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North American Steel IndustryRecent Market Developments,
Future Prospects and Key ChallengesOECD Steel CommitteeDecember 10-11, 2009
Paris, France*
American Iron and Steel Institute (AISI)Steel Manufacturers Association (SMA)
Specialty Steel Industry of North America (SSINA)Canadian Steel Producers Association (CSPA)
Mexican Steel Producers Association (CANACERO)
2
Presentation Summary
I. NAFTA Economic Conditions And Outlook
II. NAFTA Steel Trade Situation
III. Growing Concerns About NAFTA Manufacturing
3
I. NAFTA Economic Conditions And Outlook
4
N. America: -45.1Canada: -51.9U.S.: -47.0Mexico: -29.5
S. America: -30.3Brazil: -31.4
EU27: -39.3Turkey: -13.5Russia: -26.8Ukraine: -31.9
Asia: -2.2Japan: -34.0S. Korea: -14.9China: +7.5India : +1.6
Global Production: -16.4Excluding China: -30.9
NAFTA Production Declines More Than Other World RegionsGlobal Output Sharply Down, With Few Exceptions
Global Crude Steel Production2009 YTD vs. 2008 % Change
Source: Worldsteel
5Source:Worldsteel
NAFTA Raw Steel Production - 2009 vs. 2008
0
5,000
10,000
15,000
20,000
JAN
UA
RY
FEBR
UA
RY
MA
RCH
APR
IL
MA
Y
JUN
E
JULY
AU
GU
ST
SEPT
EMBE
R
OCT
OBE
R
NO
VEM
BER
DEC
EMBE
R
JAN
UA
RY
FEBR
UA
RY
MA
RCH
APR
IL
MA
Y
JUN
E
JULY
AU
GU
ST2008 2009
Mon
thly
Ton
nage
(MT)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Util
izat
ion
perc
enta
ge
Production Tons - NAFTA NAFTA - Rate of Capability Utilization
China - Rate of Capability Utilization ROW ex China - Rate of Capability Utilization
• Several NAFTA facilities have been restarted, after having been offline for close to a year. Some facilities have no future return date.
• The NAFTA economic recovery is still very fragile, and a return to pre-crisis steel production levels remains years away.
• The NAFTA and rest of world (ROW) utilization rates have stayed well below China’s rate.
While NAFTA Production Has Risen Recently, Capacity Utilization Is 30% Below 2008 Levels
6
The Great Recession of 2008-2009 Affected the Entire NAFTA Region
NAFTA Real GDP Since 2007
2.8
0.3
-6.2
-12
-10
-8
-6
-4
-2
0
2
4
6
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2007 2008 2009
Qua
rter
ly %
cha
nge
USA Canada Mexico
Sources: Bureau of Economic Analysis (US) , Statistics Canada, Canacero
7
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG
Met
ric
Tons
('00
0)
Source: World Steel Association, NAFTA Steel Trade Monitor
NAFTA Demand for Steel, Aug 2008 – August 2008
Steel Orders Collapsed After The Financial MeltdownAnd Still Have Not Recovered
• In the U.S., steel purchases were cut in half within 7 months (Aug. ’08 -Mar. ’09), and 50% of U.S. output was shuttered.
• In Canada, August 2009 shipments were 39% lower than a year earlier. A number of facilities remain idled or operating at reduced rates.
•In Mexico, ASC for 2009 (Jan – Sept) is 25% below 2008 levels. The September figure is 31% below the last peak (June 2008).
8
Since the statistical start of the Great Recession in December 2007, the U.S. Department of Commerce reported negative GDP for 5 of 6 Quarters (with 1Q ’09 being the worst, at -6.4%). Due to government stimulus funds, “cash for clunkers” and a first-time home buyers’ tax credit, 3Q U.S. GDP grew 2.8%. But consumer spending fell 0.5% in September, and the unemployment rate now stands at 10.0%,in what many economists are calling a “jobless recovery.”
