What’s Next in Steel ?: What’s Next in Steel ? Peter Warrian University of Toronto


Steel Industry 2004: Steel Industry 2004 Best of Times ? Worst of Times ?


It’s Pretty Punchy Out There !: It’s Pretty Punchy Out There ! The world steel market’s gone mad… I’ve never seen anything like this. Peter Fish, MEPS Steel prices on the world market in the future may be even more volatile than in the past, with price peaks higher and price troughs not as deep as in the past, Peter Markus, World Steel Dynamics


Price Volatility: Price Volatility


Punch Line: Punch Line There will be an unprecedented level of volatility in steel markets for the next five years. It has the potential to destabilize important sections of North American manufacturing


Steel Market Gone Wild: Steel Market Gone Wild Base prices plus surcharges CR $390 12/03; $460 2/04; $600 4/04 ? China: Demand, Scrap Other Factors Greed: Mills – our turn ! US $ Decline: Who wants to supply USA? 30:30 2.01 Duties Unanticipated Consequences: Hello OEM Auction: Supply Chain Hoarding


Steel Production Forecast: Steel Production Forecast Source: MEPS World Steel Outlook, Q4 2003


Financial Results for Steel Producers: Financial Results for Steel Producers Source: Locker Associates, Steel Industry Update 176, June 2003


Financial Results for Steel Producers: Financial Results for Steel Producers Source: Locker Associates, Steel Industry Update 176, June 2003


Financial Results for Steel Producers: Financial Results for Steel Producers Source: Locker Associates, Steel Industry Update 176, June 2003


Price Trends in Raw Materials: Price Trends in Raw Materials Source: Locker Associates, Steel Industry Update 182, December 2003


Three Steel Stories: Three Steel Stories


Integrateds: Integrateds Consolidation of Transnational Steel Innovation Gap


Minimills: Minimills The Big Squeeze: Scrap, Energy Prices Capital Restructuring


Service Centres & Supply Chains: Service Centres & Supply Chains Supply Chain Surges Intermediation Plus


Ten Questions About the Future: Ten Questions About the Future


1998 The Tipping Point: 1998 The Tipping Point The 1998 Asia-Russian financial crisis was a Tipping Point for the global steel industry. Will the fault line of the hot ends implode the ‘re-constituted’ mills?


Flat Rolled Prices 1989-2003: Flat Rolled Prices 1989-2003 Source: Locker Associates, Steel Industry Update 183, Jan 2004


World’s Largest Steel Companies: World’s Largest Steel Companies Source: IISI, Annual Report 2003


Critical Factors in the Implosion: Critical Factors in the Implosion Crisis of spot market for flat-rolled and import surge leading to Trade Cases Blowing away of Reconstituted Mills with old Hot Ends Rise of China to set global spot prices and demand for inputs (ore, scrap, freight)


How Does the Industry Innovate?: How Does the Industry Innovate? Innovation in North American steel is driven by the auto industry. How can the steel industry innovate for the future?


Two Poles of Innovation: Two Poles of Innovation Nippon Steel (Stelco) Arcelor (Dofasco)


Networks of Innovation: Networks of Innovation Ultra Light Steel Auto Body (ULSAB) Auto- Steel Partnership (ASP)


The Dofasco Advantage: The Dofasco Advantage Dofasco has become the most profitable steel company in North America. How does it do this with such low levels of R &D spending?


Dofasco Secrets to Success: Dofasco Secrets to Success The Sweet Spot of Auto Vision: “Solutions in Steel” Leadership Technology Alliances Learning Culture


Dofasco and Technology: Dofasco and Technology Technology Same 50 Engineers Alliances and Licensing ‘Absorptive’ Capacities of the Firm Generic knowledge networks Implementation Tacit Knowledge: Working in Steel


Steel Trade Wars: Steel Trade Wars Steel trade wars and protectionism dominated the industry from the 1970s to the 1980s, but the WTO has ruled out traditional US trade protectionism. What happens now that the ‘stealth protectionism’ of bankruptcy procedures (USA) and the low dollar (Canada) have been removed?


Steel Trade Wars: Steel Trade Wars 70s-80s Steel Protectionism NAFTA steel but no Secure Access Disinvestment: Dofasco, Co-Steel, Ipsco, Ivaco 2001 NAFTA Joint Cases Safeguard: No – Canada; Yes – USA, EU, Japan 2003 WTO Ruling


Stealth Protectionism: Stealth Protectionism USA: Chapter 11 Steel Companies Canada: Medicare $7.95 Advantage 2004 Non-renewal of 2.01 protection Canadian dollar surge


No Industry is an Island: Steel-Auto Supply Chains: No Industry is an Island: Steel-Auto Supply Chains Steel is no longer an industrial island to itself, it is a strategic part of the materials sector of the new economy. How are steel supply chains to the auto industry functioning?


