
29.3 -11.4
Survey of the Short Range Outlook Fall 2007
United States   Apparent Steel Use (million
metric tonnes)  
Source IISI forecast for the United States
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United States Statistics Steel Trade
AWMI Columbus Chapter
Market Conditions
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Chinese Government Subsidies to its Steel Industry
Chinas steel industry today is overbuilt and
under-demolished
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AWMI Columbus Chapter
Chinese Steel Industry

• Government ownership 8 of the 10 largest Chinese
  steel groups are 100 percent owned by Chinese
  government of the top 20, 91 percent state-owned
  production
• Subsidies recent report on RMB 390 billion (US
  52 billion) granted to Chinese steel producers
• RMB 141 billion in equity infusion, listing 37
  Chinese companies
• RMB 130 billion in preferential loans
• RMB 71 billion due to currency manipulation
• RMB 39 billion in land used discounts
• RMB 10 billion in mandated mergers
• RMB 2 billion in direct cash grants

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AWMI Columbus Chapter
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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AWMI Columbus Chapter
Auto Parts Summary

• Chinas exports of auto parts and vehicles are
  expanding by approximately 30 percent per year
• China requires U.S. automakers with operations in
  China to buy in China and expand in China
• China has tripled its exports of parts between
  2002-2006
• China has now obtained technology through massive
  subsidies to foreign producers to locate in
  China, i.e.
• Income tax reductions, VAT exemptions, tariff
  exemptions, discounted lending rates, benefit
  exemptions, equipment refunds

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AWMI Columbus Chapter
Auto Parts Summary

• - GM has committed to purchase 10 billion
  annually in Chinese-produced auto parts by 2009
• Ford has committed to buy at least 13 billion
  and export worldwide
• Chinas undervalued exchange rate provides an
  incentive to export

Summary U.S. automakers and auto part producers
have made massive investments in China to take
advantage of Chinese government subsidies and
incentives. The rush to China has been driven by
illegal subsidies.
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AWMI Columbus Chapter
Auto Parts Summary
U.S. Imports of Auto Parts and Vehicle Bodies
from China, Value and Share
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Washington Issues for Steel
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Trade
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Fair Currency Act (H.R.782, S.796) Ryan-Hunter
and Bunning exchange-rate misalignment as a
countervailable export subsidy clarify
definition of manipulation with respect to
currency Currency Reform for Fair Trade Act (H.R.
2942) Ryan-Hunter expand authority of ITC to
impose countervailing duties on products from
NMEs that have been provided a countervailable
subsidy Currency Exchange Rate Oversight Reform
Act (S.1607) Baucus-Grassley-Schumer-Graham
identification of misaligned currency and
required action for correction Finance
Committee Currency Reform and Financial Markets
Access Act (S.1677) Dodd-Shelby exchange rates
of major trading nations and U.S. dollar reflect
market forces Banking Committee Non-Market
Economy Trade Remedy Act (H.R.1229 S.974)
Davis-English and Collins applies CVD to NMEs
alters subsidy determination methodology
requires Congressional approval for NME status
revocation Finance Committee
Comments concern over congestion in Senate
blocked flow of key legislation Senate Banking
Finance Committees battling for ownership of
China issue omnibus Rockefeller bill has had
trouble gaining traction (too large) Senate
Finance bill has star power (Clinton, Obama,
etc), but seems to lack teeth weakening U.S.
dollar impacting arguments on currency
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AWMI Columbus Chapter
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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AWMI Columbus Chapter
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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AWMI Columbus Chapter
Climate Change/Energy
Global Climate Change Security Oversight Act
(H.R.1961 S.1018) Markey and Durbin requires
Director of National Intelligence to submit
estimate on geopolitical effects of global
climate change and implications on U.S. national
security Climate Stewardship Act (H.R.620
S.280) Lieberman-Warner accelerate reduction
of GHG emissions through tradable allowances
limiting emissions in U.S. and reducing
dependence on foreign oil Safe Climate Act
(H.R.1590) Waxman amends Clean Air Act to cap
emissions in 2012 at 2005 levels and set targets
for a 2 reduction in GHG emissions each year
from 2010-2050 caps on emissions of sources and
sectors with largest emissions or best
opportunities to reduce them Low Carbon Economy
Act (S.1766) Bingaman-Specter reduction of GHG
emissions to 2006 levels by 2020, and 1990 levels
by 2030
Comments Handful of competing bills, most
include cap-and-trade provisions Lieberman bill
likely to see mark-up in next month Senate floor
debate on cap-and-trade expected either late this
year or early 08 Senate bills could move
through three separate committees
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AWMI Columbus Chapter
Climate Change/Energy, cont.
Dingell proposal imposing tax on use of fossil
fuels 50 cents/gallon on gasoline and jet fuel
phased in over 5 years 50/ton tax on carbon
released from burning coal, petroleum, or natural
gas cut GHG emissions by 60-80 by
2050 Renewable Energy and Energy Conservation Tax
Act (H.R.3221) Pelosi Congress debating
adopting national renewable portfolio standard
(RPS) House energy bill contained RPS language
for investor-owned utilities, Senate bill did
not concern over rate impacts of national
program, especially among those with limited
access to viable qualified resources possible
House-Senate conference bill would likely include
national RPS requirement
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AWMI Columbus Chapter
Transportation
Railroad Competition and Service Improvement Act
(H.R.2125 S.953) Oberstar and Rockefeller
promote competition and reliable rail service
alter process at Surface Transportation Board to
facilitate more reasonable process for rate and
service disputes Railroad Antitrust Enforcement
Act (H.R.1650 S.772) Baldwin-Baker and Kohl
amend Federal antitrust laws to provide expanded
coverage and eliminate exemptions contrary to
public interest Freight Rail Infrastructure
Capacity Expansion Act (H.R. 2116 S.1125)
Meek and Lott amend IRS code to encourage
investment in expansion of freight rail
infrastructure capacity up to 25 in tax credit
for building projects (excluding rail cars) Hours
of Service Regulations seek stay on U.S. Court
of Appeals ruling vacating 11-hour driving time
and 34-hour restart provisions
Comments Increased amount of hearings attest to
growing strength of shipper concerns railroads
on defensive tax credit bill currently an
afterthought initial preparations for next
Highway Bill will be larger increased focus
on bridge projects fuel taxes and public-private
partnerships as growing topics
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AWMI Columbus Chapter
Other Key Legislation
Employee Free Choice Act (H.R.800 S.1041)
Miller and Kennedy Card Check legislation,
intended to amend National Labor Relations Act,
allowing card check process for votes on
unionization, rather than secret balloting
passed through House, initially narrowly defeated
in Senate heavily partisan voting will return
in 2009 Lobbying and Ethics Reform Act (H.Res.6
S.1) near total gift bans and travel
restrictions seek pre-approval of Ethics
Committee (30 days) lobbying disclosure reports
now due quarterly, with increased penalties for
failure to report and random audits
Sarbanes-Oxley for lobbyists
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AWMI Columbus Chapter
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.)
• Dont expect help from Washington. 2009 may
  bring increased environmental and labor
  legislation.