The “Great Recession” Has Technically Ended, But The U.S. Economy Still Faces Major Challenges
Source: U.S. Department of Commerce, Bureau of Economic Analysis
Quarterly Change in U.S. Gross Domestic Product,
1997-2009
-8
-6
-4
-2
0
2
4
6
8
10
1997
1998
1998
1999
1999
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
Perc
ent
9
30
35
40
45
50
55
60
65
70
Q3 2007 Q1 2009
From Q3 2007 to Q1 2009, U.S. Net Worth Fell by Over $13 Trillion, Or 20 percent
Net Worth of U.S. Household and Nonprofit Organizations (Trillions of $)
Source: U.S. Federal Reserve, Flow of Funds Accounts of the United States (March 12, 2009 and Sept. 17, 2009).
10
U.S. Housing Permits, Starts and Completions
0.25
0.5
0.75
1
1.25
1.5
1.75
2
2.25
2.5
2001
2002
2003
2004
2005
2006
2007
2008
2009
Mill
ion
Uni
ts
Permits Starts Completions
• The residential housing market has bottomed in the past 6 months – to 40-year lows.
• Home foreclosures are continuing to rise. Government incentives (e.g., a tax credit for first-time buyers) are helping, but limited. Tighter credit standards are reducing the pool of available new buyers.
• An uptick in the non-residential, commercial market is not expected until late next year.
Source: U.S. Department of Commerce.
The U.S. Construction Market Is Still Weak
11
0
500
1000
1500
2000
2500
thou
sand
uni
ts p
rodu
ced
2009YTD
2008YTD
Detroit 3 Production Jan-September 2009 vs. 2008
Chrysler
Ford
GM
While the “cash for clunkers” program has helped increase production and sales, “Detroit 3”production has declined by over 50% YTD vs. 2008.
With the end of this incentive program and with unemployment likely to stay high for several years, automotive production and sales are unlikely to return to pre-crisis levels for the medium term.
Source: Ward’s Automotive. * 2009 Annualized based on September year-to-date.
NAFTA Light Vehicle Production 1999-2009
17.0
17.2
15.5 16
.4
15.9
15.8
15.8
15.3
15.1
12.8
7.7
10.1 11
.80
2
4
6
8
10
12
14
16
18
20
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f
Mill
ions
of U
nits
The NAFTA Automotive Production Remains Deeply Depressed
12
MSCI Average Daily Shipments & InventoryFor U.S. & Canada Metric Tonnes (000)
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
2006JAN
JUL 2007JAN
JUL 2008JAN
JUL 2009JAN
JUL
Dai
ly S
hipp
ing
Rat
e
02,0004,0006,0008,00010,00012,00014,00016,00018,000
Inve
ntor
y
Daily Shipping Rate Inventory
Source: Metals Service Center Institute
NAFTA Service Center Inventories At Multi-Year Lows, But Reduced Demand Delaying Restocking
• Service center demand has fallen in line with overall steel demand.
• NAFTA service center shipments are off 30% vs. 1 year ago.
• As of October 2009, U.S. and Canadian service center inventories (2.3 months each) are at 5-year lows, but a lack of consumer confidence and low end-use demand are preventing restocking.
13
Bank Of Canada Senior Loan Officer Survey: 3Q 2009
-40
-20
0
20
40
60
80
Easier
Tighter
Canada: Economic Indicators ModeratingFrom Extremely Low Levels
Ivey Canadian Purchasing Managers IndexSince January 2007
20
30
40
50
60
70
80
90
Jan-07 Sep-07 May-08 Jan-09 Sep-09
Expanding
Contracting
Canada: Manufacturing Inventories Through August 2009 Canada: Manufacturing Sales Through August 2009
Sources: Bank of Canada, Richard Ivey School of Business, Statistics Canada
14
Mexico Economic Indicators: Worst In Latin America
Mexico: Credit to consumers (June 2009 / Var %)
Mexico: Gross Fixed Investment (July 2009 / Var %)
- 29 %
-14 % 2Q (09): – 10.1 %(The worst since 1930)
3Q(09): - 6.2 %
Mexico: Gross Domestic ProductIndex Oct. 2009 (%)
- 23.7 %• To Rest of the World
- 32.3 %- Autos
- 23.4 %• To United States
- 23. 5 %TOTAL EXPORTS
January – September 2009
Non-Oil Exports (September 2009 / Var % (annual)
15