Ontario Steel: Ontario Steel Steel-Auto Interdependence Changing Interface Auto Supply Chain


Traditional Steel-Auto Link: Traditional Steel-Auto Link Big 3 Steel Stelco Dofasco Algoma Big 3 Auto GM Ford Chrysler


Steel-Auto Parts: New Links : Steel-Auto Parts: New Links Traditional linkage: Subsidiary parts Divisions of Auto companies 75% internal, 25% outsourced, now reversed Central purchasing of Steel GM-US Steel yearly contracts New parts company players: Magna, Ventra


Steel 2002: New steel, old players: Steel 2002: New steel, old players New steel 60% new steel for autos in 5 years New materials science: Research Chairs USLAB project Investment: Foreign partners: France, Mexico, Brazil Steel auto divisions: Dofasco, Algoma Dofasco goes laser: Boundaries between steel and manufacturing


Steel 2002: New steel, new players: Steel 2002: New steel, new players Steel players Minimills: Ipsco Service Centres: Russell, Samuels, Venture Steel Independent parts companies Value added processing Contract manufacturing


Traditional Steel Processing Line: Traditional Steel Processing Line


Value-Added Steel Processing Line: Value-Added Steel Processing Line


Steel Contract Manufacturing: Steel Contract Manufacturing


Inventory Management: Inventory Management


Shipping and Logistics: Shipping and Logistics Functional Overview


Shipping and Logistics: Shipping and Logistics Functional Overview


Protectionism by Stealth Ended: Protectionism by Stealth Ended The low dollar and socialized medicare gave Canadian manufacturing a 20-30% cost advantage. How do labour and management make up the gap?


Steel Wagnerism: Steel Wagnerism The Wagner Postwar Model Adversarialism Work Rules USWA US industry Contract Stelco Contract


USWA – ISG Deal: USWA – ISG Deal Wagnerism Rating 1 Contract Provisions Six year term Job Classes 32 to 5 Contracting Out Profit sharing Training Investment Plan


Stelco: Right Deal in Wrong Place ?: Stelco: Right Deal in Wrong Place ? LEW & Local USWA 8782 Wagnerism rating 5 Hilton Works & USWA Local 1005 Wagnerism rating 9 Algoma & USWA Local 2251 Wagnerism rating 3


Labour Management Bargaining: New Deals ?: Labour Management Bargaining: New Deals ? Steel industry wages and benefits are among the highest in the economy. What does the steel case tell us about how difficult is it to maintain high wage jobs in a gobalized economy?


Iterations of New Deals: Iterations of New Deals 1980s Legacy Costs for Governance 1990s Work teams, multi-skilling 2003 ISG: Complete Overhaul Offloading Legacy Costs


What Do You Do When You’ve Given Everything on the Table?: What Do You Do When You’ve Given Everything on the Table? ISG: the last deal Drastic moves towards the High Performance Goal Make the deal with Minimill Management Industry Restructuring Overwhelm Best Efforts Who do you Negotiate With: ‘Industry’ ?


Labour-Management Bargaining: Pensions: Labour-Management Bargaining: Pensions Pension costs at Stelco are cited as the major financial burden for the company’s survival. Did pension bargaining in the last decade become a lazy man’s option in union-management bargaining? PBGF and Moral Hazard


Stelco Pension Bargaining: Stelco Pension Bargaining A Tale of Two Pensions 2000 LEW & Local 8782 $42 to $58 2002 Hilton & Local 1005 Me too: $58 Same Deal: Different demographic & economics


Pension Bargaining & Moral Hazard: Pension Bargaining & Moral Hazard Temptation of Pension Bargaining Tradeoff for Wage Increases Postpones costs & cash impact Danger Pensions carry whole weight of adjustment PBGF: A moral hazard for management


Steel Infrastructure and the Next Wave of Auto Investment : Steel Infrastructure and the Next Wave of Auto Investment The vital synergies between the auto and steel industries are clear to all policy makers. How does Ontario’s steel infrastructure stack up in the competition for the next wave of auto industry investment?


Hamilton, ON: Markets Served by Plant: Hamilton, ON: Markets Served by Plant Numbers represent plant capacities.


Alabama/Georgia: Markets Served by Plant: Alabama/Georgia: Markets Served by Plant Numbers represent plant capacities.


Key Comparisons: Key Comparisons


Future Outlook: Five Year Scenario: Future Outlook: Five Year Scenario


Summary: Summary Integrateds Consolidation of Transnational Steel Innovation Gap Minimills The Big Squeeze: Scrap, Energy Prices Capital Restructuring Service Centres & Supply Chains Value Added Processors Intermediation Plus