Federal Reserve Bank Economic Outlook Symposium
Transcript of Federal Reserve Bank Economic Outlook Symposium
Th
e A
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ittal O
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Steel Market Outlook Federal Reserve Bank
Economic Outlook Symposium December 4, 2015
Robert Dicianni
ArcelorMittal USA
Topics for Discussion
• Key indicators
• Key steel consuming markets
• Steel consumption trends
• Global steel market and raw materials
• Questions
1
2
U.S. Gross Domestic Product (GDP) Real GDP Growth vs. Prior Years 2000-2014, Forecast 2015-2016 Source: U.S. Department of Commerce; September Blue Chip for 2015-2016 forecasts.
4.1%
1.0%
1.8%
2.8%
3.8%
3.3%
2.7%
1.8%
-0.3%
-2.8%
2.5%
1.6%
2.2%
1.5%
2.4% 2.4%
2.9%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
200
0
200
1
200
2
200
3
200
4
20
05
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6%
Annual G
DP
Gro
wth
3
Industrial Production Index (IP) Percent Change in Index vs. Prior Years 2000-2014, Forecast 2015-2016 Source: U.S. Federal Reserve Board; base year for index 2007: September Blue Chip for 2015-2016 forecasts.
4.0%
-3.3%
0.2%
1.3%
2.3% 3.2%
2.2% 2.7%
-3.5%
-11.4%
5.7%
3.0% 2.8% 1.9%
3.7%
1.3% 1.6%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
20
11
201
2
201
3
201
4
201
5
201
6%
Annual G
row
th
IP has had stronger growth than the economy as a whole throughout this recovery period. However in 1H15 this
trend ended as no growth was recorded in the 1Q15 IP (+0.1%) and the 2Q15 IP index contracted (-1.4%). The
causes were bad weather (a factor in 1Q15), a strong dollar and reductions in oil drilling activity.
After contracting in 1H15 vs. December 2014 index data, IP is forecast to grow in 2H15 and into 2016,
Consumer spending should drive growth in 2015 and 2016 while declines in drilling activity are moderating
Manufacturing Index
4
Key Steel Consuming Markets
Construction
6
900
554 586 612
784
928
1001
1112
1297
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
0
200
400
600
800
1000
1200
1400
2008 2009 2010 2011 2012 2013 2014 2015 2016
Housing Starts y/y change
1372
775
671 673 707
780
950
1050
1150
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
0
200
400
600
800
1000
1200
1400
1600
2008 2009 2010 2011 2012 2013 2014 2015 2016
Millions of Square Feet y/y change
Housing Starts ‘000 units, SAAR
Nonresidential Building Square Feet
Source: Global Insight, Nov 2015
7
Automotive
• Pent-up demand from the recession is not expected to be exhausted until 2016/2017.
• The average age of vehicles on the road is now over 11.5 years. The fleet is old and needs to be replaced.
• Fleet sales were low from 2009 through 2012, adding to pent-up demand.
• Auto credit markets are improving, slowly. OEMs will initially absorb the effect of interest rate increases.
• As the housing market improves demand for pickup trucks is improving.
• While gasoline prices are high, improved fuel economy of new vehicles has become a positive for sales. OEMs offer more high mileage vehicles than in the past.
• Although the unemployment rate is not improving significantly as the economy continues to expand the workforce is increasing every month and this adds to demand for new vehicles.
• 2015 will be record production for NAFTA
Source: AM USA Marketing
15
12.6
8.5
11.8 13.1
15.4 16.1 16.9 17.5 17.8 18.2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
North America Auto Production
(millions of units)
16.1
13.2
10.4 11.6
12.7 14.4
15.6 16.4
17.3 17.5 17.7
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
US Auto Sales (millions of units)
Light Vehicle Inventory - Units
Source: Wards Automotive
8376
6875
657074
62
72
107115
95
126
108
8885
6965
48
30
576564
52
7268
5457
48555153
59
7171
56
73
605656
5257
515252
6165
53
71
61585854
61575861
7674
60
78
666265
59615856
65
8081
67
93
78
6571
62626457
68
7973
63
83
71
6267
57625956
61
72
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
2008
May
Sept.
2009
May Se
p20
10M
ay Sep
2011
May
Sept
2012
May
Sept
2013
May
Sept
2014
May
Sept
2015
May
Sept
0
20
40
60
80
100
120
140
DAYS' SUPPLY TOTAL LIGHT VEHICLE
Light Vehicle Inventory – Days Supply
8
U.S. Auto Inventories
9
Heavy and Medium Duty Truck
• The driver for class 8 truck demand is GDP growth.
