The Long Products Supply Chain Symposium held in Milwaukee, Wisconsin May 10-11 was conveniently sandwiched between the American Wire Producers Association (AWPA) annual meeting and the Wire Association International (WAI) Wire Expo. The result was a wide range of wire-related professionals getting the chance to meet and mingle, and share strategies about how to benefit from the nascent economic recovery.
Accordingly, the symposium featured several presentations on the economic outlook (generally speaking and for steel specifically), the future of manufacturing, and forecasts for the raw material and end-use markets.
Jay Timmons, Executive VP of the National Association of Manufacturers, kicked off Monday's program with a keynote speech emphasizing that the US has not lost the will to compete, but government policies are neglecting manufacturing and opportunities to bring foreign business into the US. In order to improve the US's competitiveness, he suggested that the US reduce the corporate tax rate, reinstitute the tax credit, modernize the tax system and invest in manufacturing. The combined success of those steps would lead to 11 million new jobs, according to Mr. Timmons.
A panel of economic policy experts followed, starting with a presentation by Charles Blum, Director of the Coalition for a Prosperous America and the Fair Currency Coalition. He outlined the major ways in which the US economy is failing (no long term plan and tremendous debt for starters), and offered a detailed outline of how to improve. Mr. Blum's proposed measures focused on saving more, investing more, producing more and exporting more. Additionally, he urged the attendees to not become "slacktivists", those who sign a petition and think they've made a difference. The only way to accomplish anything positive for the country, according to him, is to actually join a coalition, contact representatives, or do something else that requires time, attention, and constant vigilance.
Kurt Fowler, Managing Director of SteelFacts, offered a primer on statistics and urged the attendees to question where they get their market information and how they confirm it. Market information that everyone in the steel industry should watch for includes not only pricing trends, but industry association information, government information and raw material information. Mr. Fowler presented several slides of charts, graphs and other data, and pointed out trends and patterns that the average viewer might miss. In conclusion, he stated that consistent market data added with appropriate tools for data analysis and the ability to synthesize non-data imputs with market information equals informed decision making.
Injecting a healthy dose of controversy into the presentations was David Phelps, President of the American Institute for International Steel (AIIS). He started off with a widely agreed-upon opinion on the "cap and trade" legislation, stating that the bill would decrease the competitiveness of American manufacturers. But when he shifted to the reasoning behind the decline in manufacturing jobs over the years (which have been typically attributed to the US trade deficit with China), he caused a bit of a stir in the room. Mr. Phelps estimated that 30-35 years ago, it took over half a million workers to produce the same amount of steel that can be made by 100,000 workers today. "Productivity, not trade," declared Mr. Phelps, "is the driving force behind the reduction in manufacturing jobs in the US." He additionally stoked the fires in the debate about China's alleged currency manipulation, stating that passing punitive legislation against China would incite retaliation that would not be worth the "feel good moment" of condemning their policies. This opinion was in stark contrast to virtually every other speaker, who passionately outlined China's self-centered schemes and rule-breaking shenanigans.
Tom Danjczek, President of the Steel Manufacturers Association (SMA), took a moment to lambast Mr. Phelps' assertions before he started his own speech, which focused on energy issues. Mr. Danjczek said that his association represents the Electric Arc Furnace (EAF) industry, which is hoping to change the common perception of a steel mill as a "super polluter". Even though EAF steelmaking in the US has the lowest energy-per-ton costs in the world, the steel industry is still lumped in with other polluting industries when it comes to climate legislation. Mr. Danjczek proposed that the US adopt reasonable regulatory measures for the environment while still pushing a pro-manufacturing agenda. He concluded the day's presentations with a summary of the overall feeling throughout the symposium: times are still challenging, but there are "still reasons for meaningful long-term optimism."
After plenty of networking opportunities during the conference-sponsored cocktail reception and dinner and breakfast meetings arranged individually, attendees gathered for the second day of symposium presentations, starting off with keynote speaker John J. Ferriola, Chief Operating Officer of Nucor.
Mr. Ferriola's lively John Wayne-themed presentation was entitled "Saddle Up"-a call for the steel industry to dust off the effects of the economic downturn and prepare to succeed in the recovery. Nucor, he assured the audience, is "aggressively and fearlessly planning ahead", even though it's hard to think about building during hard times. He predicted the recovery to be long and slow, and the economy will shift from debt-driven toward savings-driven. In order to make the most out of the recovery, Mr. Ferriola echoed some of the previous day's speakers, arguing for energy independence, the restoration of US manufacturing, and upgrading the nation's infrastructure. "Great challenges produce great opportunities," he stated confidently; his positive attitude was a perfect start of the day.
Another panel of economists took the stage, starting with Clare Zempel, CFA and Principal of Zempel Strategic. He warned against the apparent "depression fear hangover" lingering in the economy, and assured the attendees that not only is the recovery real and dependable, it will not follow a "W" shape as many others predict. He backed up his assertion through several charts and graphs, and even offered insights into puzzling situations, such as the recent rise in the unemployment rate despite more job growth: apparently, people became more optimistic and started looking for jobs (and unemployment benefits are only paid to those who are actively searching).
