Steel: Not a Crisis, A Wake Up Call
• The Topics
– Immediate Issues
• Supply and Demand
– Demand or capacity?
– Capacity or raw materials?
– What happened and why?
• Price Drivers
– Raw materials (domestic/global)
– Supply/demand factors versus “metal margin”
– Much Bigger Issues
• Manufacturing Issues
• Currency Manipulation
• The Tie-In to Trade
Supply and Demand
• The Global Capacity Situation
– Overall
– LFR
• Global Raw Materials Infrastructure
– Ore, Coke, Alloys
– Scrap
• The Results of Trade Abuse, Manipulation, Subsidy and
Regulation
– From “TPM” to “VRA” to “201
– Impact on earnings and investment/divestment
– Welcome to globalization of strategic resources (action by other
countries)
Price Drivers
• Raw Materials Changes
– Ore, Coke, Scrap, Alloys
• Energy and Other Inputs
– Natural gas, freight/fuel (in/out)
– Refractories, Maintenance
• “Metal Margin” and Capacity Utilization
– Where was it, where it is, where it should be (Nucor’s
view)
– Capacity Utilization Factors
• Imports and Capacity Utilization
• Capacity Utilization and Price
ports and U.S. Capacity Utilization
The Manufacturing Sector
• By itself – the 5th largest “economy
globally
• Employs 14.3 million directly, millions
more indirectly.
• Consumes over 60% of R&D in U.S.
• Is the country’s engine of growth and
wealth
• And, the sector is in big trouble
The Problem Statement
Manufacturing in this country is subject to
massive regulation, pays for social issues
handled by governments elsewhere and is
under attack by well orchestrated offshore
opponents. Only recently have policy
makers seriously addressed core issues.
However, problems have been studied to
death. The time for action is now. We are
running out of time.
The Evidence
• Studies point to several critical issues
– NAM Study
– DOC Study
NAM Study
• High Corporate Tax Rates
• Cost of Health Benefits
– Health Care
– Private Pensions
• Cost of Litigation
• Cost of Regulatory Compliance
• Energy Costs
Quantified Findings - NAM
• US manufacturing is “penalized” for being here to the
•
•
•
•
tune of a 22.4% cost disadvantage versus major
competing (developed) countries
The trade playing field is not level whether related to
subsidy/dumping or export incentives
Continued lack of correction is creating a serious talent
drain from manufacturing
The damage to manufacturing will impact the industries
that depend on manufacturing as a customer
NAM has numerous recommendations and steps to
address the issues
Department of Commerce Study
• Developed via “field” hearings and academic
•
input – parallels NAM findings but puts
government spin on solutions
Highlighted recommendations – Economic
environment
–
–
–
–
Make tax cuts permanent
Reduce tax complexity and compliance costs
Permanent tax credit for R&D
Expand access to low cost capital
DOC Study
• “Investing in innovation”
–
–
–
–
–
Strengthen patent system
“Review” federal R&D emphasis
MEP enhancement (ended up cutting back program)
“Promote” technology transfer
Cooperative research programs
–
–
–
–
Regulatory “review”
Health care cost control “review”
Legal reform
Energy legislation
• Lowering Costs Proposals
DOC Study
• Education, Retraining, Economic
Diversification
– Training partnership initiative
– Analyze adequacy of existing training
– Personal re-employment accounts (to finance
retraining)
– Economic adjustment programs for
communities in transition
– “Transform” workforce development programs
DOC Study
• Promote open markets/level playing field
– “Encourage” economic growth, open trade,
capital market access
– “Negotiate” trade agreements that benefit US
manufacturers
– Enforce trade agreements/combat unfair trade
– “Reinforce” promotion of American goods
globally
The DOC Study
• “Enhancing” Government’s Focus on
Manufacturing Competitiveness
– Establish manufacturing council
– New office of Industry Analysis
– “Foster” government coordination
Some Pitfalls in the DOC Report?
– Emphasis on retraining, re-education, readjustment for communities impacted by
closure, educational partnerships
– Words like explore, study, support, promote
and leverage are used throughout
recommendations
– Requires legislative changes on health care,
tort reform, revamping energy policy and
oversight group – little of which has been
done
Status
• Czar has been appointed (Asst. Sec.)
• Manufacturing council being established
• Trade enforcement group being
established
• Intellectual property rights effort ongoing
The Missing Element
Currency intervention and manipulation has
been given precious little attention in
either report. Why?
• Pic of China
© 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada.
Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
© 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada.
Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
© 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada.
Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
© 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada.
Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
© 2003 by Prof. Werner Antweiler, University of British Columbia, Vancouver BC, Canada.
Permission is granted to reproduce the above image provided that the source and copyright are acknowledged.