Mexico Economic Indicators: Strongly Related To U.S. Economy
Rate of growth Mexican Exports vs US Imports (July 2009Var %)
Source: Oxford Economic & CAPEM and INEGI
Mex Exports: % var
US Imports: % var
Mexico: Remittancess (July 2009Var %)
- 15 % Very sensible
16
129.7
2008
97.082.7141.2155.7138.3149.0Finished Steel
2010 f2009 f 2007200620052004(mil. MT)
Apparent Steel Use (ASU)
Survey of the Short Range OutlookFall 2009 NAFTA Region
4.4%
492%
3.7%
4.9%
% Ch.vs.1982*
United States
12.9
8.8
60.3
67.7
2009
18.0%79.9Crude Steel Use
20.2%15.5Imports
12.5%9.9Exports
18.8%71.7Finished Steel Use
% Ch.’09/10
2010ForecastMillion MT
Canada
6.1
4.7
10.3
12.2
2009
12.8%13.7Crude Steel Use
8.2%6.6Imports
36.2%6.4Exports
13.6%11.7Finished Steel Use
% Change2010
ForecastMillion MT
Mexico
2.5
1.7
12.1
17.5
2009
12.7%19.7Crude Steel Use
52.0%3.8Imports
-23.6%1.3Exports
12.3%13.6Finished Steel Use
% Change2010ForecastMillion MT
While Global Insight is forecasting that U.S. ASU will return to pre-crisis levels by 2012, key metrics in the U.S. economy -- including unemployment levels and manufacturing production -- leave doubt that steel demand in the United States will recover fully to pre-crisis levels even in 3 years’ time.
Source: Worldsteel Association Economic Studies Committee
2009-2010 NAFTA Region Steel Use Expected To Remain Far Below 2004-2008 Levels
* The lowest annual steel demand in the U.S. in the post-WWII period was recorded in 1982, at 68.6 million MT.
17
World Crude Steel Capacity 2000-2011
1,062 1,062 1,0951,170
1,2451,356
1,453
1,583
1,8161,917
1,997
1,654
588
677
740783
804
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Wor
ld S
teel
Cap
acity
/Dem
and
(thou
sand
met
ric to
nnes
)
0
100
200
300
400
500
600
700
800
900
Chin
ese
Cap
acity
(tho
usan
d m
etric
tons
)
World Crude Steel CapacityFinished steel useChinese Capacity
…While World Capacity Continues to Grow
Source: Worldsteel Association
18
NAFTA capacity growth slows due to reduced demand during economic crisis75 million tons of underutilized capacity in 2009
Source: World Steel Association
… And NAFTA Capacity Additions Are on Hold
NAFTA Crude Steel Capacity and Demand 2005-2009
149156 155 158 160
0
25
50
75
100
125
150
175
200
2005 2006 2007 2008 2009
Ste
el C
apac
ity (t
hous
and
met
ric
tonn
es)
0
25
50
75
100
125
150
175
200
NAFT
A S
teel
Dem
and
NAFTA Crude Steel CapacityNAFTA APPARENT DEMAND
19
II. NAFTA Steel Trade Situation
20Source: NASTA Monitor, US Dept. of Commerce, Global Trade Atlas
NAFTA Steel Mill Products Trade Balance:A Fundamentally Different Situation For The Medium Term
NAFTA Imports and Exports of Steel Mill Products
(27,775,535)(23,909,952)
(38,622,092)
(21,571,987) (18,296,095) (9,387,570)
(40,000,000)
(30,000,000)
(20,000,000)
(10,000,000)
-
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
2004- 2005- 2006- 2007- 2008- 2009*
Met
ric T
onne
s
NAFTA Imports NAFTA Exports Balance of Trade
• The NAFTA market is open to fairly traded steel, and the NAFTA region has historically been a net steel importing region.
• YTD in 2009 -- given the depressed market conditions and the low capacity utilization rate --the NAFTA steel trade deficit is the lowest it has been for many years.
• For the medium term, the NAFTA steel industry has more than ample capacity to meet the needs of both domestic and offshore customers.
20* 2009 Annualized based on 8 months.
21
Source: NAFTA Steel Trade Monitor, US Department of Commerce, Canacero and World Trade Atlas.
NAFTA Imports During Crisis Period
NAFTA Imports 2008 & 2009 - Monthly
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG
Met
ric
Tonn
es
NAFTA External Imports NAFTA Internal Imports
• Steel imports from other regions exceeded intra-NAFTA steel trade when the market collapsed.