• Truck demand is strong, capacity is limited, and trucker profitability is strong, but we are approaching the peak of the cycle.
• Demand has stopped growing. Cutbacks in energy have been high. Drop in steel shipments have been felt by the truck industry.
• As demand falls profitability will fall.
• High prices for used trucks will help demand for new trucks over the next few years.
• Government regulation continues to reduce capacity and this will offset some of the lost demand from a slowing economy.
• Driver shortages also continue, helping to reduce capacity.
• The next EPA mandate will be in 2020. We expect a few slower year before there is a strong buy forward in 2019 and 2020 to beat the government mandate.
• Another CAFÉ is expected in 2021.
Source: ACT Research, September 2015
253 275
207
156
98 118
167 195
208 232 231 232
246 251 266
283
Class 5-7 NAFTA Production
(000s of units)
339 376
212 206
118 154
255 279
245
297 336
296 250 259
294 329
Class 8 NAFTA Truck Production (000s of units)
• The driver for medium duty truck demand
is consumer spending.
• The forecast is just now approaching the
replacement level over the next few years.
Growth will continue to be slow and
steady.
• Recovery in the housing market will
support continued growth over the next
few years as the heavy duty market
tapers.
• Forecast includes bus and RV
USA Energy Market Steel Demand (millions of tons)
3.6
4.9 5.1
2.3
3.2
3.9
4.8
4.3 4.2 4.4
3.5
0
1
2
3
4
5
6
line pipe
4.9 4.6
5.2
3.2
4.7
5.9 6.2
5.9
8.1
3.9
3.2
0
1
2
3
4
5
6
7
8
9
OCTG
10
Totals:
2014 - 12.3
2015 - 8.3
2016 - 6.7 Source: Preston Pipe and Tube Report, November 2015
USA Service Center Data: Carbon Flat Roll Shipments & Inventory
11
4400
4600
4800
5000
5200
5400
5600
5800
6000
6200
6400
1500
1700
1900
2100
2300
2500
2700
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
En
d In
ve
nto
ry (
,000
to
ns)
Sh
ipm
en
ts (
,000
to
ns)
Service Center Monthly Shipments and Inventory
Shipments
Inventory
Source: MSCI
USA Service Center Data: Carbon Flat Roll Months-on-Hand
12
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
3.1
3.3
3.5
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Months on Hand
Source: MSCI
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Aug Jul Jun May Apr Mar Feb Jan
2015
Dec Nov Oct Sep Aug Jul Jun May Sep Mar Feb Jan
2014
Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan
2013
Oct Apr
HR CR Coated
Shipments HR CR Coated Total LFR
Jan-Oct 2014 14,931 3,022 6,029 23,983
Jan-Oct 2015 13,753 3,054 5,530 22,337
Diff: Tons -1,178 31 -499 -1,646
Diff: % -8% 1% -8% -7%
Flat Roll by Product - Average Daily Shipment Rate:
Y/Y % Change
Source: MSCI
Steel Markets Direction in 2016
Auto
Residential Construction
Non-residential
Construction
Machinery
Appliance
Electric motors
Infrastructure
Energy
Steel Inventories
Source: AMUSA analysis
There is no expectation that we will
see robust growth any time soon.
Most steel market are still slowly
recovering from the recession.
Auto will increase slightly in 2016 as
the offset of the F150 is behind.
Non-res will add about 2 million tons
of demand in 2016.
Energy activity will continue to drop
but not as much as in 2015.
Steel inventories start the year high,
will draw in Q1 and should add to
demand as the year progresses.
USA Apparent Steel Consumption
Millions of short tons % change
2013 106 1%
2014 118 12%
2015 114 -3%
2016 116 2%
About 3 million tons of the 2014 increase was an inventory overbuild due to a late year surge in
imports.
