American Metal Market's Steel Success Strategies XXII, held in New York, New York from June 18 through 20, gathered the big movers and shakers in the steel world with the theme, "New World, New Opportunities, New Crises." The conference featured panels comprised of major market players (such as Daniel DiMicco of Nucor, James P. Bouchard of Esmark, Lou Schorsch of Mittal Steel USA, among others) that discussed the major talking points this year: China, both as a threat and as an opportunity for new growth; consolidation and its beneficial effects on the market; and the outlook for domestic steel's future, among other topics. Highlight speakers included Prashant Ruia, managing director of Essar Steel, and the legendary Lakshmi N. Mittal, President and CEO of ArcelorMittal. The Keynote speech was given by John P. Surma, Chairman and CEO of U.S. Steel.
In the panels' and speakers' evaluations of the market for US and North American steel, the mood was, by and large, optimistic. One recurring theme was the attractiveness of the North American market. Madim Makhov of Severstal discussed the competitive advantages of the North American market, which is rich in coal and iron, has a relatively strong economy and strong demand from the growing population. Keith Busse, chairman and CEO of Steel Dynamics Inc., mentioned these factors as well and also reminded the audience that with the record profits seen over the past few years, North American steel companies have been able to invest heavily in infrastructure, including the modernization of their facilities, which has helped to cut costs since the new technologies require less manpower.
Ongoing consolidation among steel producers was also repeatedly cited as a major trend that bodes well for the US steel industry's future. Most speakers acknowledged consolidation as being a crucial factor for the steel industry's major upswing which began in 2004, or, in other words, the reason why the "Steel Survival Strategies" conference was eventually renamed "Steel Success Strategies." Mr. Busse told the audience that the steel industry has become more rational in recent years with more vision and commitment, and has become on profitability rather than how many tons are shipped. He said that consolidation has allowed big companies to have more control over production and supply, resulting in less price volatility. Several speakers also mentioned that the world steel market as a whole will see increases in demand over the coming years as newly-industrializing/developing nations such as China and India start to build more infrastructure for their growing urban populations. Jim Lennon, Executive Director of Commodities Research, told the conference-goers that while China will remain a net exporter for the years to come, its exports will slow down as the Chinese urban population grows to his estimate of 1 billion by the year 2020. Looking at India, Sajjan Jindal, Vice-Chairman and Managing Director of JSW Steel Ltd., said that India's steel consumption is also growing at a relatively steady rate, and while it will be one of the major steel producers and consumers in the next four to five years, it won't be a net exporter of steel (or as some fear, "another China").
Opportunities for growth in the US steel sector was another major theme discussed, and the general sentiment among the conference participants was excitement for the many possibilities that lie ahead, including further consolidation in the steel industry at large, greenfield projects, upgrades for both products and facilities, and the expansion of steel usage for more applications and downstream markets. Another new possibility that some say could improve price volatility is steel futures, a topic discussed by certain speakers with great excitement and optimism, including Peter F. Marcus of World Steel Dynamics and Martin Abbott, CEO of the London Metal Exchange, among others. Mr. Mittal told the audience that there are more opportunities for consolidation and that the industry needs to look towards the future to maintain long-term sustainability by making investments in improving operations as well as the supply chain. He believes that the industry should promote the use of steel in a variety of applications such as in construction instead of concrete. As for steel futures, Mr. Mittal did not seem to be in favor of the idea, telling the audience that futures, citing LME in particular, "are not a solution for price volatility." Mr. Mittal believes that consolidation and discipline among the companies that control production, rather than the intervention of financial institutions, have greater control over price volatility (An audience poll showed that most of the attendees agreed with Mr. Mittal).
Now for the factors deemed as threats to the domestic steel market, which John Surma aptly named "dark clouds on the horizon." China was by far the darkest cloud on most of the attendees' horizons. Antonio Marcegaglia, CEO of Italian industrial and financial organization, Marcegaglia, echoed the sentiment of much of the US steel market, saying in his presentation that while export taxes and VAT rebate reductions for certain Chinese steel products are being put into effect, many products, such as OCTG and other high-value products, still enjoy hefty export rebates. He expects that China will continue to play a large roll in steel exports and indirectly through manufactured goods. "Accepting a shrinking domestic market is not good," he warned. John Surma told the audience that if China continues to add capacity and the export restraints aren't followed through with, the cloud could turn into a "thunderstorm" of further subsidization and government ownership, resulting in trade frictions that could destabilize the whole industry. On the bright side, he said, that everyone is monitoring this situation very closely.
Other topics of concern among the attendees and speakers were global warming, the aging steel workforce, and a possible shortage in raw materials. As for global warming/climate change, both Mr. Surma and Mr. Mittal acknowledged the issue as well as their intent to be part of the solution, while making it clear that other steel producing countries (namely China) must enforce the same environmental standards as the US. Mr. Surma said that while steelmaking is not necessarily a major contributor to global warming, with worldwide steel works accounting for three to four percent of total carbon dioxide emissions, the steel sector should be part of the solution, not a contributor to the problem. He said that the solution must be a global decision that all steel-producing countries must participate in, since, for example, if carbon emission caps were enforced for just certain countries, production would just be moved to other countries with more lax standards. Mr. Mittal also said in his speech that global warming is a global problem that needs a global solution. He informed the audience that ArcelorMittal is currently investing in research and technologies to reduce carbon dioxide emissions.
As for the outlook for the US steel industry in the long term, a few concrete predictions were made. Peter F. Marcus and Karlis M. Kirsis, Managing Partners of World Steel Dynamics, said that the outlook for domestic hot rolled band in 2008 is highly favorable for the steel mills, and that a bottoming out in pricing will happen in Q3. They even see a "volcanic surge" in HRB pricing by spring 2008. In general, they predict domestic steel prices will be on the upswing by October. Mr. Bouchard of Esmark predicts that the domestic flat rolled market will rebound as soon as August, and expects a slight shortage of cold rolled coils to be seen at this time.
All in all, the sentiment at the conference about the future of the domestic market was a positive one, or in the words of John P. Surma, despite the few dark clouds on the horizon, the near-term forecast is "mostly sunny."