Steel Manufacturers Association

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Steel Manufacturers Association

• May 15, 2007
• Washington, DC
• Charles A. Bradford, CFA
• Bradford Research Inc.
• 212-787-4109

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China

• A problem with no easy solution

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A sharp appreciation of the RMB

• A stronger RMB means a weaker dollar
• Inflationary in the U.S.
• Would cause the FRB to sharply increase interest
  rates to defend the dollar and to fight inflation
• A major recession would occur

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Trading Steel on an Exchange

• Situation very similar to aluminum
• Complaints by the steelmakers are the same as
  what the aluminum producers claimed
• Almost no physical aluminum traded on an exchange
• Exchange price used as part of the price
• Raw materials also tied to the LME price
• Relationship with customers unchanged
• Warrantees/claims remain the same

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Protection from Washington

• Big mistake
• Whatever they give they can take away
• WTO treaty is the law of the land
• With a return on equity about twice the average
  and similar to the oil industry, it will be hard
  for the steel industry to seek to claim poverty
  or injury, especially when industry leaders are
  making a case to Wall Steel for a revaluation of
  their equities based upon changes in their
  circumstances.