Steel

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HBIA 2007 Spring Meeting
Steel A Few Items Impacting U.S. Minimills
Thomas A. Danjczek, President Steel Manufacturers
Association February 23, 2007
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In February 2007, The Times they are achanging
HBIA 2007 Spring Meeting
Trade Imbalance
Steel Demand Fluctuating
Consolidations
59 EAF in U.S.
Service Center Inventories Up
Energy Costs
Freight Costs
Democratic Congress
World Steel Growth
Chinas Subsidies
Chinas Steel Growth
Perennial Problems
U.S. Government Debt
Ore/Coal Costs
Operating Costs Benefits Energy
Labor Contracts
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HBIA 2007 Spring Meeting
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 60
• ITC cases not favoring U.S. producers (Wire Rod,
  Corrosion Resistant, Pipe 421, etc.)
• WTO cases also unfavorable (Zeroing Bratsk)
• Current U.S. Government Prohibitive Subsidies
  Case
• Cost pressures continue (ore up 70 in 2005, 20
  in 2006 natural gas in 2005 double 2004, etc.)

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HBIA 2007 Spring Meeting
Steel Production
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HBIA 2007 Spring Meeting
Price Forecasts
Forecast Prices
Source AMM Research
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HBIA 2007 Spring Meeting
Imports Inventory
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Scrap Demand
Source DJJ, 2/07
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HBIA 2007 Spring Meeting
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

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HBIA 2007 Spring Meeting
China Facts, cont.
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HBIA 2007 Spring Meeting
China Facts, cont.
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U.S. Trade Balance with China
HBIA 2007 Spring Meeting
China Facts, cont.
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006 (est.)
Source U.S. Census Bureau 2006 Estimate based
on data from January to November
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China Facts, cont.
HBIA 2007 Spring Meeting
China Has the Most Heavily Subsidized Steel
Industry in the World
7.5 billion in debt-to-equity swaps in 2000
State-owned enterprises account for 57 percent
of total Chinese production
An additional 6 billion in announced
subsidies during 2000
Chinese steelmakers regularly obtain preferential
loans from state-owned banks
2005 steel policy commits China to further
subsidies, micromanagement
Manipulation of key raw materials markets,
including coke and ferroalloys
Inadequate protection of workers rights and
enforcement of environmental standards
Support from local and provincial governments unco
ntrolled by central government
Chinese steel producers enjoy government assistanc
e with energy and other input costs
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Within the Last Year, U.S Producers Have Been Hit
with a Flood of Chinese Imports
HBIA 2007 Spring Meeting
China Facts, cont.
Total U.S. Imports from China
U.S. Imports of Critical High-Value Products
Source AISI and IM-145 data
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Aggressive Policy Measures Are Necessary to
Prevent China from Causing a Major Crisis
HBIA 2007 Spring Meeting

• Enact real China legislation (apply CVD law to
  China, address currency manipulation, WTO reform)
• Strict enforcement of U.S. AD/CVD laws
  (appearance at HR hearing, letters, Congressional
  hearings)
• Make clear that Congress will not accept any
  new agreements (Doha, Korea FTA, etc.) with trade
  law weakening. Current system is broken.

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HBIA 2007 Spring Meeting
Conclusion
-Need aggressive policy measures to prevent China
from causing a major crisis -Its 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???)