• Non-NAFTA imports at first surged, and then declined but have maintained a relatively high market share.
• Imports from China peaked in October 2008.
22Source: US Department of Commerce and World Trade Atlas
NAFTA Exports During Crisis Period
NAFTA Exports 2008 & 2009 - Monthly
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
JAN2008
FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN2009
FEB MAR APR MAY JUN JUL AUG
Met
ric
Tonn
es
NAFTA External Exports NAFTA Internal Exports • NAFTA producers send only a small portion of steel produced outside the region.
• During 4Q ‘08, intra-NAFTA steel trade declined sharply, more or less in line with the steep decline in market demand.
23
III. Growing Concerns About NAFTA Manufacturing
24
NAFTA Manufacturing Capacity Utilization Remains Significantly Below Pre-Crisis Levels
Source: U.S. Federal Reserve Board, Statistics Canada
Canada & U.S. Manufacturing Utilizaton
50
55
60
65
70
75
80
85
1st 2nd 3rd 4th 1st 2nd 3rd
2008 2009
Ut il
izat
ion
%
US Manufacturing Utilization Canada Manufacturing Utilization
25
NAFTA Manufacturing Employment Since 2007
13
13.5
14
14.5
15
15.5
16
16.5
2007 2008 2009
Mill
ions
Source: U.S. Bureau of Labor Statistics, Statistics Canada
Nearly 3 Million More Lost NAFTA Manufacturing Jobs During the Economic Crisis (2007-2009)
26Source: US Department of Commerce
Mexico Manufacturing: 13 Months With Negative GrowthMéxico: Industrial Activity Index
(August 2009 / Annual % rate of growth)
México: Manufacturing Activity Index (August 2009 / Annual % rate of growth)
México: Manufacturing Employment Index (August 2009 / Index: 2003 = 100)
• Main affected sectors:
. Transport equipment: -23.8%
. Machinery -16.3%
. Furniture: -14.5 %
. Metal products: -13.1%
. Steel: - 7.7 %
- 10.8 %
27Source: US Department of Commerce
US Trade Deficit - Manufacturing
166 206 240 267 279
277297
289 237 178
-
100
200
300
400
500
600
2004 2005 2006 2007 2008
$ B
ILLI
ON
CHINA NON-NAFTA (excl. China)
U.S. Trade Deficit - Manufacturing2009
108 124
33
95
-
50
100
150
200
250
6 MO. 2009 6 MO. 2008
$ (B
illio
n)
CHINA NON-NAFTA (excl. China)
• While the U.S. manufacturing trade deficit has declined during the 2008-09 recession, China’s share has increased and, through the 1st 6 months of 2009, China accounted for 78% of this deficit.
China Accounts For A Growing Share Of The U.S. Manufacturing Trade Deficit
28Source: AISI estimates (2009 annualized), based on U.S. Department of Commerce and Global Trade Atlas value data
NAFTA Indirect Steel Trade Deficit DownBut Remains Significant Area of Concern
NAFTA Indirect Steel Trade Balance With The Rest Of The World(excluding intra-NAFTA trade) 2000 - 2009
-9.9 -11.2 -12.8 -10.8 -11.5 -12.6 -13.9 -11.8
-1.4-1.4
-1.7-1.9 -2.2
-2.6-3.1
-2.8 -2.94-3.5
-1.6-2
-2.2-2.2
-3.2-3.7
-4.2-4.4 -4.18
-3.52
-8.0-11.0
-25
-20
-15
-10
-5
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Mill
ions
of M
etric
Ste
el T
ons
Equi
vale
nt
United States Canada Mexico
29
Given the fundamental changes that have occurred in the NAFTA and global economies, North America’s steel producers support:
• Restoring a policy commitment to North American manufacturing as a foundation for renewed economic growth and sustainable employment in the near and longer term
• Expanding trade based on internationally accepted rules and comparative advantage –not government-supported mercantilism
• Ensuring strong and effective trade laws throughout the NAFTA region to deal with market-distorting practices
• Addressing currency misalignments that create artificial competitive advantages
• Ensuring that climate change policies are both environmentally and economically effective, and do not generate new trade and investment distortions due to regulatory differences
Key Policy Messages