The State of Steel: What comes after the deluge?
By Corinna Petry
Published: March 1, 2010
Held in the wake of one of the most wrenching years in steel's history, AMM 's second annual State of Steel Conference took a clear-eyed look at the promise and perils that await the industry in the months ahead.
The temperature outside was a balmy 60-some degrees. The atmosphere inside the Sheraton Sand Key in Clearwater, Fla., was decidedly less temperate as more than 20 presenters and panelists gathered in late January to exchange views on the state of the North American steel industry
Coming in the wake of one of the most wrenching years in the industry's history, AMM's second annual State of Steel Conference featured a lineup of top steel executives, including Steel Dynamics Inc.'s Keith Busse, Gerdau Ameristeel Corp.'s Mario Longhi, AK Steel Corp.'s James Wainscott, TMK Ipsco's Vicki Avril and Eurofer's Gordon Moffat. Also in attendance was an audience eager to hear the latest assessments of experts drawn from across the industry gauging steel's prospects for the year ahead.
First up to the microphone was Thomas C. Graham, founder of T.C. Graham Associates and former chairman and chief executive officer of AK Steel, who opened the conference with remarks identifying the three individuals who he deemed had wielded the most influence on the evolution of the steel industry.
The event's highlight presentation was delivered by AK Steel's current chairman, president and chief executive officer, James Wainscott, who addressed steel's role in a "green energy" economy. Wainscott wasted no time tackling the subject, reminding the audience that steel is a bone fide green product that is recycled more than aluminum, copper, paper and plastic combined. He noted, however, that "some see our industry merely as one to be permitted, regulated and taxed."
While AK is involved in outfitting several of its production facilities with energy-conscious technology, including a co-generation coke plant at the Middletown (Ohio) Works designed to produce up to 550,000 tons of coke and 46 net megawatts of electricity annually, Wainscott said that the growing emphasis on renewable energy and energy efficiency will open up new applications for steel. "Wind and solar will be important in the future and steel will have a role," he said.
His outlook for electrical and advanced high-strength steels (AHSS) for automotive applications was upbeat. Wainscott noted that electrical steels, a mainstay among AK's product offerings, can be used to upgrade the country's aging power grid as well as play a role in the manufacture of high-efficiency motors, including hybrid electrical drive systems. Wainscott predicted that "2010 will show a slow but steady recovery in demand for electrical steel. The world has a growing need for more-efficient electrical power."
On the auto steel front, Wainscott highlighted the role AHSS is playing in helping automakers meet tougher miles-per-gallon and emission control standards. "Although cars are smaller and lighter, they are safer than ever," he said, referencing an Automotive Insurance Institute's crash test pitting a 1959 Chevy Bel Aire against a svelte 2009 Chevy Malibu. The Malibu won.
AK's top executive also took a few minutes to bring the audience up to speed on the commercialization of a lightweight urban transit hybrid bus featuring a high-strength stainless steel body, a hybrid power system and a chassis made of Nitronic 30, a nitrogen-strengthened stainless pioneered by AK Steel. The use of the stronger, stiffer Nitronic 30 stainless in the 40-foot-long, green-technology bus translates into reduced chassis weight and substantially enhanced fuel economy, Wainscott said.
In addition to a panel addressing steel exports and whether or not a weak dollar will strengthen U.S. mills' export activity, the conference featured a series of discussions orchestrated around major end markets, including construction and infrastructure and automotive.
Tom Danjczek, president of the Steel Manufacturers Association, in his opening remarks described the federal surface transportation funds as "not cutting it" and the jobs bill as "woefully inadequate." Only 4,000 projects funded by the economic stimulus have been started or completed while another 21,000 have not yet begun, he said.
Jim Fritsch, executive vice president for strategic planning at CMC Americas, a division of Commercial Metals Co., echoed Danjczek's assessment. The American Recovery and Reinvestment Act (ARRA), approved nearly a year ago, "was going to jump tall buildings in a single bound, stop locomotives," Fritsch said. "It didn't happen."
