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Steel

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Title: PowerPoint Presentation Author: Eric Stuart Last modified by: Kristina Cushing Created Date: 12/18/2002 7:58:34 PM Document presentation format – PowerPoint PPT presentation

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Title: Steel


1
American Boiler Manufacturers Association Annual
Meeting 2005
Steel A Year Later
Thomas A. Danjczek, President Steel Manufacturers
Association June 27, 2005
2
Steel A Year Later
AMBA Annual Meeting 2005
  • SMA
  • Review 2004 Presentation Highlights/Conclusions
  • 2005
  • World Steel Production/Operating Rate
  • China
  • Scrap, Ore, Steel Prices
  • Consolidations
  • Expert Views
  • Conclusion

3
AMBA Annual Meeting 2005
  • The Steel Manufacturers Association (SMA)
  • 38 North American companies
  • 31 U.S., 5 Canadian, and 2 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
  • Mini-mill Electric Arc Furnace (EAF) producers

4
AMBA Annual Meeting 2005
  • Production capability
  • SMA represents over half of U.S. steel production
  • 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
Last Year
Current Drivers Impacting Steel Competitiveness
AMBA Annual Meeting June 28, 2004
SMA I. Trade 201 Real World Impact
World Steel Production China, China,
China II. Steel Production Costs Key
Issues Asset Values Exchange Rates
Steel Imports Value of U.S.
Bankruptcy/Restarts
III. Other Costs Restrictive Scrap Exports
Freights Coke Energy IV. Market
Overview Public Works Construction V.
Conclusion
6
Some things are the same
Courtesy IMF
7
Courtesy IMF
8
Courtesy IMF
9
CHINA CONCLUSIONS Currency Manipulations
  • For eight and one-half years, China has
    maintained a fixed exchange rate of 8.3 yuan to
    the dollar. China has printed any amount of yuan
    necessary to purchase dollars to maintain a fixed
    artificial rate, giving it enormous export
    advantage, and creating a China trade surplus
    with the US reaching 124 billion in 2003.
  • In the two-year period, 2002-2003, US imports
    of manufactured goods from China accounted for 56
    percent of the total growth in US imports of
    manufactured goods during the period. The US
    trade deficit in manufactured goods with China
    was 128 billion in 2003. The overall US trade
    deficit with China is now the largest bilateral
    trade imbalance ever seen in the history of world
    trade.
  • The United States should insist that China
    change its exchange rate regime which allows it
    to sell undervalued goods in export markets at
    costs denominated in undervalued yuan.
    Simultaneously, China must relax its tight
    capital controls, which have resulted in an
    accumulation of foreign exchange acquired from
    export sales, amounting to 420 billion in 2003,
    about one-third of Chinas GDP. China must stop
    excessive issuance of undervalued yuan, and pay
    for its imports with foreign exchange.
  • Today, China can absorb a revaluation without
    an economic collapse, versus a token one which
    would respond to the problem in form only, rather
    than a needed significant revaluation. If
    inadequate US policy causes a delay for another
    five years, however, China, the US, and the world
    economy are in for a very hard landing. At that
    point, an inevitable huge revaluation of the yuan
    will occur, which it must, when US policy
    officials then confront US trade, current
    account, and capital account deficits of
    disastrous proportions. US policy must
    effectively address this problem, now. So far,
    it has not.

May 12, 2004 SMA Press Release
10
Some things are different
11
IRON ORE PRICES - ANNUAL The 2004 iron ore
price-increase benchmark of 18.5 was established
in early-January by CVRD, following a 9 gain in
2003. China now accounts for over 25 (110 MT) of
world sea-borne demand, while three producers
(CVRD, RTZ and BHP) now control over 80 of the
supply.
Some things got worse
Pellets
Lump
Fines
Prices shown are from CVRD (Brazil) to Western
European steel customers (fob)
Courtesy Metal Strategies
12
Technical Read on Crude Oil Prices
Courtesy JP Morgan
13
ABMA Annual Meeting 2005
2004 Conclusions
  • Uncertainty Cycle has Changed (Shorter Term
    Greater Peaks Valleys)
  • Revenue vs. Costs Not the Same Business Model
  • Bankruptcy Laws Unfair to Competitors
  • Investments Earn Cost of Capital
  • Minimills 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

14
2005
15
WORLD STEEL PRODUCTION World steel production was
up 6.5 percent through March, following increases
of 8.9 percent and 6.8 percent in 2004 and 2003,
respectively. China accounted for 92 percent of
the y-t-d worldwide net gain and 25 percent of
total world production.
World Total
Steel Production March 2005 Percent Change,
Year Ago Month 6.5
Year-to-Date 6.5
World Excluding China
In the five years from 1998 to 2003, China and
the former-USSR states increased production by a
cumulative 140 MT, equal to 70 percent of the
combined total output in 2003 of both the U.S. or
Japan. Source Metal Strategies
16
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
17
Source American Metal Market
18
Source Iron and Steel Statistics Bureau
19
Hot-Rolled Sheet Prices, 1990-2005 (Midwest,
per ton)
Source Purchasing Magazine
20
Wide-Flange Beam Prices, 1990-2005 (Midwest, 8 x
8, per ton)
Source Purchasing Magazine
21
Rebar Prices, 1990-2005 (Midwest, per ton)
Source Purchasing Magazine
22
Wire Rod Prices, 1990-2005 (Midwest, per ton)
Source Purchasing Magazine
23
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
24
AMBA Annual Meeting 2005
Expert Views
Plummer Metal Strategies - May 18, 2005
- Eight months of downward market correction,
focused in sheet - Auto market under
pressure, especially SUVs - Positive outlook
despite current conditions (Supply moving in
balance with demand imports are down
inventories coming down by inventory liquidation
and mill shutdown) - Demand still healthy
(industrial equipment up by 7 percent now
residential recovering auto transplants are
strong
25
AMBA Annual Meeting 2005
Expert Views
Michelle Applebaum June 2, 2005
- Sheet prices showed decline reflecting
automotive - Plate and long products sideways
(Cut to length plate unchanged in May 2005 rebar
unchanged) - Minimills more disciplined
26
AMBA Annual Meeting 2005
Expert Views
SBB Global Market Outlook May, 2005
- Production cuts too little, too late -
Buyers holding back - Inventory draw down ends
in the third quarter (For long products, some
products are potentially in short supply due to
de-stocking) - Plate is still strong
27
AMBA Annual Meeting 2005
Expert Views
Peter Marcus World Steel Dynamics May 27, 2005
- Bottom of the V pricing for hot-rolled on
the world export market may occur in third
quarter - Prime U.S. automotive scrap
plummeted another 60 to about 170 in May (vs.
high of 450 in November, 2004) - Steel
shipments in USA 5-10 percent projected below
2004 - Chinese steel production is likely to
decline sharply in months ahead
28
AMBA Annual Meeting 2005
Expert Views
MEPS Steel News June 1, 2005
- Flat products fell by 5.5 percent in May -
Long product price held up
Charles A. Bradford Soleil June 1, 2005
- Improvement in inventories
29
AMBA Annual 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
Consolidations have had an impact to reduce
volatility Role of inventories affecting
pricing and production Unknowns (Oil, Interest
rate, Auto sector, Energy, China, China, China)
Still reasons for meaningful optimism
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