Steel 101: All About Steel Workshop during the SteelOrbis Steel Trade Conference, Day 1
The All About Steel Workshop during the third annual SteelOrbis Steel Trade Conference started early Thursday morning amid fog and light sprinkles uncharacteristic of a San Diego summer. A hot topic of conversation for workshop attendees who arrived the evening prior was the 5.4 magnitude earthquake that shook the city around dinnertime, so even though they missed out on classic Southern California weather, many conference participants at least got a taste of another distinctly Californian phenomenon.
After the stream of Workshop attendees gradually filled the seminar room at the Omni Hotel, Murat Askin, then General Manager-Americas of SteelOrbis, introduced the workshop agenda and presenters, while attendees passed a microphone around the room to introduce themselves and their purpose for attending.
Kicking off the presentations was Vic Maldonado, Assistant Manager of Mettalurgy and Quality Services at California Steel Industries (CSI). He took the audience through the history of iron and steelmaking, and provided a step-by-step tour of the entire steelmaking process, including both blast furnace and electric arc furnace applications. He further detailed the process for making and finishing flat products, from slab rolling to coating and coiling. Stepping in for a colleague who had to bow out of his speaking engagement at the last minute, Maldonado also presented a summary of pipe and tube making applications and products. A fascinating video accompanied his presentation, which showed the production cycle of electric resistance weld (ERW) pipe, from its origin as flat rolled steel to a finished, flawless end product.
Tom Danjczek, President of the Steel Manufacturers Association, took the podium next and offered a broad overview of the US steel industry. Topics included the rising use of electric arc furnaces, the explosion of steel use in the US during the last century, and evidence that American steel production reached its peak decades ago-production is expected to grow slowly in the near future, with levels bypassing 1970s-era use further down the road. As an example, he pointed out that American cars used to be made with much more, and much thicker-gauge steel, while modern automobiles are built lighter to increase fuel efficiency. During the question and answer portion of the presentation, Danjczek playfully argued with members of the audience on a range of issues, such as scrap trade with Korea, the effectiveness of antidumping and countervailing duty legislation, and new developments in the market including the new ThyssenKrupp mill in Alabama.
Workshop attendee Bill Duval of DLS Marine came prepared to the session and was allotted time to provide a brief presentation on logistics, pointing out the various perils that steel freight can endure during shipment, and the ways in which vigilant stevedores and surveyors can prevent many of them from happening.
A networking lunch followed, where attendees had the chance to meet and mingle and discuss the highlights of the morning presentations. After the break, Murat Askin, General Manager-Americas of SteelOrbis, talked to the audience about the trading aspect of the steel industry. He began by explaining exactly who steel traders are: they have no affiliation with buyers or sellers, they primarily deal with steel products, they are a principle in the transaction (meaning they own the steel for a portion of the purchase timeline), they finance the transaction, and they assume product, payment and transportation risks. They are basically a neutral entity that handles the specifics of steel transactions so individual sellers and buyers don't have to. Askin then took the audience through the entire purchase timeline, and also detailed the costs that go into a purchase, from ocean freight to insurance to unloading, even including the trader's commission. That commission, which only works out to be about two percent of the total cost, is much less than many purchasers imagine, and according to Askin, quite a fair price considering all the work a trader puts into a transaction.
John Packard, publisher of Steel Market Update, took the podium next to explain the distribution and service center level of the steel supply chain. While some larger customers buy product directly from steel mills, there are many benefits to buying through service centers-especially for smaller customers-including "just in time" delivery, value-added processing, small quantities, unusual items, and a variety of sourcing options. Packard also illustrated the destination percentages of mill shipments, which, surprisingly, varied depending on the product. For example, galvanized products are evenly split between service center purchases, toll processors, and OEMs. However, 75 percent of plates are purchased by service centers and 25 percent go to OEMs. Lastly, Packard listed the top 25 service centers by revenue, with Reliance Steel & Aluminum Co. at the top, and Majestic Steel rounding out the bottom of the list.
Wrapping up the afternoon's presentations was Bob Drew, Logistics Manager of Tata Steel International, for an in-depth look at the logistics of steel trade. According to Drew, several factors have affected the rollercoaster of freight rates recently, including the unwavering growth of the Chinese steel industry, several new ships entering the market, and the volatile international iron ore trade. In fact, because China did not suffer as significantly as the rest of the world during the recent economic crisis, Drew predicted that they would drive short- and long-term improvement in the ocean freight market. Additionally, Drew outlined the benefits and drawbacks of inland transportation (rail, truck and barge), noting that the choice for each depends mostly on customers and their specific requirements for delivery time and total cost.