Fritsch, too, criticized Congress and the Obama administration for not targeting relief to the areas that make the most sense. "Traditional job creation equals construction projects," he said. "But we are dealing with ambiguity and conflicting signals" from Washington about exactly how the government will stimulate job growth.
CMC estimated that only 6.2 percent of the total $787 billion ARRA spending package was earmarked for infrastructure improvements, while 82 percent of China's $586-billion stimulus program was earmarked for infrastructure. "China did it better," Fritsch said. "What the United States needs to do is foster confidence in construction, and stop (Congress from) funding pet projects."
The government also should be solving the structural problems that caused the recession, practices that led to detrimental results ranging from bad loans to the large trade deficit, Fritsch said. "This recession, as it was sparked by the financial crisis, is different from other recessions." And the consensus opinion is that it will take a long time to get back to the super-cycle of steel demand from builders. "Credit is still tight," he said, leading to weak demand from most construction-related sectors, especially Big Box retailing.
King Gee, associate administrator at the U.S. Transportation Department, said the government had approved 89 percent of the funds available under ARRA, but 51 percent of the infrastructure funding went to pavement improvements. How the money is spent is decided by states, counties and cities, Gee explained, and a majority of local governments chose asphalt-intensive projects that would match funding deadlines set by the federal government. "This was due to a huge push to get money out quickly," he said.
Gee agreed that a decision on a new surface transportation bill "is past due," but with the federal deficit and other priorities—including health care and climate change—"maybe infrastructure comes in third. It will be a challenge to get it approved."
Tony Taccone, a partner at First River Consulting, reviewed forecasts from various sources, all of which indicated that a true and sustainable recovery for the U.S. construction market may take four years to realize. The forecasts were supported by data showing consumers were continuing to pull back on spending and reduce their household debt. Taccone said consumers would spend the next several years in this mode.
It also is likely to take several years before automotive sales, especially in North America, return to levels seen in the mid- to late 2000s, members of the conference's auto panel predicted. In the meantime, research and development to reduce vehicle weight while improving passenger safety continues apace.
Ron Krupitzer, vice president, automotive applications, at the American Iron and Steel Institute's Steel Market Development Institute, said that the partnership between automakers and steelmakers had achieved vehicle weight reductions of between 22 and 32 percent from 2002 to 2009. Future-generation vehicles are on track to see a further 30-percent reduction in the weight of the passenger compartment, a 32-percent reduction in the front-end structure and a 34-percent reduction in the rear chassis.
The newer, lighter vehicles are actually safer than the steel-intensive cars of the past, he said. Goals for the future steel vehicle? Making cars 35 percent lighter, stronger and reducing greenhouse gas emissions in the steel production process, a trend driven by stricter emission regulations across the globe.
Addressing global automotive sales, Richard McLaughlin, a steel specialist and managing partner at Deloitte Consulting LLP, predicted sales volumes will grow, especially in the developing world, and automotive manufacturing will migrate to those emerging, low-cost regions with free-trade zones. More vehicle sales will mean more steel use, but this trend will emerge slowly—over decades, not quarters, he said, noting that the projections came out of a Deloitte study on the global auto market.
"High-cost countries will see capacity close and this capacity will migrate to a 'New Detroit'," McLaughlin said. In China and India, consumers' appetite will grow for higher-end products, including vehicles that are safer. High-end specifications are not as developed in these regions as in the mature economies, although specifications matching consumer expectations will develop quickly. "Vehicles will become more sophisticated in short order," McLaughlin said.
The role of the developed economies? The West doesn't have to be left out of the equation entirely, McLaughlin said. "The alliance model might help western automakers," he suggested, citing the Renault/Nissan partnership announced just last year. "About half of the auto industry developed in China to date is the result of joint ventures with western companies."
Near term and closer to home, the credit crunch will continue to keep consumers away from auto showrooms. McLaughlin expects the trend of consumers paying down debt and reducing their spending will persist until the economy stabilizes and confidence expands. CORINNA PETRY