Manipulated Currency Reserves
AWASH IN DOLLARS
Asia’s growing foreign reserves, in billions of dollars
Country
Year-End 2003
$673.5
Japan
$403.3
China
Taiwan
South Korea
Hong Kong
India
Singapore
Malaysia
Thailand
Indonesia
Phillipines
Source: Reuters
% Change From 2002
$206.6
$155.4
$118.4
$100.6
$96.3
$44.9
$42.1
$36.3
$16.7
43%
41%
28%
28%
6%
43%
17%
30%
6%
15%
5%
Currency Manipulation
•
Market fundamentals have historically not set
the value of the Japanese Yen, Taiwanese
Dollar, Korean Won and Chinese Yuan –
Governments Have!
• China’s growing trade surplus and huge foreign
investment inflows would suggest one thing – a
stronger yuan – reality is vis-a-vis the U.S. dollar
there has been no change
• China, et al, aren’t the only problem – Russia
devalued 485% in 1998, offset by 270% PPI
increase for a net devaluation of 215%
The United States’ Current Account
Deficit
$100
Dollars In Billions
$0
($100)
($200)
($300)
($400)
($500)
($600)
'82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
The Effects of Intervention and
Manipulation
• On Manufacturing
• On Steel
– Imports
– Pricing
• On Other industries
The Dollar Goes Up
Manufacturing Profits Go Down
28
130
Broad Real Dollar Index
(right scale)
24
115
20
100
16
85
12
70
8
4
Profit Share of National Income
in Domestic Manufacturing
(left scale)
1995
1996
1997
1998
1999
55
2000
2001
2002
Sources: Federal Reserve Statistical Release H.10; U.S. Department of
Commerce, Bureau of Economic Analysis, National Income and Product Accounts
40
Overvalued Dollar Devastates U.S.
Manufacturing
Change in:
Stable Dollar (‘91-’96)
Strong Dollar (’97-’02)
Trade Deficit
- $176 billion
- $468 billion
Imports
$800 billion
One Trillion Dollars !
Exports
+ $204 billion
- $80 billion
“Six Years After” Coalition for a Sound Dollar March 2003
Overall Mfg. Capacity Utilization
85.0
82.5
80.0
77.5
75.0
72.5
70.0
67.5
‘90 ‘91 ‘92
’93 ’94
’95
’96
’97
’98
’99 ’00
’01 ’02
’03 ‘04
150
When the Dollar goes
up so do US Steel
Imports
140
35
30
Steel Import Share
(right scale)
130
25
120
20
110
15
100
10
Fed’s Broad
Real Dollar
(left scale)
90
80
1995
1996
1997
1998
1999
5
0
2000
2001
2002
Sources: Federal Reserve Statistical Release H.10; U.S. Department of
Commerce, Bureau of Economic Analysis, National Income and Product Accounts
Overvalued Dollar Hits U.S.
Agriculture
Change in:
Stable Dollar
(‘92-’96)
Strong Dollar
(‘97-’02)
Exports:
Up $20.9 billion
Down $2.6 billion
Imports:
Up $9.2 billion
Up another $7 billion
Trade
Surplus:
Rose to $27 billion
Fell to $11 billion
Overvalued Dollar Hits U.S. High
Tech
Change in:
Stable Dollar
(’92-‘96)
Overvalued Dollar
(’97-‘02)
Exports
+ $25 billion
- $31 billion*
Imports
+ $17 billion
+ $50 billion
Trade Deficit
+ $35 billion
(‘96)
-$17 billion
(‘02)
Projection for 2002 based on YTD 9/02 figures. *Since 2000 peak.
“Six Years After” Coalition for a Sound Dollar March 2003
U.S. Trade Balance in Advance Technology
30
20
Billions of $
10
2002
0
1999
-10
-20
-30
Source: U.S. Census Bureau.
2000
2001
2003
Investments Are
Down …
$37 Billion
The Trade Tie-In
• “Free” trade cannot long endure if it isn’t
fair trade
• All metal sector manufacturers located in
the U.S. will eventually be impacted –
directly or indirectly – by currency
manipulation and ineffective trade laws
and/or lack of enforcement
• There are solutions
Solutions
• AFL-CIO 301 Petition on WTO obligation
•
•
•
•
violations by China (rejected by the
administration)
Emergency Steel Scrap Coalition (use of Export
Administration law)
FCA 301 Petition on currency manipulation
(rejected by the administration)
Trade law reform
Pressure for aggressive enforcement of laws and
trade agreements
Trade Law Reform
• What are the weaknesses in current laws?
– Repeat dumping (country/product switching)
– Major offenders provided special consideration that
encourages repeat behavior
– The WTO “legislation” problem
• What are the solutions?
– H.R. 2092 and S. 136 (Berry/Lincoln)
– H.R. 3716 (English), S. 2212 (Collins, Bayh)
– H.R. 2365 (English, Levin, Houghton, Cardin) and S.
1258 (Bayh) & S. 676 (Baucus) and H. Con. Res. 243
(Levin)
Other Trade Related Reforms
• Import Monitoring, Licensing and
Enforcement
• OECD Update – VERY instructive
One Company’s Approach
• Educate employees on issues germane to
their jobs
• Provide them the tools to reach elected
representatives – local, state, national
• Engage in the debate – thoughtfully, nonpartisan
• Be an agent of awakening and change