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National Slag Association 89 th Spring Meeting Clearwater, FL. Steel – 2005/2006. Thomas A. Danjczek, President Steel Manufacturers Association March 20, 2006. NSA – Spring Meeting. Steel – 2005/2006. SMA 2005 • World Steel Production/Operating Rate • China - PowerPoint PPT Presentation
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Steel – 2005/2006
Thomas A. Danjczek, PresidentSteel Manufacturers AssociationMarch 20, 2006
National Slag Association
89th Spring MeetingClearwater, FL
Steel – 2005/2006
I. SMA
II. 2005
• World Steel Production/Operating Rate
• China
• Scrap, Ore, Steel, Gas Prices
• Consolidations
III. 2006
• China’s Challenges
• Trade
• Energy & Environment
• Other
IV. Slag Issues
V. Conclusion
NSA – Spring Meeting
NSA – Spring Meeting
•The Steel Manufacturers Association (SMA)
–39 North American Companies:
33 U.S., 3 Canadian, and 3 Mexican
–109 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
NSA – Spring Meeting
•Production capability
–SMA represents over two-thirds 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
2005
WORLD CRUDE STEEL OPERATING RATE
75%
80%
85%
90%
Cap Util % 76.1% 77.2% 80.3% 84.2% 86.8% 85.3% 85.0% 84.1%
2000 2001 2002 2003 2004 2005 2006 2007
World Crude SteelOperating Rate %World Crude SteelOperating 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.
Source: Metal Strategies
NSA – Spring Meeting China’s 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 CAN’T!
Chart 2: The Exploding Trade Deficit With China
Chart 3: China’s Foreign Exchange Reserves
CONCERNS
Steel Item Comment•North American steel industry CANNOT Currency, banks, land, environment,compete against Chinese steel companies consolidations, policiesfinanced and controlled by theirgovernment
• In 2005, compared to 2004, China steel Trend worsens in 2006 with newimports are projected to drop by 6.1 capacity on line, and China’smillion tons, while exports are projected slowdownto increase by 12.3 million tons
• North American steel industry loss of a Government de facto subsidiessignificant increment of its customer (industrial parks, infrastructure,base to relocation to Chinese factory space, loans)production sites
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...
Steel Making Raw Material Prices Indices 1990 = 100%
0%
50%
100%
150%
200%
250%
300%
Ind
ex
19
90
= 1
00
CoalIron OreScrap - Chicago #1 BundlesSlabs - Brazil Export
Source: Iron and Steel Statistics Bureau
Rebar Prices, 1990-2005(Midwest, $ per ton)
Source: Purchasing Magazine
June 2005 = $470
July 2005 = $450
Aug. 2005 = $435
Sept. 2005 = $485
Oct. 2005 = $494
Nov. 2005 = $486
Dec. 2005 = $481
Wire Rod Prices, 1990-2005(Midwest, $ per ton)
Source: Purchasing Magazine
June 2005 = $505
July 2005 = $472
Aug. 2005 = $469
Sept. 2005 = $523
Oct. 2005 = $492
Nov. 2005 = $503
Dec. 2005 = $503
Wide-Flange Beam Prices, 1990-2005(Midwest, 8 x 8, $ per ton)
Source: Purchasing Magazine
June 2005 = $516
July 2005 = $506
Aug. 2005 = $496
Sept. 2005 = $545
Oct. 2005 = $560
Nov. 2005 = $574
Dec. 2005 = $587
U.S. Oil and Natural Gas Prices…oil prices are the major uncertainty in the outlook for 2006, with
forecasts ranging from thirty-five to seventy-five US$ per bbl…
Natural Gas Cost Impact
0
10
20
30
40
50
60
2000 2001 2002 2003 2004 Aug-05
$ p
er t
on
Integrated Mills
Flat Rolled Mini-Mills
Long Product Mini-Mills
…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 $30 per ton…
U.S. STEEL INDUSTRY CONSOLIDATION(Percent Change, 2000 compared to 2005)
-50%
-25%
0%
25%
50%
75%
No. ofCompanies
No. of Plants
Capacity Capacity /Company
No. Plants /Company
Flat Rolled Long, Other
Mittal Steel weighted average share of all markets served = ~33% (major product range-15-40%+)
-FRP acquisition price ($/ton, going-concern basis) 2002= $110……..2003-’04=$170……2005=$225
Source: Metal Strategies
2006
CHINA’S CHALLENGES Area Comment
•Environment Trade policy and laws are not enforced regardingemissions and effluents; Province versusBeijing; employment rules, not environment
•Consolidations State-owned facilities; only non-controlling foreignownership allowed; antiquated facilities; policy is20 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
NSA – Spring Meeting 2006 China
China’s Steel Trade Balance
Year 2004 2005 2006
Imports 33.1 27.0 22.0
Exports 20.2 32.5 36.0 (Semi’s) 6.2 9.0 5.0
Steel Trade Balance -12.9 +5.5 +14
2006 China
The National Association of Manufacturers (NAM) recently reviewed China’s 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 imbalance2. Continued currency manipulation3. Arbitrary VAT taxes and rebates4. Massive counterfeiting and piracy5. Discriminatory standards6. Inadequate regulatory transparency
COMPLIANCE WITH THE WTO
2006 China
Chinese steel industry expansion continues in a region that is deficient in resources (supply
and quality) and environmental compliance…
2006 China
2006 Prices
• Section 421 Disappointment – No Relief
• Wire Rod Case – No Import Injury
• Solicit Congressional Assistance & Action
- Ryan/Hunter
- Graham/Schumer
- Other???
• Doha Agenda “only lose?”
2006 Trade
• No National Energy Policy
• For EAFs, Demand Response is “Perfect Peaker”
• Need for Nuclear
• After Metallic Exports, Number One Threat for Competitiveness
2006 Energy
• Mercury “End of Pipeline” Regulation Risk (Area Source Rule vs. Negotiated Settlement)
• TOSCA – Not Recognizing Benefits of Recycling i.e. Automotive Scrap, Fluff, & Slag
• Trend Toward “Measure – Monitor – Control”, vs. “Under the Bar” Compliance
• Continued Risk With Lost Radioactive Sources, TRI Reporting, and GGG
2006 Environment
• Metallics Exports Concerns
• Transportation Challenges
• Congressional “Gridlock”
• TEA 21 $$$ - Finally
• U.S. Government Financial Policies (Trade & Budget Deficit)
• Need for Border Adjustable Tax
2006 Other
NSA – Spring Meeting
SLAG ISSUES
Two Primary Issues:
1. Revision of the Slag Risk Assessment
2. Regulatory Status of Slag as a Product
NSA – Spring Meeting
SLAG RISK ASSESSMENT PROJECT
• Conducted by Steel Slag Coalition
• Anticipate completion, Spring 2006
• Updated to reflect current toxicological data, standards, and risk methodology
• Work completed, now doing human health portion
• Ecological report will be valuable in responding to potential impact on the environment
NSA – Spring Meeting
REGULATORY STATUS OF SLAG
• SMA is engaged with EPA and various state agencies that EAF SLAG IS NOT A WASTE MATERIAL, BUT IS A USEFUL PRODUCT
• Regulations in Iowa are attempting to classify EAF slag as a waste under “beneficial reuse” regulations
• SMA is coordinating a federal effort to prompt the EPA to clarify the status of EAF slag under federal solid waste regulations
NSA – Spring Meeting
Conclusions
• Hell, it’s still a cyclical business
• We need to continue to work together on slag issues
• Fundamental shift in both demand and supply due to China & its appetite for raw materials – China is still the “wild card”. Risk near term is auto’s; long term is China
• 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