DRI and Mini-Mills Conference Michelle Applebaum September 10,

Transcription

1 Steel Market Intelligence DRI and Mini-Mills Conference Michelle Applebaum September 10,

2 Cyclical Trough in Secular Bull Macro Economic Overview Steel Market Dynamics Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 1

3 Cyclical Trough in Secular Bull Recurring Themes Chinese Demand Growth Continues; Cyclical within Secular The Stop/Start Economic Recovery It s NOT the Economy, Stupid! Back to the Future on Prices/Costs Volatility is the New Normal Declining Raw Material Prices Overcapacity China, China, China Steel Market Intelligence 2

4 Cyclical Trough in Secular Bull Steel Market Intelligence 3

5 Cyclical Trough in Secular Bull Steel Market Intelligence Source: World Steel Dynamics 4

6 Cyclical Trough in Secular Bull Steel Market Intelligence Source: Rio Tinto analysis 5

7 Cyclical Trough in Secular Bull China still has some way to go on its infrastructure development path Key development parameters China vs. USA * Airport of USA is for paved runways > 1524 to 2437 m Steel Market Intelligence Source: China National Bureau of Statistics, Macquarie Research, ArcelorMittal Corporate Strategy 6

8 Cyclical Trough in Secular Bull 1 Steel represents around 70% of light vehicle weight and only 2% of its cost. Steel Market Intelligence Source: World Bank, CEIC, Haver Analytics and Vale 7

9 Cyclical Trough in Secular Bull India following in China s footsteps Steel Market Intelligence Source: WSA, Global Insight, IMF, USGS, McKinsey and Rio Tinto 8

10 Cyclical Trough in Secular Bull Why India Won t Become China Steel Market Intelligence 9

11 Cyclical Trough in Secular Bull Domestic Iron Ore and Steel Prices vs. US Raw Steel Production, Current $ $ $ $ $50 60 $ US Steel Production Iron Ore Price/Tonne Steel Price/Tonne Steel Market Intelligence Source: USGS and Steel Market Intelligence 10

12 Cyclical Trough in Secular Bull Steel Market Intelligence Source: Platts, Mysteel and BHP Billiton 11

13 Cyclical Trough in Secular Bull Iron Ore Will Drive Lower Steel Prices Pricing of iron ore becomes a stop-start commodity, shifting from current and past spot prices to future prices. Iron ore price volatility has become greater and is expected to remain high, as prices become more sensitive to inventory cycles and expectations. Steel Market Intelligence 12 Source: Vale

14 Cyclical Trough in Secular Bull Lowered Chinese Cost = Lowered Prices Steel Market Intelligence Source: World Steel Dynamics 13

15 Cyclical Trough in Secular Bull Macro Economic Overview Steel Market Dynamics Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 14

16 Macro Economic Overview Steel Market Intelligence Source: Gerdau 15

17 Macro Economic Overview Industrial Production SA, 1999-July Manufacturing Capacity Utilization SA, 1999-July Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 US Oil Rig Count, 1999-July 2013 Nondefense Capital Spending New Orders SA, 1999-June 2013 Steel Market Intelligence Source: Federal Reserve Board, Baker Hughes, US Department of Commerce and Steel Market Intelligence 16

18 Macro Economic Overview Total Private Housing Starts SA by Region (3 mo. avg), 2000-Current 1,200 1, Northeast Midwest South West Jan-00 Jun-00 Nov-00 Apr-01 Sep-01 Feb-02 Jul-02 Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 US Industrial Production(3 mo. avg) and Year-on-Year Growth, 2000-Current Steel Market Intelligence Source: Gerdau 17

19 Macro Economic Overview Steel Market Intelligence Source: Gerdau 18

20 Macro Economic Overview Steel Market Intelligence Source: Gerdau 19

21 Macro Economic Overview Steel Market Intelligence Source: Gerdau 20

22 Macro Economic Overview Public Highway and Street Spending SA (Value in $M of Construction Put in Place), 1999-June 2013 Automotive Sales SA (Units in Thousands), 1999-July 2013 Non-Residential Construction SA (Value in $M of Construction Put in Place), 2002-June 2013 Architecture Billings Index, 1999-July 2013 Steel Market Intelligence Source: US Department of Commerce, The American Institute of Architects, Federal Reserve Board, Bureau of Economic Analysis and Steel Market Intelligence 21

23 Macro Economic Overview Steel Market Intelligence Source: AIA 22

24 Cyclical Trough in Secular Bull Macro Economic Overview Steel Market Dynamics Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 23

25 Steel Market Dynamics Steel Production by Country YTD % Changes through July, 2012 vs Steel Market Intelligence 24 Source: WorldSteel Association and Steel Market Intelligence

26 Steel Market Dynamics Global apparent steel consumption Steel Market Intelligence Source: ArcelorMittal estimates 25

27 Steel Market Dynamics Chinese output starting to see the impact of additional infrastructure projects Steel Market Intelligence Source: China Office of National Statistics, China National Bureau of Statistics, The People s Bank of China and ArcelorMittal 26

