The price of steel, the present and future of the energy industry, and the U.S. presidential election were among several key topics addressed during the American Boiler Manufacturers Association's (ABMA's) Summer Meeting June 20-23 in San Diego.
During a round-table discussion, Tom Danjczek, president of the Steel Manufacturers Association, updated ABMA members on the state of the steel industry. He said the steel and boiler industries are being impacted by similar global and domestic issues. Chief among them are the weak dollar, volatile energy and transportation costs, and the unknown impact of rising raw-materials costs. Competing against a booming and heavily subsidized Chinese steel industry is perhaps the toughest challenge facing U.S. steel makers, he said.
In 1970, the United States supplied about 20 percent of the world's steel, an amount that has dropped to about 10 percent today, Danjczek said. In comparison, China has increased its production of steel from about 70 million metric tons during the 1970s to about 500 million metric tons today. In finished goods containing steel, China's exports are expanding by approximately 30 percent annually.
The massive growth of the steel industry in China is no accident, Danjczek said. It reached its position of dominance through a combination of government subsidies, which totaled more than $50 billion from 2002 to 2007; mandates; and planned intervention.
State-owned enterprises account for 91 percent of China's largest steel groups, and Chinese steel makers regularly obtain preferential loans from state-owned banks. The industry also gets support from local and provincial governments, which are not controlled by the central government, Danjczek said.
“When we refer to them, we need to call it communist China,” Danjczek said. “It is still a communist state. No one else in the world does what they do for industry.”
Despite the disadvantages it faces in competing with China, the U.S. steel industry has developed into a profitable, efficient business by becoming the largest scrap recyclers in the world, Danjczek said.
“The U.S. has become one of the world's low-cost steel producers due to metallics availability, transportation, labor and energy efficiencies, and high utilization,” Danjczek said.
Electric-arc-furnace (EAF) steel accounted for 60 percent of U.S. production in 2007, with ore-based steel accounting for the other 40 percent. The growth of EAF-steel making has allowed the steel industry to reduce energy use by more than half, as well as reduce greenhouse-gas emissions.
The steel industry is far leaner and more consolidated than it was during the 1970s, Danjczek said. Then, steel production ranged from 100 million to 140 million tons annually, compared with about 100 million tons today, he said. The industry employed some 700,000 workers during the 1970s, compared with fewer than 120,000 today.
The near-term future of the U.S. steel industry is especially difficult to predict because of a convergence of situations here and overseas, Danjczek said. The domestic steel industry must deal with a weak economy, volatile prices of raw materials, and a massive trade deficit. Nearly one-third of the United States' $800 billion trade deficit is with China, he said.
U.S. steel production is projected to be down about 2 percent this year, compared with 2007, Danjczek said. Factors driving the drop are a decline in automobile production, a major decline in residential construction, and a slight decline in non-residential construction. He said he expects an increase in production in 2009.
In his address, titled “Energy Politics and Energy Interdependence,” columnist, analyst, and author Robert Bryce debunked some of the fears driving concern over the future of energy in the United States.
Bryce called the notion that the United States needs to become energy-independent “hogwash.”
“Any pundit who says we should be energy-independent should be laughed out of the room,” Bryce said. “We will not be energy-independent. We should not try to be energy-independent. We live in an interdependent world.”
Key factors causing anxiety over energy in the United States are terrorism, the Iraq war, and global warming, Bryce said. He disputed the belief that terrorism is a driver of the energy industry and that if the United States stops supporting Middle East countries, it can stop terrorism.
Just because “we stop buying oil from the petro states doesn't mean other countries will, too,” Bryce said.
The events of Sept. 11, 2001, cost the terrorists $500,000 to execute, an amount Bryce described as “chump change.”
“Terrorism is not funded only by petro dollars,” Bryce said. “Numerous terrorist events and groups have no connection to petro dollars.”
The use of alternative and renewable energy sources is limited for now, Bryce said. Solar power is expensive and has a long payback period, wind is “incurably intermittent,” and ethanol is the “essence of fiscal insanity,” Bryce said.
“If all the corn in the U.S. was converted to oil, it would provide 6 percent of the country's oil needs,” Bryce said.
Despite all of this, Bryce insisted there are reasons to be upbeat about the future of energy in the United States. While coal was the energy of choice during the 19th century, and oil was the energy of choice during the 20th century, natural gas, nuclear power, and renewable energy are the energies of the future.
“It takes work to be optimistic,” Bryce said. “It's easy to be pessimistic. We need to accept the reality of energy interdependence. The world is an interdependent organism.”
Attorney and pundit Fredy Lyon shared his view of the upcoming presidential election and factors that could impact the outcome.
“We can't tell what will happen based on conventional wisdom,” Lyon said. “Conventional wisdom has proven consistently wrong.”
Among the unexpected outcomes of the primaries were Fred Thompson's lackluster campaign, Hillary Clinton's failure to capture more of the black vote, and the surprisingly strong interest in the election demonstrated by young people.
Lyon said presumptive Democratic presidential nominee Sen. Barack Obama has capitalized on the technology of the Internet to raise record amounts of campaign funds from the broadest base in history. With his own brand of eloquent cool, Obama will bring young and newly energized minorities into the election, Lyon predicted. But how that translates on election day against presumed Republican presidential nominee Sen. John McCain is anybody's guess, Lyon said.
The 75 million “millennials” born between 1977 and 1997 are hungry for change, Lyon said. However, surveys show that as many as 30 percent of voters admit to being racist, Lyon added.