USA Apparent Steel Consumption million of short tons
0
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1953 – 22%
1957 – 22%
1973 – 23%
1981 – 27%
2009 – 41%
Drop in ASC in
select recessions
Source: AISI, AM Marketing
Steel Consumption Trends
Weekly US Raw Steel Production
Capacity Utilization
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
2015 2014 2013 2012 2011 2010 2009 2008 2007
Weekly Utilization
11/14/2015
67.0%
12/7/2008
33.5%
Source: American Iron & Steel Institute
Steel Imports and Shipments
19
5.9 6.1 6.3 6.4 6.0
7.2
8.4
8.7 9.3 9.7
8.2 7.3
-20%
-10%
0%
10%
20%
30%
40%
50%
-
2
4
6
8
10
12
4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd
2012 2013 2014 2015
Q-Y
-Q %
incr
ease
Mill
ion
Net
Ton
sFinished Imports
22.3
23.6 23.8
24.5
23.6 23.9
24.9
25.3
23.8
22.0 22.0 22.2
-20%
-10%
0%
10%
20%
30%
40%
50%
20
21
22
23
24
25
26
4th 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd 3rd
2012 2013 2014 2015
Q-Y
-Q %
incr
ease
Mill
ion N
et T
ons
Domestic Shipments
Source: AISI, US Dept of Commerce
0%
5%
10%
15%
20%
25%
30%
400
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
Mar
Feb
Ja
n
De
c
No
v
Oct
Se
p
Au
g
Ju
l Ju
n
Ju
l Ju
n
Ma
y
Ap
r M
ar
Feb
Ja
n
De
c
No
v
Oct
Se
p
Au
g
Ju
l Ju
n
Ma
y
Ap
r M
ar
Feb
Ja
n
De
c
No
v
Oct
Se
p
Au
g
Ju
l
Fla
t roll im
ports
Im
port
s %
of A
SC
Au
g
Ap
r M
ar
Feb
Ja
n
Ju
n
Ma
y
Ap
r
Ma
y
Ap
r M
ar
Feb
Ja
n
Dec
No
v
Oct
Se
p
Aug
Ju
l Ju
n
Ma
y
Import % of ASC
Annual Average (Import % of ASC)
Flat Roll Imports
Year 2011 2012 2013 2014 2015 YTD (Aug)
Avg Imports % of ASC 14.3% 15.9% 15.6% 22.7% 24.3%
U.S. Flat Roll Imports and Import % of ASC
(Carbon & Alloy)
2011 2012 2013 2014 2015
Source: AISI.
Trade Cases and Sunset Reviews Trade Cases:
• Welded API Line Pipe – Filed 10/16/14 – USITC Final Decision in Due Nov 2015
– Against Korea and Turkey
• Corrosion Resistant Steel – Filed 6/3/15 – DOC Preliminary Determination due Nov 2015
– Against China, India, Italy, Korea, Taiwan
• Cold rolled Steel – Filed 7/28/15 – DOC Preliminary Determination Due Oct 2015
– Against Brazil, China, India, Japan, Korea, Russia, UK
• Hot rolled Steel – Filed 8/11/2015 – DOC preliminary Determination Due Nov 2015
– Australia, Brazil, Japan, S.Korea, the Netherlands, Turkey, UK
Sunset Review:
• Cut-to-length plate – Hearing in Sep – Decision Due Nov 2015
– China, Russia, Ukraine
21
22 Source: SIMA, Census Bureau
* Jan-Sep actual imports, Oct Import licenses
U.S. flat roll imports by country YTD* (Oct) in million metric tons, carbon and alloy
5% 7%
CANADA
19%
NETHERLANDS
4% GERMANY
4% INDIA
TAIWAN
5%
MEXICO
5% JAPAN
5%
Others
18%
BRAZIL
CHINA
17% KOREA
10%
2015 YTD (Oct) Total: 12.33m
Steel mills in China are not
generating profits
646 572 551 480 399 0
100
200
300
400
500
600
700
2011 2012 2013 2014 2015e
USD/MT HRB operating cost Median Mill, China
HR Band OperatingCost Median MillChinese
Source: WSD (operating cost) ; June 9, 2015
- 70% of the Chinese
industry is believed to
be unprofitable today
- If Chinese domestic
and export prices do
remain low for longer
than expected, this will
would provide a clear
basis for more trade
actions
U.S. Manufacturing and Indirect Steel Trade Deficits Source: U.S. Commerce Department, Bureau of the Census and AISI
2010 2011 2012 2013 2014 2015
ROW (300) (348) (337) (339) (399) (428)
China (298) (325) (349) (341) (364) (361)
50% 48% 51% 50% 48% 46%
-$900
-$800
-$700
-$600
-$500
-$400
-$300
-$200
-$100
$0
$ B
illi
on
– N
et
An
nu
al
Tra
de
U.S. Manufacturing Trade Deficit 2010-2015* Source: U.S. Census
*2015 data is annualized based on 6 mo.
