Solving the China Puzzle

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AMERICAN METAL MARKET CONFERENCE
Solving the China Puzzle
Session II Running the Numbers
Thomas A. Danjczek President Steel Manufacturers
Association September 28, 2006 Rev. 9/1/06
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American Metal Market ConferenceChina Impact
and Outlook
Last Year

• 6 Cs for China
• -Currency
• -Capacity
• -Concerns and Challenges
• -Compliance
• -Conclusion

Thomas A. Danjczek President Steel Manufacturers
Association October 25, 2005
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LAST YEAR - Oct. 2005 -Currency
-Capacity (steel-making) -Concerns/Challenge
s -Compliance -Conclusion
UPDATE - Sept. 2006
-Still a dirty float, with only a minor change
U.S. Congress upset -Out of control
government-subsidized growth -U.S. trade deficit
grows steel trade exports increase loss of
customer base -Chinas trade policies and laws
not enforced, regarding emissions and competitive
facilities arbitrary VATs -Trends worsen in
2006 trade disruption due to state subsidies and
currency manipulation when will China play by
market rules?
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AMM Solving the China Puzzle
Chinas Steel Production
-July 2006 Chinese steel production 2nd highest
of all time - down 14 from June
2006 -2006 419 annualized million tons
projected after 7 months first half of 2006
198.8 million tons vs. 163.8 million tons in
first half of 2005 21.4 increase -2005 349
.4 million tons -2004 280.5 million
tons -2000 126.3 million tons
Data from MAR, Citigroup, Soleil
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AMM Solving the China Puzzle
Chinese Steel Trade
-July 2006 Chinese steel exports dropped to 2.85
million tons (mt) (Intolerable) from record June
level of 3.76mt. However, steel exports from
China to U.S. through July were over 2.64mt,
up over 60 from the comparable period in
2005, with .5mt in July alone.
Finished Steel (in million tons)
Imports Exports
-2006 18.75 (annualized) 35.4
(annualized) -2005 25.82 20.52 -2004
29.26 14.22 -2003 37.16 6.95
Imports at 10.54, exports at 20.67 through July
2006 24 of exports to Korea, 13 to U.S.
Data from MAR, Citigroup, Soleil, and U.S.
Department of Commerce
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AMM Solving the China Puzzle
U.S. Trade Deficit
June 2006 -64.8 billion trade deficit
(65.0 in May, 63.3 in April) 2006 Annual
Rate -800 billion U.S. trade deficit Key
Stats -Of the 64.8 billion in June 2006, 19.7
billion w/ China (up from 17.2 billion in
May) 24.7 billion in petroleum -Since
Yuan revalued in July 2005, 8.28 to 8.11 in
July 2005, to 7.96 today 4 a year???
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AMM Solving the China Puzzle
Conclusion

• Imbalances cant go on forever. Ernesto
  Zedillo
• Business investments will stay healthy over the
  next six months (Business Roundtable)
• Chinese steel market is facing risk of reliance
  on export market to absorb domestic
  overproduction (Citigroup)
• Steel industry will remain cyclical, but the
  downturns will be shorter and the valleys of the
  cycle will be less extreme (J.P. Morgan
  Securities)