28 Steel Market Dynamics Steel Market Intelligence Source: VALE 27

29 Steel Market Dynamics Steel Market Intelligence Source: VALE 28

30 Steel Market Dynamics Steel Market Intelligence Source: Gerdau 29

31 Steel Market Dynamics Global Capacity Utilization vs. Chinese Steel Production (Millions) January 2009 Current 100% 70 90% % 55 70% % 40 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Global Capacity Utilization (%) Chinese Steel Production Steel Market Intelligence 30 Source: WorldSteel Association, NBS and Steel Market Intelligence

32 Steel Market Dynamics The Picture That Tells The Story Steel Market Intelligence Source: Gerdau 31

33 Steel Market Dynamics Automotive and exports have been bright spots US Shipments for Major End Uses, Annualized 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Service Centers Construction Automotive Exports Annualized 4-Yr Avg ( ) Steel Market Intelligence Source: Steel Market Intelligence and Platts, including AISI and US Department of Commerce 32

34 Steel Market Dynamics US Steel Industry Market Share of Imports, Current Steel Market Intelligence Source: Steel Market Intelligence and Platts, including AISI and US Department of Commerce 33

35 Steel Market Dynamics Steel Market Intelligence Source: Gerdau 34

36 Cyclical Trough in Secular Bull Macro Economic Overview Steel Market Dynamics Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 35

37 Trade Dealing from the Bottom of a Stacked Deck Chinese Steel Import/Export Balance, Current Steel Market Intelligence Source: NBS, China Iron and Steel Association, Mysteel.net and Steel Market Intelligence 36

38 Trade Dealing from the Bottom of a Stacked Deck Overcapacity Monthly Global Production vs. Capacity Utilization, January Current 90% % % % % % 95 60% Global Production Capacity Capacity Utilization 80 Steel Market Intelligence 37 Source: WorldSteel Association and Steel Market Intelligence

39 Trade Dealing from the Bottom of a Stacked Deck Chinese Production Cuts Slow to Come Monthly Chinese Daily Production vs. Chinese Steel Price Index, January 2009-Current Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul China Steel Price Index Chinese Avg. Daily Steel Production Steel Market Intelligence 38 Source: WorldSteel Association and Steel Market Intelligence

40 Trade Dealing from the Bottom of a Stacked Deck Overcapacity Steel Market Intelligence 39

41 Trade Dealing from the Bottom of a Stacked Deck Overcapacity = 500 million tonnes per year Exit Barriers 115 Social Cost Multiplier Unrest China Europe Rest of World Steel Market Intelligence 40 Source: Steel Market Intelligence

42 Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 41

43 Trade Dealing from the Bottom of a Stacked Deck China has significant disadvantages in steelmaking Plus Dynamic domestic demand Low labor costs Very competitive leaders Domestic coal supply Virtue of central planning Government/industry interests aligned Currency Minus Dependence on iron ore imports High energy cost Low grade product Small producers, non-competitive Inland industrial network Environmental issues Transportation costs High capital cost Fragmented and inefficient supply chain Source: ArcelorMittal and Steel Market Intelligence Steel Market Intelligence 42

44 Trade Dealing from the Bottom of a Stacked Deck China s Steel Market Distortions China subsidizes its domestic steel industry causing excess high-cost capacity that gets exported to others markets Chinese Steel Subsidies and Government Support Practices A Selection Grants, equity infusions, unpaid dividends and other preferential access to capital Government infusions (18 bn RMB Ma anshan) Debt-equity swap (27.5 bn RMB Anshan, Baosteel, Lanzhou, Shougang, Taiyuan) Government foregoing dividend payment (industry profit around 190 bn RMB in 2007) In-kind contribution: Government provides productive assets to another company through govenment-mandated merger (51% stake in 3 MT E cheng to Wuhan at no cost) Access to policy-driven lending at favorable rates 47 companies benefited from preferential lending through State Key Technology Renovation Project Fund including Anshan, Baosteel and Panzhihua (75 bn RMB) Low cost loans ($3.4 bn for major listed steel companies such as Baosteel, Wuhan, Anshan and Shougang) China Development Bank committed to provide Anshan with 18 bn RMB loan including 10 bn at preferential rates, to promote strategic development of the company Preferential tax programs Transparency on central government programmes only, not on local level (tax refunds, tax breaks and tax cuts foregoing tax collection worth 7.6 bn RMB from listed steelmakers) Preferential access to inputs, land and energy Free use of land or at less than adequate remuneration (Baosteel, Anshang, Xinyu) State-owned steel companies provide steel substrate (HR) to rerollers at significantly low price levels Steel Market Intelligence Source: Eurofer and Steel Market Intelligence 43

45 Trade Dealing from the Bottom of a Stacked Deck China s Golden Opportunity - Wasted Beijing s Silver Lining Opportunity to Restructure Chinese Steel Industry Currently 50% of Global Capacity but 70% of World s Growth Industry of Two Halves Modern Efficient Co-Exists with Backwards and Polluting North American Echo North American Restructuring Took 20 Years Entrenched Stakeholders Unions, Vendors, Political Interests Supported High Cost Players Steel Market Intelligence 44