2010 2011 2012 2013 2014
ROW -6.2 -7.1 (8.0) -8.2 -10.4
China -5.7 -6.3 -7.0 -7.2 -7.7
53% 48% 47% 47% 43%
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
Ind
ire
ct S
tee
l D
efi
cit –
Mil
lio
n N
et
To
ns
U.S. Indirect Steel Trade Deficit 2010-2014
Source: AISI
Total Manufacturing Exports (annualized June YTD) are down 6% with further drops in steel intensive categories or primary metals (down 8% vs. 2014), fabricated metal products (down 3%) machinery (down 6%) and petroleum (down 30%).
Global Markets and Raw
Materials
26
Steelmaking Raw Material Input Costs 2009-2015 Averages and October/November 2015
2009 – June 2012 = SBB, July 2012 - Present = Platts
All charts in $ per metric ton except for Scrap
$160
$246
$392$403$416
$495
$428
$263
2009 November
’15
2015
YTD
2014 2013 2012 2011 2010
#1 Busheling Chicago Scrap AMM ($/GT) Platts IODEX 62%CFR China
Metallurgical Coke SBB/Platts Australian Hard Coking Coal CRU/SBB
$58
$97
$135$130
$169
$147
$80
$53
2015
YTD
2014 2013 2012 2011 2010 2009 October
’15
$123$150
$195
$258
$444$473
$456
$408
October
’15
2015
YTD
2014 2013 2012 2011 2010 2009
$79$90
$113
$147
$191
$294
$219
$145
October
’15
2014 2013 2012 2015
YTD
2011 2010 2009
27
Steelmaking Raw Material Input Costs 2009-2015 Averages and October 2015
All charts in $ per metric ton
Source: AMM, LME, AM 3-month ask
Zinc: LME Aluminum: LME
Tin: LME
$1,751
$2,012
$2,168
$1,941$1,965
$2,213$2,187
$1,682
2015
YTD
2010 2009 October
’15
2014 2013 2012 2011
$15,744$16,300
$21,886$22,329$21,125
$26,128
$20,430
$13,377
2015
YTD
October
’15
2014 2013 2012 2011 2010 2009
$1,547
$1,741
$1,895$1,888
$2,051
$2,422
$2,199
$1,699
October
’15
2014 2015
YTD
2013 2012 2011 2010 2009
Raw Materials Cost Drivers
28 Source: World Steel Association – Short Range Outlook (October 2015)
1,5231,5131,5401,528
1,4391,412
1,308
1,151
1,2261,218
1,139
0.7%
6.2%
1.9%
-6.1%
13.7%
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
20
16
f
20
15
f
-1.7% 2
01
4
0.7% 2
01
3
20
12
ASC % Change Y/Y
20
11
7.9%
20
10
20
09
20
08
0.7%
20
07
20
06
9.2%
ASC % Change Y/Y
Global Apparent Steel Consumption (Finished Steel Products) million metric tons
Global ASC Growth Forecast by Region 2015 & 2016 (% Change Y/Y)
2015f
Global -1.7%
China -3.5%
C&S America* -7.3%
CIS -10.9%
EU28 1.3%
NAFTA -2.7%
2016f
0.7%
-2.0%
2.0%
0.0%
2.2%
2.1%
* Central and South America
Iron Ore Market Conditions • Cliffs Natural Resources has shuttered a Canadian mine.
• MMX Sudeste Mineraca SA, in Brazil, filed for bankruptcy production in October and as
of Feb has stopped operations.
• “A slide in iron ore prices is turning the screw on China's fragmented mining sector,
paving the way for closures and consolidation with three-quarters of the country's mining
capacity at a loss (Yahoo Reuters March 27, 2015)
• More than 60% of China’s iron ore miners will be eliminated this year (2015), said Lei
Pingxi, deputy chairman of Metallurgical Mines Associates of China (MMAC),
• Chinese iron ore production capacity; estimated average cost per ton (mmt) (source: WSD)
– Cost: $150/ton & up 70m tons
– Cost: $110 - $125/ton 140m tons
– Cost: $95 - $110/ton 140m tons
– Cost: $85 - $95/ton 100m tons
– Cost: less than $80/ton 155m tons
– Total 605m tons
29
Summary
• U.S. growth is still slow in several markets
• Auto is outstanding; how long will it last
• Global growth is slow in several markets
– China soft landing
– Europe political risk & instability
• Longer term impact on raw materials will still need to shake out
– Adjustments in market fundamentals should be expected
• Questions
30