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Steel

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Steel Making Raw Material Prices Global Price Spreads Versus N.A. Spot Price Hot Rolled Sheet U.S. Oil ... Material Prices Global Price ... Source: Metal Strategies ... – PowerPoint PPT presentation

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Title: Steel


1
Concrete Reinforcing Steel Institute Fall
Business Meeting - 2005
Steel A Year Later
Thomas A. Danjczek, President Steel Manufacturers
Association November 1, 2005

2
Steel A Year Later
CRSI Fall Business Meeting - 2005
  • SMA
  • Review 2004 Presentation Highlights/Conclusions
  • 2005
  • World Steel Production/Operating Rate
  • China
  • Scrap, Ore, Steel, Gas Prices
  • Consolidations
  • IV. Conclusion

3
CRSI Fall Business Meeting - 2005
  • The Steel Manufacturers Association (SMA)
  • 39 North American companies
  • 32 U.S., 4 Canadian, and 3 Mexican
  • 103 Associate members
  • Suppliers of goods and services to the steel
    industry
  • SMA member companies
  • Operate 120 Steel plants in North America
  • Employ about 40,000 people
  • Minimill Electric Arc Furnace (EAF) producers
  • Produce nearly 100 of structural, wire rod,
    rebar, minimill plate and hot rolled, and a high
    percentage of SBQ products
  • Also represent several integrated steel producers
    and rerollers

4
CRSI Fall Business Meeting - 2005
  • Production capability
  • SMA represents over half of U.S. steel production
    (app. 70)
  • Recycling
  • SMA members are the largest recyclers in the U.S.
  • Last year, the U.S. recycled over 70 million tons
    of ferrous scrap
  • Growth of SMA members
  • Efficiency and quality due to low cost
  • Flexible organizations
  • EAF growth surpassed 53 in 2004, and anticipated
    to be 60 by 2010

5
Concrete Reinforcing Steel Institute Fall
Business Meeting, 2004
LAST YEAR - 2004
Washingtons Impact on Steel
  • SMA
  • Changes
  • August 2003
  • Scrap Impact
  • World Steel Production
  • China, China, China
  • Key Statistics
  • Steel Production
  • SMA Mission
  • Lessons Learned
  • Currency
  • Other Government Impacts
  • Exchange Rates
  • Value of the Dollar
  • Scrap Imports/Exports
  • US Overhead Costs
  • TEA 21 Lunacy
  • Steel Production Costs
  • Key Issues
  • Energy Raw Material Costs
  • Asset Values
  • Bankruptcy/Restarts
  • Conclusion

6
Some things are the same
Courtesy IMF
7
Technical Read on Crude Oil Prices
Some things are worse
Courtesy JP Morgan
8
LAST YEAR - 2004
Concrete Reinforcing Steel Institute Fall
Business Meeting, 2004
Conclusion
  • Dont count on Washington for help! i.e. TEA 21
  • Uncertainty Cycle has Changed (Shorter Term
    Greater Peaks Valleys)
  • Revenue vs. Costs Not the Same Business Model
  • CHINA, CHINA, CHINA
  • Bankruptcy Laws Unfair to Competitors
  • Investments Earn Cost of Capital
  • Mini-Mills Must Compete in the World, as it is,
    and We Can!
  • Meaningful Optimism with Good Long Term
    Consumption, Relative Value, and Excellent
    Recyclability for Steel

9
2005
10
WORLD CRUDE STEEL OPERATING RATE
Operating rates recovered from 76 percent in
2000, to a peak of 87 percent in 2004, and have
moved moderately downward since late 2004.
World Crude Steel Operating Rate
Source Metal Strategies
11
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12
World Raw Steel Production 8 Months 2005 (000
metric tonnes)
although total world steel production is
increasing, Chinese production continues to
increase, rest of the world production is flat,
and North America production declines...
Source IISI
13
U.S. Raw Steel Capability Utilization 2000
August 27, 2005
US steel makers reduced production (and
capability utilization) to support inventory
drawdown, and undertook maintenance in early
2005 to be prepared for stronger demand in 2H
2005
14
CRSI Fall Business Meeting - 2005
Chinas Impact
After 4 Trips in a Year
Key Questions - When will Chinese steel
production significantly exceed its own domestic
consumption I.e. 50/60 MMT? - Will the
Chinese government shut down inefficient, excess
capacity? (Has not done so with polluting
facilities despite strong policy) - How can
North American Steel Industry compete against
Chinese government - - IT CANT!
15
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16
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17
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18
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19
Chinas Steel Trade Balance   Year 2004 2005
2006   Imports 33.1 27.0 22.0   Exports
20.2 32.5 36.0   (Semis) 6.2 9.0 5.0 S
teel Trade Balance -12.9 5.5 14  

