3rd Annual China Summit

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AMERICAN METAL MARKET CONFERENCE
3rd Annual China Summit
Session V China Trade Impact on North American
Manufacturing
How is China impacting U.S. manufacturing, and
can North America compete?
Thomas A. Danjczek President Steel Manufacturers
Association September 18, 2007
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AMM 3rd Annual China Summit
From 2nd China Summit, 9/29/06
From 1st China Summit, 10/25/05 -Currency
-Capacity (steel-making)
-Concerns/Challenges -Compliance
-Conclusion
Update Sept. 2006
-Still a dirty float, with only a minor change
U.S. Congress upset -Out of control
government-subsidized growth -U.S. trade deficit
grows steel trade exports increase loss of
customer base -Chinas trade policies and laws
not enforced, regarding emissions and competitive
facilities arbitrary VATs -Trends worsen in
2006 trade disruption due to state subsidies and
currency manipulation when will China play by
market rules?
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AMM 3rd Annual China Summit
Whats New???
From SMA Presentation 2nd China Summit, 9/29/06
-Discussed Chinas steel capacity growth (54mmt
in 2006, projected 37mmt in 2007) -Reviewed China
Syndrome How Subsidies and government
intervention created the worlds largest steel
industry -Questioned who is receiving government
assistance with export subsidies, import
substitution subsidies, land grants, cash grants,
energy reductions, debt to equity conversion,
debt forgiveness, preferential loans, currency
manipulation, and barriers to foreign
investment -Commented on AIIS view not to
worry distortion of facts -Estimated Chinas
environmental impact -Asked when will China play
by market rules? -Challenged that the growth of
the Chinese steel industry has been at the
expense of steel international competitors
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AMM 3rd Annual China Summit
Conclusions in 2005, 2006, 2007
-Imbalances cant go on forever -Chinese steel
market is reliant on export market to absorb
domestic overproduction -Chinese steel industry
today is OVERBUILT AND UNDERDEMOLISHED
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AMM 3rd Annual China Summit
21st Century
U.S. Steel Industry, Then. . . . . . . . .and
Now
THEN Smoke pouring into the air from a
Pittsburgh steel mill. Image by Corbis -
Bettmann
NOW Electric Arc Furnace facility.
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AMM 3rd Annual China Summit
Competitiveness
Economics To be cost competitive, one needs to
be either where the market is, or where
the raw materials are. (Paul ONeil,
Alcoa) Scrap Availability U.S. has the scrap and
infrastructure, with over 2000 scrap
processors. Steel recycling rate is nearly 70
percent.
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AMM 3rd Annual China Summit
Economic Competitiveness
-Productivity is a key to competitiveness.
Minimills (60 percent of U.S. production) are
under one man-hour per ton (as low as 0.3
MH/ton). -In U.S., metallics comprise almost 60
percent of the total cost of producing a ton of
steel energy, transportation, and labor costs
account for the rest. In the world, all costs
are dollar denominated, except labor. -Freight
costs for China (50 percent imported ore) are
much greater than U.S. labor costs. -China is not
a low-cost steel producer.
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AMM 3rd Annual China Summit
What Harm
-Chinese steel exports surged to 33.8 million
metric tons in the first half of 2007, double the
same period in 2006. -In finished goods
containing steel, i.e. auto parts and vehicles,
Chinas exports are expanding by approximately 30
percent per year. -The rush to China has been
driven by illegal subsidies. -The U.S. steel
industry has enjoyed robust financial performance
over the past four years. However, over the past
50 years, iron and steel has a mean return on
equity after taxes of approximately 5 percent,
less than half of manufacturing at approximately
12 percent.
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AMM 3rd Annual China Summit
What Harm
U.S. Imports of Auto Parts and Vehicle Bodies
from China, Value and Share
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AMM 3rd Annual China Summit
Conclusion
-Need aggressive policy measures to prevent China
from causing a major crisis
Groundhog Day