Steel Founders' Society of America “Changes, Challenges, Unknowns and Optimism” Thomas A. Danjczek SMA Senior Advisor September 9, 2014 Montreal, Canada , :
Steel Founders' Society of America“Changes, Challenges, Unknowns
and Optimism”
Thomas A. Danjczek SMA Senior AdvisorSeptember 9, 2014Montreal, Canada
, :
21st Century Steelmakers
Outline
• About the SMA• Safety • U.S. and Global Production• Cost Drivers – Raw Materials, Energy,
Labor, Transportation, Capital, Regulations• Forecasts, “Wild Cards”, and Concerns• Conclusions and Questions
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21st Century Steelmakers
About the SMA• 34 Member Companies, accounting for 75% of
domestic steelmaking capacity• 118 Associate Members
21st Century Steelmakers
Reasons for EAF Growth• Economic: “To be cost-competitive, one needs to be
either where the market is, or where the raw materials are.” (Paul O’Neil, Alcoa)
• Scrap availability: U.S. has the scrap and infrastructure, with over 2000 scrap processors. Steel recycling rate is over 75 percent.
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•Capital cost to build a scrap-based EAF minimill, versus an integrated ore-based mill, is less than half per ton of capacity.
•Productivity is a key to competitiveness. Minimills are under one man-hour per ton (as low as 0.3 MH/ton), versus three times that for an integrated ore-based mill. The minimill culture makes a difference.
•Metallics comprise almost 60 percent of the total cost of producing a ton of steel; energy, transportation, and labor costs account for the rest. Energy costs are 75 percent less than for ore-based; transportation costs are lower, both inbound and outbound, due to proximity to markets; labor costs are 33 percent lower.
EAF Growth
21st Century Steelmakers
Question-Growth
What say you SFSA about growth?
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21st Century Steelmakers
SMA Safety Overview
• Safety Statistics • Fatality Prevention Initiative • Safety Surveys • SMA Annual Awards • My impressions of Priorities
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21st Century Steelmakers
SMA Safety Statistics
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Year RecordableRate
Lost Workday Rate
SeverityRate
# Facilities:Zero LTAs
# Fatalities(EE only) Hours Worked
2013 2.78 0.74 28.60 29 1 80,035,977
2012 2.82 0.60 23.30 24 1 93,708,852
2011 4.91 0.79 32.21 16 5 82,492,464
2010 4.18 0.75 30.12 14 4 76,549,539
2009 3.19 0.69 29.05 11 2 72,374,632
2008 3.97 0.90 38.73 10 7 93,721,705
2007 4.33 1.24 49.34 3 3 81,754,844
21st Century Steelmakers
Fatality Prevention
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• Written guides, videos and audit tools to address critical areas
• First DVDs published in 2009 – still widely used by steelmakers and other manufacturers (shared free-of-charge)
• Critical areas covered: confined space, fall protection, lockout-tagout-tryout, mobile equipment/material handling, rail, cranes
• Current projects: contractor fatality prevention and falls
21st Century Steelmakers
Safety Surveys• Regular questionnaires distributed
by member request, anonymous results shared with all members
• Recent topics: high-heat hard hats; firefighting response units; crane modifications; metatarsal boots; engineering controls for noise level reduction; hazard recognition and critical thinking; NFPA 70E; cleaning EAF and caster; flame-retardant undergarments
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21st Century Steelmakers
• 2014 Don Daily SMA Achievement in Safety Award– Nucor Steel Decatur
Tornado Shelter Installation
• 2014 SMA Achievement in Innovation Award– Steel Dynamics, Inc.
Roanoke Bar Division Fall Protection Program
SMA Annual Awards
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My Impression Top Safety
• Dedicated to employee safety as top priority
• Significant proactive measures• Drives activities to excellence• It’s Culture!
( We have a significant fatality problem; are we focused on correct items?)
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Question-Safety?
How is SFSA and its membership performing on safety improvements?
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U.S. and Global Production
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Annual U.S. Steel Production
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Year U.S. Production(mmt)
2013 87.0 (2014 up .6%)2012 88.62011 86.22010 80.52009 58.22008 91.42007 98.1
Source: worldsteel.org
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Global Apparent Steel Use
Source: worldsteel.org
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Global steel 2003 (972mmtons versus 2013 (1606mmtons)
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Global Steelmaking Capacity & ConsumptionM
illio
n m
etric
tons
Sources: worldsteel.org, OECD
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Major Net Exporters and Importers of Steel (2012)
Rank Net Exports (exports-imports)
mmt
1 China 40.62 Japan 35.73 Ukraine 22.34 Russia 19.85 European Union (27) 17.66 South Korea 9.87 Turkey 7.28 Brazil 5.99 Italy 4.310 Belgium 3.9
Rank Net Imports (imports-exports)
mmt
1 United States 17.92 Thailand 13.63 Indonesia 11.34 Saudi Arabia 7.85 Vietnam 6.56 UAE 6.07 Iran 5.38 Algeria 5.09 Mexico 4.310 Philippines 4.3
Source: worldsteel.org
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Question- Capacity/Production
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For Antitrust reasons, Answer only to yourself: How is Production/Capacity trending?
• Impact of Imports?
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Challenges
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Deeper Recession
Variable Cost Control
Engineers
Scrap Availability
High Unemployment
Labor Intensity
Inventory Levels
China
SafetyConsolidations
Customer Requirements
Environmental Regulations
Foreign Ownership
Transportation Costs
Ore Availability
Energy Costs
Currency
State-Owned EnterprisesOther
Factors…
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21st Century Steelmakers
Imports of Major Steel Producing Nations(2012)
Producer Import ShareUnited States 30.27%Russia 14.21%India 12.12%Japan 8.33%China 2.05%
Steel Imports as a Percentage of Consumption
Source: worldsteel.org
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U.S. Steel Production: 88.7mmtU.S. Steel Consumption: 102.0mmt
∆13.3mmt
• Since 2003, imports have accounted for an average of 26% of U.S. steel consumption
Message: Significant amount of imports should have been replaced with
domestically produced steel.