20
(No Transcript)
21
CONCERNS   Steel Item Comment North American
steel industry CANNOT Currency, banks, land,
environment, compete against Chinese steel
companies consolidations, policies financed and
controlled by their government In 2005,
compared to 2004, China steel Trend worsens in
2006 with new imports are projected to drop by
6.1 capacity on line, and Chinas million tons,
while exports are projected slowdown to
increase by 12.3 million tons   North American
steel industry loss of a Government de facto
subsidies significant increment of its
customer (industrial parks, infrastructure, base
to relocation to Chinese factory space,
loans) production sites
22
CHALLENGES
Area Comment Environment Trade
policy and laws are not enforced
regarding emissions and effluents Province
versus Beijing employment rules, not
environment   Consolidations State-owne
d facilities only non-controlling
foreign ownership allowed antiquated
facilities policy is 20 large producers,
push small producers out  
Technology/Quality Quality in flat rolled
will affect export capabilities. Switch from
long to flat not easy  
Inventories Run full out. Not always
market-oriented   Capital Will not
always be free could lose state credit  
Personnel Some unrest expressed toward
elite class. Internet is politically
uncontrollable
23
Chinese steel industry expansion continues in a
region that is deficient in resources (supply and
quality) and environmental compliance
24
COMPLIANCE WITH THE WTO
  The National Association of Manufacturers (NAM)
recently reviewed Chinas compliance with its WTO
commitments in the accession protocol. While
progress has been made in certain areas, there
are serious concerns and problems with effective
compliance relating to   1. Huge U.S. trade
imbalance 2. Continued currency
manipulation 3. Arbitrary VAT taxes and
rebates 4. Massive counterfeiting and
piracy 5. Discriminatory standards 6.
Inadequate regulatory transparency
25
Steel Making Raw Material Prices
Prices of key steel making cost inputs have more
than doubled in 2004 and 2005. The outlook for
2006 is for continuing cost pressures...
26
9/26/05
27
Source Iron and Steel Statistics Bureau
28
Rebar Prices, 1990-2005 (Midwest, per ton)
June 2005 470 July 2005 450 Aug. 2005
435 Sept. 2005 485
Source Purchasing Magazine
29
Wire Rod Prices, 1990-2005 (Midwest, per ton)
June 2005 505 July 2005 472 Aug. 2005
469 Sept. 2005 523
Source Purchasing Magazine
30
Wide-Flange Beam Prices, 1990-2005 (Midwest, 8 x
8, per ton)
June 2005 516 July 2005 506 Aug. 2005
496 Sept. 2005 545
Source Purchasing Magazine
31
Global Price Spreads Versus N.A. Spot Price Hot
Rolled Sheet
the U.S. market had become less attractive to
offshore steel with lower prices and lower
spreads versus the rest of the world in 2005.
However, price rebounds and increases in
overcapacity may encourage imports to return
Incentives for imports to increase
Incentive for import to fall
32
U.S. Oil and Natural Gas Prices
oil prices are the major uncertainty in the
outlook for 2006, with forecasts ranging from
thirty-five to seventy-five US per bbl
33
Natural Gas Cost Impact
sharp gains in natural gas prices have more than
doubled steel mill gas costs per ton since 2000.
Costs for integrated mills have risen over 30
per ton
34
U.S. STEEL INDUSTRY CONSOLIDATION (Percent
Change, 2000 compared to 2005)
  • Mittal Steel weighted average share of all
    markets
  • served 33 (major product range-15-40)
  • FRP acquisition price (/ton, going-concern
    basis)
  • 2002 110..2003-041702005225

Source Metal Strategies
35
CRSI Fall Business Meeting - 2005
Conclusions
Hell, its still a cyclical business
Fundamental shift in both demand and supply due
to China and its appetite for raw materials
China is still the wild card Consolidations
and discipline have had an impact to reduce
volatility Role of inventories affecting
pricing and production Demand still healthy,
construction solid Unknowns (Oil, interest
rates, auto sector, energy, freight rates,
federal spending, China, China, China) Still
reasons for meaningful optimism
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