Thomas A. Danjczek President Steel Manufacturers Association March 29, 2013 Guangzhou, China

Thomas A. DanjczekPresidentSteel Manufacturers AssociationMarch 29, 2013Guangzhou, China

11th International Steel Marketand Trade Conference

Update 3-6-13

CISA: China Iron and Steel Association

Metallurgical Council of CCPIT (MC-CCPIT)

Outline

•About the SMA

•Set the Tone - Economy

•Set the Tone - Steel

•US Steel Imports

•Expanding Future US Steel Production

•Final Thoughts


About the SMA- Composed of 35 North American electric arc furnace (“EAF”) steel producing Member Companies, and 118 Associate Member steel industry suppliers

- SMA Members account for approximately 75% of U.S. domestic steel capacity

- Today, roughly two-thirds of North American steel production comes from the scrap-based EAF process, up from just 10% in the early 1970s

11th International Steel Marketand Trade Conference SMA

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201120.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

65.0%

U.S. EAF Share of Total Production

% of EAF Production

Approximately 2/3 of U.S. Steel Production

Set the Tone - Economy

• The US “fiscal cliff“ poses the most immediate risk to the US economy

• Pace of US growth in 2013 estimated at 2%, near stagnation

• While US unemployment rate declined, still above pre-recession levels

• Rising energy production and housing rebounding are bright spots (“race to gas”)

• Capital spending is a downside risk

• US trade deficit is unsustainable


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

Source: US Census Bureau

Total US Trade Deficit with China(in million US$)

2012 US trade deficit with China was a record $315.1 billion, accounting for 43.3% of overall $727.9 billion US trade deficit.

2012 US steel imports from China were 1,505,751 metric tons, a 33.9% increase over 2011 levels, and a 92.8% increase over 2010 levels.

Mill

ion

US

$11th International Steel Market

and Trade Conference

US GOOds

Set the Tone - Economy

Annual Deficit is the most significant barrier to U.S. economic recovery

UNSUSTAINABLE


Set the Tone - Steel

• Primary metal 4% growth YTD 2012 over 2011 in US

• U.S. capacity utilization approx. 74.4% in 2012

Y.T.D. capacity utilization approx.76.9% (w/reduced capacity)

• Scrap price volatility (75% of minimill costs)


Year World Steel Production

(million metric tonnes)

US Steel Production


US Steel Imports


2007 1,347.0 98.1 30.2

2008 1,341.2 91.4 29.0

2009 1,235.8 58.2 14.7

2010 1,428.7 80.5 21.7

2011 1,490.1 86.2 25.9

2012 1,517.9 88.6 30.4

Sources: census.gov, worldsteel.org

2012 Steel Shipments by Market Classification


NAFTA Auto Production

Source: Wards Automotive

0

2

4

6

8

10

12

14

16

18

Units (m

illions)


Construction Activity*Non-building structures (e.g., infrastructure) not included

Source: McGraw-Hill (Dodge)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2007 2008 2009 2010 2011 2012 2013 2014 2015

Squa

re F

oota

ge (0

00)

Residential (1 & 2 family dwellings) Non-Residential


Energy Production

Source: Baker Hughes, U.S. Dept. of Energy

0

500

1,000

1,500

2,000

2,500

JA

N

AP

R

JU

L

OC

T

JA

N

AP

R

JU

L

OC

T

JA

N

AP

R

JU

L

OC

T

JA

N

AP

R

JU

L

OC

T

Ja

n

Ap

r

Ju

l

2008 2009 2010 2011 2012

RIG

CO

UN

T

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$ M

cf

Total RIGS

Verticle RIGS

Horizontal RIGS

Natural Gas Price at Wellhead


Source: AISI

Demand ForecastFinished Steel (mmt)

2011 2012 ∆ YOY 2013 ∆ YOY

Industry Shipments 83.3 88.5 +6% 92.1 +4%

Finished Imports 19.8 22.7 +15% 22.9 1%

Adjustments 1.8 2.0 2.2

Exports 12.2 12.8 +5% 12.9 +0%

Apparent Steel Use (ASU)*

89.1 96.5 +8% 100.0 +4%

Inventory Change 0.6 1.1 0.9

Real Steel Use (RSU)**

88.5 95.4 +8% 99.1 +4%


US Imports of Total Steel Products Up 17%

Source: U.S. Department of Commerce (Census Bureau)

2011 20120

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

28,515,276

33,474,583

Total Steel Imports (2011 vs 2012)Im

port

s (N

et

Ton

s)

11th International Steel Marketand Trade Conference US Steel Imports

Comparing 2012 to 2011 by product category:

• Semi-finished imports increased 14.2% to 6,772,056 metric tons;

• Flat product imports increased 16.4% to 9,550,032 metric tons;

• Pipe and tube imports increased 24.4% to 7,710,529 metric tons;

• Long product imports increased 14.6% to 5,191,504 metric tons;

• and stainless imports increased 13.5% to 1,143,515 metric tons.


Increase in Total Steel Imports is from Numerous Countries, Across the Globe


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

Turkey Germany China Russia Japan South Korea Brazil

Impo

rts (N

T)

2011 vs. 2012 Total Steel Importsfrom Key Offshore Countries

2011 2012

+84% +24%

+34%

+74%

+30%

+30% +27%


Surge in Steel Imports is Across Various Product Lines


0500,000

1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,000

Rebar Cut-to-LengthPlate

CorrosionResistant Steel

Line Pipe Oil CountryTubular Goods

Impo

rts (N

T)

2011 vs. 2012 Increases in Major Products

2011 2012

+49%

+19%

+37%

+41%

+25%


Factors in the Surge of Steel Imports

• Weakened global economy– Asian market downturn, large overcapacity of steel– European recession– U.S. market still weak

• Market interference by foreign governments:– Subsidies – Raw material export restrictions– Import restrictions on steel or steel containing products– Other interventions


• The US is a net importer of steel, yet domestic capacity is utilization only at appox 75%

• The US is the world’s largest exporter of scrap

• The US is a low cost steel producer

Expanding Future US Steel Production

The United States is unique among major steel producing nations:


• Is self-sufficient in steelmaking raw materials, especially scrap (2011 – generated 84mmt of scrap, but consumed only 55mmt)(~ 75%of production costs)

• Since 2002, imports 26.2% of steel consumption, while capacity utilization only appox 80%

• Has relatively low energy prices

• Has high productivity to offset wage rates

• Has the world’s largest capital market

Expanding US Steel ProductionComparative Advantages in US

The United States:

• Need policies that encourage expanded domestic steel production to utilize domestic capacity

• Foreign export restrictions on steel scrap have many negative consequences

• Expanding US steel production through the conversion of scrap into steel would create high-paying jobs, increase GDP, reduce the trade deficit, and provide added tax revenues

• The expansion must occur without massive government investments, subsidies, and interventions; but needs to be based on comparative economics and market forces

• Significant amounts of imports should be replaced with domestically produced steel

Expanding Future US Steel Production Conclusions

Final Thoughts

• Volatile and fragile times continue• U.S. is in a traffic jam, moving slightly

forward, but don’t know other consequences. Gridlock continues

• Uncertainty will continue.• Increasing steel capacity without regard to

market forces or comparative advantage is wrong

• Reasons for optimism in steel in North America:

– Favorable gains with reemerging manufacturing base, including benefits of shale gas

– Scrap-based, 75% of cost – local supply– Low cost on global basis (energy is positive, labor

less than 10%, others have higher transportation costs)

– Relatively strong market and resiliency– Better & stronger company balance sheets


Thomas A. Danjczek President Steel Manufacturers Association March 29, 2013 Guangzhou, China

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