U.S. Steel Trade Data(2012)
21st Century Steelmakers
Annual Trade Deficit – Most Significant Factor
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Annual Trade Deficit with China
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0.00
50,000.00
100,000.00
150,000.00
200,000.00
250,000.00
300,000.00
350,000.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
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Other Key Challenges• Budgetary/Funding Issues• Regulatory Uncertainty• Persistently High Unemployment• Taxation• Indirect Steel Trade – Loss of Customer Base• Scrap Exports/Foreign Barriers• Skilled Workforce Shortage
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21st Century Steelmakers
Aluminum in Cars?
GM’s stated concerns with potential increased aluminum usage in trucks:• Durability• Customer value (taking something away)• Current focus on high strength steels• Steel’s proven track record (know what you
have 20 years down the road)• Galvanic corrosion where steel and aluminum
are joined
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21st Century Steelmakers
Remember the Steel Beverage Can?
In early ‘70s, steel producers were convinced that aluminum would not replace steel…
• U.S. steel producers were complacent with costs, quality, rejects, product development, and required capital investments
• Today, globally 75% aluminum, 25% tin plate
Steel must NOT make that same mistake again!
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21st Century Steelmakers
Why Steel May Be Better…
• Existing supply chain• Manufacturing equipment/tooling exists• Lower expense• Quality improvements• Repair aftermarket exists!• Durability• Ease of recycling• Ease of manufacture
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21st Century Steelmakers
Question-Challenges
For SFSA what are the Key Challenges?
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Environment & Energy
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Environment & Energy• Recycling of steel scrap plays an important role in the
conservation of energy.
• Energy required to make steel from ore is 3 to 4 times greater than from recycled scrap.
• Resource conservation plays an important role.
• For U.S. steel, Kyoto target reduction of GHG exceeded by over 400 percent, primarily due to the growth of EAFs. U.S. is 37 percent below 1990 Kyoto levels. EAFs generate 1/3 to 1/4 the GHG, versus integrated production.
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2010 2011 2012Total US Iron & Steel Sector 68,991,417 76,395,750 72,700,054BOF 57,673,728 64,361,874 60,012,708EAF 11,317,689 12,033,876 12,687,346
5,000,000
15,000,000
25,000,000
35,000,000
45,000,000
55,000,000
65,000,000
75,000,000
85,000,000
95,000,000
Mill
ions
Met
ric T
ons
CO
2 Eq
uiva
lent
Total GHG Emissions* - US Iron and Steel Sector Reported by US EPA Greenhouse Gas Reporting
Program - 2014
* Cumulative data as reported to USEPA – emissions incl. CO2; CH4; N2O; SF6; NF3; HFCs; PFCs; and HFEs
21st Century Steelmakers
Impact of Abundant Domestic Natural Gas
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Shale/Oil Gas Resources
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21st Century Steelmakers
U.S. Natural Gas Spot Price (Henry Hub)20
10 U
.S. $
per
mill
ion
Btu
Source: U.S. Energy Information Administration
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Electricity Generation from Coal and Natural Gas in Two Cases, 2008-2040
Bill
ion
kilo
wat
thou
rs
Source: U.S. Energy Information Administration
21st Century Steelmakers
Raw Materials Natural gas price/availability has spurred interest in raw material investments:
• Nucor Louisiana – 2.5mmt DRI pellet capacity• VoestAlpine – 2mmt DRI/HBI in Texas•Discuss impact of $90 ore today versus $140
21st Century Steelmakers
Question-Raw Material& Energy
For SFSA:
Impact of raw material costs?Impact of natural gas changes?
Impact of EPA?
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Products
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U.S. Steel Shipments by Classification
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U.S. Finished Steel Demand Driven by Three Variables
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Source: First River
21st Century Steelmakers
Auto Build Already Above Pre-Crisis and Poised to Keep Going
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Sources: First River, Wards and PWC Autofacts (April 2014)
21st Century Steelmakers
Construction Activity
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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
Non-building structures not included
21st Century Steelmakers
Appliance Shipments Recovering, but Likely to Remain Below Previous Peak
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Sources: First River, Appliance Magazine (2014)
21st Century Steelmakers
U.S. Finished Steel Demand Could Return to 125-130mt Range
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Source: First River
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Steel Intensity Model Also Supports a Return to 130mt
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Source: First River
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U.S. Raw Steel Capacity Utilization Could Get Back Around 90 Percent in a Few Years
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Source: First River
21st Century Steelmakers
Question-Growth
For SFSA:
Do you “mirror” steel production forecasts?
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Personal ConcernsI worked for three ‘successful’ companies that went bankrupt…Four personal comments:• Arrogance• Complacency• Bureaucracy• Lack of continuous improvement
IT’S A WAR!51
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Optimism
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Reasons for Optimism
North America is a competitive place to make steel:
• Self-sufficient in steelmaking raw materials (especially scrap)• Relatively low energy prices• High labor productivity• Access to world’s largest capital market• Proximity to domestic market
21st Century Steelmakers
Concluding Thoughts for North America • North American markets resilient, relatively
strong• Global overcapacity continues to pose major
threat• EAF share of production likely to increase• Increased transparency, better information• Companies have stronger balance sheets• Positive developments in alternate iron units• Huge potential exists in energy development
21st Century Steelmakers
Final Question?
For SFSA:
Are you as optimistic?
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• G
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