46 Trade Dealing from the Bottom of a Stacked Deck Joint Effort Eight Global Steel Trade Associations Unprecedented Eight global steel trade associations from 3 continents submitted comments to the Chinese Steel Authority suggesting compliance with WTO agreements as well as : The Chinese steel industry should be governed by market principles Chinese steel mercantilist interventions are distorting global trade flows based on comparative advantage trading principles Subsidies create artificial competitiveness Raw material export control creates artificial cost structure Steel Market Intelligence 45

47 Trade Dealing from the Bottom of a Stacked Deck Europe Administrative Process Provisional duties can be imposed 60 days after initiation of a trade complaint. Target regions can appeal Investigation normally takes less than a year but must be completed in 15 months. Provisional duties can last 6-9 months. U.S. Legal Process Commerce determines whether or not dumping/subsidy has occurred ITC determines injury or threat of injury. Final antidumping duties usually take days from the date of petition Countervailing duties normally take days. Steel Market Intelligence Source: European Commission, US ITC and Steel Market Intelligence 46

48 Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 47 Source: AAAM

49 Trade Dealing from the Bottom of a Stacked Deck Key Findings Jobs, Specifically In Manufacturing, Top Voters Agendas They Are Hearing More About Manufacturing, But Are Not Convinced Much Is Getting Done Manufacturing Is Seen As A Critical And Irreplaceable Part Of Our Economy And Our Place In The World Voters Have Increasingly Positive Feelings About U.S. Companies And Products, Particularly The Auto Industry Voters Express Deep Concern About And Want Tougher Action Against China The Country Wants A National Manufacturing Strategy Support Is Overwhelming For Proposals Including: Ending Policies That Encourage Outsourcing, Tougher Trade Enforcement, Retraining /Education, Buy American, And Incentives For Investment In The U.S. Steel Market Intelligence Source: AAAM 48

50 Trade Dealing from the Bottom of a Stacked Deck A Majority Feel Negatively About Economic Situation More Feel It Will Be Worse For Their Kids Steel Market Intelligence Source: AAAM 49

51 Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 50

52 Trade Dealing from the Bottom of a Stacked Deck A Majority Feels The U.S. Has Lost Its Status As The World s Strongest Economy, With China The Main Rival Steel Market Intelligence 51 Source: AAAM

53 Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 52

54 Trade Dealing from the Bottom of a Stacked Deck Respondents Who Agree: Free Trade Is Good for Our Economy 100% 100% 80% 60% 40% 78% 85% 88% 90% 80% 60% 40% 65% 84% 96% 93% 20% 20% 0% U.S. E.U. India China 0% U.S. E.U. India China Steel Market Intelligence Source: Pew Research Center and Steel Market Intelligence 53

55 Trade Dealing from the Bottom of a Stacked Deck Current Account Balances (in $Billions), Note: Japanese data is not available for Steel Market Intelligence Source: International Monetary Fund and Steel Market Intelligence 54

56 Trade Dealing from the Bottom of a Stacked Deck Lobbying Financial Services/Real Estate and Steel 1990, 2008 and 2012 $755,402 $8,017,782 $60,475, $11,108,500 $487,648, $457,473, Steel Market Intelligence Source: OpenSecrets.org and Steel Market Intelligence 55

57 Trade Dealing from the Bottom of a Stacked Deck Chinese OCTG Market Share, 2005-Current 70.0% 60.0% EU Duties on OCTG - 4/09 US Files OCTG Case - 4/ % 40.0% Canadian Duties on Seamless Carbon or Alloy Oil Well Casing - 3/ % 20.0% 10.0% 0.0% Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Steel Market Intelligence Source: Steel Market Intelligence, Canadian International Trade Tribunal, American Metal Market and Platts; including AISI and US Department of Commerce 56

58 Trade Dealing from the Bottom of a Stacked Deck China s Share of US OCTG Market January 2005 May 2009 China 11.5% China 62.1% $7.8 Billion!! North American Investment in OCTG Brown/Greenfield Expansion Since the US ITC Ruled in Favor of Domestic Producers in December 2009 Against Imports from China Steel Market Intelligence Source: Steel Market Intelligence and Platts; including AISI and US Department of Commerce 57

59 Trade Dealing from the Bottom of a Stacked Deck Steel Market Intelligence 58

60 Trade Dealing from the Bottom of a Stacked Deck If Chinese steel demand were to suddenly drop 10% in a year Chinese Steel Consumption vs. Production Worst Case Consumption Production Annualized? Steel Market Intelligence Source: World Steel Association, Mysteel, National Bureau of Statistics of China and Steel Market Intelligence 59

61 Trade Dealing from the Bottom of a Stacked Deck 25% of Asian Market (Ex- China) 126% of Korean Market 107% of Japanese Market 29% of International Trade 9% of Global Market (Ex- China) Steel Market Intelligence Source: World Steel Association and Steel Market Intelligence 60

62 Steel Market Intelligence DRI and Mini-Mills Conference Michelle Applebaum September 10,