The workshop adjourned after an open-book quiz, and attendees made use of the early evening by meeting old friends for dinner or establishing new contacts over drinks. Later that evening, enlivened with live music and the warm, inviting scents of the taco bar, registered participants of the Steel Trade Conference joined workshop attendees to kick off the conference's Welcome Cocktail Reception on a patio overlooking the pool at the Omni Hotel. Although most people congregated near the open bar-not unusual in a steel industry event-there was enough activity throughout the venue to ensure that the primary aim of the conference-networking-was clearly a success.
Optimism peppered with hope: SteelOrbis Steel Trade Conference, Day 2
Day two of SteelOrbis' annual Steel Trade Conference kicked off with a whirlwind of excitement, as industry professionals from all over the world gathered to learn more about market happenings from experts in the field.
Starting off the day was a visibly electric presentation by Don McNeeley, President and CEO of Chicago Tube & Iron. Speaking of economic factors impacting the economy as well as the loss of viable manufacturing jobs, a key focus of his speech surrounded topics such as sustainability of private business beyond first and second generation owners, the impact of stimulus funds to manufacturing, increasing national debt, and how this will impact future generations as they grow into adulthood.
While a number of people in steel have spoken about a "V-shaped" recovery, McNeeley feels it's been more of a "U", with us just now having begun the slide toward an upswing, further noting a more steady, diagonal uptick , as opposed to the marked rise typically indicated by this type of pattern, is most probable.
Looking historically at economic expansions and recessions, however, he points that the average market return in the six months after is at approximately 10.6 percent. Hope, it seems, is on the horizon. Wrapping up, he indicated that inflation is in check (for now, at least), that "less bad" is upon us, and that the steel industry cash positions are strong.
Second on the day's agenda was a steel-trade cage match of sorts between trade attorney Louis Leibowitz (partner in Hogan Lovells US LLP) and Tom Danjczek, president of the Steel Manufacturers Association. Delving into a myriad of topics, including the plusses and minuses of investment in domestic steel production (such as the proposal by China's Anshan corporation to build a rebar facility on US soil, Leibowitz says "yay", Danjczek says "nay"), the at times heated debate brought light to both sides of the coin, with each having made compelling arguments supporting their respective decisions.
Wrapping up the day were market updates by George Adams, President of SA Recycling (raw materials); Carlos Amezcua, Trading Manager, Tata Steel International (long products); Josh Spoores, Market Research Manager, Majestic Steel (flats); Paul Vivian and Rick Preckel, Principals, Preston Publishing (pipe and tube); and Anton Posner, Senior VP, MID-SHIP Logistics (logistics).
There are still issues of concern, noted Adams, speaking of China's government's decision to slow economic growth, the insolvency in Greece, and similar concerns about Spain, Portugal, Ireland, and other countries throughout the globe. The good news for the scrap industry, however, is that despite recent challenges and market volatility, scrap metal prices have bottomed and should once again start to rise.
Moving to longs, Amezcua pointed out that the demand for both domestic and imported rebar should grow in double digits for the next five to six years, although new home starts need to again reach an annual mark of one million (as opposed to the 593,000 we're at currently) in order to see solid indications of recovery. As for wire rod, the future of the market is quite uncertain, he said, with an equal share thinking the bottom has been reached, and that only minor price corrections will be seen based on the low volume currently being traded.
Shifting focus to flats, Spoores discussed how seasonal factors and stimulus funds impact true market demand. "Demand levels have masqueraded as sustainable and convinced everyone in the supply chain to build from depressionary lows," he said. "But as the growth rate of demand has slowed and now falls, too much production is chasing too little demand, and inventories now appear excessive based on this lower demand. Steel production just appears too high for the current level of demand."
Looking at pipe and tube, Vivian and Preckel were more optimistic, pointing out that natural gas prices remain above expectations, and that drilling levels have recovered substantially since reaching bottom. This, they feel, is a bright spot for the energy pipe market. "OCTG consumption remains strong, although line pipe lags further than usual," they said. "But expectations are of continued sharp cycles with general upward trend."
Lastly, Posner spoke to current conditions for the US truck freight market. "Driver shortages and new regulations, along with increased cargo compared to last year is creating a difficult market for shippers looking for reliable, competitive truck freight in the US," he said. "And analysts are forecasting the industry will fall approximately 70,000 drivers short of hiring goals for the third quarter." The good news, though, is that there are some recent reports of truck scarcity easing compared to early June.
All in all, it was a day of conversing, business card swapping, and steel market discussion, with attendees, both novice and tenured, feeling as if they took something important with them when they left. For now, we look to the third quarter and beyond with cautious optimism, and look forward to stepping out of the economic shadows and into the light of recovery.