Next up was Edwin Basson, Vice President of Commercial Coordination for ArcelorMittal. He established through the use of visual aids that leading indicators point to world recovery, especially strong in emerging markets such as South Korea, India and Brazil. He agreed with Mr. Zempel that there would not be a "double-dip" recession, because steel end-use demand is showing promising growth.
Well-known analyst Michelle Applebaum took the podium next, offering a general overview of the current steel market. Along with many others throughout the symposium, she discussed China's frustrating role in the US economy. In an attempt to reign in China's alleged noncompliance with World Trade Organization (WTO) agreements, Ms. Applebaum introduced the efforts of eight global steel trade associations from three continents that submitted comments to the Chinese Steel Authority. The comments included the request that the Chinese steel industry be governed by market principles; the claim that Chinese steel mercantilist interventions are distorting global trade flows; the allegation that subsidies are creating artificial competitiveness; and the belief that raw material export control creates artificial cost structure.
After a conference lunch, attendees returned to the ballroom to hear presentations on specific end-use and raw material sectors.
Kenneth Simonson, Chief Economist for the Associated General Contractors of America, described the influence of construction on the recovery. He said that the GDP and personal incomes are improving, but there are still rising vacancies in office, retail and hotel buildings. Banks are still reluctant to lend, and state and municipal budgets are still dealing with significant shortfalls. The one bright spot is stimulus funds, which are helping to improve the demand for steel products. Overall, he predicted that total construction spending in 2010 will be anywhere from a decrease of four percent to an increase of 2 percent compared to 2009.
Offering a perspective on the automotive industry was General Motors' Chief Economist, G. Mustafa Mohatarem. His presentation, entitled "A Light at the End of the Tunnel" intended to inspire hope in the attendees, especially apparent in his confidence that the economic recovery will follow the Zarnowitz Rule: Steep recessions are usually followed by steep recoveries. He predicted that the automotive sector will lead the recovery, due to pent-up demand, quality products and an improving job outlook, and economic indicators already show support of this belief. However, Mr. Mohatarem expects the Midwest to recover faster than any other area of the US.
A brief intermission was followed by a panel of steelmakers who would hopefully shed some light on where the "supply rollercoaster" is headed. James Kerkvliet, Vice President of Commercial Sales at Gerdau Ameristeel, was happy to report that wire rod has recovered faster than any other steel product in 2010, which will help bolster the steel industry's projected 13 percent increase in demand this year. Mr. Kerkvliet pointed out that US steel products "are poised to become more attractive on the global market in the wake of the sharp rise in traded iron ore" because the US is the only steel-producing country that is a net exporter of the primary ingredients of steel: iron ore, coking coal and scrap. However, he advised the attendees to play close attention to certain developments in China, such as rising consumer price inflation, tightening credit standards, and the Chinese government's belief that the economy is overheating. "Wire rod is vulnerable to these trends," Mr. Kerkvliet warned.
Speaking specifically for the wire industry, H.O. Woltz III, Chairman and CEO of Insteel Industries, Inc., declared that it is "operating in an environment of perfect paradox", meaning that despite price volatility and impaired demand, "customers, shareholders, employees and capital markets expect our business models to trend toward less risk and more stability." While many wire companies (both independent from and integrated with wire rod producers) have survived the recession and are beginning to thrive again, the success of the industry depends on world-class competitiveness at each stage of the supply chain, and the US needs to address "trade distorting" practices by foreign governments that are negatively affecting the domestic market.
Matthew Brace, Executive Vice President of Sales and Marketing for CMC Americas took the podium, and first introduced his company as a unique, vertically integrated business that is involved with the whole long products supply chain from scrap yards to mini mills to fabricators to trading branches. Mr. Brace took the attendees through his predictions for the future of the market, which included: residential construction increasing slowly, compared to a 12-month lag in commercial construction; non-building construction increasing in late 2010 with the aid of stimulus funds; increase in rebar demand during the second half of 2010; merchant bar demand declining or flattening through the rest of the year, followed by upticks in 2011; and a decline in structural demand this year with an increase next year.
As the symposium presentations neared the finish line, Jack Lynch, Sales Manager of Charter Steel, zipped through his speech lest the audience-thirsty for the imminent open bar-get too antsy in their seats. As with other panelists, he offered an overview of the market and explained how his company, which hosted a tour of the plant to attendees earlier in the afternoon, was primed to succeed in the recovery. He also gave an in-depth look at long product offerings, illustrating the many grades and applications of each.
The final cocktail reception of the conference seemed fuller and livelier than the previous two, as it offered one last chance for old friends and colleagues to reconnect and new, lasting business relationships to be forged. While many attendees stayed in Milwaukee for the Wire Expo that ran through the end of the week, many others had to get back to business, hopefully with a better understanding of their industry and greater confidence that it is coming out of the economic slump stronger than it ever was before.