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Valve Manufacturers Association of America Leadership Forum. Current Drivers Impacting Steel Competitiveness UPDATE – January 2007. Thomas A. Danjczek, President Steel Manufacturers Association January 23, 2007. SMA Changes August 2003 Scrap Impact World Steel Production - PowerPoint PPT Presentation
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Current Drivers Impacting
Steel Competitiveness
UPDATE – January 2007
Thomas A. Danjczek, PresidentSteel Manufacturers AssociationJanuary 23, 2007
Valve Manufacturers Association of AmericaLeadership Forum
From October 15, 2004VMAA – Annual Meeting
1. SMA
2. Changes– August 2003– Scrap Impact– World Steel Production
3. China, China, China…– Key Statistics– Steel Production– SMA Mission– Lessons Learned– Currency
4. Steel Production Costs– Key Issues– Energy & Raw Material Costs– Asset Values– Exchange Rates– Bankruptcy/Restarts– Scrap Costs
5. Other Costs– Restrictive Scrap Exports– Freights– Coke– Energy
6. Market– Overview– Public Works Construction
7. Conclusion
Current Drivers ImpactingSteel Competitiveness
In August 2003, The Times they were a’changing…
From October 15, 2004VMAA – Annual Meeting
Steel DemandWeakening
201 Tariffs/ExclusionsIncreasing
Imports
Bankruptcies
Semi-Finished Imports
N.A. Economy
Plant Closures/Restarts
Perennial Problems
Consolidations
US PBGC
Mini-mill IndustryCondition
Pricing Volatility
ISG’s Labor Contract
Exchange RateShifts
Public Policy
Legacy Costs
Operating Costs Benefits& Energy
Capital Constraints
From October 15, 2004VMAA – Annual Meeting
Up $130 since June 2004!
CHINA STEEL PRODUCTIONChina produced 220 MT of crude steel in 2003 – double the next largest producer Japan at 110.5 MT and 2.4 times the U.S. (92.2 MT, shown) – and will produce as much as 275 MT, 350 MT, and 425 MT by 2005, 2010, and 2015, respectively.
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1980 1985 1990 1995 2000 2005 2010 2015
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United States
Courtesy – Metal Strategies
From October 15, 2004
From October 15, 2004VMAA – Annual Meeting
Conclusion
•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
VMAA Leadership Forum
2006/2007
In January 2007, The Times they are still a’changing…
VMAA Leadership Forum
Steel DemandWeakening
EnergyCostsWorld Steel
Growth
FreightCosts
China’sSubsidies
U.S. GovernmentDebt Perennial
Problems
Consolidations
Ore/CoalCosts
DemocraticCongress
59% EAF in U.S.
Labor Contracts
China’s SteelGrowth
Trade Imbalance
Operating Costs Benefits& Energy
VMAA Leadership Forum
A Few Facts
-Steel prices through August 2006 were at historic high levels
-Steel producer mergers continue – top 3 U.S. companies (Mittal, U.S. Steel, Nucor) now approximately 70%
-ITC cases not favoring U.S. producers (Wire Rod, Corrosion Resistant, Pipe 421, etc.)
-WTO cases also unfavorable (“Zeroing” & “Bratsk”)
-Cost pressures continue (ore up 70% in 2005, 20% in 2006; natural gas in 2005 double 2004, etc.)
VMAA Leadership Forum
China Facts
-China trade surplus swelled to $177 billion in 2006 – up 74% over 2005
-China trade surplus in 2001 (WTO joining year) was $22 billion
-China currency has only changed by 5.9% since July 2005
VMAA Leadership Forum
China Facts, cont.
VMAA Leadership Forum
China Facts, cont.
VMAA Leadership Forum
Steel Production
VMAA Leadership Forum
Imports by Year
VMAA Leadership Forum
Steel Scrap Prices
VMAA Leadership Forum
Price Forecasts
Source: AMM Research
Forecast Prices
VMAA Leadership Forum
Imports & Inventory
VMAA Leadership Forum
Conclusion
-It’s still a cyclical business (percent utilization, scrap, inventories, etc.)
-Still no Global Subsidies Agreement – massive subsidized growth continues
-No trade help from U.S. Government (421, antidumping, countervailing duties, etc.)
-When will inventories return to normal levels?
-Consolidation will continue
-China! China! China! (everything else is only an embellishment)
-Unknowns (interest rates, housing starts, economic growth, imports, customer base, pricing???)